Dematerialization, decoupling, and productivity Change

By Eric Kemp-Benedict

PKES Working Paper 1709

August 2017, revised May 2018

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 novel explanation for why decoupling has not happened historically, drawing on a recent theory of cost-share induced productivity change and an extension of post-Keynesian pricing theory to natural resources. Cost-share induced productivity change and pricing behavior 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. This provides a parsimonious explanation of the prevalence of relative over absolute decoupling. The paper then presents some illustrative applications of the theory.

Keywords: decoupling, dematerialization, cost-share induced technological change

JEL classification: E12 O31 O33 Q32