Testing for Barriers to Energy Conservation-an Application of a Vintage Model *

In this paper we use a sophisticated vintage model of the production structure of the U.K. manufacturing sector to analyze the pattern of energy conservation over the period 1971-1987 and to test whether there is evidence of significant market imperfections which could act as barriers to energy conservation. A major finding is that half the improvement in energy efficiency would have occurred anyway simply through the process of replacing some of the out-of-date capital present in 1971. The change in relative prices (especially energy prices and wages) was the leading cause of the remaining improvement up to 1980; thereafter technical progress became increasingly important and was the sole factor contributing to the improvement in energy efficiency after 1985. We are unable to find evidence of significant barriers to energy conservation in the U.K. manufacturing sector, though we point out the rather limited nature of the tests which we have been able to conduct.