Roger Fouquet Grantham Research Institute on Climate Change and Environment

The Role of Energy Technologies in Long Run Economic Growth:

A Historical Perspective

Roger Fouquet

Grantham Research Institute on Climate Change and Environment

London School of Economics (LSE)

IAEE New York,

16 June 2014

Energy Services and Economic Development

• Stern (2011) ANYAS–Changes in Energy Use-Economic Activity Linkage:

- Subs Energy and Other Inputs for Existing Tech. - Technological Change; - Shifts in

Composition of the Energy Input;- Shifts in Composition of Economic Output.

• Toman and Jemelkova (2003) EnJ–Different Channels of Effect of Energy Services–Effects Change with Economic Development

2

Part 1

The Importance of Demand

0.1

Domestic Heating

Industrial Power

PassengerTransport

Freight Transport

Lighting

Lighting

0.01

Source: Fouquet (2014) REEP

Pri

ce E

last

icit

ies

Domestic Heating


Domestic Heating

Passenger Transport

Passenger Transport

Lighting

Lighting

Income and Price Elasticity of Demand for Energy Services, 1800-2008

Values Greater than One: 10% Increase in GDP pc leads to a more than 10% increase in Energy Service

$(2010)3,300 $(2010)6,400 $(2010)11,800 $(2010)28,500

Part 2

The UK Energy-GDP Linkage

Source: Broadberry et al (2013)

England and Great Britain GDP per capita, 1300-1900

Take-Off of English Economic Development

First Industrial Revolution

Second Industrial Revolution

The Importance of Energy

• Cipolla, Wrigley, Allen: Role of Energy in Ind. Rev.

• Major Technological Innovations in 1750-1913 – New Energy Sources– Incorporate Role of Technologies– Major Improvements in Energy Efficiency

• Producers Want Energy Services– Power for Mineral Extraction and Repetitive Tasks– Heating to Manufacture Metals– Freight Transport (Land and Sea)

Industrial Power

Industrial Heating


Domestic Heating

Passenger Transport

Freight Transport

LightingConsumption of Energy by Energy Servicesin the United Kingdom (mtoe), 1700-2010

Primary Energy Intensity

Final User Energy Intensity

Source: updated from Fouquet (2008)

Energy Intensity in the United Kingdom, 1700-2010

Sectoral GDP in the United Kingdom, 1700-1870

Source: Broadberry et al (2013)

Energy Service Intensity per GDP in the United Kingdom, 1700-2000

Source: Updated from Fouquet (2008)

Iron Production

Power

Land Freight Transport

Sea Freight Transport

Part 3

The Impact of Energy Technologies

on Economic Growth

Integrating Energy Services into Energy-Intensive Industries’ Production Function

• Y = f1 (y1(K,L,E), y2(K,L,E), … )

• For Energy Intensive Industries, e.g. UK 1750-1950Energy Service (ES) combines K, L and E.

• Y = f1 (y1(ES), y2(ES), … )

• The Role of Costs of Production• Y = f1 (y1(C(ES)), y2(C(ES)), … )

• Thus, when the cost of producing ES falls, the costs of energy-intensive industrial production fall

14

Source: Fouquet (2011) REEP, Broadberry et al (2013)

Price of Energy Services in the United Kingdom, 1700-2010

Power

Iron Heating



Energy

Energy Services

Source: Fouquet (2011)

Price of Energy and Energy Services in the United Kingdom, 1700-2010

Exogeneity of the ‘Price’ of Energy Services

•Price of Energy Service:Price of Energy Efficiency of Energy Technology

•Price of Energy may be affected by Economic Growthif price elasticity of supply is low

•Adoption of Energy Efficient Tech. is less affected•Combined (i.e. Price of ES) assumed to be exogenous•Thus, can identify the effect of Price of ES on GDP

17

Granger Causality Tests

•Effect of GDP per capita: Price of Land Freight pre-1850?

• 1750-1800: Price of Power, Ind. Heat. & Land Transport on GDP per capita

• 1800-1820: Little Effect

• 1830-1850: Price of Sea Freight, and then Price of Land F.

• 1860-1950: Price of Power, of Land Freight(Modest Effect: Price of Sea Freight/Ind.Heat.)

18

Power

Source: Author’s Own Estimates

Iron Heating



Impact of 1% Decline in Energy Service Prices on GDP per capita, 1750-1950

0

5,000

10,000

15,000

20,000

25,000

30,000

1800 1850 1900 1950 2000

£(2

000)

mil

lion

of

dam

age

Power

Industrial Heating

Passenger Transport

Domestic Heating

Lighting

Freight

External Costs of Energy Use in the United Kingdom, 1800-2000

Source: Fouquet (2011) Ecological Economics

Part 4

Concluding Remarks

Insights

• Demand: Income Elasticities and Rebound Effects

• Technological Impact on GDP per capita: – Kick-Starters and Drivers of Periods of Ec. Growth– Co-Evolution and Synergies between Technologies– Transformative Effect of Energy Technologies

• Need to Understand How Cheap Energy Services Intensifies Energy Service Use in the Economy

• Energy-Intensive Industries Impacts on the Environment

Energy and Information Intensity in US, 1800-2010

Communication

Energy

Information: Newspapers and Internet

Energy

Source: Fouquet and Hippe (2014)

1600 1700 1800 1900 2000 2100

Con

sum

ptio

n

Energy Limits

Energy Limits

Energy Limits

Supply-Side Shift

Supply-Side Shift

Technological Revolution

Energy Consumption

Energy Service Consumption

Pushing the Energy Frontier or ‘Malthusian’ Energy Growth Trap?

Technological Revolution

Appendix

Pre-1750

Primary Energy Intensity

Final User Energy Intensity

Source: updated from Fouquet (2008)

Energy Intensity in the United Kingdom, 1500-2010

Sectoral GDP in the United Kingdom, 1500-1750

Source: Broadberry et al (2013); Five-year average

Expenditure on Energy per GDP in the United Kingdom, 1500-2000


Expenditure on Energy per GDP in the United Kingdom, 1500-2000


Power

The Decline in % Power Exp. in GDP is not due to a Decline in Power Expenditure, it is due to an Increase in GDP

Energy Service Intensity per GDP in the United Kingdom, 1500-2000


Iron Production

Power

Freight Transport



Power

Iron Heating





GDP per capita

Power

Iron Heating



France

Energy Intensity in European Countries, 1800-2000

Netherlands

United Kingdom

Germany

Italy

Source: Kander et al. (2013)

Early Adopter: Exports and Inefficiencies

Energy and Information Intensity in US, 1800-2010

Communication

Energy

Information: Newspapers and Internet

Energy

Source: Fouquet and Hippe (2014)

Roger Fouquet Grantham Research Institute on Climate Change and Environment

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