The Role of Energy Technologies
in Long Run Economic Growth:
A Historical Perspective
Roger Fouquet
Grantham Research Institute on Climate Change and Environment
London School of Economics (LSE)
IAEE New York,
16 June 2014
Energy Services and Economic Development
• Stern (2011) ANYAS
–Changes in Energy Use-Economic Activity Linkage:
- Subs Energy and Other Inputs for Existing Tech.
- Technological Change;
- Shifts in Composition of the Energy Input;
- Shifts in Composition of Economic Output.
• Toman and Jemelkova (2003) EnJ
–Different Channels of Effect of Energy Services
–Effects Change with Economic Development
2
Part 1
The Importance of Demand
Lighting
Domestic
Heating
Industrial
Power
Passenger
Transport
Lighting
0.1
0.01
Freight
Transport
Source: Fouquet (2014) REEP
Income and Price Elasticity of Demand for Energy Services, 1800-2008
Values Greater than One:
10% Increase in GDP pc
leads to a more than
10% increase in Energy Service
Lighting
Passenger
Transport
Price Elasticities
Domestic Heating
Domestic Heating
Passenger
Transport
Lighting
$(2010)3,300
Source: Fouquet (2014) REEP
$(2010)6,400
$(2010)11,800
$(2010)28,500
Part 2
The UK Energy-GDP Linkage
England and Great Britain GDP per capita, 1300-1900
Take-Off of
English
Economic
Development
Source: Broadberry et al (2013)
First
Industrial
Revolution
Second
Industrial
Revolution
The Importance of Energy
• Cipolla, Wrigley, Allen: Role of Energy in Ind. Rev.
• Major Technological Innovations in 1750-1913
– New Energy Sources
– Incorporate Role of Technologies
– Major Improvements in Energy Efficiency
• Producers Want Energy Services
– Power for Mineral Extraction and Repetitive Tasks
– Heating to Manufacture Metals
– Freight Transport (Land and Sea)
Consumption of Energy by Energy Services
in the United Kingdom (mtoe), 1700-2010
Source: Fouquet (2014) REEP
Freight
Transport
Lighting
Passenger
Transport
Domestic
Heating
Industrial
Heating
Industrial
Power
Energy Intensity in the United Kingdom, 1700-2010
Source: updated from Fouquet (2008)
Primary
Energy
Intensity
Final
User
Energy
Intensity
Sectoral GDP in the United Kingdom, 1700-1870
Source: Broadberry et al (2013)
Energy Service Intensity per GDP in the United Kingdom, 1700-2000
Sea Freight
Transport
Power
Iron Production
Source: Updated from Fouquet (2008)
Land Freight
Transport
Part 3
The Impact of Energy Technologies
on Economic Growth
Integrating Energy Services
into Energy-Intensive Industries’ Production Function
• Y = f1 (y1(K,L,E), y2(K,L,E), … )
• For Energy Intensive Industries, e.g. UK 1750-1950
Energy Service (ES) combines K, L and E.
• Y = f1 (y1(ES), y2(ES), … )
• The Role of Costs of Production
• Y = f1 (y1(C(ES)), y2(C(ES)), … )
• Thus, when the cost of producing ES falls,
the costs of energy-intensive industrial production fall
14
Price of Energy Services in the United Kingdom, 1700-2010
Sea Freight
Transport
Power
Iron Heating
Source: Fouquet (2011) REEP, Broadberry et al (2013)
Land Freight
Transport
Price of Energy and Energy Services in the United Kingdom, 1700-2010
Source: Fouquet (2011)
Energy Services
Energy
Exogeneity of the ‘Price’ of Energy Services
• Price of Energy Service:
Price of Energy
Efficiency of Energy Technology
• Price of Energy may be affected by Economic Growth
if price elasticity of supply is low
• Adoption of Energy Efficient Tech. is less affected
• Combined (i.e. Price of ES) assumed to be exogenous
• Thus, can identify the effect of Price of ES on GDP
17
Granger Causality Tests
• Effect of GDP per capita: Price of Land Freight pre-1850?
• 1750-1800: Price of Power, Ind. Heat. & Land Transport
on GDP per capita
• 1800-1820: Little Effect
• 1830-1850: Price of Sea Freight, and then Price of Land F.
• 1860-1950: Price of Power, of Land Freight
(Modest Effect: Price of Sea Freight/Ind.Heat.)
18
Impact of 1% Decline in Energy Service Prices on GDP per capita, 1750-1950
Land Freight
Transport
Iron Heating
Source: Author’s Own Estimates
Power
Sea Freight
Transport
External Costs of Energy Use in the United Kingdom, 1800-2000
£(2000)million of damage
30,000
Lighting
25,000
20,000
15,000
Domestic
Heating
Passenger
Transport
10,000
5,000
Freight
Industrial
Heating
Power
0
1800
1850
Source: Fouquet (2011) Ecological Economics
1900
1950
2000
Part 4
Concluding Remarks
Insights
• Demand: Income Elasticities and Rebound Effects
• Technological Impact on GDP per capita:
– Kick-Starters and Drivers of Periods of Ec. Growth
– Co-Evolution and Synergies between Technologies
– Transformative Effect of Energy Technologies
• Need to Understand How Cheap Energy Services
Intensifies Energy Service Use in the Economy
• Energy-Intensive Industries Impacts on the Environment
Energy and Information Intensity in US, 1800-2010
Energy
Information:
Newspapers and
Internet
Communication
Source: Fouquet and Hippe (2014)
Energy
Pushing the Energy Frontier
or ‘Malthusian’ Energy Growth Trap?
Energy Service
Consumption
Consumption
Energy Limits
Supply-Side Shift
Energy
Consumption
Energy Limits
Supply-Side Shift
Energy Limits
Technological
Revolution
Technological
Revolution
1600
1700
1800
1900
2000
2100
27
Appendix
Pre-1750
Energy Intensity in the United Kingdom, 1500-2010
Source: updated from Fouquet (2008)
Primary
Energy
Intensity
Final
User
Energy
Intensity
Sectoral GDP in the United Kingdom, 1500-1750
Source: Broadberry et al (2013); Five-year average
Expenditure on Energy per GDP in the United Kingdom, 1500-2000
Source: Fouquet (2008)
Expenditure on Energy per GDP in the United Kingdom, 1500-2000
Power
The Decline in % Power Exp. in GDP is
not due to a Decline in Power Expenditure,
it is due to an Increase in GDP
Source: Fouquet (2008)
Energy Service Intensity per GDP in the United Kingdom, 1500-2000
Power
Iron Production
Freight
Transport
Source: Fouquet (2008)
Price of Energy Services in the United Kingdom, 1700-2010
Sea Freight
Transport
Power
Land Freight
Transport
Source: Fouquet (2011) REEP, Broadberry et al (2013)
Iron Heating
Price of Energy Services in the United Kingdom, 1700-2010
GDP per capita
Sea Freight
Transport
Power
Iron Heating
Land Freight
Transport
Source: Fouquet (2011) REEP, Broadberry et al (2013)
Energy Intensity in European Countries, 1800-2000
Early Adopter:
Exports and
Inefficiencies
United Kingdom
Germany
France
Netherlands
Italy
Source: Kander et al. (2013)
Energy and Information Intensity in US, 1800-2010
Energy
Information:
Newspapers and
Internet
Communication
Source: Fouquet and Hippe (2014)
Energy