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A Historical Perspective
on Economic Growth, Energy
and the Environment
Roger Fouquet
Grantham Research Institute on Climate Change and Environment
London School of Economics (LSE)
Exergy Economics, Sussex University, 14 July 2016
The Importance of History
• “Those who cannot remember the past,
are condemned to repeat it” George Santayana
•
•
•
•
Long Run and Very Long Run Trends
Experiences to Learn from (Price Shocks, Transitions)
Generalizable from Many Experiences
“History Matters”: Tech., Inst. and Cultural Lock-In
matter to Present Behaviour and Development
• System Transformation and Evolution
• Yet, Lack of Historical Lessons for Policy
Purpose
• Relationship between
Energy Technologies and Transitions and
Economic and Social Development
• Relevance for Future Energy Tech. and Transitions
and Economic and Social Development
• Relationship between Low Carbon Energy System
and Knowledge Economy
Part 1
History of Economic Growth and Development
GDP per capita for selected European Countries, 1300-1800
Holland
England
Italy
Sweden
Spain
Portugal
Sources: Fouquet and Broadberry (2015)
English/British GDP per capita, 1300-1900
Phase I of
English
Economic
Development
Source: see Broadberry et al (2013)
Phase II of
English
Economic
Development
Phase V:
Phase IV of First
Industrial
English
Phase III of Economic
Revolution
English
Development
Economic
Development
Phase VI:
Second
Industrial
Revolution
Part 2
The Role of Energy in Economic Development
Energy Intensity in the United Kingdom, 1700-2010
Source: updated from Fouquet (2008)
Primary
Energy
Intensity
Final
User
Energy
Intensity
The Role of Energy in Industrial Revolution
• Many Factors: Tech., HK, Finance, Institutions, Culture
• Historians: Cipolla (1962), Wrigley (1988), Allen (2009)
– Importance of the Transition to Coal
• Ayres and Warr (2009)
– Role of Energy and Technical Efficiency
Toman and Jemelkova (2003)
– Importance of Energy Services
– Different Channels of Effect of Energy Services
– Effects Change with Economic Development
(Confirmed by Stern and Kander 2012 for Sweden)
Price of Producer 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).
Impact of 1% Decline in Energy Service Prices on GDP per capita, 1750-1950
Land Freight
Transport
Iron Heating
Source: Fouquet (2014)
Power
Sea Freight
Transport
Drivers of First Industrial Revolution (1760-1830)
• Cheaper Iron (Switch from Charcoal to Coke):
– Efficiency: 10t (1750) to 4t (1800) of Coke/1ton of Iron
– Iron Production:
1750-1780: 8-fold Increase
1785-1815: 8-fold Increase
– But, ‘Impact’ on GDP pc only 1750-1780
• Cheaper Power (1780-1810)
• Cheaper Land Freight in 1790s
Drivers of Second Industrial Revolution (18301913)
• Cheaper Sea Freight (from 1820s)
• Cheaper Land Transport (from 1830s)
• Cheaper Power for Industrial Production (from 1870s)
The Role of Producer Energy Services
on the Industrial Revolution
• Technological Impact on GDP per capita:
– Role of Efficiency in Reducing Energy Service Prices
– Kick-Starters and Drivers of Periods of Ec. Growth
– Declining Role for Energy in GDP
(Stern and Kander 2012)
– Co-Evolution and Synergies between Technologies
– Transformative Effect of Energy Technologies
Transformative Effects of New Energy Systems
• New Modes of Power enabled Economic Transformation
– Mills influenced decline of Feudalism
– Water Mills enabled Factory System
– Steam Engine enabled Mass Production
– Electricity enabled 20th c. Capitalism
• New Economic Systems Stimulate new Political Systems
and new Institutions (and new growth?)
Part 3
The Welfare Effects of Energy Transitions
(The Role of Energy Services in Social Development)
Consumption of Energy Services in the UK, 1700-2010
Lighting
Domestic
Heating
Industrial
Power
Passenger
Transport
0.1
0.01
Source: Fouquet (2014)
Freight Transport
Lighting
Price of Consumer Energy Services in the United Kingdom, 1700-2000
Passenger
Transport
Domestic
Heating
Lighting
Source: Fouquet (2014).
Income and Price Elasticity of Demand for Energy Services, 1800-2010
Lighting
Values Greater than One:
10% Increase in GDP pc
leads to a more than
10% increase in Energy Service
Passenger
Transport
Price Elasticities
Domestic Heating
Source: Fouquet (2014).
Domestic Heating
Passenger
Transport
Lighting
$(2010)3,300
$(2010)6,400
$(2010)11,800
$(2010)28,500
Consumer Surplus
CSQ1 = ½ . [(P1.Q1)/Y1]/η
Price
Supply
P1
Demand
Q1
Quantity
How does Consumer Surplus Change?
Increase in Demand & Supply (declining Price)
Supply
in 1880
Price
Increase in
Demand due
to Rising
Income
Price
D(η(2000))
Supply
in 2000
Price’
Q1880
Q2000
Demand for
Heating in 2000
Demand for Passenger
Transport in 2000
D1900
* units: 10s of kgs of oil equiv. heating
* units: passenger-kms
Demand for
Lighting in 2000
D1900
* units: 1,000s of lumen-hours
Consumer Surplus of Domestic Heating, Passenger Transport and
Lighting in the UK, 1800-2010
Passenger
Transport
Lighting
Domestic
Heating
Source: Fouquet (2015)
Consumer Surplus from Lighting Technologies and Services
Kerosene
Lighting
Gas Lighting
Tallow
Candles
Source: see text
Electric
Lighting
Consumer Surplus from Transport Technologies and Services
Cars
Buses
Railways
Horse-Drawn
Source: see text
Consumer Surplus from Heating Technologies and Services
Woodfuel
Heating
Electric
Heating
Coal Heating
Source: see text
Gas Heating
200
Consumption of Energy by Energy Services
in the United Kingdom (mtoe), 1800-2000
Lighting
Million tonnes of oil
150
Transport
100
Domestic
Heating
50
Industrial
Heating
Power
0
1800
1900
2000
Pollution
Concentration
(London)
Deaths from
Bronchitis
(London)
Deaths from
Bronchitis
(England & Wales)
Source: Air Pollution: Brimblecombe (1987); Deaths: Registrar General (1838 onwards)
External Costs of Energy Services as a % of GDP in the United Kingdom,
1700-2010
Domestic
Heating
Passenger
Transport
Industrial
Heating
Lighting
Power
Source: Fouquet (2015).
Freight
Part 4
Growth and Limits
Global Population and GDP per capita, 1820-2008
GDP per capita
Population
Global Energy Consumption by Energy Source, 1800-2008
Nuclear
Electricity
Hydro
Electricity
Gas
Oil
Coal
Woodfuel
Global Carbon Dioxide and Methane Emissions, 1850-2000
Methane
CO2 Land-Use
Marland et al (2007), Houghton (2008), Stern and Kaufmann (1998)
CO2 Fossil Fuel
Consumption
Energy Service
Consumption
Energy Limits
Supply-Side Shift
Energy
Consumption
Energy Limits
Supply-Side Shift
Energy Limits
Technological
Revolution
Technological
Revolution
1700
1800
1900
2000
2100
The Growth Agenda
• The Growth Machine
– Modern Economic Systems: Largely Successful
• Partly due harnessing and conversion of energy
– Anthropocene (Alarm bell …)
– Need to Change Signals and Incentives
– Where to next?
• Problems with ‘No-Growth’ Agenda
– Rise of Unemployment and Social Tensions
– Rise of Inequality (Picketty: r>g)
– Decline of Social Progress (Benjamin Friedman)
38
Part 5
The Development of the Knowledge Economy
Pillars of the Knowledge Economy
• Potential for Low-Energy/Resource Growth
– Low Carbon Growth
• Pillars of the Knowledge Economy
– Information and Communication Technologies
and Infrastructure
– Human Capital
– Knowledge Production and Innovation System
Price of Communication Services in the UK, 1700-2012
Telegraph
Telephone
Telegraph
Mail
Mail
Telephone
Source: Fouquet and Hippe (2016)
Mobile
Mobile
Phone
phone
Consumption of Communication Services in the UK, 1700-2012
Mail
Mobile
phone
Telephone
Total
Telegraph
Source: Fouquet and Hippe (2016)
Energy Intensity and Energy Service Intensity in the UK, 1800-2010
Energy
Intensity
Transport Intensity
Communication
Intensity
Heating Intensity
Source: Fouquet and Hippe (2016)
Dematerialization of Communication
• Dematerialization of Communication Services
• How Many Mail Coaches for Global Internet?
2010: 9 Zetabytes = 13 trillion mail coach j.
183 billion horses/year = 18,000 mtoe
= 1.5 times Global Prim. Energy Cons.
= 800 times Global Data Center Cons.
Part 5
Conclusions
The Long Road to Green Growth
• History of Economic Growth and Development
– Avoid Major Risks of Decline
– VLR Economic Growth: Transformation
• Energy and Environmental History
– Change in Energy Tech. in Ind. Revolution
– Transformative Effective
– Value of New Technologies for Society
– Environmental Problems
• The Development of the Knowledge Economy
– Dematerialisation of the Economy
– Structural Transformation
– A Key to VLR Economic Growth
Low Carbon Economy
• Impact
– Cheaper Power?
– Transformative Effect of Economy and Society?
– Declining Role of Energy in Econ. and Social Devel.
• Low Carbon Transition
– Slow (50 years minimum)
– All Sectors and Services (Very Slow)
– Need Favourable Prices of Energy Services and
Characteristics (Ease, Flexibility, New Features)
– Incentives: Government to Internalise External Costs
• Synergies/Co-Evolution with other Industries
– Link with the Knowledge Economy
Toolkit for Thinking about the Very Long Run
• Synergies and Coevolution
–Development Blocks
• Strong Lock-Ins
–Path Dependence
–Not in Equilibrium
• Non-Linearities in Relationships
–Critical Junctures/Tipping Points
–Disruptive Change and Structural Transformation
• Complex Adaptive Systems
–Feedbacks Change System
48
Consumer Surplus of Domestic Heating, Passenger Transport and
Lighting in the UK, 1800-2010 (with Income Elasticity of Demand = 1)
Passenger
Transport
Lighting
Domestic
Heating
Source: Fouquet (2015)
Part 5
Thinking about the Very Long Run
GDP per capita in Selected European and Asian ‘Countries’, 0-1300
Central and
Northern Italy
China
Rome
Southern
Iraq
Japan
Source: Lo Cascio and Malanima (2011), Broadberry et al. 2013, 2014, Pamuk and Schatzmiller 2014, Malanima (2011)
40%
35%
Efficiency
30%
25%
20%
15%
10%
5%
0%
1300
1400
Source: Fouquet (2008 p.246)
1500
1600
1700
1800
1900
2000
350,000
Number of patents sealed
300,000
250,000
200,000
150,000
100,000
50,000
0
1800 1825 1850 1875 1900 1925 1950 1975 2000
Source: UK Intellectual Property Office (2006)
The Very Long Run
• Infrastructure
–Strong and Long Lock-Ins
–US Cities today based on Portage routes in 17th c.
–Roman Road Network path dependence in France
• Thus, the Very Long Run: can be more than 2,000 years
(Period in which Lock-Ins broken
and Return to Equilibrium)
• So, Most Economic Analysis is in Disequilibrium
56
Maintaining Roman Road Network
Roman Baseline Towns (o)
and Medieval Bishoprics
and Archbishoprics,
(8th and 9th century, o)
Sources: Michaels and Rausch (2014)
Energy System Lock-Ins
• Once Technology part of System
– Low Cost/High Benefit of Improving Technol.
• Generations of Similar Energy Technologies:
• Water Mills
– Introduced around 10thC., Decline in 20thC.
• Steam Engine
– Introduced in 1740s, Decline in 1950s
• Internal Combustion Engine
– Introduced in 1890s, Decline in …?
Duration, Drivers and Barriers
of Energy Transitions
•
•
•
Duration
Innovation Chain
Diffusion
– Minimum :
45 Years
30 Years
– Average (Post-Ind Rev.): 135 Years
50 Years
Drivers:
– Necessary: Favourable Price of Energy Services
– Stronger:
Better Quality/New Characteristics
Barriers and Delays:
– Higher Prices of Services
(Fuel or Efficiency or Inefficiency of Scale)
– Unfavourable Characteristics (lowering Value)
– Competition from Incumbent Energy or Technology
59
Creating a Learning Society
• Mokyr (2009): “Economic Change in all periods
depends […] on What People Believe”
• Stiglitz and Greenwald (2014):
– Attitudes to Change are Crucial
– Social Construction of Learning
 Belief Systems
– Government Needs to Correct Market Failures
to Create Dynamic Learning Economy
Books Printed in selected European Countries, 1450-1800
England
Germany
N’lands
Italy
Spain
Sources: Fouquet, Rivera-Moreno, Carattini (2016)
The Trends in Inequality: r – g (Picketty)
Hitting Limits
• Hitting Limits
– Labour, Capital (Financial, Physical, Human, Natural)
– Natural Capital: Land, Material, Energy, Ecosystem
• Find new Energy Reserves, new Sources, new Tech.
• This time its different (e.g. Environmental Limits)
• What happens when economies hit limits?
– Soft Limits (e.g. 1970s, 2006-8): Capacity
– Strong limits (e.g. Agriculture in ) Reserves
– Extreme Limits: no substitutes
• Leibig’s Law (of the minimum) and Limits of Substitutes
The Importance of Energy Price Shocks
on Economic Growth
• Kilian (2009), etc..:
Since 1948, Declining Impact of Energy Price Shocks
• Our Hypothesis:
Impact of Energy Price Shocks declined
as Economies Developed
• Separate Shocks into:
– Supply Shocks
– Aggregate Demand Shocks
– Residual/’Speculative’/Energy-Specific Shocks
Supply Shocks
1893, 1921 & 1926:
Coal Miners’ Strikes
1710, 1731, 1740:
Poor Harvests
1704: War of
Spanish Succession
1815: Battle of
Waterloo
1873: Economic
Recovery
Aggregate Demand Shocks
Residual Shocks
Source: van de Ven and Fouquet (2014)
1915, 1942: First and
Second World War
1980: IranIraq War
&
Economic
recovery
2006-08:
Economic
Recovery
Residual
Shocks
Aggregate
Demand Shocks
Source: van de Ven and Fouquet (2014)
Supply
Shocks
Changing Impact of Energy Price Shocks
on Economic Growth
• Supply shocks:
– Stronger with Increasing Dependence on Coal (1920s)
– Declining Impact after WW-II Confirmed
• Aggregate Demand shocks:
– Positive Impact Dependent on Import-Export
• Reject Hypothesis:
– Impact does Not Decline as Economy Develops
• But, Still a lot to Understand…
67
Consumption of Energy Services in the UK, 1700-2010
Lighting
Domestic
Heating
Industrial
Power
Passenger
Transport
0.1
Freight Transport
0.01
Source: Fouquet (2014).
Lighting
Demand for
Heating in 1900
Demand for
Heating in 2000
Demand for
Lighting in 1900
Demand for
Lighting in 2000
Demand for Passenger
Transport in 1900
Demand for Passenger
Transport in 2000
Source: see text; * units: passenger-kms; 1,000s of lumen-hours; 10s of kgs of oil equiv. heating
The Net Benefits of Energy Technologies and Services
Supply
in 1880
Price
Demand
in 1880
Consumer Surplus =
½ . ((P.Q)/Y)/η
= Consumer Expend./
(2 * Price Elasticity)
Price’
Demand with 2000
Price Elasticity (η)
Q1880
Q2000
Consumer Surplus of Lighting by Energy Source (relative to GDP)
in the UK, 1800-2010
Kerosene
Lighting
Tallow
Candles
Source: Fouquet (2015).
Gas Lighting
Electric
Lighting
Consumer Surplus of Domestic Heating, Passenger Transport and Lighting
in the UK, 1800-2010
Passenger
Transport
Domestic
Heating
Lighting
Source: Fouquet (2015).
Net Welfare (i.e. Cost-Benefit Analysis) of
Domestic Heating, Passenger Transport and Lighting in the UK, 1700-2010
Domestic
Heating
Lighting
Source: Fouquet (2015).
Passenger
Transport
Net Welfare Effects of Energy Services
• Value of Innovations to Society
– Are some Technologies Socially Undesirable?
• Where should we focus Investment in R&D rel.
to Energy Services, Sources and Technologies?
• Do Economies fail to take the Optimal Path?
Net
Welfare
Part 3
The Development of the Knowledge Economy
100000
Knowledge Economy Index and GDP per capita, 2012
Luxembourg
Norway
80000
Qatar
Switzerland
60000
Australia
40000
Kuwait
Denmark
Sweden
Singapore
Canada
United States
Austria
Japan
Netherlands
Ireland
Finland
Belgium
Germany
Iceland
United Arab Emirates
France
United
New Zealand
Kingdom
Hong Kong SAR, China
Italy
Israel
0
20000
Spain
Saudi Arabia Cyprus
Korea,
Rep.
Oman Bahrain
Greece
Slovenia
Malta
Portugal
Czech Republic
Trinidad and Tobago
Slovak Estonia
Republic
Chile
Barbados
Uruguay
Argentina
Lithuania
Russian
Federation
Latvia
Croatia
Venezuela,
RB
Poland
Hungary
Kazakhstan
BrazilMalaysia
Turkey
Panama
Lebanon
Mexico
Costa
Rica
Mauritius
Romania
Colombia
Azerbaijan
Botswana
South
Africa Bulgaria
Dominica
Belarus
Iran,
Islamic
Rep.
Peru
China
Namibia
Dominican
Republic
Angola
Thailand
Jamaica
Ecuador
Algeria
Serbia FYR
Jordan
Fiji
Macedonia,
Albania
Bosnia
Tunisia
Ukraine
El
Mongolia
Salvador
Paraguay
Guyana
Indonesia
Georgia
Armenia
Swaziland
Guatemala
Egypt,
ArabMoldova
Rep. and Herzegovina
Sri
Lanka
Morocco
Nigeria
Philippines
Bolivia
Honduras
Nicaragua
Uzbekistan
Vietnam
Sudan
Ghana
Djibouti
India
Lao
PDR
Zambia
Yemen,
Pakistan
Rep.
Cote
Cameroon
d'Ivoire
Kyrgyz
Republic
Mauritania
Lesotho
Cambodia
Senegal
Kenya
Tajikistan
Zimbabwe
Bangladesh
Benin
Sierra
Nepal
Leone
Tanzania
Rwanda
Mali
Burkina
Faso
Eritrea
Guinea
Mozambique
Uganda
Ethiopia
Madagascar
Malawi
0
2
4
6
KEI
Source: World Bank (2008).
8
10
Pillars of the Knowledge Economy
• Human Capital
• Information and Communication Technologies
and Infrastructure
• Knowledge Production and Innovation System
• Seeking to Understand
the Development of Knowledge Economy
• Potential for Low-Energy/Resource Growth
The Role of the Knowledge Economy
in Green Growth
• Potential for Low-Energy/Resource Growth
• Dematerialisation of the Economy
• Lessons from History of Governance
– Openness to Change
– Investments in Public Goods
The Human Capital Transition
• Why the Shift from Low to High Human Capital?
• Was it Demand- or Supply (ICT)-Driven?
• Were there Market or Government Failures?
• What Role did Government Play?
• What Lessons does the Transition offer?
The Printing Press (ICT) and Government
• Gutenberg Press (Late 1440s)
– Responding to Demand
– Revolutionised
• Government/Authorities Response
– Europe:
• Church Initially Positive
• Governments: Lack of Power to Control
– Ottoman Empire: Effective Ban
– Korea: Strong State Control
Price of Books in the Netherlands, 1460-1800
Source: van Zanden (2009).
Book Production in Selected European Countries, 500-1750
Source: Based on Buringh and van Zanden (2009).
European Human Capital Transition
• Supply
– Cheaper Books (1460-1600, 1800s)
– Church Provider of Education
• Private Demand (Religious, Political, ...)
– Broader Interest amongst Wealthier Pop.
• ‘Public’ Demand
– Military: Educated Soldiers
– Industrialists: Educated Worker
• Public Education
– Direct Benefit: Moulding Minds of Nation State
Public Expenditure on Education in Europe, 1850-1910
Germany
USA
Italy
UK
France
Source: Lindert (2004).
Literacy in the world, 1870-2010
Eastern Europe
Europe and
Offshoots
Latin America
Africa
Other Asia
Korea-Japan
China
Source: Morrisson and Murtin (2013).
South Asia
Creating a Learning Society
• Mokyr (2009): “Economic Change in all periods
depends […] on What People Believe”
• Stiglitz and Greenwald (2014):
– Attitudes to Change are Crucial
– Social Construction of Learning
 Belief Systems
– Government Needs to Correct Market Failures
to Create Dynamic Learning Economy
Towards a Dematerialised Economy?
• ICT: Pillar of the Knowledge Economy
• What Insights from ICT for Dematerialisation?
Price of Communication Services in the UK, 1700-2012
Telegraph
Telephone
Telegraph
Mail
Mail
Telephone
Source: Fouquet and Hippe (2015).
Mobile
Mobile
Phone
phone
Consumption of Communication Services in the UK, 1700-2012
Mail
Mobile
phone
Telephone
Total
Telegraph
Source: Fouquet and Hippe (2015).
Energy Intensity and Energy Service Intensity in the UK, 1800-2010
Energy
Intensity
Transport Intensity
Communication
Intensity
Heating Intensity
Source: Fouquet and Hippe (2015).
Dematerialization of Energy Services
• Dematerialization of Communication Services
• How Many Mail Coaches for Global Internet?
2010: 9 Zetabytes = 13 trillion mail coach j.
183 billion horses/year = 18,000 mtoe
= 1.5 times Global Prim. Energy Cons.
= 800 times Global Data Center Cons.
• Can Other Energy Services Dematerialise?
• Race between Rebound Effects & Income Elast.
versus Dematerialization…
Price of Producer 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).
Impact of 1% Decline in Energy Service Prices on GDP per capita, 1750-1950
Land Freight
Transport
Iron Heating
Source: Fouquet (2014) IAEE Energy Forum.
Power
Sea Freight
Transport
Energy and Economic Growth
• 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
Part 4
Welfare Effects of Energy Systems
External Costs of Energy Services (by cause) as a % of GDP in the United
Kingdom, 1700-2010
Air
Pollution
Fires
Source: Fouquet (2015)
Mining
Climate
Change