Post on 18-Nov-2014
description
The Economic Growth Engine
Lund 29th October 2009
Dr Benjamin Warr
INSEAD Social Innovation Centre
The problem
How to avoid an economic collapse while simultaneously cutting carbon-
emissions?
Summary• Access to energy is essential for prosperity
• Understanding the role of efficiency for growth is critical
• Some problems with neoclassical growth theory
• Overview of resource exergy utilisation analysis
• An example of modelling economic growth with useful work as a factor of production
• Forecasts using the Resource Exergy Services (REXS) model
Energy, Exergy and Useful Work
• Energy is conserved, except in nuclear reactions. This is the First Law of thermodynamics.
• But the output energy is always less available to do useful work than the input. This is the Second Law of thermodynamics, sometimes called the entropy law.
• Energy available to do useful work is exergy.• Capital is inert. It must be activated. Most economists
regard labour as the activating agent. • Labour (by humans and/or animals) was once the only
source of useful work in the economy. • But machines (and computers) require another activating
agent, namely exergy.• The economy converts exergy into useful work
Tracking energy use and emissions by task
Sources: WRI, CAIT, IPCC – data for 2000
Exergy input share by source, (UK 1900-2000)
0%
20%
40%
60%
80%
100%
1900 1920 1940 1960 1980 2000
year
Biomass
Renewables andNuclear
Gas
Oil
Coal
Resource Substitution
From Coal, to Oil, Gas then Renewables and Nuclear
Exergy to Useful Work, via efficiency
3
���� USEFUL WORK
WASTE EXERGY(OFTEN LOW QUALITY HEAT OR POLLUTION)
1EXERGY INPUT
2x EFFICIENCY
THIS FRACTION IS NOT PRODUCTIVE
EXCLUDE IT FROM PRODUCTION FUNCTION
Exergy conversion efficiencies (US 1900-2005)
0%
5%
10%
15%
20%
25%
30%
35%
40%
200519851965194519251905
Year
Effi
cien
cy (
%)
Electricity Generation
High Temperature Heat
Mid Temperature Heat
Mechanical Work
Low Temperature Heat
Muscle Work
Useful work by type (US 1900-2005)
0%
20%
40%
60%
80%
100%
200519851965194519251905
year
shar
e (%
)
Muscle WorkNon-Fuel
Mechanical Work
Electricity
High Temperature Heat
Low Temperature Heat
Economy
• Since the first industrial revolution, human and animal labour have been increasingly replaced by machines powered by the combustion of fossil fuels.
• Technological progress in mechanisation increases the work output per unit exergy consumed.
• MORE WORK FOR THE SAME EFFORT• This strongly suggests that useful work should be factor of production, along with conventional capital and labour.
Economy-wide exergy to useful work conversion efficiency
0%
5%
10%
15%
20%
25%
200519851965194519251905
year
effi
cien
cy (
%)
US
Japan
UK
High Population Density Industrialised Socio-ecological regime
Resource limited
Low Population Density Industrialised New World Socio-ecological regime
Resource abundant
Evidence of stagnation –Pollution controls, Technological barriersAgeing capital stockWealth effects
Exergy Intensity of GDP Indicator
0
10
20
30
40
50
60
200519851965194519251905
year
EJ
/ tri
llio
n $
US
PP
P
US
UK
Japan
•Distinct grouping of countries by level, but similar trajectory
•Evidence of convergence in latter half of century
•Slowing decline
Useful work Intensity of GDP Indicator
0
0,5
1
1,5
2
2,5
3
3,5
200519851965194519251905
year
EJ
/ tri
llio
n $
US
PP
P
US
UK
Japan 1970 to 1973 structural change stimulated by price spike, but with continuing effect, despite subsequent price decline.
CO2 intensity of useful workCO2/useful work [tC/TJ]
0
100
200
300
400
5001
900
19
15
19
30
19
45
19
60
19
75
19
90
20
05
USA Japan
UK Austria
Problems with growth theory
• No link to the physical economy, only capital and labour are productive.
• Energy, materials and wastes are ignored.
• Unable to explain historic growth rates.
• Exogenous unexplained technological progress is assumed, hence growth will continue.
• Endogenous growth theory based on ‘Human knowledge capital’ is unquantifiable – there are no metrics.
exponents at factor cost (US 1900-2005)
0
5
10
15
20
25
30
35
1900 1920 1940 1960 1980 2000
year
GD
P in
dex
(19
00 =
1)
empirical estimate
78% of observed growth is unexplained
Multiplier effect or technological progress accounts for 1.5% per annum, in 2005 technology has a multiplier effect of 4.8
Solow “technological development will be the motor for economic growth in the long run”.
BUT IT IS UNDEFINED AND UNMEASURABLE The Solow Residual
Neo-classical estimates of GDP
Exergy-Efficiency-GDP Feedbacks
GDP growth
Exergy Demand and Production
Efficiency Improvements
Useful Work Consumption
Learning-by-doing
Exergy Intensityof GDP
Capital accumulation
Ayres-Warr Estimates of GDP
0
10
20
30
40
50
60
1900 1920 1940 1960 1980 2000
year
GD
P (
1900
=1)
empiricalestimate
Japan
0
5
10
15
20
25
30
35
1900 1920 1940 1960 1980 2000
year
GD
P (
1900
=1)
empiricalestimate
USA
What effect policies to reduce energy intensity of GDP?
0
5
10
15
20
25
30
2000199019801970196019501940193019201910
year
inde
x
r/gdp
e/gdp
Historical rate of decline in exergy intensity of GDP is 1.2% per annum
0
20
40
60
80
100
120
1950 1975 2000 2025 2050
year
GD
P (
1900
=1)
1.2% per annum1.3% per annum1.4% per annum1.5% per annumempirical
What effect policies to reduce energy intensity of GDP?
For Business-as-Usual, (1.2% decay rate) – by 2025 GDP doubles and exergy inputs increase by half over 2008.With a 1.4% decay rate output doubles ~10 years later, but for much reduced total energy use.
Coal, technical efficiency experience curve, US 1900-2000
0
0,05
0,1
0,15
0,2
0,25
0,3
0,35
0,4
0 500 1000 1500 2000
cumulative primary exergy production (eJ)
tech
nic
al e
ffic
ien
cy (
%)
empirical
logistic
bi-logistic
Petroleum technical efficiency experience curve, US 1900-2000
0
0,02
0,04
0,06
0,08
0,1
0,12
0,14
0,16
0,18
0 500 1000 1500 2000
cumulative primary exergy production (eJ)
tech
nic
al e
ffic
ien
cy (
%)
logistic
bi-logistic
empirical
Gas technical efficiency experience curve, US 1900-2000
0
0,02
0,04
0,06
0,08
0,1
0,12
0,14
0,16
0,18
0,2
0 200 400 600 800 1000 1200
cumulative primary exergy production (eJ)
tech
nic
al e
ffic
ien
cy (
%)
logistic
bi-logistic
empirical
0
0,02
0,04
0,06
0,08
0,1
0,12
0,14
0,16
0,18
0 100 200 300
cumulative primary exergy production (eJ)
tech
nica
l eff
icie
ncy
(%)
Aggregate technical efficiency experience curve, US 1900-2000
0
0,02
0,04
0,06
0,08
0,1
0,12
0,14
0,16
0,18
0 1000 2000 3000 4000 5000 6000 7000 8000
cumulative primary exergy production (eJ)
tech
nic
al e
ffic
ien
cy (
%)
empirical
logistic
bi-logistic
Efficiency ScenariosPossible trajectories for conversion efficiency
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
1950 1975 2000 2025 2050
year
tech
nic
al e
ffic
ien
cy (
f)
lowmidhighempirical
Efficiency growth
Low 0.4% p.a.
Mid 0.72% p.a.
High 1.2% p.a.
Resulting trajectories for GDP
0
10
20
30
40
50
60
70
1950 1975 2000 2025 2050
year
GD
P (
1900
=1)
lowmidhighempirical
For efficiency growth smaller than 1% p.a. we observe a future decline in GDP, where the historical rate is ~1.1% p.a.
Efficiency growth GDP growth (2030)
Low 0.4% per annum -2.0%
High 1.2% per annum 2.2%
Summary
•Neoclassical growth theory does not explain growth
•If useful work as a factor of production past growth can be explained well.
•Economic growth need not be a constant percentage of GDP. It can be negative.
•Future sustainable growth in the face of peak oil depends on accelerating energy (exergy) efficiency gains.
•Future efficiency gains may be inexpensive if existing double dividend possibilities are exploited
• But strong evidence of stagnation
US mid-range abatement curve 2030
Source: McKinsey & Co.