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					    SUSTAINABILITY, ENERGY, AND
        ECONOMIC GROWTH
          R. U. Ayres, MAY 26, 2009



•   Part 1. Sustainability and Climate Change
•   Part 2. Energy, Peak Oil
•   Part 3. Exergy and Useful Work
•   Part 4. Economic Growth Theories
•   Part 5. The Neo-Liberal Solution
    Part 1: Long Run Sustainability

•  Long run sustainability has several dimensions, of
  which climate change, sea level rise and loss of natural
  capital, including biodiversity, are major elements.
• Climate change and sea-level rise are especially driven
  by the build-up of so-called greenhouse gases (GHGs)
  in the atmosphere
• The major GHGs are carbon dioxide and methane.
  Both are strongly related to fossil fuel consumption
• This lecture cannot adequately survey the subject
                           0.6
                                    Global Temperatures
                           0.4
                                         Annual Average
Temperature Anomaly ( C)


o
                                         Five Year Average
                           0.2

                             0

                           -0.2

                           -0.4

                           -0.6
                                  1860 1880 1900 1920 1940 1960 1980 2000
                                            Source: Wikipedia "Instrumental Temperature Record"
Historical and projected global sea level rise: 1900-2100

  Meters    5
            0


            4
            0


            3
            0


            2
            0


            1
            0


            0
                1900              1950             2000   2050           210
                                                                          0
                  Glacier & ice            Thermal
                                                          Water loss on land
                  caps                     expansion
           Source: AQUA, GLOBO Report Series 6, RIVM
   Part 2: Energy and Peak Oil

• “Energy” is not the core problem; carbon is.
  Climate change is mainly due carbon dioxide
  build-up in the atmosphere and secondarily due
  to methane releases from agriculture (grazing
  animals), gas distribution and coal mining.
  There is a major “feedback” threat from thawing
  of perma-frost, due to warming itself. However
  we focus here on the near-term problem of oil
  and gas supply.
Source: Bezdek, 2008
Source: Bezdek, 2008
                                    Global oil discoveries minus global oil consumption 1965-2003
                       50


                       40


                       30
Gigabarrels annually




                       20


                       10


                        0


                       -10


                       -20


                       -30
                             1965       1970    1975      1980          1985          1990          1995          2000
                                                                 year

       Source: Heinberg 2004, "Powerdown", Figure 5 page 43
       Until well into the 1970s, new global oil discoveries were more than sufficient to offset production each year.
       Since 1981, the amount of new oil discovered each year has been less than the amount extracted and used.
                                   The wrong kind of shortage
                  1600
                                                                                                    proved and probable reserves
                                                                                                    proved reserves
                  1400


                  1200


                  1000
Billion barrels




                   800


                   600


                   400


                   200


                     0
                         1980             1984              1988              1992             1996              2000             2004
                                                                      year
                         Source: Strahan 2007, "The Last Oil Shock", Figure 13 page 71
                         Global "proved reserves" (wide bars) give the reassuring appearance of continuing growth, but the more
                         relevant "proved and probable reserves" (thin bars) have been falling since the mid-1980s.
Saudi reserves 1936-2005
          Oil production since 2002 approaching saturation




Source: http://www.theoildrum.com
            World oil production projections to 2040




Source: http://www.theoildrum.com
 Hubbert linearization: World oil & gas output 1960-2006




Source: Dave Rutledge, The coal question and climate change : http://www.theoildrum.com 6/20/2007
  Part 3: Exergy and Useful Work

• Energy is conserved, except in nuclear
  reactions. The energy input to a process or
  transformation is always equal to the energy
  output. This is the First Law of
  thermodynamics.
• However the output energy is always less
  available to do useful work than the input. This
  is the Second Law of thermodynamics,
  sometimes called the entropy law.
• Energy available to do useful work is exergy.
  Exergy and Useful Work, Con’t

• Capital is inert. It must be activated. Most
  economists regard labor as the activating
  agent.
• Labor (by humans and/or animals) was once
  the only source of useful work in the economy.
• But machines (and computers) require another
  activating agent, namely exergy.
• The economy converts exergy into useful work
 Recapitulation: Energy vs. Exergy

• Energy is conserved, exergy is
  consumed.
• Exergy is the maximum available work
  that a subsystem can do on its
  surroundings as it approaches
  thermodynamic equilibrium reversibly,
• Exergy reflects energy quality in terms of
  availability and distinguishability from
  ambient conditions.
       Exergy to Useful Work

     1             2               3
EXERGY INPUT x EFFICIENCY      USEFUL WORK



              WASTE EXERGY
   (OFTEN LOW QUALITY HEAT OR POLLUTION)
EXERGY TYPES


1.     FOSSIL FUELS
     (Coal, Petroleum, Natural Gas, Nuclear)
2.    BIOMASS
     (Wood, Agricultural Products)
3.     OTHER RENEWABLES
     (Hydro, Wind)
4.     METALS
5.     OTHER MINERALS
        exergy by source: 1900 -2000
          Japan, Austria, USA, UK

100%                                                     100%
                                    1900                                                     2000

80%                                  nuclear             80%                                  nuclear

                                     natural gas                                              natural gas
60%                                                      60%

                                     oil                                                      oil
40%                                                      40%
                                     coal                                                     coal


20%                                  electricity from    20%                                  electricity from
                                     renewables                                               renewables
                                     renewables (wind,                                        renewables (wind,
 0%                                  solar, biomass)      0%                                  solar, biomass)
       Japan   Austria   USA   UK    food and feed              Japan   Austria   USA   UK    food and feed
                1920                 biomass                                                  biomass
            Exergy (E) Austria, Japan, UK & US: 1900-2005
                               (1900=1)
index
18

             USA   Japan     UK   Austria
16


14


12


10


 8


 6


 4


 2


 0
     1900             1920                  1940   1960   1980   2000
                              Exergy Intensity of GDP Indicator
                        60
                                                             •Distinct grouping of
                                      US                     countries by level, but
                        50                                   similar trajectory
                                                             •Evidence of convergence in
EJ / trillion $US PPP




                        40                                   latter half of century

                                      UK                     •Slowing decline
                        30


                        20
                                      Japan
                        10


                        0
                             1905   1925      1945          1965          1985         2005
                                                     year
     exergy and useful work intensity

     exergy / GDP [GJ/1000$]                                     useful work / GDP [GJ/1000$]
60                                                         3,5
                                      USA      Japan
                                      UK       Austria     3,0
50

                                                           2,5
40
                                                           2,0
30
                                                           1,5
20
                                                           1,0

10                                                         0,5
                                                                                USA        Japan    UK      Austria
 0                                                         0,0
  1900    1915   1930   1945   1960   1975   1990   2005     1900     1915   1930   1945    1960   1975   1990   2005
                                 Conversion Efficiencies
                 40%

                 35%
                                                               Electricity Generation
                 30%                                           High Temperature Heat
Efficiency (%)




                 25%
                                                               Mid Temperature Heat
                 20%

                 15%

                 10%                                           Mechanical Work

                 5%                                            Low Temperature Heat
                                                               Muscle Work
                 0%
                       1905   1925   1945     1965   1985   2005
                                       Year
                       Exergy to useful work conversion efficiency
                                                                       Evidence of stagnation –
                 25%                                                   Pollution controls,
                                                                       Technological barriers
                       High Population Density
                                                                       Ageing capital stock
                       Industrialised Socio-
                                                                       Wealth effects
                 20%   ecological regimes
                                                               Japan
                       Resource limited
efficiency (%)




                 15%


                                                                                       US
                 10%
                              UK                                       Low Population Density
                                                                       Industrialised New
                 5%                                                    World Socio-ecological
                                                                       regime
                                                                       Resource abundant
                 0%
                       1905         1925         1945          1965           1985          2005
                                                        year
         Exergy input share by source,
                Figure 1b Exergy input share by energy carrier, UK 1900-2000
                                   (UK 1900-2000)
100%




80%

                                                                                      Biomass


60%
                                                                                      Renewables and
                                                                                      Nuclear


40%                                                                                   Gas



                                                                                      Oil
20%       Resource Substitution
          From Coal, to Oil, Gas then Renewables and                                  Coal
          Nuclear
 0%
  1900        1920            1940              1960             1980          2000
                                       year
                   Useful work types
• .
      –   Electricity
      –   Mechanical drive (mostly transport)
      –   Heat (high, mid and low temperature)
      –   Light
      –   Muscle Work

• N.B.Available work (exergy) and ‘useful’ work
  are not equal, the latter depends on the exergy
  efficiency of the conversion process for a given
  task. Efficiency = useful work / available work.
                             Useful work by type
                               (US 1900-2005)
            100%
                    Muscle Work
                                                   Non-Fuel
            80%


            60%
share (%)




                              Mechanical Work

            40%                                               Electricity



            20%            High Temperature Heat


                           Low Temperature Heat
             0%
                   1905      1925        1945          1965           1985   2005
                                                year
       useful work by use categories
                          in shares of total GJ/cap


100%                                               100%



80%                                                80%


60%                                 1900           60%                                 2000
                                     Muscle work                                        Muscle work
                                     Non-fuel                                           Non-fuel
40%                                                40%
                                     OTM                                                OTM
                                     Electricity                                        Electricity
                                     Light                                              Light
20%                                                20%
                                     LT heat                                            LT heat
                                     MT heat                                            MT heat
 0%                                  HT heat        0%                                  HT heat
       Japan   Austria   USA   UK                         Japan   Austria   USA   UK
                1920
            Useful Work (U) Austria, Japan, US, UK:
index

90
                          1900-2000

80
                         USA   Japan   UK     Austria

70


60


50


40


30


20


10


0
     1900    1920      1940            1960             1980   2000
                   trends in useful work outputs:
                        1900-2000 in GJ/cap
35                                                                                35
        USA                                                                               Japan
30                                                                                30

25                                                                                25

20                                                                                20

15                                                                                15

10                                                                                10

 5                                                                                 5

 0                                                                                 0
     1900

            1910

                   1920

                          1930

                                 1940

                                        1950

                                               1960

                                                      1970

                                                             1980

                                                                    1990

                                                                           2000


                                                                                       1900

                                                                                              1910

                                                                                                     1920

                                                                                                            1930

                                                                                                                   1940

                                                                                                                          1950

                                                                                                                                 1960

                                                                                                                                        1970

                                                                                                                                               1980

                                                                                                                                                      1990

                                                                                                                                                             2000
35                                                                                35
        UK                                                                                Austria
30                                                                                30

25                                                                                25

20                                                                                20

15                                                                                15

10                                                                                10

 5                                                                                 5

 0                                                                                 0
     1900

            1910

                   1920

                          1930

                                 1940

                                        1950

                                               1960

                                                      1970

                                                             1980

                                                                    1990

                                                                           2000



                                                                                       1900

                                                                                              1910

                                                                                                     1920

                                                                                                            1930

                                                                                                                   1940

                                                                                                                          1950

                                                                                                                                 1960

                                                                                                                                        1970

                                                                                                                                               1980

                                                                                                                                                      1990

                                                                                                                                                             2000
                                                                           High temperature heat                            Medium temp. heat
                                                                           Low temperature heat                             Light
                                                                           Electricity                                      Other prime movers
                                                                           Non-fuel                                         Muscle work
                    exergy and useful work
                      intensity: GJ/$1000
     exergy / GDP [GJ/1000$]                                     useful work / GDP [GJ/1000$]
60                                                         3,5
                                      USA      Japan
                                      UK       Austria     3,0
50

                                                           2,5
40
                                                           2,0
30
                                                           1,5
20
                                                           1,0

10                                                         0,5
                                                                                USA        Japan    UK      Austria
 0                                                         0,0
  1900    1915   1930   1945   1960   1975   1990   2005     1900     1915   1930   1945    1960   1975   1990   2005
                   carbon intensities: tC/TJ


     CO2/exergy [tC/TJ]                                                    CO2/useful work [tC/TJ]
25                                                                   500
                                        USA           Japan                                                   USA       Japan
                                        UK            Austria                                                 UK        Austria
20                                                                   400


15                                                                   300


10                                                                   200


 5                                                                   100


 0                                                                     0
     1900


            1915


                   1930


                          1945


                                 1960


                                             1975


                                                    1990


                                                              2005



                                                                           1900


                                                                                  1915


                                                                                         1930


                                                                                                1945


                                                                                                       1960


                                                                                                               1975


                                                                                                                      1990


                                                                                                                                2005
Income (GDP/cap) and useful work
          per capita
                             70

                             60
  Useful work/cap [GJ/cap]




                             50

                             40

                             30

                             20

                             10

                              0
                                  0   5.000   10.000   15.000    20.000   25.000   30.000
                                                GDP/cap [1990 intl $]
 Part 4: Useful Work and Economic
               Growth

• Since the first industrial revolution, human
  and animal labor have been increasingly
  replaced by machines powered by the
  combustion of fossil fuels. This strongly
  suggests that exergy or useful work
  should be factors of prody=uction, along
  with conventional capital and labor.
                         socio-economic data
                 (a) GDP/cap [USD/cap]                                                                          (b) population density [cap/km2]
35.000                                                                                                   350
                            USA                                                                                                 Austria
30.000                      Japan                                                                        300                    UK (excl. Ireland)
                            UK                                                                                                  Japan
25.000                                                                                                   250                    USA
                            Austria
20.000                                                                                                   200

15.000                                                                                                   150

10.000                                                                                                   100

    5.000                                                                                                 50

            0                                                                                              0
                1900

                         1915

                                       1930

                                                     1945

                                                                   1960

                                                                                 1975

                                                                                          1990

                                                                                                  2005



                                                                                                               1900

                                                                                                                         1910

                                                                                                                                  1920

                                                                                                                                         1930

                                                                                                                                                   1940

                                                                                                                                                            1950

                                                                                                                                                                   1960

                                                                                                                                                                          1970

                                                                                                                                                                                        1980

                                                                                                                                                                                                1990

                                                                                                                                                                                                       2000
       (c) population growth [1900 = 1]                                                                                 (d) capital stocks [billion 1990 $]
4                                                                                                        20.000
                  USA                                                                                                             USA
                  Japan                                                                                                           Japan
3                 UK                                                                                     15.000                   UK
                  Austria                                                                                                         Austria

2                                                                                                        10.000


1                                                                                                         5.000


0                                                                                                               0
     1900


                  1915


                                1930


                                              1945


                                                            1960


                                                                          1975


                                                                                        1990


                                                                                                 2005




                                                                                                                      1900

                                                                                                                                  1915

                                                                                                                                            1930

                                                                                                                                                          1945

                                                                                                                                                                   1960

                                                                                                                                                                                 1975

                                                                                                                                                                                               1990

                                                                                                                                                                                                        2005
Standard paradigm: Production-consumption
                 systems
        A. CLOSED STATIC PRODUCTION CONSUMPTION SYSTEM

        Production of                Purchases              Consumption
         Goods and                                         of Final Goods
                                      Wages, Rents
         Services                                           and Services

        B. CLOSED DYNAMIC PRODUCTION CONSUMPTION SYSTEM
                                   Purchas
        Production of                   es                   Consumption
         Goods and                                          of Final Goods
                                      Wages, Rents
         Services                                           and Services

                             Purchases of
                        capital goods


                 Capital
                                   Invested               Savings
                 depreciation      Capital

        C. OPEN STATIC PRODUCTION CONSUMPTION SYSTEM
                                            Purchas
                     Production of          es
                                                            Consumption
                     Goods and                             of Final Goods
                                        Wages, Rents
                     Services                               and Services

                                                               Consumpti
           "Raw"                                                  on
           materia                                               wast
             ls                                                   es
                                      Production wastes
                                                             Waste
          Extraction                                         Disposal
                                Recycled materials
                                                             Treatment
 Economic production functions
  Common practice: Cobb-Douglas
Yt =   At (H t K t )a (G t L t )b (Ft R t ) g
Yt is output at time t, a function of,
• Kt , Lt , Rt inputs of capital, labor and natural
  resource services.
• a, + b + g = 1, (constant returns to scale assumption)
• At is total factor productivity
• Ht , Gt and Ft coefficients of factor quality
     GDP and factors of production, US 1900-2005
Index (1900=1)

50




40


                   GDP
                   Capital
30                 Labor
                   Exergy
                   Useful Work


20




10




 0
     1900   1910   1920    1930   1940   1950          1960   1970   1980   1990   2000   2010

                                                year
         US GDP 1900-200; Actual vs. 3-factor Cobb Douglas function
                                            L(0.70), K(0.26), E(0.04)

GDP Index (1900=1)
        25




        20
                                                       US GDP

        15




        10

                                                   SOLOW RESIDUAL
                                                       (TFP)
          5


                                                       Cobb-Douglas

         1900        1920     1940          1960       1980         2000
                                     year
Technological Progress Function and Solow Residual USA: 1900 - 2005
Index (1900=1)
 5.5


  5


 4.5                          TPF (1.6% per annum)
                           unexplained Solow residual
  4


 3.5

  3

 2.5


  2


 1.5

  1
      1900   1910   1920   1930     1940    1950      1960   1970   1980   1990   2000   2010
                                               year
     Problems with growth theory
• Money makes money grow. No link to the
  physical economy, only capital and labour are
  productive.
  – Energy, materials and wastes are ignored.
• Unable to explain historic growth rates.
• Exogenous unexplained technological progress
  is assumed, hence growth will continue.
• Endogenous growth theory based on „Human
  knowledge capital‟ is unquantifiable – there are
  no metrics, other than R&D inputs.
          The evolutionary paradigm
• The economy is an open multi-sector materials /
  energy / information processing system in
  disequilibrium.
• Sequences of value-added stages, beginning with
  extraction and ending with consumption and disposal of
  material and energy wastes.
• Spillovers from radical innovation, particularly in the
  field of energy conversion technology have been
  among the most potent drivers of growth and structural
  change.
• Economies of scale, learning by doing, factor
  substitution  positive feedback, declining costs/prices,
  increased demand and growth.
     The Virtuous Cycle driving historical growth


                      Product               R&D Substitution of
                    Improvement            Knowledge for Labour;
                                            Capital; and Exergy

                        Process
                      Improvement
                                                  Substitution of
                                                 Exergy for Labour
                               Lower Limits to
                                                    and Capital
                                  Costs of
  INCREASED REVENUES             Production
  Increased Demand for
 Final Goods and Services

                            Economies of   Lower Prices of
                                Scale        Materials &
                                              Energy



Lower costs, lower prices, increased demand, increased supply, lower costs
   Economic production functions: II

The linear-exponential (LINEX) production function
                     L + U        L 
        Yt = U expa 2 - 
                               + ab - 1
                                
                         K        U 
  For the USA, a = 0.12, b = 3.4 (2.7 for Japan)
   Corresponds to Y = K 0.38 L   U 0.56
                                0.08



  • At , 'total factor productivity', is REMOVED
  • Resources (Energy & Materials) replaced by WORK
  • Ft = energy-to-work conversion efficiency
  • Factors ARE MUTUALLY DEPENDENT
  • Empirical elasticities DO NOT EQUAL COST SHARE
Empirical and estimated US GDP: 1900-2000
          US GDP (1900=1)


           25


                                        GDP estimate Cobb-Douglas


           20                           LINEX GDP
                                        estimate

                                         Empirical GDP


           15




           10
                       PRE-WAR COBB DOUGLAS                                 POST-WAR COBB DOUGLAS
                       alpha=0.37                                           alpha=0.51
                       beta=0.44                                            beta=0.34
                       gamma=0.19                                           gamma=0.15
            5




            0

                1900             1920               1940             1960      1980           2000
                                                              year
 Empirical GDP from Groningen GGDC Total Economy Growth Accounting Database: Marcel P. Timmer, Gerard
 Ypma and Bart van Ark (2003), IT in the European Union: Driving Productivity Divergence?, GGDC Research
 Memorandum GD-67 (October 2003), University of Groningen, Appendix Tables, updated June 2005
     Empirical and estimated GDP Japan; 1900-2000
           GDP Japan (1900=1)




          50



                                        GDP estimate
                                        LINEX
          40                            GDP estimate Cobb-
                                        Douglas
                                        Empirical
                                        GDP


          30




          20
                      PRE-WAR COBB DOUGLAS                                  POST-WAR COBB DOUGLAS
                      alpha=0.33                                            alpha=0.78
                      beta=0.31                                             beta=-0.03
                      gamma=0.35                                            gamma=0.25
          10




           0

               1900              1920                  1940          1960      1980            2000
                                                              year
Empirical GDP from Groningen GGDC Total Economy Growth Accounting Database: Marcel P. Timmer, Gerard
Ypma and Bart van Ark (2003), IT in the European Union: Driving Productivity Divergence?, GGDC Research
Memorandum GD-67 (October 2003), University of Groningen, Appendix Tables, updated June 2005
                Empirical & estimated GDP, UK 1900-2005
                                 (1900=1)
   indexed 1990 Gheary-Khamis $
   7


                                    GDP estimate
   6                                LINEX
                                    GDP estimate Cobb-
                                    Douglas
   5                                Empirical
                                    GDP


   4



   3

                                                                         COBB DOUGLAS
                                                                         alpha=0.42
   2
                                                                         beta=0.24
                                                                         gamma=0.34

   1



   0
       1900   1910   1920    1930      1940        1950    1960   1970   1980    1990   2000    2010
                                                    year
Empirical GDP from Groningen GGDC Total Economy Growth Accounting Database: Marcel P. Timmer, Gerard
Ypma and Bart van Ark (2003), IT in the European Union: Driving Productivity Divergence?, GGDC Research
Memorandum GD-67 (October 2003), University of Groningen, Appendix Tables, updated June 2005
              Empirical & estimated GDP, Austria 1950-2005
                                (1950=1)
   indexed 1990 Gheary-Khamis $
   7


                                    GDP estimate
   6                                LINEX
                                    GDP estimate Cobb-
                                    Douglas
   5                                Empirical
                                    GDP


   4



   3

                                                                         POST-WAR COBB DOUGLAS
                                                                         alpha=0.56
   2
                                                                         beta=0.20
                                                                         gamma=0.24

   1



   0
       1900   1910   1920    1930      1940        1950    1960   1970   1980    1990     2000   2010
                                                    year

Empirical GDP from Groningen GGDC Total Economy Growth Accounting Database: Marcel P. Timmer, Gerard
Ypma and Bart van Ark (2003), IT in the European Union: Driving Productivity Divergence?, GGDC Research
Memorandum GD-67 (October 2003), University of Groningen, Appendix Tables, updated June 2005
            REXS model forecast of US GDP:
                    2000-2050
   45   Simulation results using
        the plausible trajectories of
        technical efficiency growth                                          HIGH
        as a function of cumulative
                                                                             Initial ~3% growth rate, for 130%
33.75   primary exergy production                                            target increase in technical
                                                                             efficiency.


 22.5
                                                                              MID
                                                                             Initial 1.5% growth rate for target
                                                                             120% improvement in efficiency.
11.25

                                                                             LOW
                                                                             Shrinking economy at rate of
   0                                                                         2 - 2.5% after 2010 if the target
  1900    1918       1936     1954      1972     1990   2008   2026   2044   technical efficiency is only 115%
GDP (1900=1)                              year
                                                                             greater than the current.
empirical
low
mid
high
  Source: "The MEET-REXS model". Ayres & Warr 2006
  Part 5: The Neo-liberal solution

• We have shown the strong link between
  exergy or useful work and output. The
  problem for the captain of the great ship
  Titanic is to avoid an economic collapse
  while simultaneously cutting carbon-
  emissions drastically by cutting fossil fuel
  consumption. The only possible approach is
  to increase energy efficiency a lot, but at
  little (or even negative) cost. We need a win-
  win policy.
 The neo-liberal solution, continued

• We postulate the existence of large but
  avoidable inefficiencies in the economy,
  corresponding to significant departures
  from the optimal equilibrium growth path
  that is commonly assumed. These
  inefficiencies may result from “lock-ins”,
  regulatory barriers or monopolies that
  prevent innovation by upstart start-ups.
  Eliminating inefficiencies can create
  “double dividends”
              Deadweight

• Deadweight is the term used by economists
  to characterize the effect of taxes (or
  subsidies or other barriers) to reduce
  economic efficiency by reducing “option
  space” and thus forcing entrepreneurs to
  make non-optimal choices. We argue that
  monopolies, obsolete regulations and
  “lockout/lock in” also cause deadweight
  losses by preventing optimal innovation.
   Disequilibrium = Deadweight loss

• If the economy were really in the standard
  state of perfect competition, perfect
  foresight, etc. there would be no
  inefficiencies and no deadweight losses.
  In the real world, evidence of double
  dividend opportunities is evidence of
  disequilibrium and deadweight losses.
                            Cumulative and Marginal Cost of Abatement in
                            100
                                           Disequilibrium             500




                            80

                                                                                                      400


                            60




                                                                                                          Marginal cost $ per ton of
Cumulative Cost billion $




                                                                                                      300
                            40
                                                                 Marginal Cost




                                                                                                                   carbon
                                                                  Short Term

                            20
                                                                                                      200
                                                Region of Net
                                                Dollar Savings

                             0
                                      Cumulative Cost
                                        Short Term
                                                                                                      100

                            -20

                                                                                 Marginal Cost
                                      Cumulative Cost                            Medium Term
                                       Medium Term
                            -40                                                                       0
                                  0           10                      20                   30    40
                                                                 Abatement (percent)
Three estimates of marginal cost of electricity efficiency
                   (cents per kWh)
                                                       Electric                           1 Industrial process heating
                                                                                          2 Residential lighting
                                                    17 Power                              3 Residential water heating
                                                       Research                           4 Commercial water heating
 12                                                                                       5 Commercial lighting
                                                   16 Institute                           6 Commercial heating
                                                                                          7 Commercial cooling
                                                  15                                      8 Commercial refrigeration
                                                                                          9 Industrial motor drives
 10                                                                                      10 Residential appliances
                                                                                         11 Electrolytics
                                                                                         12 Residential space heating
                                              A                                          13 Commercial & industrial space heating
                                                                                         14 Commercial ventilation
 8                                                                                       15 Commercial water heating (heat pump or solar)
                                                                                         16 Residential cooling
                                                                              Lawrence   17 Residential water heating (heat pump or solar)
             Cost of new coal-fired           14                      B       Berkeley
             power plant in USA
 6                                                                            Labs


                                                                                                                     11
                                                                                                                          Rocky
 4                                           13                                                                           Mountain
                                                                                                   9       10             Institute
                                      10 11 12                                               C
                              9                                                                    1   Lighting
                        8                                                                          2   Lighting's effect on heating & cooling
 2                  7                                                                              3   Water heating
              5 6                                                         6       7      8         4   Drive power
        34                                                        5
                                                                                                   5   Electronics
       2                                                4                                          6   Cooling
      1
                                      2   3                                                        7   Industrial process heat
 0                                                                                                 8   Electrolysis
                                                                                                   9   Residential process heat
                                                                                                  10   Space heating
                                                                                                  11   Water heating (solar)
                    1
 -2
      0              10            20              30            40            50          60                   70               80
                                  Potential Electricity Savings (percent total U.S. consumption)
   Marginal Cost Curve for GHG Abatement
$/tonne C   200


                         DOE Forecast
            100            (1.7 GT)

                                                                                                                IPCC
                                                                                                              (0.5 GT)
              0



            -100

                                                                        11
            -200                                               10
                                                           9
                                                       8
                                                 6 7
                                             5
                                                                     Least-Cost
            -300                        4                             (1.3 GT)
                                    3

                                2
            -400



            -500
                               1


            -600

                   1.8                      1.6                1.4                1.2   1         0.8   0.6              0.4

                                                               Cumulative Carbon Emissions (GT/year)

              Source: [Mills et al 1991; Figure 2]
US mid-range abatement curve 2030




Source: McKinsey & Co.
       The cumulative effect of
       (postulated) deadweight




• Actual E/GDP is much higher than the optimum, due to
  potential “double dividends” that are neglected
       Summary of parts 4 & 5

• Neoclassical growth theory does not explain growth
• We model economic growth with useful work as a
  factor of production. This explains past growth well
• Economic growth need not be a constant
  percentage of GDP. It can be negative.
• Future sustainable growth in the face of peak oil
  depends on accelerating energy (exergy) efficiency
  gains.
• Future efficiency gains may be inexpensive if
  existing double dividend possibilities are exploited
Thank you

				
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