The Economic Growth Enigma: Capital, Labour & Useful Energy*

elsevier energy policy coverABSTRACT: In this article we show that the application of flexible semi-parametric statistical techniques enables significant improvements in model fitting of macroeconomic models. As applied to the explanation of the past economic growth (since 1900) in US, UK and Japan, the new results demonstrate quite conclusively the non-linear relationships between capital, labour and useful energy with economic growth. They also indicate that output elasticities of capital, labour and useful energy are extremely variable over time. We suggest that these results confirm the economic intuition that growth since the industrial revolution has been driven largely by declining energy costs due to the discovery and exploitation of relatively inexpensive fossil fuel resources. Implications for the 21st century, which are also discussed briefly by exploring the implications of an ACEGES-based scenario of oil production, are as follows: (a) the provision of adequate and affordable quantities of useful energy as a pre-condition for economic growth and (b) the design of energy systems as `technology incubators’ for a prosperous 21st century.

* From Energy Policy, Elsevier. 13 July 2013.  Vlasios Voudouris, Robert Ayres

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Toward a more rational distribution of electrical generation

comCHP graph world capacityThe best way to maximize overall national energy efficiency is to decentralize the electric power production and locate it very close to heat users. Since quite a lot of our electric power is actually used to generate heat (e.g. in electric furnaces, or electrically heated buildings) it is entirely possible that a more rational distribution of electrical generation would actually cut electric power demand, while simultaneously cutting energy (exergy) use and carbon dioxide emissions.
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Part II. The Future of Energy: Why the price of oil and gas should increase (but will it?)

oil drilling http rccblogThe future of energy will be driven by a combination of price and availability, as it always has. But in today’s uncertain world one thing is very sure, and that is that this combination is already in rapid transformation, meaning that we are now looking at a very different future indeed. In this four part series, we are looking out into the near term future of a battle which  is already well underway, the unfolding market contest between non-renewables and renewables.  The rising price of oil, in particular (because of its unique role as a fuel for mobile applications) together with declining prices of “renewables”  is creating new opportunities for long-term investors, as well as requiring that government policy take into consideration the considerable implications of this transformative  shift.  In Part II, we are looking first at the unfolding and very different picture emerging for oil and gas.

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Part I. The Future of Energy (and the Planet)

– For Exernomics. Robert Ayres, Paris. 24 October, 2014

The future of energy will be driven by a combination of price and availability, as it always has. But in an uncertain world one thing is very sure, and that is that this combination is already in rapid transformation, so we are looking at a very different future indeed.

In my recent book (“The Bubble Economy”) , I have argued that the rising price of oil, in particular (because of its unique role as a fuel for mobile applications) together with the declining price of “renewables”  creates an opportunity for long-term investors. It is estimated that $2 trillion/year must be invested in renewable energy to meet future energy demand without increasing carbon dioxide emissions. Surprisingly, perhaps, current trends suggest that – contrary to widespread assumptions – such investments can be very profitable.

cropped-enegy-penury-nyc-skyline-without-lights.jpg

New York City skyline during power outage

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On Measures of “decoupling”

– Robert U. Ayres. Paris. 232 October 2014

decoupling chainThe term “decoupling” is commonly used among ecological economists to express the notion that somehow economic activity can proceed without (or with much less) material resource consumption e.g. {Fischer-Kowalski, 2011 #7235}. The reasons for worrying about “decoupling” are three interconnected twin concerns: (1) environmental damages, (2) potential material scarcity problems, and (3) linkages to economic growth (or the lack of it). These three concerns are usually addressed separately, because different categories of material resources are involved in different ways. I will comment briefly on #2 and #3 later, but threats of environmental harm (especially climate change and bio-diversity loss)are the primary motivator of the “decoupling” proponents while #2 is somewhat supportive of #1 but #3 is, so to speak, “the elephant in the room”.

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The Bubble Economy: Energy, Finance and Growth

– R. U. Ayres. Support for public presentations in Cambridge, Carnegie Mellon, Washington DC, November 2014

I want to present four theses of possible interest. First, that economic theory today has not caught up with the changes in the world since Adam Smith and David Ricardo. Then externalities were comparatively rare and unusual. Today they are pervasive, thanks to urbanization, networking and globalization. The financial externalities associated with bubbles now far exceed in damage the profits to the bubble-makers.

Second, economic growth since that time has been demand driven because energy prices kept falling,– on average —  until the beginning of this century. Future growth is not guaranteed in a world of “peak oil”, and oil price bubbles. It is not certain that our grandchildren will be much richer than we are. Secular stagnation May be caused by energy constraints.

Third, the policy response by central banks – low and lower interest rates, creates the condition for the next bubble. This cannot continue.

Fourth, there is a profit opportunity approaching with a huge payoff If grasped it will kickstart growth, reduce unemployment, ameliorate the Greenhouse effect and help solve the problems of the pension funds.

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Renewable Energy Portfolios: New avenues for pension funds

solar panel array m4gwThe problem of providing pensions for retirees is becoming acute. Dependency ratios are climbing in all western countries. By 2050 they will double in most western countries. In Japan, the number of retirees, now 35 percent of active workers, will reach 80 percent. Most European countries will have dependency ratios greater than 50 percent. The US, now about 20 percent, lags a little, because of continued immigration (mainly from Latin America), but the ratio will rise to 40 percent by 2050.

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