Fueling growth when oil peaks: Directed technological change and the limits to efficiency (original) (raw)
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Fuelling growth when oil peaks: growth, energy supply, and directed technological change
A model of endogenous growth and non-renewable resource extraction is presented. Resource owners endogenously determine the extraction path and firms endogenously determine the rate and direction of technological change. We explore under what conditions the short-run dynamics of the model can replicate the following main trends in the OECD over the last decades: an increase in per capita energy supply, a decrease in the cost share of energy in GDP, a decrease in energy cost relative to labor cost, and reductions in energy use per unit of GDP. We also study the long-run properties of the model to examine whether current trends are sustainable.
Energy Use, Endogenous Technical Change and Economic Growth
2004
A model of endogenous growth and non-renewable resource extraction is presented. Resource owners endogenously determine the extraction path and firms endogenously determine the rate and direction of technological change. We explore under what conditions the short-run dynamics of the model can replicate some important trends of last decades' OECD experience. These are, in particular, an increase in per capita energy supply, a decrease in the cost share of energy in GDP, a decrease in energy cost relative to labor cost, and reductions in energy use per unit of GDP. We also study the long-run properties of the model to examine whether current trends are sustainable.
Oil Prices, Exhaustible Resources, and Economic Growth
This paper explores details behind the phenomenal increase in global crude oil production over the last century and a half and the implications if that trend should be reversed. I document that a key feature of the growth in production has been exploitation of new geographic areas rather than application of better technology to existing sources, and suggest that the end of that era could come soon. The economic dislocations that historically followed temporary oil supply disruptions are reviewed, and the possible implications of that experience for what the transition era could look like are explored.
Energy Sector Innovation and Growth: An Optimal Energy Crisis
The Energy Journal, 2016
We study the optimal transition from fossil fuels to renewable energy in a neoclassical growth economy with endogenous technological progress in energy production. Innovations keep fossil energy costs under control even as increased exploitation raises mining costs. Nevertheless, the economy transitions to renewable energy after about 80% of available fossil fuels are exploited. The energy shadow price remains more than double current values for over 75 years around the switch time. Consumption and output growth decline sharply during the transition period, which we thus identify as an "energy crisis." The model highlights the important role energy can play in influencing economic growth.
Rensselaer Workin Papers in Economics, 2004
This article surveys the relation between energy and economic growth and more generally the role of energy in economic production. While business and financial economists pay significant attention to the impact of oil and other energy prices on economic activity, the mainstream theory of economic growth pays little or no attention to the role of energy or other natural resources in promoting or enabling economic growth. Resource and ecological economists have criticised this theory on a number of grounds, especially the implications of thermodynamics for economic production and the long-term prospects of the economy. While a fully worked out alternative model of the growth process does not seem to exist, extensive empirical work has examined the role of energy in the growth process. The principal finding is that energy used per unit of economic output has declined, but that this is to a large extent due to a shift in energy use from direct use of fossil fuels such as coal to the use of higher quality fuels, and especially electricity. When this shift in the composition of final energy use is taken into account energy use and the level of economic activity are found to be tightly coupled. When these and other trends are taken into account the prospects for further large reductions in the energy intensity of economic activity seem limited. The implications for environmental quality and economic sustainability are discussed.
The underestimated contribution of energy to economic growth
Structural Change and Economic Dynamics, 2013
Standard economic theory regards capital and labour as the main factors of production that satisfy the "cost-share theorem". This paper argues that when a third factor, namely energy, is added physical constraints on substitution among the factors arise. We show that energy is a much more important factor of production than its small cost share may indicate. This implies that continued economic growth along the historical trend cannot safely be assumed, notably in view of considerably higher energy prices in the future due to peak oil and climate policy.
Further results on “an endogenous growth model with embodied energy-saving technical change”
In this short paper we add a non-renewable resource sector to van Zon and Yetkiner (2003) that extended Romer (1990) by including energy consumption of intermediate goods in a context of endogenous and embodied technical change. Van Zon and Yetkiner (2003) showed that the growth rate depends negatively on the growth of exogenous real energy prices. In this paper, we endogenise the growth rate of real energy prices by introducing a non-renewable resource sector into the model. This allows us to study the comparative statics of the model. We show that changes in technology parameters promote growth, while others disfavour growth.
The energy-economic growth relationship: a new insight from the EROI perspective
2016
In the present paper we relate the recent estimations of thehistorical (1800-2011) global EROI of fossil fuels production performedby Court and Fizaine (2015) to the tremendous increase in GrossWorld Production that the global economy has encountered duringthe same period. We first show that on this entire period of study,there is a power inverse relationship that exists between the averageprice of aggregated fossil energy and its EROI. More precisely, wefind that this long-term relationship is constituted of short-termrelations that shift over time. We interpret these shifts as short-termcycles of EROI decrease/price increase/innovation to higher EROI.Furthermore, on the more restricted 1950-2011 time period on whichwe have continuous year-to-year data, we find a clear correlationbetween the EROI level of aggregated fossil energy and the growthrate of the Gross World Production (GWP). With the same data, weare also able to show that in order to have a positive growth rate,the globa...
The economic growth enigma: Capital, labour and useful energy?
2013
We show that the application of flexible semi-parametric statistical techniques enables significant improvements in model fitting of macroeconomic models. As applied to the explanation of the past economic growth (since 1900) in US, UK and Japan, the new results demonstrate quite conclusively the non-linear relationships between capital, labour and useful energy with economic growth. They also indicate that output elasticities of capital, labour and useful energy are extremely variable over time. We suggest that these results confirm the economic intuition that growth since the industrial revolution has been driven largely by declining energy costs due to the discovery and exploitation of relatively inexpensive fossil fuel resources. Implications for the 21st century, which are also discussed briefly by exploring the implications of an ACEGES-based scenario of oil production, are as follows: (a) the provision of adequate and affordable quantities of useful energy as a pre-condition for economic growth and (b) the design of energy systems as ‘technology incubators’ for a prosperous 21st century.
Energy, knowledge and economic growth
Journal of Evolutionary Economics, 2014
It is argued that the explosive growth experienced in much of the World since the middle of the 19 th Century is due to the exploitation and use of fossil fuels which, in turn, was made possible by capital good innovations that enabled this source of energy to be used effectively. Economic growth, it is argued, has been due to an autocatalytic co-evolution of energy use and the application of new knowledge relating to energy use. A simple 'evolutionary macroeconomic' model of economic growth is developed and tested using almost two centuries of British data. The empirical findings strongly support the hypothesis that growth has been due to the presence of a 'super-radical innovation diffusion process.' Also, the evidence suggests that large and sustained movements in energy prices have had a very significant long term role to play. The paper concludes with an assessment of the implications of the findings for the future prospects of economic growth in Britain and the possible lessons that can be learned about the future of the global economy.