Rebound, directed technological change, and aggregate demand for energy

We analyse the long-run role of energy in aggregate production. The factor share of energy has been remarkably constant, despite the relative decline in the price of energy. We analyse possible explanations for this observation, ruling out the idea that endogenous directed technological change has led to a failure of energy-augmenting technology to keep pace with labour-augmenting technology. Instead we propose a model in which a combination of income and substitution effects has driven both shifts in consumption patterns towards existing energy-intensive goods and the emergence of new such goods.