analisis hubungan antara energi, ekonomi, lingkungan dan sosial dg sistem energi berkelanjutan

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ANALYSIS OF THE INTERRELATIONSHIP OF

ENERGY, ECONOM Y, AND ENVIRONMENT:

A MODEL OF A SUSTAINABLE ENERGY FUTURE FOR KOREA

by

Kyung-Jin Boo

A dissertation submitted to the Faculty o f the University o f Delaware inpartial fulfillment o f the requirements for the degree of Doctor o f Philosophy in UrbanAffairs and Public Policy

Summer 2000

Copyright 2000 Kyung-Jin Boo

All Rights Reserved

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UMI Number 9998730

Copyright 2000 by

Boo, Kyung-Jin

All rights reserved.

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ANALYSIS OF THE INTERRELATIONSHIP OF

ENERGY, ECONOMY, AND ENVIRONMENT:

A MODEL OF A SUSTAINABLE ENERGY FUTURE FOR KOREA

by

Kyung-Jin Boo

QApproved: HWLu,

ekr AJRaffel, Ph. 11lyirec torof the School o f Urban Affairs and Public Policy

Approved: _________________________________

Daniel Rich, Ph.D.

Dean of the Graduate College of Human Services, Education andPublic Policy

Approved:

Conrado M. Gempfesaw n, Ph.D.

Vice Provost for Academic Programs and Planning

produced with permission of the copyright owner. Further reproduction prohibited withou t permission.


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Signed:

Signed:

Signed:

Signed:

I ce rtify that I have read thi^ "dissertation and that in m y opinion it meets

the academic and professional standard required by the University as adissertation for the degree o f Doctor o f Philosophy.

aYoung-Doo Wang, Ph.D. jProfessor in cnarge o f dissertation

I certify that I have read this dissertation and that in my opinion it meets

the academic and professional standard required by the University as a

dissertationfOr\he degreb ofDoctor o f Philosophy.

John EtymeyPn.D. 7Professor in charge Oi dissipatio n

I certify that I have read this dissertation and that in my opin ion i t meetsthe academic and professional standard required by the Univers ity as a

dissertation for the degree o f Doctor o f Philosophy.

William Latham HI, Ph.D.

Mem ber o f dissertation committee

I certify that I have read this d issertation and that in my opinion it meetsthe academic and professional standard required by the Univers ity as adissertation for the degree o f Doc tor o f Philosophy.

Eui-Soon Shin, Ph.D.

Member o f dissertation committee



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ACKNOWLEDGMENTS

The intellectual journey I have taken during the Ph.D. program at the

Center for Energy and Environmental Policy (CEEP) has been a watershed event in

my life that has enriched me through exposure to new ideas and great minds o f various

backgrounds and disciplines. As a result, I am now quite different from the person I

used to be in terms o f academic achievement and ideology, and have gained a more

balanced perspective toward the world and life.

I am indebted to a number o f individuals who, in various ways, were

instrumental in the successful completion o f this dissertation. In particular, I would

like to express my sincere thanks to Professor Wang for his insights, guidance and

encouragement at every stage in the development o f this doctoral thesis. I am also

deeply indebted to Professor John Byrne for introducing me to alternative discourses

in energy and environmental studies. His comprehensive knowledge inspired me

intellectually and enriched and broadened my worldview. His guidance was key to the

development o f the underlying theory of my dissertation. I also wish to th ank the other

members of my committee, Professors William Latham and Eui-Soon Shin. Professor

Latham taught me the econometric simulation modeling technique, which was the

basis of the quantita tive analytical methodology employed in th is dissertation. He

provided ingenious tips whenever I encountered trouble with the econometric model.

Professor Eui-Soon Shin graciously accepted the burden o f becoming a committee

member when first asked to do so. His review o f and comments on my dissertation

was more than helpful. In addition, I would like to take this opportunity to recognize

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Chris Linn, a graduate student in CEEP, for his outstanding job as an editor of my

dissertation draft.

This dissertation is dedicated to each member of my beloved family for

their unbounded support and patience. Nothing can compensate the immeasurable

sacrifice my mother, Im-Keun Shin made for her three sons since m y fathers untimely

death. I hope that she is proud of her sons for their achievements. My beloved wife,

Hyunduk has been in and out of the U.S. every summer and winter break to support

me spiritually as well as financially. I only regret that she couldnt attend my disserta

tion defense as originally planned because o f an operation conducted just three weeks

before my defense. She has been the inspiration o f my life, including the time taken to

complete the dissertation. I will be forever, happily, in her debt. My son, Chang-Yong

has been staying with me throughout this journey, witnessing the slow but steady pro

gress of my dissertation. I feel sorry for not being a better father to him, taking the dis

sertation as an excuse. I hope he will understand my feelings someday in the future

when he is grown up and might be busy with his own doctoral dissertation.

Kyung-Jin Boo.

10 July, 2000

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TABLE OF CONTENTS

LIST OF TABLES.................................................................................................................. x

LIST OF FIGURE S............................................................................................................. xiiABSTRACT........................................................................................................................ xiv

Chapter

1 INTRODUCTION...................................................................................................... 11.1. Identification o f Research Problems............................................................... 1

1.2. Purpose o f the Study........................................................................... 4

1.3. Methodology........................................................................................ 61.4. Organization o f the Dissertation........................................................ 9

2 THEORETICAL FRAM EWO RK.......................................................................... 11

2.1 Theories o f Sustainable Development..........................................................11

2.1.1 Economics Perspec tive ..................................................................... 14

2.1.2 Ecological Perspective...................................................................... 172.1.3 Socio-political Perspective............................................................... 192.1.4 Integrative Approaches .................................................................... 21

2.1.4.1 Ecological Economics Approach.................................... 23

2.1.4.2 Steady-State Economy...................................................... 242.1.4.3 MC A (Multi-Criteria Analysis) ...................................... 25

2.1.4.4 Equity-Based Approach................................................... 26

2.2 A Global Perspective o f Sustainable Development: Evolution of a

Global Order................................................................................................... 312.2.1 Negotiation o f Global Environmental Issues.................................33

2.3 Sustainable Energy Developm ent................................................................ 36

2.3.1 Sustainable Energy Development as a Goal .................................. 392.3.2 The Economic Dimension of a Sustainable Energy Sys tem 41

2.3.2.1 Energy Efficiency.............................................................41

2.3.2.2 Renewable Energy ........................................................... 43

2.3.3 The Environmental Dimension o f Sustainable EnergySystem ................................................................................................ 43

2.3.3.1 Diversified and Decentralized Energy Sys tem .............43

2.3.3.2 Social Cost-Based Energy Prices....................................442.3.4 Socio-Political Dimension of Sustainable Energy Systems 44

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2.3.4.1 Deomocratic Energy Sy stem........................................... 45

2.3.4.2 An Equtiy-Based Energy System .....................................452.3.4.3 An Energy Service Oriented Sy ste m.............................. 48

2.4 Modeling Framework for a Sustainable Energy Sy stem .......................... 48

2.5 Conclusion...................................................................................................... 51

3 SUSTAINABLE ENERGY DEVELOPMENT IN THE KOREANCONTEXT ...............................................................................................................53

3.1 Overview o f Economic Situation in Korea..................................................543.2 Diagnosis o f the Korean Energy System.....................................................56

3.2.1 Energy Dem and by Fuel Type.........................................................57

3.2.1.1 Petroleum........................................................................... 583.2.1.2 Coal: Anthracite and Bi tum inou s....................................59

3.2.1.3 Gas: LNG........................................................................... 593.2.1.4 Electricity........................................................................... 60

3.2.2 Energy Dem and and Supply by Secto r...........................................61

3.2.2.1 Industrial Sector.................................................................623.2.2.2 Residential, Commercial, and the Public Se cto r...........633.2.2.3 Transportation Secto r....................................................... 653.2.2.4 Energy Transformation Sector: Electricity and

District Heat....................................................................... 673.3 Korean Energy Po licy.................................................................................... 71

3.3.1 Basic Framework of the Current Energy Po licy........................... 723.3.2 Energy Price and T ax ...................................................................... 74

3.3.3 Deregulation and Restructuring in Korean Energy Ind ustry 773.3.4 Environmental Concern in the Korean Energy Policy..................78

3.3.4.1 Policies on Energy-Related Air PollutantEmissions........................................................................... 79

3.3.4.2 Policies on Green-House Gas (GHG) Em issions 83

3.4 Sustainable Energy Development for Korea.............................................. 863.4.1 Emerging Environmental Awareness.............................................863.4.2 External Pressure and Nuclear Po w er............................................873.4.3 Harmonization o f Energy and Environm ental Policie s................88

3.4.4 Internalization o f Social Costs.........................................................903.4.5 Towards a Sustainable Energy System...........................................92

3.5 Summary and Conclusion............................................................................. 93

4 POLICY SIMULATION M OD EL ........................................................................ 95

4.1 Introduction....................................................................................................954.2 Reviews of Simulation Modeling Techniques............................................96

4.2.1 System Dynam ics.............................................................................974.2.2 Input-Output (I-O) Models..............................................................99

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4.2.3 Linear Programming Models........................................................ 101

4.2.4 Econometric Models...................................................................... 101

4.2.5 Hybrid Models............................................................................... 1034.3 Development o f Econometric Simulation Model................................... 105

4.3.1 Model Structure............................................................................. 1064.3.2 Sectors............................................................................................ 108

4.3.3 Model Specification...................................................................... I l l4.3.3.1 Economic M od ule ......................................................... 113

4.3.3.2 Energy Module ............................................................... 119

4.3.3.3 Environmental Module .................................................. 1234.3.3.4 Socio-Political Module.................................................. 127

4.3.4 The D ata ......................................................................................... 1294.4. Summary and Conclusion......................................................................... 130

5 MODEL ESTIMATION AND POLICY SIMULATION ................................ 1325.1 Estimation and Prediction......................................................................... 1325.2 Forecasting.................................................................................................. 140

5.2.1 Assumptions................................................................................... 1415.2.2 Simulated Projection: Reference C ase ........................................ 144

5.2.2.1 Projection o f Economic Indicators...............................145

5.2.2.2 Projection o f Energy Demand and CO2Emissions.... 1465.2.2.3 Projection o f Environmental Indicators....................... 149

5.3 Policy Sim ula tion ....................................................................................... 151

5.3.1 Policy Simulation Scenarios......................................................... 1515.3.2 Policy Simulation Resu lts............................................................ 155

5.3.2.1 Impacts on Energy Demand.......................................... 156

5.3.2.2 Impacts on Environmental Variables........................... 1625.3.2.3 Impacts on the Econom y.............................................. 165

5.3.2.4 Reinvestment o f Energy and Carbon T ax es ................168

5.3.2.5 Induced Energy Efficiency Improvements.................. 1695.3.2.6 Stabilization of CO2 Emissions at the Level o f

2000 ................................................................................. 1715.4 Major Fin dings .......................................................................................... 174

5.5 Summary and Conclusion..........................................................................176

6 STRATEGIES FOR SUSTAINABLE ENERGY FUTURE IN KO RE A 1816.1. Introduction................................................................................................ 181

6.2. Transition toward a Sustainable Energy Sys tem ....................................1816.2.1 Historical Evidence ...................................................................... 183

6.2.2 The Next Energy Transition ......................................................... 187

6.2.2.1 Resources Constraints and Responses in EnergyDemand........................................................................... 187



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6.2.2.2 Environmental Concerns ................................................. 190

6.2.2.3 Institutional Change.......................................................... 1926.3 Energy Options for a Sustainable Future in Korea ................................... 193

6.3.1 Energy Efficiency and Conservation............................................. 1936.3.2 Fuel Switching................................................................................. 194

6.3.3 New and Renewable Energy Sources............................................ 195

6.3.4 Integrated Resources Planning (IRP)............................................ 2026.4 Barriers to the Transition towards a Sustainable Energy Fu ture ........... 203

6.5 Strategies o f Energy Transition for Ko rea ................................................ 2066.5.1 Reform Strategy.............................................................................. 207

6.5.2 Institutional Strategy....................................................................... 2086.5.2.1 Characteristics o f Energy Institu tion ............................ 2096.5.2.2 Removal o f Subsidies ..................................................... 211

6.5.2.3 Reconfiguration o f Markets and GovernmentRoles................................................................................ 213

6.5.2.4 Full Cost Pricing: Consideration o f Externalities 217

6.5.2.5 Efficiency vs. Equity. ...................................................... 221

6.5.2.6 Democratic Participation in Energy-RelatedDecision Making............................................................. 2246.6 Summary and Conclusion........................................................................... 227

7 CONCLUSION...................................................................................................... 2317.1. Realities and Issues ..................................................................................... 231

7.2. Theories....................................................................................................... 232

7.3 Results from Empirical Analysis: Modeling ............................................ 234

7.4 Goalsand Strategies..................................................................................... 2357.5 Inventing the Future: Can Korea Choose Its Own Energy Future? 238

7.6 Suggestions for Future Research ............................................................... 243

Appendix

A MODEL SPECIFICATIONS.................................................................... 246B MAPES (MEAN ABSOLUTE PERCENTAGE ER RO RS)................. 251

REFERENCE ..................................................................................................................... 252

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LIST O F TABLES

Table 3.1 Major Socio-Economic Indicators in Korea................................................. 55

Table 3.2 Major Energy Indicato rs................................................................................. 56

Table 3.3 Primary Energy Consumption by Fuel T ype ................................................57

Table 3.4 Final Energy Demand by Sector.................................................................... 61

Table 3.5 Industrial Energy Consumption by Fuel Type............................................. 63

Table 3.6 Residential/Commercial/Others Energy Consumption............................... 64

Table 3.7 Fuel Consumption in the Transportation Sec tor..........................................66

Table 3.8 Number o f Vehicles by T y pe ........................................................................ 67

Table 3.9 Fuel Consumption for Power Generation..................................................... 68

Table 3.10 KEPCO's Plan of Power Plant Construction............................................... 70

Table 3.11 Price o f Petroleum Products and Taxes in Korea........................................75

Table 3.12 Air-Pollutant Emissions by Sector and Fuel Type in Korea (1997)......... 82

Table 3.13 CO2Emissions from Energy Consumption in K or ea ................................. 85

Table 3.14 Taxes on Fuel Types....................................................................................... 90

Table 4.1 Subdivision o f Secto rs.................................................................................. 110

Table 5.1 MAPE Distribution o f the Simulation M od el........................................... 138

Table 5.2 MAPEs o f Selected Endogenous Variables................................................138

Table 5.3 Assumptions for Exogenous Variables in BA U Forecasting.................. 143

Table 5.4 Projected Ma jor Economic Indicators........................................................ 145

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Table 5.5 Energy Demand and CO2Emissions Projection...................................... 148

Table 5.6 Projection o f Selected Environmental Indicators....................................149

Table 5.7 Energy Contents, CO2 Emissions Factors and Tax Rates ($5/bbl

equivalent tax)..............................................................................................153

Talbe 5.8 Scenarios Set-Up for Policy Sim ula tions.................................................154

Table 5.9 Impact o f Excise Tax on Primary Energy Consumption........................158

Table 5.10 Impact o f Energy Tax on Primary Energy Consum ption.......................159

Table 5.11 Impact o f Carbon Tax on Primary Energy Consumption.......................161

Table 5.12 Impacts of Energy and Carbon Taxes on Environment in 2020.............163

Table 5.13 Impacts of Energy and Carbon Taxes on the Economy..........................167

Table 5.14 Economic Benefits o f Carbon Tax Reinvestment ($10/bbl CarbonTax)................................................................................................................ 169

Table 5.15 Economic Benefits of Carbon Tax Reinvestment ($10/bbl Carbon

Tax)................................................................................................................ 171

Table 5.16 Economic Impacts o f2000 CO2 Stabilization ($20/bbl Carbon

Tax)................................................................................................................ 173

Table 5.17 Impacts o f Carbon Taxes on Energy Consumption.................................175

Table 6.1 New and Renewable Energy Potential in Korea......................................196

Table 6.2 Typology o f Decision-Making (DM) M od el...........................................227

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LIST OF FIGURES

Figure 2.1 Objective of Environmentally Sustainable Development......................... 26

Figure 2.2 CO2 Parity in the Year 2050 ......................................................................... 27

Figure 2.3 Economic Parity in the Year 2050............................................................... 28

Figure 2.4 Optimality, Sustainability, and Survivability ............................................. 30

Figure 2.5 Sustainable Energy Development................................................................ 40

Figure 2.6 Interactions of Energy, Economy, Environment, and Socio-Politics .......................................................................................................... 50

Fgirue 3.1 Trend o f Energy Consumption by Fuel Type ............................................. 58

Figure 3.2 Trend of Share by Sector in Final Energy Consumption........................... 62

Figure 3.3 Emission Trend and Concentration o f Major Air-Pollutants....................80

Figure 3.4 Trend o f CO2Emissions from Energy Consumption................................ 85

Figure 4.1 General Scheme o f Simulation M odel ...................................................... 108

Figure 4.2 Economic Module ....................................................................................... 114

Figure 4.3 Energy Module ............................................................................................ 120

Figure 4.4 Environmental Module ............................................................................... 125

Figure 4.5 Socio-Political Module ............................................................................... 128

Figure 5.1 Actual and Predicted Values o f Selected Economic Variables .............. 135

Figure 5.2 Actual and Predicted Values of Energy Variables.................................. 136

Figure 5.3 Actual and Predicted Values o f Environmental Variables ......................137

Figure 5.4 Energy Demand and CO2 Emissions Projection..................................... 148



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Figure 5.5 Forecasted Emissions and Air Qua lity...................................................... 150

Figure 5.6 Impacts o f Excise Tax on Primary Energy Con sumption.......................157

Figure 5.7 Impacts o f Energy Tax on Primary Energy Demand................................159

Figure 5.8 Impacts o f Carbon Tax on Total Primary Energy Dem and.....................161

Figure 5.9 Impacts o f Taxes on SO2 , NOx, and CO ...................................................162

Figure 5.10 Economic Impacts of Energy and Carbon Tax es.....................................166

Figure 5.11 CO2 Stabilization Impacts on the Econ omy..............................................173

Figure 6.1 Institutions Influencing Sustainable Energy Sys tem............................... 210

Figure 6.2 Dynamics o f Energy Market Stru ctu res....................................................216

Figure 6.3 Institutiona l Strategy for Sustainable Energy Future............................... 229



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ABSTRACT

The primary purpose of this disserta tion is to provide the groundwork for a

sustainable energy future in Korea. For this purpose, a conceptual framework of sus

tainable energy development was developed to provide a deeper understanding o f

interrelationships between energy, the economy, and the environment (E3). Based on

this theoretical work, an empirical simulation model was developed to investigate the

ways in which E3 interact.

This dissertation attempts to develop a unified concept o f sustainable

energy development by surveying multiple efforts to integrate various definitions of

sustainability. Sustainable energy development should be built on the basis o f three

principles: ecological carrying capacity, economic efficiency, and socio-political

equity. Ecological carrying capacity delineates the earths resource constraints as well

as its ability to assimilate wastes. Socio-political equity implies an equitable distri

bution of the benefits and costs of energy consumption and an equitable distribution of

environmental burdens. Economic efficiency dictates efficient allocation o f scarce

resources.

The simulation model is composed o f three modules: an energy module,

an environmental module and an economic module. Because the model is grounded

on economic structural behaviorism, the dynamic nature o f the current economy is

effectively depicted and simulated through manipulating exogenous policy variables.

This macro-economic model is used to simula te six m ajor policy intervention scenar

ios. Major findings from these policy simulations were: 1) carbon taxes are the most



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effective means o f reducing air-pollutant emissions; 2) sustainable energy develop

ment can be achieved through reinvestment o f carbon taxes into energy efficiency and

renewable energy programs; and 3) carbon taxes would increase a nations welfare if

reinvested in relevant areas.

The policy simulation model, because it is based on neoclassical econ

omics, has limitations such that i t cannot fully account for socio-political realities

(inter- and intra-generational equity) which are core feature o f sustainability. Thus,

alternative approaches based on qualitative analysis, such as the multi-criteria ap

proach, will be required to complement the current policy simulation model.

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Chapter 1

INTRODUCTION

1.1 Identification of Research Problem

The question o f linkages between fossil fuel use and environmental

degradation has gained increasing attention over the past three decades. Energy and

environmental policy makers have worked together in the formulation and implement

ation of policies to arrest rates o f air pollution caused by excessive consumption of

fossil fuels. The environmental effects of energy use, however, have much broader

implications for society as a whole and have spurred the study o f sustainable energy

development. The energy-environment nexus was an area o f intense debate at the

United Nations Conference on Environment and Development (UNCED) in 1992 and

1997. In Agenda 21, Chapter 9 (UNCED, 1992), it was agreed that current patterns of

production and utilization o f energy cannot be sustained, and that one o f the ways o f

promoting sustainable development is to reduce adverse effects on the atmosphere

from the energy sector.

Sustainability in energy development has been approached from diverse

perspectives such as economic (Daly, 1992, 1981; Peet, 1992), ecological (Odum,

1968; Capra, 1983), and technological perspectives (Lovins, 1977; Goldemberg,

1988). Although each approach reflects its own worldview and valuation o f nature,

individuals, and society, they are similar in approaching current environmental

problems from a systems view. A systems view presumes interactive relationships

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among energy, economic, and environmental systems, the so-called E3. The main

stream E3 systems view is a dramatic improvement over purely economic methods o f

analysis, but its omission o f social and political realities limits its ability to capture the

full complexity o f real-world interactions.

More recently, socio-political concerns such as equitable energy consump

tion and environmental justice have been incorporated into the E3 discourse (Byrne et

al., 1998; UNDP, 1995; Munasinghe, 1994). As a result o f this expanded view, it is

now rea lized that socio-political reforms are required as a precondition for the transi

tion toward a sustainable energy system. Moreover, this view requires us to overcome

narrow neoclassical economic theories which are inadequate for understanding the

holistic and integrated nature of sustainability (Daneke, 1995). The major concern of

this approach is to maintain the stability o f social and cultural systems, while simul

taneously insuring sustainable use of resources.

Sustainability issues began to be discussed in a global context as a result

o f several initiatives o f the United Nations. Global environmental issues at an early

stage were limited to the problems of trans-boundary pollution such as acid rain and

oil spills, which require bilateral agreements between adjacent countries. Beginning in

the 1970s, several major academic works regarding global environmental problems

such as the Club o f RomesLimits to Growth(Meadows e t al., 1972) turned our

attention to global sustainability.1 The Brundtland Commissions report, Our

1Dennis Meadows was a student of Jay W. Forrester, a professor at MIT, who developed the idea o f systems dynamics in the early 1960s. Extrapolating the trend of the

existing growth rates in major variables such as population and consumption of natural

resources, Meadows simulated ecosystem into the fixture. His conclusion was thathumanity would reach the material limit o f several key resources by the mid-twenty-

first century and exhaust the "carrying capacity" o f the earth. It was the first globalsimulation analysis by computer.

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Common Future(1987) made the concept o f sustainable development a key inter

national issue. The report has since been a role model for sustainable development in

the global context. Its primary contribution to the discourse of sustainable develop

ment has been the identification o f inequity between generations and classes as one o f

the key variables in solving the current g lobal environmental problems.

Another persistent issue that has characterized the global environmental

debate has been the w ide separation in the political and economic priorities o f devel

oped and developing nations, commonly referred to as the North-South divide. Both

sides, while agreeing to the seriousness o f global environmental problems such as

ozone depletion, climate change, and the loss o f biodiversity, have different ideas

regarding the causes and solutions o f these problems. Nowhere is this more evident

than with respec t to the debate over climate change. For example, the North blames

rapid population growth in the South for intensifying climate change, whereas the

South blames the lavish lifestyles of the North.

As part o f the effort to expand the E3 discourse, many quantitative models

have been developed to simulate the interactive character of resource-environment

problems at the global and regional scale . The computer simulation model developed

by Meadows e t al. in their monumental work, The Limits to Growth(1972), was the

first global empirical model to tackle the E3 issues. Since then, many modeling tech

niques have been developed to interpret and simulate the interrelationships between

energy, the economy, and the environment. Major techniques employed for this

purpose include the input-output method, linear programming, macro-economic sim

ulations, and the computable general equilibrium model (Donnelly, 1987; Bunn and

Larson, 1997). Each technique has its strengths and limitations in dealing with the

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interactions between energy, the economy, and the environment. However, on the

whole, these models have made a great contribution in identifying the interdependent

nature o f the so-called E3 and providing a firm basis for the evaluation of policies that

are proposed to promote sustainable development.

These empirical approaches, however, fail to incorporate socio-political

issues, such as equity and justice, into their quantitative calculations o f energy con

sumption and environmental costs. The socio-political dimension of sustainability is

no less important than the three Es. Despite much discussion, there is only a poor

quantitative understanding o f the socio-political dimension o f the energy-economy-

environment nexus. Compared to the interaction of the three E s, there have been few

formal, or empirical, analyses o f how a sustainable energy system would affect the

socio-political structure o f a society.

1.2 Purpose o f the Study

This dissertation has two major purposes: 1) to build a conceptual frame

work of a sustainable energy system that integrates energy, economic, environmental,

and socio-political dimensions of sustainability; and 2) to develop a policy simulation

model for Korea based on the conceptual framework. This methodology will be used

to identify the impacts o f policy tools to achieve a sustainable energy future in Korea.

Firstly, this dissertation will conceptualize a sustainable energy system.

Currently, sustainability has been defined in as many ways as there are academic

disciplines. This multiplicity of definitions causes so much confusion that its meaning

has become obfuscated, hi this regard, it would be valuable to draw a clear-cut and

unambiguous definition of sustainability by synthesizing recent works. In this theo

retical effort, an operational definition o f sustainable energy development will be

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suggested, based on a survey o f the dominant theories o f sustainable development. The

development of this definition will also require an in-depth analysis o f socio-political

dimension to better understand, and get a clearer picture of, sustainability in terms o f

energy development. From a socio-political viewpoint, a sustainable energy system is

characterized by intergenerational, interregional, and interclass justice.

As the second goal set by this dissertation, an empirical simulation model

will be developed to support the theoretical framework established in the first part. An

empirical model is not only necessary for supporting the conceptual framework of

sustainable energy development, but it also provides a simple but realistic understand

ing of the relationship among policies, institutions, and social patterns. In recognition

of these needs, a num ber o f simulation models (KEEI,2 1998; Jung and Hahn, 1998;

Kwak, 1995; Jung and Yoo, 1994) have been developed which integrate energy, the

economy, and the environment in the Korean context. However, the interactions

between energy and the environment have not be en fully reflected in their models.

The analytical focus o f these models is mostly directed on just one aspect o f environ

mental degradation such as global warming. Thus, it is virtually impossible to

describe the overall relationship between energy and the environment in these models.

In contrast, the model developed in this dissertation takes into consideration not only

global wanning, b ut also air-quality problems caused by energy consumption. This

approach allows a broade r understanding of the energy-environment nexus.

This disse rtation also intends to build a more comprehensive simulation

model by including socio-political concerns along with purely economic, energy, and

environmental concerns. Socio-political structure is seen as a key component in this

2 Korea Energy Economics Institute.

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simulation model as indicated by the theoretical framework. However, this intention

was left unfulfilled due to insufficient data related to socio-political structure, such as

income distribution and environmental indices. If socio-political concerns were

integrated into the model developed in this dissertation, it would generate essential

information for policy-makers to promote environmental and social sustainability in

society.

1.3 Methodology

It is generally accepted that the establishment o f a sustainable energy

system requires a multi-disciplinary approach, including economics, ecology, and

socio-politics. Follow ing such a mainstream approach, this dissertation will examine

these three dimensions o f sustainability on equal terms. Socio-political structure will

form the overarching context in constructing a theoretical framework of this dissert

ation.

In order to build a theoretical framework for sustainable energy develop

ment, the dissertation will survey the literature on the dominant theories o f sustain

ability. Several scholars (Byrne, 1996, 1989, 1983; Flavin, 1996, 1994; Munasinghe,

1996; Lovins, 1977) address sustainability in terms o f energy development. The com

monalities among these authors will be identified based on an analysis o f their

theories. These common denominators will be used to develop an operational

definition of sustainability that addresses energy, economic, environmental, and socio

political concerns.

To create an empirical model o f a sustainable energy system requires a

clear-cut, operational definition of sustainability. A couple o f scholars attempted to

develop an operational definition of sustainability by developing a list o f the indices.

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Daly (1993) developed the Index of Sustainable Economic Welfare (ISEW) by syn

thesizing the works o f Zolatas (1981) and Nordhaus and Tobin (1972). Noormans

(1995) and Pezzeys (1992) works probably were the first serious analytical works that

analyzed sustainability concepts and suggested a model for a sustainable development

path, based on an operational definition o f sustainability. They built a general model

depicting stocks and flows of economic and environmental variables such as capital,

labor and natural resources.3

The methodology in this dissertation basically adopts an eclectic approach

of neo-classical economics and alternative approaches. Pezzeys analysis (1992) of

sustainable development concepts provides a good example o f this approach. As he

explained, his approach uses neoclassical economic concepts in the context of intra-

and inter-generational equity. Furthermore, his integrated concept o f optimality,

sustainability, and survivability is more relevant to the N ewly Industrialized Countries

(NICs) such as South Korea, Taiwan, Hong-Kong, and Malaysia in a practical sense.

Based on Pezzeys theoretical framework o f sustainability, this dissertation will

attempt to build an empirical model of sustainable energy development for Korea.

In the second part, the dissertation attempts to build a simulation model.

Though most empirical models have been developed based on the input-output tech

nique or linear programming, this dissertation will employ an econometric simulation

model as a basic evaluation tool. There are only a few interactive economic-energy-

environmental models that use econometric techniques. The estimation o f regression

3 Pezzey admitted that the assumptions in his models are far from realistic; nonumbers appear; results are only generalized suggestions; one cannot say, based on

this model, whether the development path in a certain country is sustainable, and if

not, what policies should be taken to make development sustainable (1992: 2).

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equations that are relevant from the energy, economic, and environmental perspective

is difficult, while mathematical calibration of relationship among the key factors is

relatively easy. Modeling techniques other than the econometric model are mostly

constructed using mathematical relationships, ignoring any central behavioral notions,

and economic parameters such as prices, income, tax, etc. In contrast, an econometric

model can describe the economic behavioral relationships between major macro-

economic variables, such as prices, income, taxes and GNP. Because an econometric

model is free from a mathematical specification, it shows more flexibility in model

building.

Few attempts have been made in developing econometric simultaneous-

equation models in the energy and environmental fields, due to limited data avail

ability and poor data quality.4 Despite these restrictions, a number o f simultaneous-

equation models have been developed to simulate the interrelationship o f the three Es

(Italianer, 1986; Mori, 1992). hi this dissertation, an econometric simultaneous-

equation model that uses endogenous and exogenous variables to describe the

interdependence o f the energy-economic-environmental system will be composed.

4 A good num ber o f simultaneous-equation models have been developed that aremodestly successful at describing regional as well as national economies. This

method, nonetheless, poses several problems in estimating equations that belong to asystem of relations as well as with the analysis and interpretation o f such systems. In

particular, when a relation is part o f a system, some regressors are typically stochastic

and correlated with the regression disturbance term. In this case the ordinary least

squares (OLS) estimators of the regression coefficients are inconsistent and othermethods such as indirect least squares (ILS) and two-stage least squares (TSLS) are

devised to provide consistent estimates. In addition, simultaneous equation models

require a database o f good quality. Moreover, econometric simulation models are

criticized as not robust enough to analyze periods of rapid structural change (Bun andLarson, 1997).

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The model consists o f three modules: economic, energy, and environment

al modules. Each module is composed of identities as well as stochastic equations,

totaling 35 stochastic equations and 89 identities. To tes t the predic tive accuracy and

robustness o f the model, mean absolute percentage error (MAPE) is employed as a

backcasting technique. Version 3 o fEVierwswas the modeling software program

chosen fo r this effort.5 Several policy simulations will be conducted with the model to

evaluate the impacts o f three types o f taxes excise taxes, energy taxes, and carbon

taxes on key variables. In addition to these policy simulations, the impacts o f energy

and carbon taxes on the economy will be evaluated in the case of reinvestment o f

carbon taxes into energy efficiency improvements and renewable energy R&D and

dissemination programs.

1.4 Organization of the Dissertation

The dissertation is divided into two basic parts. Part One which is com

prised o f chapters two and three, is concerned w ith conceptualizing the general theory

o f sustainable energy development, with emphasis placed on the socio-political dimen

sion o f sustainability. Part Two, which comprises chapters four, five, and six, is

devoted to developing a general simulation model to illustrate the interrelationship of

the three Es and socio-political structure, and to quantify the impacts o f various

polic ies on the possible evolution o f a sustainable energy system.

5Eview sis a new version of a set o f tools for manipulating time series data originally

developed in the Time Series Processor (TSP) software for large computers. The

immediate predecessor ofEviewswasMicroTSP, first released in 1981. Eviews

provides sophisticated data analysis, regression, and forecasting tools on Window-

ba sed computers. It is a most useful development tool for economists.

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Chapter 2 discusses the conceptual framework o f sustainable energy

development. Here, concepts and operational definitions o f sustainability will be

analyzed. This analysis will consider sustainability generally as well as sustainability

within the context of the energy problem. Mainstream discourses on sustainability

will be evaluated through an examination of alternative perspectives. Part of this

chapter will provide an historical examination o f energy transitions. This historical

analysis will provide insights into the transition from conventional to sustainable

energy systems. Chapter 3 examines the Korean energy system as a case study for

empirical analysis. It first describes the current Korean energy system and discusses

possible strategies for a transition to a susta inable energy system, suggesting what

must be done to accomplish this task.

Chapter 4 develops a simulation model to show the interactions between

energy, the economy, and the environment. Severa l techniques for simulation model

building will be reviewed, including input-output models, econometric simultaneous

models, linear programming, and computable general equilibrium models. This dis

sertation chose an econometric simultaneous regression model for its analysis. The

final simulation model developed for this dissertation was structured with three

modules: an energy, an economic, and an environmental module. Chapter 5 conducts

and evaluates a policy simulation to provide policy tools for developing a sustainable

energy system. Chapter 6 discusses the possible transition to a sustainable energy

system in Korea. This discussion will be based on the insights gained from the theo

retical framework constructed in Part One and from the empirical analysis provided by

the simulation model. A summary and the policy implications o f this dissertation are

provided in the concluding chapter.

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Chapter 2

THEORETICAL FRAMEWORK

The k ey issue to be addressed in this chapter is a definition of sustain

ability. Firstly, a brie f review of theories o f sustainable development will be presented

in order to understand the core concept o f sustainable energy development. Secondly,

a conceptual framework of sustainable energy development will be discussed. At the

end o f the discussion an appropriate theoretical model of sustainability in energy de

velopment will be suggested, providing the basic framework for developing a sim

ulation model for a sustainable energy system. The discussion will also include an

issue o f energy transition and a discussion o f the socio-political dimension o f the

sustainable energy system.

2.1 Theories o f Sustainable Development

Since the term sustainable development officially appeared in the report of

the Brundtland Commission, Our Common Future,in 1987, it has become a standard

element in major environment-related discourses.6 However, sustainability remains a

vague, catch-all concept. Despite numerous efforts in refining the definition, the term

sustainable development is still ambiguous and in need of clarification. Sustainabil

ity has been interpreted in different contexts, depending upon different worldviews or

6 The concept o f sustainability was first coined by Barbara Ward for her report to the1972 Stockholm Conference on the Human Environment. When Ward used it, sustain-

ablehad a much simpler meaning than now: something is sustainable when it iscapable of being maintained on an indefinite basis (Porritt, 1993: 25).

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ideologies. These ideologies pose different valuation of the relationsh ip between

current and future generations, as w ell as the relationship between hum an beings and

nature (Noorman, 1995). This is the crux o f the problem of sustainab le development,

and perhaps the main reason why there has been great acceptance o f it in principle, but

less concrete actions to put it into practice. Many o f those with the power to effect the

necessary changes have the least motivation to alter the status quo that gave them that

power (Schmidheiny, 1992; as quoted by Daneke, 1995).

Concerned with the ambiguity of the concept of susta inable development,

world-renowned thinkers and organizations have worked on the operational concept

ualization of sustainable development. Herman Daly (1991) and P orr itt (1993) were

probably the first scholars to correct the abused concept o f sustainabilfty. They

challenged the concept of sustainable growth, arguing that economic growth is

physically limited by the earth ecosystem that is finite, not growing, and materially

closed. Therefore, according to his reasoning, sustainable development is possible

only if it is not associated with growth. A similar approach was taken in the World

Bank's World Development Report(1992). The World Banks current work in this

area is designed not to generate a general theory of sustainability, but rathe r to focus

on key conceptual issues with potentially important operational implications, hi line

with such an effort, the UNDP is working on the develop-ment of Sustainab le Devel

opment Indices (SDI), on which the sustainability of a development pro jec t and the

economic performance in a country can be evaluated. Besides these institutional

efforts, a num ber of independent scholars have suggested the conceptual framework o f

sustainability in various ways.

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There are a t least three mainstream perspectives o f sustainable develop

ment based on various academic disciplines such as economics, ecology, and socio

logy.7 The WCED's definition o f sustainable energy development gives us a point o f

departure to discuss three aspects of sustainability.8 The Commission considered

sustainable development to be a process of interaction between three sub-systems

within the society: the ecological system (exploitation o f resources), the economic

system (investment and technological development), and the socio-cultural system

(institutional changes) (Noorman, 1995). Each subsystem poses different goals for

sustainability and different approaches to meet them. In order to resolve the confusion

and draw an unambiguous and clear-cut operational definition of sustainability, it is

necessary to integrate the viewpoints o f these disciplines (Munasinghe, 1994 and

1996). Differences in the approach are grounded in the different valuation o f nature

and environment. Understanding the underlying theory of each discipline can help

avoid an unnecessary conflict that obstructs interdisciplinary communication and

cooperation. What follows is a brief description of each approach.

7 Mode of human existence is determined by three spheres: an economic sphere(modes o f production), a social sphere (social regulation), and the biosphere

(ecological regulation). These three spheres, Jean-Claude Debeir et al. (1991) argued,account for all human activities. The authors contended that no species, let alone thehuman species, can escape the laws of nature. The human activities analyzed by

economics (production, exchange, consumption) constitute only one sphere of humanpractice with its own regulators (in capitalist society: the market, prices, and so on),itself a component of a broader social sphere (civil society, the state, ideologies). But

economic sphere significantly affects the broader universe of inanimate and livingmatter which encompasses economics and extends far beyond it.

8 . . . In essence, sustainable development is a process of change in which the exploitation of resources, the direction o f investments, the orientation of technological

development, and institutional change are all in harmony and enhance both current and

future potential to meet human needs and aspiration (WCED, 1987: 46).

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2.1.1 Economics Perspective

The economic approach to sustainability is based on the Hicks-Lindahl

concept of the maximum flow o f income that could be generated while at least maint

aining the stock o f assets (or capital) which yields these benefits (Solow, 1986; Maler,

1990; Daly, 1989. 1994).9 There is an underlying concept of optimality and economic

efficiency applied to the use o f scarce resources. Problems of interpretation arise in

identifying the kinds o f capital to be maintained (e.g., manufactured, natural and

human capital) and their substitutability, as well as in valuing these assets, particularly

ecological resources. The issues o f uncertainty, irreversibility and catastrophic

collapse pose additional difficulties (Pearce and Turner, 1990).

Economists use methods to seek to maximize human welfare within theconstraints o f existing capital stock and technologies. Until recently, economics

viewed the economic system as a closed and complete system isolated from nature.

Economists recognized only the use value of nature. Nature was seen as a provider of

material resources and a sink for wastes from economic activities and little else. The

earth is inert and pass ive and therefore legitimately exploitable. Scarcity problems of

limited resources, they argue, can be solved through substitution, technology develop

ment, and the price mechanism (Hotelling, 1931; Solow, 1986; Dasgupta, 1979;

Maler, 1990; Nordhaus, 1991).10 This idea o f sustainability could lead todays

9 It is unreasonable to trea t capital consumption as income. The world-renowned

economist J. R. Hicks pointed out that income is the maximum amount a person orsociety can consume over some period o f time and still be as well o ff at the end as at

the beginning. Capital must not be run down in order to keep income constant

(1948:72). Eficksian income is by definition sustainable in an economical sense.

10 They proposed the optimal depletion policy for resources tha t are inexhaustible but

available in various grades and at various costs. Costs are assumed to increase withcumulative extraction up to a point, but then to remain constant as a backstop supply

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generation not to worry about the carrying capacity of the earth and only pass on to the

next generation an aggregate capital stock no less than the one enjoyed currently.

Such reasoning is egoistic, linear, instrumental and rational (Gladwin et al., 1995).

As environmental problems have become globalized, economists are

relearning the importance o f natural capital. A new breed o f economic thought

(Hawken and Lovins, 1999; Norgaard, 1994; Daly, 1990; Georgescu-Roegen, 1971;

Boulding, 1968) has emerged by challenging the traditional basic assumptions o f

efficiency, market rationality, etc. They argued that our earth, not the economy, is a

closed system within which nature is nothing but a limited subsystem. This alternative

view o f economics has focused its attention on the interactions between energy,

economy, and the environment. This perspective has recently been recognized in a

new branch o f economics, namely, ecological economics.

Over the past two decades existing economic principles have continued to

be modified and extended to encompass environmental and social valuations o f nature

which had not often been reflected in market transactions. Such concepts as economic

optimization and efficient resource allocation are not easy to apply to some environ

mental and social objectives. This limitation necessitates development of numerousdirect and indirect market valuation methods such as multi-criteria analysis, contin

gency valuation methods (CVM), and hedonic value methods (Dixon et al., 1994).

Environmental impacts o f projects are now routinely regarded as cost elements o f cost-

benefit analysis. These externalities are often difficult to measure in physical and

monetary terms.

is reached. According to their model, resources of the lowest grade or the highest costwill eventually be extracted from sources such as crystal rocks or deep-sea beds.

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Economic analysis o f environmental impacts, however, has been limited

to the microeconomic level. More recently, environmental economists have begun to

analyze macroeconomic impacts o f environmentally related policies at the sectoral or

national levels. Economy-wide policies have a significant effect on the natural

resources base, but the complicated interactions are not we ll understood. Many

aspects o f macroeconomic policy are based on the standard system o f national

accounts. To incorporate neglected environmental impacts into GNP and other related

measures o f income and output, the national accounts system should be environment

ally adjusted. A start has been made through satellite accounts containing environ

mental data that will supplement traditional standard national accounts (Costanza,

1991).

hi the late 1980s, a new area o f interdisciplinary study emerged with the

name ecological economics. As is implied by the name, it is a broad, ecological,

interdisciplinary, and holistic view of the problem o f studying and managing our

natural resources. It is intended to be a new approach to both ecology and economics

that recognizes the need to make economics more cognizant o f ecological impacts and

dependencies; the need to make ecology more sensitive to economic forces, incentives,

and constraints; and the need to treat integrated economic-ecologic systems with a

common (but diverse) set o f conceptual and analytical tools (Costanza, 1989).

Costanza (1997) contended tha t the services of ecological systems and the natural

capital stocks that produce them are critical to the functioning o f the Earths life-

support system. The economies o f the Earth, he continued to argue, would come to a

holt without the ecosystem services. Despite extreme difficulties and uncertainties in

evaluating the ecosystem services, he attempted to estimate the incremental or margin-

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al value o f ecosystem services, based on published studies and a few origina l calcul

ations.11

2.1.2 Ecological Perspective

Ecologists stress preservation of the integrity o f ecological subsystem s as

be ing critical for the overall stability o f the global system. Some argue fo r the preserv

ation o f all ecosystems, although others aim at a more modest goal o f maintaining the

resilience and dynamic adaptability o f natural life-support systems. The units o f

account are physical, not monetary, and the prevailing disciplines a re biology, geology,

chemistry, and the natural sciences generally.

The ecological worldview is based on the concept o f carrying capacity

(Meadows et al., 1992 and 1972). This perspective utilizes science-based estimates o f

limits in the capacity o f ecosystems to be stressed beyond which irreversible degrad

ation occurs in order to set ceilings on human activities. A soio-political version of

ecology, called deep ecology or social ecology (Bookchin, 1986; Naess, 1973) has

also been promoted in which human domination over nature is rejected in favor o f a

biological egalitarianism. A systems theory o f life and evolution that is fundament-

11 According to Constanzas calculation, the value (most o f which is outside the

market) o f 17 ecosystem services for 16 biomass is estimated to be in the range o f US$16-54 trillion per year, with an average o f US$33 trillion pe r year. Because o f the

nature o f the uncertainties, this must be considered a minim um estimate. Global gross

national product total is around US$18 trillion per year (Costanza et al., 1997. The

Value o f the Worlds Eco-system Services and Natural Capital. Nature,Vol. 387

May 15, 1997: 253-360)

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ally different from the classical neo-Darwinian theory has been proposed by several

scholars of various disciplines (Prigogine, 1984; Capra, 1982; Jantsch, 1980).12

According to this view, the premise that human beings occupy a privileged

place in nature is rejected. Human beings are only a part o f nature, both onto logically

and phylogenetically, unseparated from the rest o f nature. Non-human nature has

intrinsic value, independent of human values and human consciousness, which places

limits on the extent o f human prerogatives to use and alter it. The most significant

consequence o f continuing economic growth is the depletion o f the planet's earth's

natural resources. If the current pattern o f undifferentiated growth is continued, the

carrying capacity of the earth soon will be overshot. Some extremists argued that the

current human population size and its material demands already exceed their righteous

share o f resource allocation. Thus, to slow down the rapid depletion of our resources,

the abandonment of the idea o f continuing economic growth would not suffice. In

addition, worldwide population control should be seriously considered (Capra, 1982).

The optimum human population, according to Daly and Erlich's calculation is in the

range o f 1.5 to 2 billion people.13

12 The classical neo-Darwinian theory sees evolution as moving toward an equilibriumstate, with organisms adapting themselves ever more perfectly to their environment.According to the systems view, evolution operates far from equilibrium and unfoldsthrough the interplay of adaptation and creation. Moreover, systems theory takes intoaccount that the environment is, itself, a living system capable o f adaptation andevolution. Thus, the focus shifts from the evolution of an organism to the co-evolution

of organism plus environment. The consideration o f such mutual adaptation and coevolution was neglected in the classical view, which has tended to concentrate onlinear, sequential processes and to ignore transactional phenomenon that are mutuallyconditioning and going on simultaneously (Capra, 1982).

13 This calculation is based on the global ne t primary product o f photosynthesis (NPP).

The economy cannot grow beyond the NPP since it is the highest form of energyavailable. NPP is actually decreased with economic growth because such growth

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Ultimately, growth makes humanity and the rest o f nature poorer, not

richer in this view. The achievement of human security, dignity, and satisfaction can

only be reached through steady-state economics (Daly, 1991), material sufficiency, and

biospherical equality. Poverty is to be dealt w ith via redistribution o f wealth and

natural capital it to be preserved and enhanced. The current rates of energy and

material consumption would have to be reduced in order to observe the carrying

capacities o f ecosystem both on local and global scales.

2.1.3 Socio-Political Perspective

The socio-political approach emphasizes that the key actors are human

beings, whose patterns o f social organization are crucial for devising viable solutionsfor achieving sustainable development. Indeed, evidence is mounting that failure to

pay sufficient attention to social factors in the development process is seriously

jeopardizing the effectiveness o f various development programs and projects. The

current proponents of socio-political sustainability include many environment-related

NGOs and the United Nations.

The environment is threatened by human beings, including both local and

distant resources users. Sustainable development relies substantially upon social

action, especially at the level o f local people, individual firms and local governments,

but also concerns social structures at national and global scales. In other words, the

sociological approach puts social action and social structure at the center o f efforts to

reduces global photosynthesis and leads to lower heat-energy (entropy). Forty percent

o f this NPP is preempted by activities o f human beings which transform land and

displace photosynthesis with entropy. Based on this logic, and a premise that everyone

leads a decent life as contemporary Americans, it is concluded that the earth can

support up to 2 billion people (Daly, 1993).

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explain current unsustainable tendencies. Many who espouse this approach argue that

the exploitation o f the earth's limited resources occurs because of a deeply unequal

world economic system that actually reproduces social injustice (Mellor, 1993). From

this point o f view, sustainable development requires social justice. Unsustainability,

thus, is regarded as socially constructed tha t is, social and economic arrangements

create current patterns o f overstressed ecosystems unable to sustain diverse habitats

and organisms, as well as patterns of unequal wealth and power. If sustainable devel

opment is to b e realized, change in socia l structure is necessary from th is perspective.

The socio-political approach urges us to build a new order in the relation

ship between na ture and humans; between rich and poor; between central and periph

eral regions; and between current and future generations.14 It recognizes people as the

instruments and beneficiaries, as well as the victims, o f all development activities.

Furthermore, unless we keep foremost in our minds the need to continue to improve

the welfare o f people, environmental programs will certainly fail (Munasinghe, 1996).

The poor, in particular, are the most vulnerable, but the least prepared, victims o f

environmental damage. And yet they are blamed for much of the damage on the basis

of their short-term necessities, ignorance, and lack o f resources. From this perspec

tive, we need to build the capacity to regula te economic and social interactions in

14 Jean-Claude Debeir et al. (1991) effec tively addressed the inequity between rich and

poor countries by pointing out two sides o f energy crises:

. . . Potentially more damaging, a new threat to the ecological balance o f the entire

planet has highlighted the two major aspects o f the crisis: scarcity is leading wholeregions o f Africa, Asia and Latin America to destroy their biological capita l particularly forests; while over-consumption in Europe and Japan threatens the same

forest spaces with deadly pollution (136).

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support o f an equitable society, which, in turn, will lead to environmentally sustainable

futures.

Incorporation of socio-political change into an agenda for sustainable

development demands competent social analysis and creative planning. Social

analysis needs to identify elements that can build a social organization committed to

sustain-able development. The elements o f social organization typically include the

social actors themselves and institutional arrangements, and the prevailing cultural

systems o f resource entitlement ownership and custodianship; authority systems and

enforcement mechanisms; and value and bel ief systems. Based on socio-political

analysis, institutions and policy instruments can be designed to mobilize and coordi

nate social resources on behalf of sustainability.

The socio-political approach delves into the local commons problems in

relation to global commons. It is concerned with the monopolized management o f the

global commons by regimes of unequal wealth and power. It proposes that reclaiming

local and global commons is needed and will depend upon the restoration o f commu

nity power to regulate the competitive rushes o f global economic development (The

Ecologist, 1993).

2.1.4 Integrative Approaches

The three perspectives discussed above provide basic tools to operation

alize the concept of sustainable energy development. Any single approach, however,

is not sufficient in addressing the current complex of environmental problems. While

economists, ecologists, and sociologists agree on the seriousness o f current environ

mental problems, their approaches to solve them are quite different. That's because

they do not see these problems through the same set of conceptual lenses. Addition-

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ally, their scope is bounded by academic disciplines to which they belong. Each inter

prets the same concerns through its own lens.

In response to a call for a unifying theory, many attempts have been made

to integrate three dimensions of sustainability. Actually, the Brundtland/WCED report

o f 1987, Our Common Future,sought to integrate various concepts o f sustainable

development, including dimensions o f ecological carrying capacity and social equity.

Ecological economics (Costanza, 1991; and Norgaard, 1992), as a new way of econ

omic thinking, has attempted to integrate economical and ecological approaches.

Herman Daly (1991) has suggested a steady-state economy as a strategy for sustainable

development. This concept combines carrying capacity with economic efficiency.

Munasinghe (1996) has attempted to integrate several approaches based on the tech

niques o f multi-criteria analysis (MCA). Pezzey (1992) has defined an operational

concept o f sustainability and developed several models of development based on a

merging o f ecological and neoclassical economic methodologies. Bym e et al. (1998)

have argued for an equity-based sustainability in which economic, ecological, and

socio-political dimensions are joined together. Klass Jan Noorman (1995) has pro

posed a sustainability model (ECCO: Enhancement of Capital Creation Options) that

is built on the concept of the natural capital accounting methodology.15

15 ECCO (Enhancement o f Capital Creation Options) was presented as a modelingapproach to depict the divergence between natural capital and human made capital andthe rate at which human capital can be created from natural capital. ECCO, according

to Noorman, can be applied to study the long-term effects of changing energy andmaterial use, changing production and consumption patterns and the dynamics of the

feedback mechanisms of environmental and economic parameters. He applied the

ECCO model to the Netherlands economy to examine its physical developmentpotential.

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What follows are discussions o f several approaches to integrate the

sustainable development, focusing on the core concept o f each approach.

2.1.4.1 Ecological Economics Approach

Ecological economics approach to sustainability is distinctive from other

integrated approaches in that it seeks to harmonize between traditional economic

approach (very weak sustainability) and ecological approach (very strong sustain

ability). It attempts to find a way in which a long-term, stable physical relationship

with our environment is ensured, h i other words, this approach is based on a political

economy o f sustainability in which the best o f biophysical systems thinking and

economic thinking are brought together, working cooperatively (Peet, 1992). Ra ther

than regarding economic and ecological goals as being in conflict, ecological approach

attempts to solve the disparity betw een these two approaches by hierarchical integra

tion.

Ecological economics pursues a prioritized approach to sustainability.

First o f all, it defines the carrying capacity of the planet earth in terms o f resources

base and environmental lim its . It then raises the ethical and moral questions o f our

responsibility for equitable distribution in resources allocation. Only after the eco

logical and ethical questions are resolved, economical efficiency in resources alloc

ation can be addressed (Norgaard and Howarth, 1992). In addition to this sequential

approach, it requires socio-economic institution that ensures all those issues to be

properly served.

Because ecological economics starts its argument in the perspective of

ecological stewardship (very strong sustainability), its policy priority for sustainability

is on the ecological imperative. Although ecological economics still needs old

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analytical tools mostly developed by economics, these tools should be used in new

- ways dictated by emerging conditions. Economic tools will be vitally important in

deve loping policies for transition to a sustainable future. Since no other institutions

are available to replace the existing socio-economic institutions, they can be re-usable

by modification (Daly, 1991). Here, price mechanism is sti ll seen as an effective way

to internalize estimates o f the value o f externalities. For example, full fuel cost on

energy analysis can evaluate many primary energy demands and pollution conse

quences o f economic activity.

2.1.4.2 Steady-State Econom y

Steady-state economy, proposed by Daly as part o f the movement towardan ecologica l economics, is an approach that calls for paradigmatic revolution. It rests

on the prem ise that the ecosystem has its carrying capac ity with respect to every

species, including human beings. Any productive system loses the capacity to regen

erate itse lf i f it is over-exploited (Porrit, 1993). This view was succinctly summ arized

by Herman Daly:

. . . Todays newly emerging paradigm (steady state, sustainable devel

opment), however, begins with physical parameters (a finite world,complex ecological interrelations, the laws o f thermodynamcis) andinquires how the nonphysical variables of technology, preferences,distribution, and lifestyles can be brought into feasible and jus t equili

brium with the complex biophysical system o f which we are a part.

The physical quantitative magnitudes are what is given, and the nonphysical qualita tive patterns o f life become variables. This emerging

paradigm is more like classical than neoclassical economics in thatadjustment is

analisis hubungan antara energi, ekonomi, lingkungan dan sosial dg sistem energi berkelanjutan

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