John A. “Skip” Laitner is the first guest contributor whom we are proud to welcome to the important Cross-Currents section of Exernomics. Cross-Currents is intended to serve as a tribune for readers and colleagues who are working to develop new ideas and perspectives on the important topics focused on here — Energy, Growth and Democracy — to share their work and ideas with our growing network of international readers. We welcome critical discussion and creative disagreement.
This first posting offers a summary of a journal article shortly to appear in the Wiley Interdisciplinary Reviews: Energy and Environment, under the title “Linking energy efficiency to economic productivity. The full text is accessible at http://onlinelibrary.wiley.com/doi/10.1002/wene.135/abstract. If you have any difficulty accessing it, we suggest you contact the author at EconSkip@gmail.com .
Most policy makers and industry leaders see energy efficiency, at best, as an easy way to save a few dollars for households and businesses. Or they might see energy efficiency as a way to achieve cost-effective reductions in greenhouse gas emissions. Both of these ideas are easily validated by the emerging evidence.
Yet, the evidence also suggests something even more compelling—that the efficient conversion of high-quality energy (“exergy”) into work is also a critically-needed resource strategy. In short, the efficient use of energy plays a much more prominent role in the economic process than is generally understood. Indeed, moving to higher levels of “exergy efficiency” is necessary to maintain a robust and sustainable economy.
Unfortunately, the role of high-quality energy (as it enables economic activity) is also badly defined and poorly tracked within the standard national economic accounts. In my new journal article, “Linking energy efficiency to economic productivity.” I build on the past assessments of mathematical physicist, economist, and colleague Bob Ayres as well as my own previous studies done for the American Council for an Energy-Efficient Economy (ACEEE). The analysis suggests that, when measured as the conversion of high quality energy into useful work, the U.S. economy (as of 2010) may be only 14 percent energy-efficient. In other words, our current market arrangements, and our current use of technologies, waste 86 percent of the energy needed in the production and distribution of goods and services.
This level of energy inefficiency imposes an array of costs that constrain the robustness and resilience of the both American and also the global economy over the long-run. The journal article explores new terms and concepts—many of which are familiar to physicists and engineers, but which have not generally become part of normal economic or environmental policy discussion.
The current system of economic accounts broadly tracks things like employment, investments, income, some aspects energy commodities (e.g., tons of coal, barrels of oil, and kilowatt-hours sold on the market), and greenhouse gas emissions. But they do not track not the full array of high quality energy as work. Here, the idea of work is the transformation of matter into the requisite set of goods and services necessary to support social and economic well-being. The lack of an appropriate characterization of energy as work limits our insights and understanding about: (1) the actual dynamics of productivity improvements and routine economic activity; and (2) the right mix of price signals, policies, and incentives that might redirect purposeful effort and productive investment.
Two recommendations are critical if the United States and other nations are to ensure the robustness of their economies and provide for their social and environmental well-being in ways that are also sustainable over the long run. The first is to improve the tracking and reporting of all energy (exergy) forms as they activate capital and labor to give life to economic activity. The second is to shift energy policies away from the current supply-side orientation to ones that focus on exergy efficiency and energy productivity improvements.
As Maria van der Hoeven, Executive Director of the International Energy Agency, writes in the 2014 Energy Efficiency Market Report, “The weight of evidence is increasingly difficult to ignore: energy efficiency has played, and continues to play, a sizeable role in the development of the global economy. The avoided energy demand from the long-term improvement in the energy efficiency of energy-using stock is larger than the total final consumption of any one fuel. ” Indeed the IEA estimates that the energy efficiency market is already between USD 310 billion and USD 360 billion, and is expected to grow.
Other assessments indicate that there is a surprisingly large array of behavioral changes and technological, systems, and infrastructural investments that can be put to work to catalyze those improvements. If policy makers and businesses choose to develop those opportunities, exergy efficiency could provide as much as 60 percent of the needed reductions in greenhouse gas emissions by 2050, even as it enhances the robustness of any economy (see, for example, The Long-Term Energy Efficiency Potential: What the Evidence Suggests). By combining both price and non-price policy signals with financial mechanisms that accelerate exergy efficiency, rather than focusing merely on energy supply, the United States and other economies can dramatically increase their productivity in ways that enable a revitalized prosperity to be sustained.
# # #
American Physical Society. Energy Future: Think Efficiency. Washington, DC: American Physical Society. 2008. http://www.aps.org/energyefficiencyreport/report/index.cfm
Ayres RU and Ayres EH. Crossing the Energy Divide: Moving from Fossil Fuel Dependence to a Clean-Energy Future. Upper Saddle River, N.J.: Wharton School Publishing. 2010. http://www.iiasa.ac.at/publication/more_XB-09-906.php
Ayres RU and Warr B. The Economic Growth Engine: How Energy and Work Drive Material Prosperity. Northampton, MA: Edward Elgar Publishing, Inc. 2009. http://www.insead.edu/facultyresearch/research/details_books.cfm?id=24432
Ayres RU. The Bubble Economy: Is Sustainable Growth Possible? Cambridge, MA: MIT Press 2014. http://mitpress.mit.edu/books/bubble-economy
Georgescu-Roegen N. The Entropy Law and the Economic Process. Chicago, IL: University of Chicago Press. 1971. http://www.amazon.com/The-Entropy-Law-Economic-Process/dp/0674281640
Harvey LD. Energy Demand Scenarios. In Energy Efficiency and the Demand for Energy Services. London, UK: Earthscan Ltd. 2010. http://www.amazon.com/Energy-New-Reality-Efficiency-Services/dp/1849710724/
Kümmel, Reiner. The Second Law of Economics: Energy, Entropy and the Origins of Wealth, Springer. 2011. http://www.springer.com/physics/complexity/book/978-1-4419-9364-9
Laitner JAS, Nadel S, Sachs H, Elliott RN, and Khan S. The Long-Term Energy Efficiency Potential: What the Evidence Suggests. ACEEE Research Report E104. Washington, DC: American Council for an Energy-Efficient Economy. 2012. http://www.aceee.org/research-report/e121
Laitner JAS. The Link between Energy Efﬁciency, Useful Work, and a Robust Economy. In Byrne J and Wang Y (editors), Green Energy Economies, Transaction Publishers. 2014. http://www.transactionpub.com/title/Green-Energy-Economies-978-1-4128-5375-0.html
Laitner JAS. Calculating the Nation’s Annual Energy Efficiency Investments. ACEEE Report E133. Washington, DC, American Council for an Energy-Efficient Economy. 2013. http://www.aceee.org/research-report/e133
Laitner JAS. Linking Energy Efficiency to Economic Productivity: Recommendations for Improving the Robustness of the U.S. Economy. ACEEE Report E13F. Washington, DC, American Council for an Energy-Efficient Economy. 2013. http://www.aceee.org/research-report/e13f
Lovins A and the Rocky Mountain Institute. Reinventing Fire: Bold Business Solutions for the New Energy Era. White River Junction, VT: Chelsea Green Publishing. 2011. http://www.rmi.org/reinventingfire
Morgan T. Perfect storm: Energy, finance and the end of growth. London, UK: Tullett Prebon Group Ltd. 2013. http://www.tullettprebon.com/Documents/strategyinsights/TPSI_009_Perfect_Storm_009.pdf
Murphy DJ and Hall CAS. Year in review—EROI or energy return on (energy) invested. Annals of the New York Academy of Sciences. 2010. http://onlinelibrary.wiley.com/doi/10.1111/j.1749-6632.2009.05282.x/abstract
Stern DI and Cleveland CJ. Energy and Economic Growth. Working Papers in Economics. Troy, NY: Rensselaer Polytechnic Institute. 2004. http://www.economics.rpi.edu/workingpapers/rpi0410.pdf
Tremaine Foundation. Repowering America: The Revolution Began Yesterday. New Haven, CT: Emily Tremaine Foundation. 2013. http://www.eenews.net/assets/2013/07/24/document_cw_01.pdf
Von Weizäcker E, Karlson CH, Smith MH, Desha C, and Stasinopoulos P. Factor Five: Transforming the Global Economy through 80% Improvements in Resource Productivity. London, UK: Earthscan. 2009. http://ernst.weizsaecker.de/en/factor-five-has-been-published/
Wall G. Exergy–A Useful Concept within Resource Accounting. Institute of Theoretical Physics. Report no. 77-42. Göteborg, Sweden: Chalmers University of Technology and University of Göteborg. 1977. http://www.exergy.se/ftp/paper1.pdf
* Comments are invited here, to firstname.lastname@example.org, or if you prefer to the author at EconSkip@gmail.com
# # #
About the author:
John A. “Skip” Laitner is a resource economist who leads a team of consultants, the Economic and Human Dimensions Research Associates based in Tucson, Arizona. He is the President-Elect of the Association of Environmental Studies and Sciences (AESS), an independent interdisciplinary professional association in higher education. Author of more than 300 reports, journal articles, and book chapters, his expertise includes benefit-cost assessments, resource costs and constraints, and the net employment and macroeconomic impacts of energy and climate policy scenarios. Skip previously worked with the American Council for an Energy-Efficient Economy (ACEEE), and before that, served 10 years as a Senior Economist for Technology Policy with the US Environmental Protection Agency (EPA). In 1998 he was awarded EPA’s Gold Medal for his work with a team of economists to evaluate the economic impact of strategies that might assist in the implementation of smart climate policies.
For more information, see: http://en.wikipedia.org/wiki/John_A._%22Skip%22_Laitner email: EconSkip@gmail.com c: +1 571 332-9434