On Economic Growth, Energy Consumption and Technological Change

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On Economic Growth, Energy Consumption and
Technological Change

• Jussieu 24 Avril 2006
• Dr Benjamin Warr
• Professor Robert Ayres

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Introduction to INSEAD

• Two fully connected campuses in Asia (Singapore)
  and Europe (France), 143 faculty members from 31
  countries, 880 MBA participants, 55 executive
  MBAs, over 7000 executives and 64 PhD candidates.
  On both campuses, faculty conduct leading edge
  research projects with the support of 17 Centres
  of Excellence.

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Sommaire

• Critique de lapproche neo-classique  de la
  croissance économique
• Considération de la rôle dénergie
• Estimation dune  proxy  mesure de Technologie
• Développement dune méthode pour estimer la
  croissance du Produit Intérieur Brut.

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Problématique

• Lapproche neo-classique économique
• Ignore lenvironnement et des ressources
  naturelles
• Comme facteur de production
• Comme bien collectif
• Considère la technologie comme exogène, continue
  et perpétuelle.
• Mais le progrès technologique est plutôt non
  linéaire (learning by doing) avec des limites

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Une fonction de production

• Décrit les relations entre le  output  (PIB) et
  les  inputs , (les facteurs de production)
• Cobb-Douglas ont développe la forme le plus
  utilisé,
• Y A K?L? where ? ? 1
• YPIB, Atechnology multiplier, Kcapital,
  Llabour, ? et ? les élasticités de production

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Quelques problèmes

• Les ressources naturelles exclus.
• Constant returns to scale (rendement constant)
• Le dérivative défini la productivité marginal de
  chaque facteur en tant que constant, égal au
   factor cost  ? 0.3 capital, ? 0.7 labour.
• Static substitution
• Rendu dynamique avec multiplicateur technologie
  (A), lerreur dune modèle OLS.
• PAS de RETROACTION suites aux changements dans le
  quantité et qualité du bilan énergétique.

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Observations

• Même avec inclusion des ressources naturelles (B)
  le PIB estimé est inférieur au valeur empirique
  si on utilise les  factor costs  pour définir
  les paramètres.
• Le progrès technologique (lerreur) est
  responsable pour plus que 80 de la croissance.
• Si on utilise pour prévision on est obligé de
  faire lhypothèse que la technologie va
  développer comme avant. La croissance économique
  est assuré malgré nos actions.

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Industrial Metabolism(Ayres and Simonis 1994)

• New conceptualisation of societys relation to
  and pressures on the environment.
• The economy is physically embedded into the
  environment.
• The economy is an open-system with regards matter
  energy.
• Matter and energy societal throughputs must gt
  minimum requirements technological progress.
• RESOURCE SCARCITY Societies intervene with
  purpose to gain better access to supplies of
  natural resources (through technology and
  resource substitutions .i.e. energy) a
  supply-side problem.
• ASSIMILATIVE CAPACITY Societies must restrict
  waste flows to the environment (output side).

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The Salter Cycle, an engine for growth.
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Criteria for Environmental Accounting

• Environmental accounting must be
• Politically relevant strength of the concept to
  provide information for policy decision and
  public discourse.
• Feasibility often requires reduced complexity
• Definition of scale and then system boundaries
• Accurate source information
• Methods to estimate stocks flows

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Energie comme facteur de production quel mesure
faut il?

• Pas tout lénergie utilisé est utile dans
  léconomie conséquence du 2eme loi de
  Thermodynamique.
• Faut considérer la quantité plus qualité de
  lénergie utilisé
• Faut quantifier le progrès technologique et
  leffet sur la quantité et le façon quon utilise
  énergie.

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Task efficiency specify service define the task

• The first objective of any technical study of
  energy use is to establish a standard of
  performance.
• What is the difference between a service and a
  task?
• (service) keeping warm, (task) providing heat to
  a home
• (service) structures in society, (task) making
  aluminium
• (service) mobility, (task) moving a vehicle
• Services must consider non-technical trade-offs,
  tasks require only a physics perspective.
• This permits,
• Evaluation of the efficiency of present uses.
• Definition of goals towards which technical
  innovation can strive.

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Thermodynamics and  available work 

• Necessary to define a Minimum Task Energy to
  allow consideration of
• Interchanging devices or systems (mass transport
  vs. Cars)
• Seeking technological innovations (aluminium for
  steel)
• The 1st Law (convervation of energy) is
  inadequate for considering minimimum task energy.
• The 2nd law (the entropy law) indicates that  in
  any process involving heat, there is an
  inexorable increase of entropy (disorder),
  meaning that not all the energy is available in
  useful form 

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The 1st Law (conservation of energy) is
inadequate for considering minimimum task energy.

• ? energy transfer (of desired kind) / energy
  input
• Maximum value may be greater than 1.
• No explicit consideration of the quality of the
  energy and its ability to do useful work.
• Cannot be generalised to complex systems with
  work and heat outputs.

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The 2nd law (the entropy law)

• indicates that  in any process involving heat,
  there is an inexorable increase of entropy
  (disorder), meaning that not all the energy is
  available in useful form 
• For any device or system the 2nd Law Efficiency e
  is the ratio of the minimum exergy that could
  perform the task (Bmin), to the exergy actually
  consumed in doing the job (Bactual).
• Its maximum value is 1.
• Maximising e minimises exergy demand and wastes
  generated for a given task.

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Exergy and Exergy Balance

• Exergy is the useful part of the energy.
• There are 4 components
• Kinetic exergy of bulk motion
• Potential gravitational or electro-magnetic field
  differentials
• Physical exergy from temperature and pressure
  differentials
• Chemical exergy arising from differences in
  chemical composition
• We can ignore the first two for many industrial
  and economic applications.

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Exergy or  Available Work 

• So, not all energy can be made available in
  useful form (consequence of 2nd Law).
• Available work is an energy measure that is
  actually consumed in a process.
• Work is the highest quality (lowest entropy) form
  of energy. It is often called exergy.
• Exergy The maximum amount of work that a
  subsystem can do on its surroundings as it
  approaches thermodynamic equilibrium reversibly.
• Exergy is proportional to the future entropy
  production, but has units of energy.
• Exergy is gained or lost in physical processes.
• Minimising exergy consumption is a measureable
  objective to optimise energy consuming tasks.

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Example Chemical exergy

• Production of pure iron (Fe2) from iron oxide
  (Fe2O3)
• This requires exergy from burning coke (pure
  carbon)
• Carbon dioxide (CO2) is the waste product
• 2Fe2O3 3C ? 4Fe 3CO2
• Correct mass balance all atoms in ome out.
  Conversion of mass causes inevitable joint
  product CO2
• 0.75 moles of CO2 per Kg of Fe.

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Iron production 1

• 2Fe2O3 3C ? 4Fe 3CO2
• Making 4 moles of Fe requires generation of 3
  moles of CO2
• And 1505.6 Kj which comes from this oxidation of
  carbon
• But 3 moles of C contain only 1230.9
• We need 0.76 C extra.

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Iron Production 2

• 2Fe2O3 3C ? 4Fe 3CO2
• Correct mass balance, incorrect exergy balance
• 2 Fe2O3 3.76 C 0.76 O2 ? 4 Fe 3.76 CO2
• (33.0) (1542.7) (3.0) (1505.6)
  (74.8)
• On the input side oxygen has been added to
  fulfill the balance of the extra C required
• 1580 kJ in ? 1580 kJ out
• This is for an ideal reversible transformation.
  No entropy generated or exergy lost.
• Hence 0.94 moles of waste CO2 are inevitable per
  mole Fe produced (corresponds to 0.74kg CO2 per
  kg Fe)
• This is the thermodynamic minimum.

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Iron Production Reality

• The 410.3 kJ/mole from source C is never used
  100 efficiently
• Blast furnace average have efficiencies of 33.
• So, one mole of C one obtains only 135.4kJ
• As a result need 12.42 moles of C instead of
  3.76.
• 2 Fe2O3 12.42 C 9.42 O2 ? 4 Fe 12.42 CO2
  heat
• (33.0) (5095.9) (37.7) (1505.6)
  (247.2)
• B lost 3413.8 kJ
• 2/3 rd of waste produced is unecessary.

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Types of Exergy Service

• Prime Movers ( electricity)
• Transport
• High Temperature Process Heat
• Mid and Low Temperature Process Heat
• Lighting
• Non-Fuel

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Petroleum Exergy Flows
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Coal, Petroleum, Gas Exergy breakdown by use, US
1900-2000
Transport uses
Declining fraction to heat
Increasing fraction to electricity
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Total Exergy Breakdown by Use, US 1900-2000
Heat
Electricity
Other Prime Movers
Non-Fuel
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Lighting Efficiency
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Simplified process view Aluminium
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Efficiencies and GDP/Exergy Input
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Technical efficiency, US 1900-2000
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Useful Work/GDP Ratios, US 1900-2000
1st Oil Crisis - US Peak Oil Production
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How does our model work ?

• Cobb-Douglas or LINEX
• At the total factor productivity is REMOVED
• Rt natural resource services replaced by Useful
  Work, where U F R
• Ft technical efficiency of energy to work
  conversion

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REXS economic output module
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Labour supply feedback dynamics

• Parameters for USA 1900-2000
• Structural Shift Time C1959, Structural Shift
  Time D1920
• F Labour Fire Rate A0.108, F Labour Fire Rate
  B0.120
• F Labour Hire Rate A0.124 F Labour Hire Rate
  B0.135

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Labour hire and fire parameters
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Labour validation by empirical fit
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Capital accumulation feedback loop

• Parameters for USA 1900-2000
• Investment Fraction A0.081 Investment Fraction
  B0.074
• Depreciation Rate A0.059 Depreciation Rate
  B0.106
• Structural Shift Time A1970 Structural Shift
  Time B1930

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Capital investment and depreciation
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Capital validation by empirical fit
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Output validation of full model, US 1900-2000
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LINEX fits for GDP, Japan and US 1900-2000.
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A commonly used reference mode
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The REXS alternative
Average rate of decline 1.2 per annum
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The dematerialising dynamics
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Primary exergy intensity (B/GDP) of output decay
feedback mechanism.

• Parameters
• Rate of Decay Fractional Decay RatePrimary
  Exergy Intensity of Output
• Fractional Decay Rate0.012

To the right Processes aggregated inthe REXS
dynamics
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Projections of future output

• Altering the future rates of the energy intensity
  of output
• The average decay rate of the exergy intensity of
  output (R/GDP) for the period 1900-1998 is 1.2
• The simulations involved increasing or decreasing
  this parameter from 1998 onwards, while keeping
  the values of all other parameters fixed.
• The following illustrations provide a summary of
  the results.

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Varying rates of dematerialisation
The constant rate of exergy intensity decline was
altered to vary between 0.55 and 1.65 p.a.
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Effects on efficiency improvements
The business as usual case If technical
efficiency does not increase in pace with
de-materialisation The rate of growth slows.
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GDP forecasts dematerialisation scenarios ,US
2000-2050
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Historical and forecast GDP for alternative rates
of decline of the energy intensity of output, US
1900-2000
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Forecast GDP growth rates for three alternative
technology scenarios (US 2050).
Note the feedback between f growth and GDP growth
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Historical and forecast technical efficiency of
energy conversion, for 3 alternative rates of
technical efficiency growth, US 1950-2000.
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Historical and forecast GDP, for 3 alternative
rates of technical efficiency growth, US
1950-2050
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Conclusions

• Travail utile comme facteur de production
• Application du 2 loi pour  proxy  de progrès
  technologique
• Fonction LINEX et représentation Systèmes
  Dynamique permettant
• Estimation historique
•  substitution dynamique  suite aux progrès
• Feedback entre progrès technologique et le
  quantité et qualité des sources énergétique et
  lefficacité dutilisation