SUSTAINABILITY, ENERGY, AND
ECONOMIC GROWTH
R. U. Ayres, MAY 26, 2009
•
•
•
•
•
Part 1. Sustainability and Climate Change
Part 2. Energy, Peak Oil
Part 3. Exergy and Useful Work
Part 4. Economic Growth Theories
Part 5. The Neo-Liberal Solution
Part 1: Long Run Sustainability
•
Long run sustainability has several dimensions, of
which climate change, sea level rise and loss of natural
capital, including biodiversity, are major elements.
• Climate change and sea-level rise are especially driven
by the build-up of so-called greenhouse gases (GHGs)
in the atmosphere
• The major GHGs are carbon dioxide and methane.
Both are strongly related to fossil fuel consumption
• This lecture cannot adequately survey the subject
0.6
Global Temperatures
Temperature Anomaly ( C)
0.4
o
0.2
Annual Average
Five Year Average
0
-0.2
-0.4
-0.6
1860 1880 1900 1920 1940 1960 1980 2000
Source: Wikipedia "Instrumental Temperature Record"
Historical and projected global sea level rise: 1900-2100
Meters
5
0
4
0
3
0
2
0
1
0
0
1900
2000
1950
Glacier & ice caps
Thermal expansion
Source: AQUA, GLOBO Report Series 6, RIVM
2050
210
0
Water loss on land
Part 2: Energy and Peak Oil
• “Energy” is not the core problem; carbon is.
Climate change is mainly due carbon dioxide
build-up in the atmosphere and secondarily due
to methane releases from agriculture (grazing
animals), gas distribution and coal mining.
There is a major “feedback” threat from thawing
of perma-frost, due to warming itself. However
we focus here on the near-term problem of oil
and gas supply.
Source: Bezdek, 2008
Source: Bezdek, 2008
Global oil discoveries minus global oil consumption 1965-2003
50
40
Gigabarrels annually
30
20
10
0
-10
-20
-30
1965
1970
1975
1980
1985
1990
1995
2000
year
Source: Heinberg 2004, "Powerdown", Figure 5 page 43
Until well into the 1970s, new global oil discoveries were more than sufficient to offset production each year.
Since 1981, the amount of new oil discovered each year has been less than the amount extracted and used.
The wrong kind of shortage
1600
proved and probable reserves
proved reserves
1400
1200
Billion barrels
1000
800
600
400
200
0
1980
1984
1988
1992
1996
2000
year
Source: Strahan 2007, "The Last Oil Shock", Figure 13 page 71
Global "proved reserves" (wide bars) give the reassuring appearance of continuing growth, but the more
relevant "proved and probable reserves" (thin bars) have been falling since the mid-1980s.
2004
Saudi reserves 1936-2005
Oil production since 2002 approaching saturation
Source: http://www.theoildrum.com
World oil production projections to 2040
Source: http://www.theoildrum.com
Hubbert linearization: World oil & gas output 1960-2006
Source: Dave Rutledge, The coal question and climate change : http://www.theoildrum.com 6/20/2007
Part 3: Exergy and Useful Work
• Energy is conserved, except in nuclear
reactions. The energy input to a process or
transformation is always equal to the energy
output. This is the First Law of
thermodynamics.
• However 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.
Exergy and Useful Work, Con’t
• Capital is inert. It must be activated. Most
economists regard labor as the activating
agent.
• Labor (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
Recapitulation: Energy vs. Exergy
• Energy is conserved, exergy is
consumed.
• Exergy is the maximum available work
that a subsystem can do on its
surroundings as it approaches
thermodynamic equilibrium reversibly,
• Exergy reflects energy quality in terms of
availability and distinguishability from
ambient conditions.
Exergy to Useful Work
1
2
EXERGY INPUT x EFFICIENCY
3
USEFUL WORK
WASTE EXERGY
(OFTEN LOW QUALITY HEAT OR POLLUTION)
EXERGY TYPES
1.
FOSSIL FUELS
(Coal, Petroleum, Natural Gas, Nuclear)
2.
BIOMASS
(Wood, Agricultural Products)
3.
OTHER RENEWABLES
(Hydro, Wind)
4.
METALS
5.
OTHER MINERALS
exergy by source: 1900 -2000
Japan, Austria, USA, UK
100%
1900
80%
nuclear
natural gas
60%
100%
2000
80%
nuclear
natural gas
60%
oil
40%
coal
electricity from
renewables
20%
renewables (wind,
solar, biomass)
0%
Japan
Austria
1920
USA
UK
food and feed
biomass
oil
40%
coal
electricity from
renewables
20%
renewables (wind,
solar, biomass)
0%
Japan
Austria
USA
UK
food and feed
biomass
Exergy (E) Austria, Japan, UK & US: 1900-2005
(1900=1)
index
18
USA
Japan
UK
Austria
16
14
12
10
8
6
4
2
0
1900
1920
1940
1960
1980
2000
Exergy Intensity of GDP Indicator
60
50
•Distinct grouping of
countries by level, but
similar trajectory
40
•Evidence of convergence in
latter half of century
EJ / trillion $US PPP
US
•Slowing decline
UK
30
20
Japan
10
0
1905
1925
1945
1965
year
1985
2005
exergy and useful work intensity
useful work / GDP [GJ/1000$]
exergy / GDP [GJ/1000$]
3,5
60
USA
UK
50
Japan
Austria
3,0
2,5
40
2,0
30
1,5
20
1,0
10
0,5
USA
0
1900
Japan
UK
1960
1975
Austria
0,0
1915
1930
1945
1960
1975
1990
2005
1900
1915
1930
1945
1990
2005
Conversion Efficiencies
40%
35%
Electricity Generation
Efficiency (%)
30%
High Temperature Heat
25%
Mid Temperature Heat
20%
15%
Mechanical Work
10%
5%
Low Temperature Heat
Muscle Work
0%
1905
1925
1945
Year
1965
1985
2005
Exergy to useful work conversion efficiency
Evidence of stagnation –
Pollution controls,
Technological barriers
Ageing capital stock
Wealth effects
25%
20%
High Population Density
Industrialised Socioecological regimes
Japan
efficiency (%)
Resource limited
15%
US
10%
UK
Low Population Density
Industrialised New
World Socio-ecological
regime
5%
Resource abundant
0%
1905
1925
1945
1965
year
1985
2005
Exergy input share by source,
Figure 1b Exergy input
share
by energy carrier, UK 1900-2000
(UK
1900-2000)
100%
80%
Biomass
60%
Renewables and
Nuclear
Gas
40%
Oil
20%
Resource Substitution
From Coal, to Oil, Gas then Renewables and
Nuclear
0%
1900
1920
1940
1960
year
1980
Coal
2000
Useful work types
• .
–
–
–
–
–
Electricity
Mechanical drive (mostly transport)
Heat (high, mid and low temperature)
Light
Muscle Work
• N.B.Available work (exergy) and ‘useful’ work
are not equal, the latter depends on the exergy
efficiency of the conversion process for a given
task. Efficiency = useful work / available work.
Useful work by type
(US 1900-2005)
100%
Muscle Work
Non-Fuel
share (%)
80%
60%
Mechanical Work
Electricity
40%
High Temperature Heat
20%
Low Temperature Heat
0%
1905
1925
1945
1965
year
1985
2005
useful work by use categories
in shares of total GJ/cap
100%
100%
80%
80%
1900
60%
2000
60%
Muscle work
Muscle work
Non-fuel
40%
OTM
Electricity
Light
20%
Japan
Austria
1920
USA
UK
OTM
Electricity
LT heat
Light
LT heat
MT heat
MT heat
HT heat
0%
Non-fuel
40%
20%
0%
HT heat
Japan
Austria
USA
UK
index
90
Useful Work (U) Austria, Japan, US, UK:
1900-2000
80
USA
Japan
UK
Austria
70
60
50
40
30
20
10
0
1900
1920
1940
1960
1980
2000
trends in useful work outputs:
1900-2000 in GJ/cap
35
35
1930
1940
1950
1960
1970
1980
1990
2000
1940
1950
1960
1970
1980
1990
2000
35
1930
0
1900
0
2000
5
1990
5
1980
10
1970
10
1960
15
1950
15
1940
20
1930
20
1920
25
1910
25
1900
30
1920
Japan
30
1910
USA
35
UK
1920
0
1910
0
2000
5
1990
5
1980
10
1970
10
1960
15
1950
15
1940
20
1930
20
1920
25
1910
25
1900
30
1900
Austria
30
High temperature heat
Low temperature heat
Electricity
Non-fuel
Medium temp. heat
Light
Other prime movers
Muscle work
exergy and useful work
intensity: GJ/$1000
useful work / GDP [GJ/1000$]
exergy / GDP [GJ/1000$]
3,5
60
USA
UK
50
Japan
Austria
3,0
2,5
40
2,0
30
1,5
20
1,0
10
0,5
USA
0
1900
Japan
UK
1960
1975
Austria
0,0
1915
1930
1945
1960
1975
1990
2005
1900
1915
1930
1945
1990
2005
carbon intensities: tC/TJ
CO2/exergy [tC/TJ]
CO2/useful work [tC/TJ]
25
UK
Austria
2005
Japan
1990
USA
1975
1960
0
2005
0
1990
100
1975
5
1960
200
1945
10
1930
300
1915
15
1900
400
1945
Austria
1930
UK
20
1915
Japan
1900
500
USA
Income (GDP/cap) and useful work
per capita
70
Useful work/cap [GJ/cap]
60
50
40
30
20
10
0
0
5.000
10.000
15.000
20.000
GDP/cap [1990 intl $]
25.000
30.000
Part 4: Useful Work and Economic
Growth
• Since the first industrial revolution, human
and animal labor have been increasingly
replaced by machines powered by the
combustion of fossil fuels. This strongly
suggests that exergy or useful work
should be factors of prody=uction, along
with conventional capital and labor.
socio-economic data
(a) GDP/cap [USD/cap]
(b) population density [cap/km2]
350
(c) population growth [1900 = 1]
2000
1990
1980
1970
1960
1950
0
1900
0
2005
50
1990
5.000
1975
100
1960
10.000
1945
150
1930
15.000
1915
200
1900
20.000
1940
250
1930
25.000
Austria
UK (excl. Ireland)
Japan
USA
300
1920
USA
Japan
UK
Austria
30.000
1910
35.000
(d) capital stocks [billion 1990 $]
20.000
2005
1990
1975
1960
2005
1990
1975
0
1960
0
1945
5.000
1930
1
1915
10.000
1900
2
1945
15.000
1900
3
USA
Japan
UK
Austria
1930
USA
Japan
UK
Austria
1915
4
Standard paradigm: Production-consumption
systems
A. CLOSED STATIC PRODUCTION CONSUMPTION SYSTEM
Production of
Goods and
Services
Purchases
Wages, Rents
Consumption
of Final Goods
and Services
B. CLOSED DYNAMIC PRODUCTION CONSUMPTION SYSTEM
Production of
Goods and
Services
Purchas
es
Wages, Rents
Consumptio
n
of Final
Goods
and Services
Purchases of
capital goods
Capital
depreciation
Invested
Savings
Capital
C. OPEN STATIC PRODUCTION CONSUMPTION SYSTEM
Production of
Goods and
Services
Purchas
es
Wages, Rents
Consumption
of Final Goods
and Services
Consumpti
on
wast
es
"Raw
"
materia
ls
Production
wastes
Extraction
Recycled materials
Waste
Disposal
Treatment
Economic production functions
Common practice: Cobb-Douglas
Yt =
a
b
g
(
)
(
)
(
)
At H t K t
G t Lt
Ft R t
Yt is output at time t, a function of,
• Kt , Lt , Rt inputs of capital, labor and natural
resource services.
• a, + b + g = 1, (constant returns to scale assumption)
• At is total factor productivity
• Ht , Gt and Ft coefficients of factor quality
GDP and factors of production, US 1900-2005
Index (1900=1)
50
40
GDP
Capital
Labor
Exergy
Useful Work
30
20
10
0
1900
1910
1920
1930
1940
1950
1960
year
1970
1980
1990
2000
2010
US GDP 1900-200; Actual vs. 3-factor Cobb Douglas function
L(0.70), K(0.26), E(0.04)
GDP Index (1900=1)
25
20
US GDP
15
10
SOLOW RESIDUAL
(TFP)
5
Cobb-Douglas
1900
1920
1940
year
1960
1980
2000
Technological Progress Function and Solow Residual USA: 1900 - 2005
Index (1900=1)
5.5
5
4.5
TPF (1.6% per annum)
unexplained Solow residual
4
3.5
3
2.5
2
1.5
1
1900
1910
1920
1930
1940
1950
year
1960
1970
1980
1990
2000
2010
Problems with growth theory
• Money makes money grow. 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, other than R&D inputs.
The evolutionary paradigm
• The economy is an open multi-sector materials /
energy / information processing system in
disequilibrium.
• Sequences of value-added stages, beginning with
extraction and ending with consumption and disposal of
material and energy wastes.
• Spillovers from radical innovation, particularly in the
field of energy conversion technology have been
among the most potent drivers of growth and structural
change.
• Economies of scale, learning by doing, factor
substitution  positive feedback, declining costs/prices,
increased demand and growth.
The Virtuous Cycle driving historical growth
Product
Improvement
R&D Substitution of
Knowledge for Labour;
Capital; and Exergy
Process
Improvement
INCREASED REVENUES
Increased Demand for
Final Goods and Services
Lower Limits to
Costs of
Production
Economies of
Scale
Substitution of
Exergy for Labour
and Capital
Lower Prices of
Materials &
Energy
Lower costs, lower prices, increased demand, increased supply, lower costs
Economic production functions: II
The linear-exponential (LINEX) production function
   L + U 
 L 
Yt = U expa 2 - 
  + ab - 1
 U 
   K 
For the USA, a = 0.12, b = 3.4 (2.7 for Japan)
Corresponds to Y = K 0.38 L
U 0.56
0.08
• At , 'total factor productivity', is REMOVED
• Resources (Energy & Materials) replaced by WORK
• Ft = energy-to-work conversion efficiency
• Factors ARE MUTUALLY DEPENDENT
• Empirical elasticities DO NOT EQUAL COST SHARE
Empirical and estimated US GDP: 1900-2000
US GDP (1900=1)
25
GDP estimate Cobb-Douglas
LINEX GDP
estimate
20
Empirical GDP
15
10
POST-WAR COBB DOUGLAS
alpha=0.51
beta=0.34
gamma=0.15
PRE-WAR COBB DOUGLAS
alpha=0.37
beta=0.44
gamma=0.19
5
0
1900
1920
1940
1960
1980
2000
year
Empirical GDP from Groningen GGDC Total Economy Growth Accounting Database: Marcel P. Timmer, Gerard
Ypma and Bart van Ark (2003), IT in the European Union: Driving Productivity Divergence?, GGDC Research
Memorandum GD-67 (October 2003), University of Groningen, Appendix Tables, updated June 2005
Empirical and estimated GDP Japan; 1900-2000
GDP Japan (1900=1)
50
GDP estimate
LINEX
40
GDP estimate CobbDouglas
Empirical
GDP
30
20
POST-WAR COBB DOUGLAS
alpha=0.78
beta=-0.03
gamma=0.25
PRE-WAR COBB DOUGLAS
alpha=0.33
beta=0.31
gamma=0.35
10
0
1900
1920
1940
1960
1980
2000
year
Empirical GDP from Groningen GGDC Total Economy Growth Accounting Database: Marcel P. Timmer, Gerard
Ypma and Bart van Ark (2003), IT in the European Union: Driving Productivity Divergence?, GGDC Research
Memorandum GD-67 (October 2003), University of Groningen, Appendix Tables, updated June 2005
Empirical & estimated GDP, UK 1900-2005
(1900=1)
indexed 1990 Gheary-Khamis $
7
GDP estimate
LINEX
6
GDP estimate CobbDouglas
Empirical
GDP
5
4
3
COBB DOUGLAS
alpha=0.42
beta=0.24
gamma=0.34
2
1
0
1900
1910
1920
1930
1940
1950
1960
1970
1980
1990
2000
2010
year
Empirical GDP from Groningen GGDC Total Economy Growth Accounting Database: Marcel P. Timmer, Gerard
Ypma and Bart van Ark (2003), IT in the European Union: Driving Productivity Divergence?, GGDC Research
Memorandum GD-67 (October 2003), University of Groningen, Appendix Tables, updated June 2005
Empirical & estimated GDP, Austria 1950-2005
(1950=1)
indexed 1990 Gheary-Khamis $
7
GDP estimate
LINEX
6
GDP estimate CobbDouglas
Empirical
GDP
5
4
3
POST-WAR COBB DOUGLAS
alpha=0.56
beta=0.20
gamma=0.24
2
1
0
1900
1910
1920
1930
1940
1950
1960
1970
1980
1990
2000
2010
year
Empirical GDP from Groningen GGDC Total Economy Growth Accounting Database: Marcel P. Timmer, Gerard
Ypma and Bart van Ark (2003), IT in the European Union: Driving Productivity Divergence?, GGDC Research
Memorandum GD-67 (October 2003), University of Groningen, Appendix Tables, updated June 2005
REXS model forecast of US GDP:
2000-2050
45
33.75
Simulation results using
the plausible trajectories of
technical efficiency growth
as a function of cumulative
primary exergy production
HIGH
Initial ~3% growth rate, for 130%
target increase in technical
efficiency.
22.5
MID
Initial 1.5% growth rate for target
120% improvement in efficiency.
11.25
LOW
0
1900
1918
GDP (1900=1)
1936
1954
1972
year
1990
empirical
low
mid
high
Source: "The MEET-REXS model". Ayres & Warr 2006
2008
2026
2044
Shrinking economy at rate of
2 - 2.5% after 2010 if the target
technical efficiency is only 115%
greater than the current.
Part 5: The Neo-liberal solution
• We have shown the strong link between
exergy or useful work and output. The
problem for the captain of the great ship
Titanic is to avoid an economic collapse
while simultaneously cutting carbonemissions drastically by cutting fossil fuel
consumption. The only possible approach is
to increase energy efficiency a lot, but at
little (or even negative) cost. We need a winwin policy.
The neo-liberal solution, continued
• We postulate the existence of large but
avoidable inefficiencies in the economy,
corresponding to significant departures
from the optimal equilibrium growth path
that is commonly assumed. These
inefficiencies may result from “lock-ins”,
regulatory barriers or monopolies that
prevent innovation by upstart start-ups.
Eliminating inefficiencies can create
“double dividends”
Deadweight
• Deadweight is the term used by economists
to characterize the effect of taxes (or
subsidies or other barriers) to reduce
economic efficiency by reducing “option
space” and thus forcing entrepreneurs to
make non-optimal choices. We argue that
monopolies, obsolete regulations and
“lockout/lock in” also cause deadweight
losses by preventing optimal innovation.
Disequilibrium = Deadweight loss
• If the economy were really in the standard
state of perfect competition, perfect
foresight, etc. there would be no
inefficiencies and no deadweight losses.
In the real world, evidence of double
dividend opportunities is evidence of
disequilibrium and deadweight losses.
Cumulative and Marginal Cost of Abatement in
100
500
Disequilibrium
80
400
Marginal cost $ per ton of
carbon
Cumulative Cost billion $
60
300
40
Marginal Cost
Short Term
20
200
Region of Net
Dollar Savings
0
Cumulative Cost
Short Term
100
-20
Cumulative Cost
Medium Term
-40
0
10
Marginal Cost
Medium Term
0
20
Abatement (percent)
30
40
Three estimates of marginal cost of electricity efficiency
(cents per kWh)
Electric
17 Power
Research
16 Institute
12
15
10
A
8
Cost of new coal-fired
power plant in USA
14
Lawrence
Berkeley
Labs
B
6
1 Industrial process heating
2 Residential lighting
3 Residential water heating
4 Commercial water heating
5 Commercial lighting
6 Commercial heating
7 Commercial cooling
8 Commercial refrigeration
9 Industrial motor drives
10 Residential appliances
11 Electrolytics
12 Residential space heating
13 Commercial & industrial space heating
14 Commercial ventilation
15 Commercial water heating (heat pump or solar)
16 Residential cooling
17 Residential water heating (heat pump or solar)
11
13
12
11
10
4
C
9
8
2
34
2
1
5 6
7
6
4
2
0
1
3
5
7
8
9
1
2
3
4
5
6
7
8
9
10
11
10
Rocky
Mountain
Institute
Lighting
Lighting's effect on heating & cooling
Water heating
Drive power
Electronics
Cooling
Industrial process heat
Electrolysis
Residential process heat
Space heating
Water heating (solar)
-2
0
10
20
30
40
50
60
Potential Electricity Savings (percent total U.S. consumption)
70
80
Marginal Cost Curve for GHG Abatement
$/tonne C
200
DOE Forecast
(1.7 GT)
100
IPCC
(0.5 GT)
0
-100
11
-200
9
5
-300
3
6 7
10
8
Least-Cost
(1.3 GT)
4
2
-400
-500
1
-600
1.8
1.6
1.4
1.2
1
0.8
Cumulative Carbon Emissions (GT/year)
Source: [Mills et al 1991; Figure 2]
0.6
0.4
US mid-range abatement curve 2030
Source: McKinsey & Co.
The cumulative effect of
(postulated) deadweight
• Actual E/GDP is much higher than the optimum, due to
potential “double dividends” that are neglected
Summary of parts 4 & 5
• Neoclassical growth theory does not explain growth
• We model economic growth with useful work as a
factor of production. This explains past growth 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
Thank you