The prospects for long-term sustainability depend on whether, and how much, we can absolutely decouple economic output from total energy and material throughput. While relative decoupling has occurred – that is, resource use has grown less quickly than the economy – absolute decoupling has not, raising the question whether it is possible. This paper proposes a two-part explanation for why decoupling has not happened historically. First, drawing on theories of cost-share induced productivity change, it assumes that innovation which save on inputs to the production of goods and services is biased toward inputs with a higher cost share. Second, following post-Keynesian pricing theory, it posits that resources, but not goods or labor, are priced in competitive markets. These assumptions set up two halves of a dynamic, which we explore from a post-Keynesian perspective. In this dynamic, resource costs as a share of GDP move towards a stable level, at which the growth rate of resource productivity is typically less than the growth rate of GDP. The paper then discusses conditions under which absolute decoupling might occur in the context of current climate mitigation policy debates.
Keywords: decoupling, dematerialization, cost-share induced technological change
JEL classification: E12: General Aggregative Models: Keynes; Keynesian; Post-Keynesian O31: Innovation and Invention: Processes and Incentives O33: Technological Change: Choices and Consequences; Diffusion Processes Q32: Exhaustible Resources and Economic Development
Download: Working Paper PKWP1709