70th CARF Seminar: Energy Substitution and Biased Technical Change in Japan

※This event is open only to University of Tokyo students, faculty and staff.

Date and Time

Monday, November 17th, 2025 17:00 – 18:00
※Language: English

Venue

【Onsite Meeting Only】
Lecture room E, 12F of International Academic Research Building (Hongo Campus)
https://www.e.u-tokyo.ac.jp/fservice/address/akamon-e.html

Speaker

Julian Salg
Goethe-University Frankfurt

Julian Salg recently defended his doctoral thesis at Goethe University Frankfurt, Germany, titled Energy Substitution, Biased Technical Change and the Economy-Rebound Effect. He holds both a master’s and a bachelor’s degree in economics. His research has taken him to Paris, Copenhagen, and Tokyo. Julian is also a Research Fellow at the Instituto Superior Técnico, University of Lisbon, where he and his co-authors conduct interdisciplinary research at the intersection of economic growth theory and environmental engineering. In his current position, Julian serves as Coordinator of the transdisciplinary Competence and Transfer Center for　Sustainable Finance and Regulation at the House of Finance in Frankfurt, with a focus on biodiversity and nature-related risks.

The study estimates an energy-augmented Constant Elasticity of Substitution (CES) production function using the so-called “System of Simultaneous Equations Approach” to analyze how Japan’s high energy demand and scarce domestic resources have shaped its aggregate supply-side conditions from 1978 to 2019. Results show low energy substitution elasticity (~0.3) and a decelerating trend in energy-saving technical progress. Additionally, 39% of efficiency-induced energy savings are offset by the economy-wide rebound effect – a feedback mechanism that is underexplored in the Japanese context. These findings hold across a battery of robustness checks, including　controlling for endogeneity via instrumented variables, excluding residential energy consumption, and testing different nesting structures of the objective production function. By extending the model and allowing for smooth regime switches in the technical progress functions, the study reveals a strong uptick in energy-saving technical progress post-Fukushima. However, under this more flexible model, rebound effects even rise to ~50%,　undermining half of Japan’s energy efficiency gains. The economy-wide rebound effect remains a threat to Japan’s energy-growth-decoupling, leaving it vulnerable to fluctuations in the global energy market in the long term. The study recommends that policies promoting energy-efficient innovations should be directed at green technologies (fuel switching) or be paired with measures that mitigate the unintended energy feedback mechanism, such as a carbon tax or energy budgets.