sustainability, energy, and economic growth · production of iron grows price of iron ... •...
TRANSCRIPT
SUSTAINABILITY, ENERGY, AND ECONOMIC GROWTH R. U. Ayres, April 10, 2013
• Part 1. Energy as technology Incubator• Part 2, Energy Futures, Peak Oil• Part 3. Exergy and Useful Work• Part 4. Economic Growth Theories• Part 5. Credit, debt and bubbles • Part 6. Externalities and Climate Change • Part 7. The Neo-Liberal Critique• Part 8. A Win-Win-Win?
Energy Resource Discoveries asTechnology Incubators
• Discoveries of gold, silver and diamonds created new money, but did not finance industrialization
• The slave trade was profitable but it did not finance industrialization
• The discovery and increased demand for coal “incubated” steam engines, first to pump water from mines, and then for other applications, from railroads to ships, steel & electric power.
Ayres IIASA 10 August 2007
Labor productivity grows
Production of iron grows
Price of iron falls
demand for coal growsPrice of coal falls
production & sales of coal grow
Need for pumping
Deeper mines, flooding
Coal replaces charcoal in iron-making
Steam power replaces horses, wind, etc.
Invention of steam engine for pumping (Newcomen)
Iron replaces wood in carts, etc.
The first industrial revolution
Technologies from Coal
• From reciprocal to rotary motion• Boring tools for cannons & steam engines• Blowers for air into blast furnaces• Coke, coke oven gas, town gas• Coal tar by-products, nitrogen fertilizer• Aniline dyes• Otto’s 4-cycle internal combustion engines• Steam turbines and electric power
Technologies from the discovery of petroleum
• Need for a replacement for whale oil• Fractional distillation to obtain kerosine• Application to Otto-cycle ICE by Daimler• Automobiles, trucks, aircraft• Diesel cycle (pressure ignition) • TEL (anti-knock) to increase compression• Gas turbines and jet engines
Other resource discoveries and their consequences
• Opium (morphine, heroin, addiction, crime)• Tobacco (cigarettes, addiction)• Corn (food, corn syrup sweetener)• Potatoes (food, potato chips, obesity)• Anti-biotics (infectious disease control)• Radium and Uranium (nuclear weapons,
nuclear power, proliferation)• Semi-conductors (transistors, micro-electronics)
Part 2: Energy Futures and Peak Oil
• Long history of controversy, since Malthus • Optimists argue that “there is an ocean of oil
out there” and that technology will compensate for dissipative use. Prices have declined since 18th century (until recently)
• Pessimists argue that the earth is finite, fossil fuel resources are finite, and technology has limits. So prices will rise. This will slow or stop economic growth
Source: Bezdek, 2008
Source: Bezdek, 2008
1965 1970 1975 1980 1985 1990 1995 2000year
-30
-20
-10
0
10
20
30
40
50
Gig
abar
rels
ann
ually
Until well into the 1970s, new global oil discoveries were more than sufficient to offset production each year.Since 1981, the amount of new oil discovered each year has been less than the amount extracted and used.
Source: Heinberg 2004, "Powerdown", Figure 5 page 43
Global oil discoveries minus global oil consumption 1965-2003
1980 1984 1988 1992 1996 2000year
0
200
400
600
800
1000
1200
1400
1600B
illio
n ba
rrel
s
proved reservesproved and probable reserves
2004
Global "proved reserves" (wide bars) give the reassuring appearance of continuing growth, but the morerelevant "proved and probable reserves" (thin bars) have been falling since the mid-1980s.
Source: Strahan 2007, "The Last Oil Shock", Figure 13 page 71
The wrong kind of shortage
Saudi reserves 1936-2005
Oil production since 2002 approaching saturation
Source: http://www.theoildrum.com
Source: http://www.theoildrum.com
World oil production projections to 2040
Source: Dave Rutledge, The coal question and climate change : http://www.theoildrum.com 6/20/2007
Hubbert linearization: World oil & gas output 1960-2006
Part 3: Exergy and Useful Work
• Energy is conserved, except in nuclear reactions. The energy input to a process or transformation is always equal to the energy output. This is the First Law of thermodynamics.
• However the output energy is always less available to do useful work than the input. This is the Second Law of thermodynamics, sometimes called the entropy law.
• Energy available to do useful work is exergy.
Exergy and Useful Work, Con’t
• Capital is inert unless it is “activated”. Some capital is always inert (walls, pipes, containers, etc.) Machines are the active components.
• Labor (by humans and/or animals) was once the only source of useful work in the economy.
• But machines (and computers) require exergy to function, in the the form of fuels or electricity.
• Capital and labor without exergy are inert and unproductive. Hence exergy is really a “factor of production”.
Recapitulation: Energy vs. Exergy
• Energy is conserved, exergy is consumed (destroyed) in every process or action.
• Exergy is the maximum available workthat a subsystem can do on its surroundings as it approaches thermodynamic equilibrium reversibly,
• Useful work is calculated as exergy input times exergy efficiency.
1. FOSSIL FUELS(Coal, Petroleum, Natural Gas, Peat)
2. BIOMASS(Wood, Agricultural Products, Algae(?))
3. OTHER RENEWABLES(Hydro, Wind, Geothermal, Tidal, )
4. Uranium, Thorium, Tritium
EXERGY IN THE ECONOMY
Exergy Sources: 1900 -2000Japan, Austria, UK, USA
1900
0%
20%
40%
60%
80%
100%
Japan Austria1920
USA UK
nuclear
natural gas
oil
coal
electricity fromrenewables
renewables (wind,solar, biomass)
food and feedbiomass
2000
0%
20%
40%
60%
80%
100%
Japan Austria USA UK
nuclear
natural gas
oil
coal
electricity fromrenewablesrenewables (wind,solar, biomass)
food and feedbiomass
Exergy input share by source, (UK 1900-2000)
0%
20%
40%
60%
80%
100%
1900 1920 1940 1960 1980 2000year
Biomass
Renewables andNuclear
Gas
Oil
Coal
Resource Substitution
From Coal, to Oil, Gas then Renewables and Nuclear
1900 1920 1940 1960 1980 2000
0
2
4
6
8
10
12
14
16
18
index
USA Japan UK Austria
EXERGY: Austria, Japan, UK & US: 1900-2005 (1900=1)
1900 1920 1940 1960 1980 2000
0
index
10
20
30
40
50
60
70
80
90
USA Japan UK Austria
Useful Work (U) Austria, Japan, US, UK:1900-2000
Exergy Intensityexergy / GDP [GJ/1000$]
0
10
20
30
40
50
60
1900 1915 1930 1945 1960 1975 1990 2005
USA JapanUK Austria
Useful Work Intensityuseful work / GDP [GJ/1000$]
0,0
0,5
1,0
1,5
2,0
2,5
3,0
3,5
1900 1915 1930 1945 1960 1975 1990 2005
USA Japan UK Austria
Conversion Efficiencies (US)
0%
5%
10%
15%
20%
25%
30%
35%
40%
200519851965194519251905
Year
Effi
cien
cy (%
)
Electricity Generation
High Temperature Heat
Mid Temperature Heat
Mechanical Work
Low Temperature HeatMuscle Work
Exergy to useful work conversion efficiency
0%
5%
10%
15%
20%
25%
200519851965194519251905year
effic
ienc
y (%
)
US
Japan
UK
High Population Density Industrialised Socio-ecological regimes
Resource limited
Low Population Density Industrialised New World Socio-ecological regime
Resource abundant
Evidence of stagnation –Pollution controls, Technological barriersAgeing capital stockWealth effects
Useful work types• .
– Electricity– Mechanical drive (motors and engines, mostly for
transport)– Heat (high, mid and low temperature)– Illumination (lighting)– Muscle Work
• N.B.Available work (exergy) and ‘useful’ workare not equal, the latter depends on the exergy efficiency of the conversion process for a given task. Efficiency = useful work / available work.
useful work by use categoriesin shares of total GJ/cap
1900
0%
20%
40%
60%
80%
100%
Japan Austria1920
USA UK
Muscle workNon-fuelOTMElectricityLightLT heatMT heatHT heat
2000
0%
20%
40%
60%
80%
100%
Japan Austria USA UK
Muscle workNon-fuelOTMElectricityLightLT heatMT heatHT heat
Useful work by type(US 1900-2005)
0%
20%
40%
60%
80%
100%
200519851965194519251905year
shar
e (%
)
Muscle WorkNon-Fuel
Mechanical Work
Electricity
High Temperature Heat
Low Temperature Heat
carbon intensities: 1900-2000 in tC/TJ
CO2/exergy [tC/TJ]
0
5
10
15
20
2519
00
1915
1930
1945
1960
1975
1990
2005
USA JapanUK Austria
Useful Work Intensity1900-2000 in tC/TJ
CO2/useful work [tC/TJ]
0
100
200
300
400
50019
00
1915
1930
1945
1960
1975
1990
2005
USA JapanUK Austria
Part 4: Economic Growth Theories
• Standard neoclassical growth theory since Solow’s work in 1956-57 assumes that GDP is determined by a production function of two variables, capital K and labor L, subject to constant returns to scale. The usual form is Cobb-Douglas
Common practice: Cobb-Douglas
Yt is output at time t, a function of,• Kt , Lt , Rt inputs of capital, labor and natural
resource services.• α, + β + γ = 1, (constant returns to scale assumption)
• At is total factor productivity• Ht , Gt and Ft coefficients of factor quality
( ) ( ) ( )γβαtttttttt RFLGKHAY =
Economic production functions
1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010
year
0
10
20
30
40
50
Index (1900=1)
GDPCapitalLaborExergyUseful Work
GDP and factors of production, US 1900-2005
1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010
year
1
1.5
2
2.5
3
3.5
4
4.5
5
5.5
unexplained Solow residualTPF (1.6% per annum)
Index (1900=1)
Cobb-Douglas Function and Solow Residual USA: 1900 - 2005
GDP Index (1900=1)
1900 1920 1940 1960 1980 2000year
5
10
15
20
25
US GDP
Cobb-Douglas
SOLOW RESIDUAL(TFP)
US GDP 1900-200; Actual vs. 3-factor Cobb Douglas function L(0.70), K(0.26), E(0.04)
Problems with Neoclassical Growth Theory
• No link to the physical economy: only capital and labour are productive.– Energy, materials and wastes are
ignored.• Unable to explain historic growth rates.• Exogenous unexplained technological
progress is assumed, hence growth willcontinue indefinitely “on track”, with – or without – energy inputs.
Our Theory: The Virtuous Cycle driving growth
Lower Prices ofMaterials &
Energy
INCREASED REVENUESIncreased Demand for
Final Goods and Services
R&D Substitution ofKnowledge for Labour;
Capital; and Exergy
ProductImprovement
Substitution ofExergy for Labour
and Capital
ProcessImprovement
Lower Limits toCosts of
Production
Economies ofScale
Lower costs, lower prices, increased demand, increased supply, lower costs
For the USA, a = 0.12, b = 3.4 (2.7 for Japan) Corresponds to Y = K0.38 L 0.08 U 0.56
• At , 'total factor productivity', is set at unity
• Resources (Energy & Materials) replaced by WORK
• Ft = energy-to-work conversion efficiency
• Factors ARE MUTUALLY DEPENDENT
• Empirical elasticities DO NOT EQUAL COST SHARE
⎭⎬⎫
⎩⎨⎧
⎟⎠⎞
⎜⎝⎛ −+⎟⎟
⎠
⎞⎜⎜⎝
⎛⎟⎠⎞
⎜⎝⎛ +
−= 12expULab
KULaUYt
The linear-exponential (LINEX) production function
1900 1920 1940 1960 1980 2000year
0
5
10
15
20
25
PRE-WAR COBB DOUGLASalpha=0.37beta=0.44gamma=0.19
POST-WAR COBB DOUGLASalpha=0.51beta=0.34gamma=0.15
LINEX GDP estimate
US GDP (1900=1)
Empirical GDP from Groningen GGDC Total Economy Growth Accounting Database: Marcel P. Timmer, Gerard Ypma and Bart van Ark (2003), IT in the European Union: Driving Productivity Divergence?, GGDC Research Memorandum GD-67 (October 2003), University of Groningen, Appendix Tables, updated June 2005
Empirical and estimated US GDP: 1900-2000
Empirical GDP
GDP estimate Cobb-Douglas
1900 1920 1940 1960 1980 2000year
0
10
20
30
40
50
PRE-WAR COBB DOUGLASalpha=0.33beta=0.31gamma=0.35
POST-WAR COBB DOUGLASalpha=0.78beta=-0.03gamma=0.25
GDP estimate LINEX
GDP estimate Cobb-DouglasEmpirical GDP
GDP Japan (1900=1)
Empirical GDP from Groningen GGDC Total Economy Growth Accounting Database: Marcel P. Timmer, Gerard Ypma and Bart van Ark (2003), IT in the European Union: Driving Productivity Divergence?, GGDC Research Memorandum GD-67 (October 2003), University of Groningen, Appendix Tables, updated June 2005
Empirical and estimated GDP Japan; 1900-2000
1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010
year
0
1
2
3
4
5
6
7
indexed 1990 Gheary-Khamis $
COBB DOUGLASalpha=0.42beta=0.24gamma=0.34
GDP estimate LINEX
GDP estimate Cobb-DouglasEmpirical GDP
Empirical GDP from Groningen GGDC Total Economy Growth Accounting Database: Marcel P. Timmer, Gerard Ypma and Bart van Ark (2003), IT in the European Union: Driving Productivity Divergence?, GGDC Research Memorandum GD-67 (October 2003), University of Groningen, Appendix Tables, updated June 2005
Empirical & estimated GDP, UK 1900-2005 (1900=1)
45
33.75
22.5
11.25
01900 1918 1936 1954 1972 1990 2008 2026 2044
year
empiricallowmidhigh
Simulation results using the plausible trajectories of technical efficiency growth as a function of cumulative primary exergy production
GDP (1900=1)
HIGH
Initial ~3% growth rate, for 130% target increase in technical efficiency.
MIDInitial 1.5% growth rate for target120% improvement in efficiency.
LOWShrinking economy at rate of 2 - 2.5% after 2010 if the target technical efficiency is only 115%
greater than the current.
Source: "The MEET-REXS model". Ayres & Warr 2006
REXS model forecast of US GDP:2000-2050
Part 5: Credit, Debt and Bubbles
Part 7: The Neo-liberal Critique
• We have shown the strong link between exergy or useful work and output. The problem for the captain of the great ship Titanic is to avoid an economic collapse while simultaneously cutting carbon-emissions drastically by cutting fossil fuel consumption. The only possible approach is to increase energy efficiency a lot, but at little (or even negative) cost. We need a win-win policy.
The neo-liberal solution, continued
• We postulate the existence of large but avoidable inefficiencies in the economy, corresponding to significant departures from the optimal equilibrium growth path that is commonly assumed. These inefficiencies may result from “lock-ins”, regulatory barriers or monopolies that prevent innovation by upstart start-ups. Eliminating inefficiencies can create “double dividends”
Deadweight
• Deadweight is the term used by economists to characterize the effect of taxes (or subsidies or other barriers) to reduce economic efficiency by reducing “option space” and thus forcing entrepreneurs to make non-optimal choices. We argue that monopolies, obsolete regulations and “lockout/lock in” also cause deadweight losses by preventing optimal innovation.
Disequilibrium = Deadweight loss
• If the economy were really in the standard state of perfect competition, perfect foresight, etc. there would be no inefficiencies and no deadweight losses. In the real world, evidence of double dividend opportunities is evidence of disequilibrium and deadweight losses.
0 10 20 30 40Abatement (percent)
Marginal cost $ per ton of
carbon
Cumulative CostMedium Term
Marginal CostMedium Term
Marginal CostShort Term
-40
-20
0
20
40
60
80
100
0
100
200
300
400
500
Cumulative CostShort Term
Region of NetDollar Savings
Cum
ulat
ive
Cos
t bi
llion
$
Cumulative and Marginal Cost of Abatement in Disequilibrium
0 10 20 30 40 50 60 70-2
0
2
4
6
8
10
12
Potential Electricity Savings (percent total U.S. consumption)
ElectricPowerResearchInstitute
RockyMountainInstitute
80
Cost of new coal-firedpower plant in USA
17
16
15
14
13121110
98
7654321
11109
87654
32
1 1110987654321
Water heating (solar)Space heatingResidential process heatElectrolysisIndustrial process heatCoolingElectronicsDrive powerWater heatingLighting's effect on heating & coolingLighting
1716151413121110987654321
Commercial lightingCommercial water heatingResidential water heatingResidential lightingIndustrial process heating
Residential water heating (heat pump or solar)Residential coolingCommercial water heating (heat pump or solar)Commercial ventilationCommercial & industrial space heatingResidential space heatingElectrolyticsResidential appliancesIndustrial motor drivesCommercial refrigerationCommercial coolingCommercial heating
LawrenceBerkeleyLabs
A
B
C
Three estimates of marginal cost of electricity efficiency (cents per kWh)
0.40.60.811.21.41.61.8
-600
-500
-400
-300
-200
-100
0
100
200
Cumulative Carbon Emissions (GT/year)
$/tonne C
DOE Forecast(1.7 GT)
IPCC(0.5 GT)
Least-Cost(1.3 GT)
11
1098765
4
1
2
3
Source: [Mills et al 1991; Figure 2]
Marginal Cost Curve for GHG Abatement
US mid-range abatement curve 2030
Source: McKinsey & Co.
The cumulative effect of (postulated) deadweight
• Actual E/GDP is much higher than the optimum, due to potential “double dividends” that are neglected
Summary of parts 4 & 5
• Neoclassical growth theory does not explain growth• We model economic growth with useful work as a
factor of production. This explains past growth well• Economic growth need not be a constant
percentage of GDP. It can be negative. • Future sustainable growth in the face of peak oil
depends on accelerating energy (exergy) efficiency gains.
• Future efficiency gains may be inexpensive if existing double dividend possibilities are exploited
Part 6: Externalities and Climate Change
• Externalities are becoming pervasive due to population growth, urbanization, industrialization and pollution. Climate change, sea level rise and loss of natural capital, including biodiversity, are major elements.
• Climate change and sea-level rise are especially driven by the build-up of so-called greenhouse gases (GHGs) in the atmosphere.The major GHGs are carbon dioxide and methane. Both are due to fossil fuel consumption
• The secondary causes are methane releases from agriculture (grazing animals), gas distribution and coal mining. There is a major “feedback” threat from thawing of perma-frost, due to warming itself.
-0.6
-0.2
0
0.2
0.4
0.6
Five Year Average
1860 1880 1900 1920 1940 1960 1980 2000
-0.4
Annual Average
Tem
pera
ture
Ano
mal
y (
C)
Source: Wikipedia "Instrumental Temperature Record"
o
Global Temperatures
1900
Source: AQUA, GLOBO Report Series 6, RIVM
1950 2000 2050 2100
0
10
20
30
40
50
Meters
Glacier & ice caps Thermal expansion Water loss on land
Historical and projected global sea level rise: 1900-2100
Thank you