Energy efficiency, sustainability and economic growth
Section snippets
Economic background
Energy (actually exergy) is as essential to the functioning of the global economic system as gasoline is to a car or electricity to a light bulb. The evidence is visible and pervasive. It is the sun's energy that drives the most fundamental process in nature, photosynthesis, whereby carbon dioxide and water are converted into carbohydrates, lipids and proteins (biomass). The biomass produced in the distant past was converted by natural geological processes into the fossil fuels we utilize today
Digression: on exergy, power and useful work
Before introducing an alternative perspective on the relationship between energy and economy activity (and growth) it is important to focus on the essential distinction between ‘raw’ energy (e.g. from the sun) and the services actually performed by energy and utilized by the economy. These services are called useful work.4
The growth connection
What is the link between useful work output and economic growth? It is conceptually very simple, though much less simple to demonstrate quantitatively. In brief, as technological progress makes the conversion process from ‘raw’ exergy (e.g. fuels) to useful work more efficient, the cost of ‘useful work’ tends to decline. As costs fall, in a competitive market, prices fall also. Declining prices of work generate increased demand for useful work, throughout the economy. (We have already noted
Policy implications of the new perspective on growth
The policy implications of this new perspective on growth are quite simple and stark. One major implication is that current policy prescriptions by most environmental economists and ‘greens’ are wrong. The need to reduce consumption of fossil fuels and the output of so-called greenhouse gases (GHGs) cannot be denied. But the usual prescription is to ‘get the prices right’—e.g. to raise them—perhaps via a carbon tax. This would presumably cut demand (e.g. [17]). If the standard assumptions about
The case for and against centralized generation of electric power
The majority of the world's electricity is produced at large centralized plants utilizing steam turbines fuelled with fossil energy. A century ago the justification for such centralized generating plants was straightforward: early 20th century steam turbines were capable of converting heat energy into mechanical energy with efficiencies much higher than the small reciprocating steam engines then installed in most factories (and railroad locomotives) with variable loads. Centralized turbines,
Obsolete assumptions about central generation
A fundamental problem blocking reform is that policy-makers, regulators and the public assume that central generation is optimal. This was true early in the 20th century but is true no longer. Several unquestioned and incorrect assumptions underlie this fallacy. They include the following:
Why is so little ‘waste’ energy used in the US and many other OECD countries?
Given the above-market financial returns available in CHP investment (for example, see [30]), not to mention the obvious benefits of reducing air pollution and decreasing grid vulnerability, a question arises: Why is 93% of world wide electric power generated in central plants that reject large quantities of thermal energy? The simple answer is that the costs and losses of moving thermal energy per se long distances (from central plants) are unaffordable. However the technology that permits
Conclusions
This review makes two major points, which are worth repeating and emphasizing. Whereas conventional theories of economic growth do not depend on energy supply, or the demand for energy services, a new, quantitative, endogenous theory of economic growth does incorporate these factors explicitly [11], [13], [14]. In particular, it has been shown that US and Japanese economic growth, since 1900, can be explained endogenously by a production function incorporating a third factor (along with
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