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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.

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Roger Fouquet Grantham Research Institute on Climate Change and Environment

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  1. 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

  2. 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

  3. Part 1 The Importance of Demand

  4. Lighting Domestic Heating Industrial Power PassengerTransport Lighting 0.1 Freight Transport 0.01 Source: Fouquet (2014) REEP

  5. Income and Price Elasticity of Demand for Energy Services, 1800-2008 Lighting Values Greater than One: 10% Increase in GDP pc leads to a more than 10% increase in Energy Service Passenger Transport Domestic Heating Domestic Heating Price Elasticities Passenger Transport Lighting $(2010)28,500 $(2010)11,800 $(2010)6,400 $(2010)3,300 Source: Fouquet (2014) REEP

  6. Part 2 The UK Energy-GDP Linkage

  7. England and Great Britain GDP per capita, 1300-1900 Second Industrial Revolution First Industrial Revolution Take-Off of English Economic Development Source: Broadberry et al (2013)

  8. 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)

  9. Lighting Consumption of Energy by Energy Services in the United Kingdom (mtoe), 1700-2010 Freight Transport Passenger Transport Domestic Heating Industrial Heating Industrial Power Source: Fouquet (2014) REEP

  10. Energy Intensity in the United Kingdom, 1700-2010 Primary Energy Intensity Final User Energy Intensity Source: updated from Fouquet (2008)

  11. Sectoral GDP in the United Kingdom, 1700-1870 Source: Broadberry et al (2013)

  12. Energy Service Intensity per GDP in the United Kingdom, 1700-2000 Sea Freight Transport Power Land Freight Transport Iron Production Source: Updated from Fouquet (2008)

  13. Part 3 The Impact of Energy Technologies on Economic Growth

  14. 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 1750-1950 Energy 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

  15. Price of Energy Services in the United Kingdom, 1700-2010 Sea Freight Transport Power Iron Heating Land Freight Transport Source: Fouquet (2011) REEP, Broadberry et al (2013)

  16. Price of Energy and Energy Services in the United Kingdom, 1700-2010 EnergyServices Energy Source: Fouquet (2011)

  17. 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 Growth if 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

  18. 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.)

  19. Impact of 1% Decline in Energy Service Prices on GDP per capita, 1750-1950 Land Freight Transport Power Sea Freight Transport Iron Heating Source: Author’s Own Estimates

  20. External Costs of Energy Use in the United Kingdom, 1800-2000 Lighting Domestic Heating Passenger Transport Freight Industrial Heating Power Source: Fouquet (2011) Ecological Economics

  21. Part 4 Concluding Remarks

  22. 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

  23. Energy and Information Intensity in US, 1800-2010 Energy Information: Newspapers and Internet Communication Energy Source: Fouquet and Hippe (2014)

  24. Pushing the Energy Frontier or ‘Malthusian’ Energy Growth Trap? Energy Service Consumption Energy Limits Supply-Side Shift Energy Consumption Energy Limits Supply-Side Shift Energy Limits Technological Revolution Technological Revolution

  25. Appendix Pre-1750

  26. Energy Intensity in the United Kingdom, 1500-2010 Primary Energy Intensity Final User Energy Intensity Source: updated from Fouquet (2008)

  27. Sectoral GDP in the United Kingdom, 1500-1750 Source: Broadberry et al (2013); Five-year average

  28. Expenditure on Energy per GDP in the United Kingdom, 1500-2000 Source: Fouquet (2008)

  29. 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 Source: Fouquet (2008)

  30. Energy Service Intensity per GDP in the United Kingdom, 1500-2000 Power Iron Production Freight Transport Source: Fouquet (2008)

  31. Price of Energy Services in the United Kingdom, 1700-2010 Sea Freight Transport Power Land Freight Transport Iron Heating Source: Fouquet (2011) REEP, Broadberry et al (2013)

  32. Price of Energy Services in the United Kingdom, 1700-2010 GDP per capita Sea Freight Transport Power Iron Heating Land Freight Transport Source: Fouquet (2011) REEP, Broadberry et al (2013)

  33. Energy Intensity in European Countries, 1800-2000 Early Adopter: Exports and Inefficiencies United Kingdom Germany France Netherlands Italy Source: Kander et al. (2013)

  34. Energy and Information Intensity in US, 1800-2010 Energy Information: Newspapers and Internet Communication Energy Source: Fouquet and Hippe (2014)

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