Igor Bashmakov
Three Laws of
Sustainable
Energy
Transitions
November 25-26, 2007
Constants and variables of
sustainable development
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There are many dimensions of sustainable energy-economic development
All disproportions finally impact sustainability of economic development both rates and costs of growth - through a depletion of resources needed to
sustain development, including the resources of stable environment and
climate
The economy is a combination of poorly known but amazingly stable
constants, as well as variables
We put too much focus on variables, but:
What is important for the sustainable development – is to keep critical
energy-economic proportions within the very narrow ranges of their
sustainable evolutions
Another dimension of constants is the stability of the rates of change, which
prevents from exceeding historical rates of change needed to mitigate
climate change in the absence of specific policies
Climate policies should not ignore constants of sustainable development
The need to go beyond historical rates of
changes towards stabilization of atmospheric
concentrations of GHGs:
energy intensity reduction
The need to go beyond historical rates of
changes towards stabilization of
atmospheric concentrations of GHGs:
carbon intensity reduction
Geographic (North to South) shift of carbon dioxide
emissions increases “downtown”.
Patterns of energy transitions will determinate the
heights of emission skyscrapers
3000
1600
1400
2500
1200
2000
1000
800
1500
600
400
1000
200
500
0
-200
1971-2000
Industry
Transport
Res. Build.
Com. Build.
Agriculture
2000-2030
Middle East and N. Africa
Sub Saharan Africa
Latin America
Other Asia
Centrally Planned Asia
Former Soviet Union
Central and E. Europe
Western Europe
-500
North America
Middle East and N. Africa
Sub Saharan Africa
Latin America
Other Asia
Centrally Planned Asia
Former Soviet Union
Central and E. Europe
Western Europe
North America
Pacific OECD
Agriculture
0
Pacific OECD
Industry
Transport
Re s. Build.
Com. Build.
-400
On the millennium-long time horizon,
energy transitions are relatively slow
But they have grown up to the level, where the scale of energy activities
endangers the stability of the global climate
More than just conventional wisdom is required to effectively address climate
change at affordable mitigation and adaptation costs
Social inertia and behavioral constants are poorly investigated. Present
consumption and behavioral patterns are very deeply rooted in the past, a lot
more deeply, than one may think
People are still trying to obtain more personal freedom and build more privacy,
which has become a synonym of prosperity. The concept of well-being for many
years has been perceived as a concept of more-having
On average, people spend the same 1-1.5 hours for daily travel, irrespective of
the country and transportation mode
Economics of happiness, sufficiency, values and consumption patterns,
innovative life-styles may be very important for the transition from the present to
the future.
Hundreds of presently available scenarios of global energy system
development until 2100 critically disagree on the scale and structure of
future global energy systems and energy transition pathways
Identifying regularities (or laws) of energy transitions allows it to balance
conservatism (while transferring some past to the future) and unlimited
imagination, which may tentatively shape the future using the backcasting
approach
Three laws of global and regional energy
transitions
• For long-term projections and for the identification of a potential for
the future emergencies the following three laws of energy transitions
are to be taken into account:
The law of long-term energy costs to income
stability
• In the long run, energy costs to income ratios are relatively
stable with only a very limited range of variations
The law of growing energy quality
• Growing overall productivity requires a better quality of energy
services
The law of growing energy efficiency
• As energy quality improves against a relatively stable costs-toincome ratio, energy productivity grows, or energy intensity
declines
Every time, like a pendulum, the energy costs/GDP
ratio driven by some economic gravitation gets back to
the equilibrium, or sustainable dynamics zone
30%
20%
15%
10%
USA
OECD
Energy costs to GDP ratio evolution in OECD and the USA
2006
2003
2000
1997
1994
1991
1988
1985
1982
1979
1976
1973
1970
1967
1964
1961
1958
1955
0%
1952
5%
1949
Energy costs/GDP ratio (%)
25%
The law of long-term energy costs to
income stability
• Energy costs to income proportions are relatively stable over decades, if
not over centuries, and very similar across regions and large countries
• Sustainable variations of energy costs to GDP ratios are limited to 810% for the U.S. and 9-11% for the OECD. The range for energy costs
for final consumers to gross output is even narrower: 4-5% for the U.S.
and 4.5-5.5% for OECD
• Energy costs to GDP ratio evolves with about 25-30 years’ cycle.
Statistics allows for an assumption, that the upper threshold in the U.S.
was exceeded around 1810, 1835, 1870, 1900, and 1920, 1949-1952,
1973-1985, and starting from 2005
• Every time, like a pendulum, the ratio driven by some economic
gravitation gets back to the equilibrium, or sustainable dynamics zone
• Stability of energy costs to income ratio results from the existence of
energy affordability thresholds and behavioral constants
Energy costs/GDP growth rates “wing” function:
after energy costs exceed 10-11% of GDP,
economic growth slows down
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The approach used is based on the
evaluation of limits to energy
purchasing power
Energy demand is more a function
of energy to income ratio, than of
income and price separately
Energy demand functions have
asymmetric elasticity
Elasticity coefficients are drifting, as
purchasing power thresholds are
approached or exceeded
Energy costs/GDP ratio for OECD
are crossing the thresholds in 20072008
After that, the oil price may collapse
late 2008 - early 2009
Energy demand to energy costs/GDP ratio
--,-0,2
--0,5
-1,0
5%
energy demand growth rate
•
4%
3%
2%
1%
0%
-1% 5%
6%
7%
8%
9%
10% 11% 12% 13% 14% 15%
-2%
-3%
-4%
-5%
energy costs/GDP
Energy costs to income ratios are to be kept
close to the thresholds to motivate energy
efficiency improvements without slowing down
economic growth
•
While the energy costs to income
ratio is below the threshold, the
economic growth is not affected
But as soon as energy costs to
income thresholds are exceeded:
– economic activity slows down
– energy productivity accelerates
– as a result, both energy demand
growth and energy prices escalation
slows down until the ratio is back to
the sustainable range
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This effect makes price elasticity
asymmetric
It is important to statistically monitor
energy costs to GDP ratio as an
important business cycle indicator
12%
Energy costs to GDP ratio
•
y = 0,1771x + 0,0847
R2 = 0,0149
11%
10%
9%
8%
7%
y = 0,136x + 0,0844
R2 = 0,0262
6%
5%
y = -0,0144x + 0,0868
R2 = 0,0006
4%
-1%
0%
1%
2%
3%
GDP grow th rates
4%
5%
6%
7%
energy productivity grow th rate
energy consumption grow th rates
8%
y = 1,3127x - 0,1505
R2 = 0,6993
y = -0,9995x + 0,1557
R2 = 0,9241
6%
4%
y = -2,8445x + 0,3773
R2 = 0,8671
2%
0%
-2%
8%
9%
10%
11%
12%
13%
14%
15%
16%
-4%
Energy costs to GDP ratio
GDP growth rates
energy consumption growth rates
energy productivity growth rate
The share of housing energy
costs in personal income
before tax for several countries
and the EU stays in a very
narrow range with amazingly
universal 3-4% thresholds
10%
9%
8%
7%
6%
5%
4%
3%
2%
1%
USA
Japan
China
India
EU
2004
2001
1998
1995
1992
1989
1986
1983
1980
1977
1974
1971
1968
1965
1962
0%
1959
energy costs share in personal income before tax
The ratio of housing energy costs to personal income
varies in a very narrow sustainable range in many
countries
Consumption or collection rate price
elasticity
120%
Russia
-0,2
“The Bashmakov wing”. Housing
& municipal utility services
affordability thresholds. When
housing energy costs exceed 34% of income, energy
consumption start declining.
When it exceeds 7-8%, energy
consumption declines below the
sanitary level, and low-income
families need assistance
collection rate
100%
-0,4
-1,0
80%
60%
Threshold 1:
consumption
starts
declining
40%
20%
Threshold 2:
consumption
declines below the
sanitary level
0%
0
2/1
4/2
6/3
8/4
10/5
12/6
14/7
communal and housing (numerator) and energy expenditures
(denominator) as percentage of family income (%)
16/8
8%
5
7%
4,5
6%
4
3,5
4%
3
3%
2,5
2%
2
1%
1,5
0%
-1%
1959
1961
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
Share in income
5%
1
-2%
0,5
-3%
0
Household energy costs
GDP growth rates
Sold houses/pop
Sold houses per 1000 people
When housing energy costs exceed the threshold, they bring
along a mortgage crisis: less new homes are sold, and the
economic growth slows down (USA – case)
The ratio of transportation energy costs to
personal income also varies in a very narrow
range in many countries
9%
The share of fuel
transportation costs
in personal income
before tax in the USA
and Japan
8%
7%
6%
5%
4%
3%
2%
Motor vehicles and parts-USA
Trasportation-USA
Transportation-Japan
8%
7%
6%
5%
4%
3%
2%
1%
2007
2005
2003
2001
1999
1997
1995
1993
1991
1987
1989
1985
1983
1981
1979
1977
1975
1973
1971
1969
1967
1965
1963
-1%
1961
0%
1959
When personal
transportation energy
costs exceed the 3%
threshold, the share of
income spent for the
procurement of new
cars comes down,
slowing the rate of
economic growth
Share of energy costs for personal transportation in private
incomes (before taxes)
Gasoline and oil-USA
2007
2004
2001
1998
1995
1992
1989
1986
1983
1980
1977
1974
1971
1968
1965
0%
1962
1%
1959
share in private incomes before tax
10%
-2%
Gasoline and oil
Motor vehicles and parts - USA
GDP growth rates
Energy affordability limits approach
allows for some more findings
Limits of energy affordability for all energy end-users keep the
sustainable lane for energy costs to income fluctuation very limited
Mitigation response to carbon and energy tax policy may bring
different results, depending on how far the energy costs to GDP or
income ratio is from the threshold
Carbon taxes should be flexible: the tax rates should be brought
down when energy costs/GDP ratio is high to sustain economic
growth; and they should go up if this ratio is low to keep the
motivation “spring” compressed
High oil prices cannot be sustained for a long time. They will
collapse late 2008 – early 2009
Long-term scenarios with the energy costs/GDP ratio far beyond the
8-10% range are not sustainable and should be rejected
Such approach shrinks the uncertainty range of future energyeconomy-climate system evolution
Economy is an organic interaction
of constants and variables
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Analysis of economic and behavioral constants deserves more attention,
than it currently gets
Some macroeconomic proportions are extremely stable, including the share
of energy costs in the gross output
Fluctuations of these proportions beyond very narrow limits of sustainable
dynamics give birth to cycles in the economy (including Kondratiev’s long
waves), which re-establish the economic equilibrium, but on a new
technology basis
When the share of energy costs grows, the rate of return drops, slowing
down economic growth and shrinking sustainability zone for the economic
dynamics
‘Learning-by-researching’ and ‘learning-by-doing’ speed up a lot in such
situations, allowing for future acceleration of the economic growth rates
In general, the ‘learning rates’ are higher, if innovations were introduced
right after considerable energy costs increases. Technological progress is
accompanied by improving energy quality/productivity
The law of growing energy quality
• The technology change leads to the substitution of lowquality production factors with the same production
factors, only of a better quality
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The notion of high quality energy resource was evolving across times: fuel
wood, coal, petroleum products, natural gas, compressed air, heat, chill,
electricity, hydrogen
From the economic standpoint, the quality of energy is mirrored by its
contribution to the overall economic growth and to the total factor (not just
energy alone) productivity
They appear less expensive, when it comes to lifecycle costs of integrated
energy service systems
End-users switching from coal to petroleum products, gas, and electricity
pay more for a unit of consumed energy, but not for a unit of purchased
energy service
When price for higher-quality energy source (electricity) goes up, it requires
more lower-quality energy sources (coal, petroleum products) to substitute
it, than visa versa
If it were not for energy price volatility, the best way to compare the quality
of energy carriers would be to use energy prices
The law of growing energy productivity
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Energy productivity
improvement is a centurieslong trend of the civilization
development
All energy carriers, not only
commercial ones, are to be
considered
Global long-term sustainable
average annual rate of energy
productivity growth is 1.0-1.5
percent
USA - including biomass
2005
2000
1990
1980
1970
1960
1950
1940
1930
1920
1910
1900
1890
1880
1870
–
more expensive, better quality
energy services have to be
accompanied with
improved energy productivity
1850
–
1860
Staying within relatively stable
long-term energy costs to
income thresholds means, that
GJ/1000$ 1980
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90
80
70
60
50
40
30
20
10
0
USA - including biomass and animal power
UK- only commercial energy
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Average annual energy productivity growth
rates decline, as time frame expands:
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Russia
China
Japan
UK
USA
1998-2005 – 5,0%
1971-2003 – 4.2%
1960-2004 – 1,9%
1960-2004 – 1,5%
1850-2004 – 1,0%
Can we keep long-term energy productivity
growth rates over 2.5%?