ALTERNATIVE APPROACHES

The Great Energy Transformation ushered in a form of dynamic symbiotic relationship between the energy supply, economic growth, and technological change. The expanding availability of coal combined with new technologies promoted a new pattern of economic growth based on industrial processes and a new mode of transportation. Economic growth in turn required expanding supplies of energy and stimulated technological change. This relationship of mutual interdependence was supported by government policies directed at the pursuit of unconstrained economic growth and the necessary expansion of the energy supply. I call this government action supply-based policies. In this chapter I explore the relationship between energy and the economy and identify the channels through which this relationship, and the supply-based policies that feed it, affect not only the economic structure but national and international inequality of income, wealth, and power, and ultimately the quality of life. I also suggest an alternative approach.

Table VI-1 shows that during the first five centuries of the past two millennia there was no increase in real GDP and its growth was minimal over the next five centuries. It took an additional 500 years for its value to double. After 1500, we see a process of accelerating growth. A near tripling of real GDP first took 320 years (from 1500 to1820) and successively 80 years, and 50 years. After 1950, global real GDP nearly quadrupled withing the span of 24 years, but then decelerated during the following 43 years. The data for energy consumption start at the beginning of the transition period and initially capture the effect of the rise of coal.  The growth of global energy consumption also accelerated although it did not follow closely the growth path of real GDP. From 1820 to 1900, its growth actually exceeded that of real GDP and afterwards it followed a declining pattern leading to a rate of growth 40 percent lower than that of GDP during the period from 2002 to 2019.      

 

Table VI-1. Energy and Economic Growth in the World

Period      Percentage Change in                     Energy/GDP^a

                         Real GDP        Energy Consumption^b

First Five Centuries                 0          

500 to 1000 CE                        15.0

1000 to 1500                          105.0

1500 to 1820                          178.7

1820 to 1900                          185.0                        229.6                           1.24

1900 to 1950                          170.5                        143.8                           0.84

1950 to 1976                          227.0                        178.2                           0.79

1976 to 2002                          118.8                          54.9                           0.46

2002 to 2019                            67.5                          46.6                           0.69

Notes: ^aGrowth of energy consumption divided by growth of real GDP;^b Does not include food for human consumption;

Sources: Our Worl in Data, “World GDP over the Last Two Millennia”; Paolo Malanima, “World Energy Consumption: A Database, 1820-2020,” Table A.4, p. 56.

 

Because economic growth was not uniform around the globe, the expansion of energy consumption varied greatly among different regions and so did the change in their shares. In 1820, despite the Industrial Revolution, at the global level the economic structure was dominated by agriculture and related industries (fishing and forestry) and 92 percent of energy consumption was in the form of renewable sources (fuelwood and fodder) which served to satisfy the basic human needs for cooking, heating, and producing food. Therefore, energy consumption by region depended largely on the size of its population, with adjustment for climatic conditions (cold days). In 1820, Asia and Europe combined for over 90 percent of the population and for nearly 80 percent of energy consumption. Because of its climate, North America accounted for 8.7 percent of energy consumption although it housed 1 percent of the world population.  From 1820 to 1950, the major shifts in energy consumption occurred between North America, whose share jumped by nearly 30 percentage points, and Asia which lost 31 percentage points.  The share of Europe’s energy consumption edged up slightly. From 1950 to 2019, Asia regained its dominant position as the leading energy consumer with a share of 43 percent. The shares of Europe and North America dropped by 16 and 19 percentage points, respectively.

Table VI-2. Shares of Energy Consumption by Region

Region              Shares (%)

       1820              1950           2019

 

Western Europe                    20.2              20.5            10.0

Eastern Europe                     10.6              13.6              8.4

North America                        8.7              38.5            19.6

Latin America                         2.0               3.9               5.8

Oceania                                   0.3               1.0               1.1

Asia  48.0             16.6             42.9

Middle East                             1.7               1.1              6.5

Africa                                      8.5               4.8              5.7

Source: Paolo Malanima, “World Energy Consumption: A Database, 1820-2020,” Tables A.6 to A.13.  

 

Energy consumption (EN) can be calculated as the product of population (Pop) and energy use per person (EN/Pop), therefore, its growth is determined by the growth of Pop and EN/Pop. Table VI-3 provides information on the growth of these three variables which allows a determination of the relative contribution of these two factors to the growth of energy consumption from 1820 to 1950 and from 1950 to 2019. The first period covers the transition from the dominance of fuelwood and fodder to coal and partly oil and gas. The second period reflects the dominance of oil and natural gas. Globally, during the 1820-1950 period, EN/Pop contributed nearly twice as much to the growth of energy consumption as did population growth. EN/Pop rose by a factor of 3.6, 1.9 times the factor for Pop. The growth of EN/Pop is determined by three factors. The first is economic growth which raises a person’s purchasing power. The second is technology which may generates opposing effects. On one side, it offers improvements in energy efficiency in both production and consumption. On the other side, it offers consumers an increasing variety of energy-using machines and equipment. The third factor is human values and attitudes which determine how people respond to changes in income and technology. The data for 1820 to 1950 indicate that economic growth was the dominant determining factor in the growth of energy consumption as it overwhelmed both the effect of technological change and population growth. The relative contribution of Pop and EN/Pop were reserved during the 1950-2019 period, which was roughly half in length and recorded a slightly higher growth rate of energy consumption. In this period the effect of population growth was double that of energy consumption per capita, despite much economic growth. This suggests that technological advancements played a key role in mitigating the effects of the factors that stimulate energy consumption. But its effect was limited and the forces of population and economic growth pushed the growth of energy consumption even higher. 

The determinants of energy consumption differed not only by period but also among regions. During the period from 1820 to 1950, in the Americas and Oceania the growth of energy consumption was largely driven by population increases. Population growth had a relatively stronger effect in Africa and, to a lesser extent, Asia and the Middle East. In Europe, the growth energy consumption per capita had the stronger impact, a reflection of the higher degree of industrialization.  Population growth was still the most significant factor in the Americas, Oceania and Africa, but with a reduced effect in the first two and a stronger effect in Africa. The situation in Europe remained unchanged in Europe, but was reversed in Asia and the Middle East. The relatively stringer effect of energy consumption in these two regions resulted from greater industrialization due to the globalization of economic activity, particularly manufacturing, in the former and the expansion of the energy sector in the latter.   

   

Table VI-3. Growth of Energy Consumption, 1820-1950 and 1950-2019: Components by Region

Region                              1820-1950               1950-2019

                                          Ratio^a                          Change                               Ratio^a                 Change

                      Pop          EN/Pop            EN           EN/Pop        Pop        EN/Pop      EN           EN/Pop  

W. Europe       2.20           3.62               8.00          1.18            1.38        2.27          3.07           2.00                    

E. Europe        2.96           3.54             10.44          0.89            1.53        2.54          3.88           1.91

N. America   16.60           2.13             35.35          3.00            2.20        1.46           3.21          2.58

L.America     8.05            1.93             15.56          0.27            3.89        2.41           9.36          0.79

Oceania         8.12            3.16             25.50          1.34            3.61        2.07           6.68          2.10

Asia               1.92            1.43               2.74          0.09            3.15        5.27         16.67          1.28

M. East          2.44            2.05              5.10           0.22            5.62        6.79         37.81          2.49

Africa            3.09            1.47              4.56           0.16            5.76        1.32           7.52          0.16

World            2.42            4.62             11.25          1.05            3.08       1.47            4.51           0.63                          

Notes: ^aValues at the end of the period divided by values at the beginning of the period. The growth factor equals the ratio minus 1.

Source: Paolo Malanima, “World Energy Consumption: A Database, 1820-2020,” Tables A.6 to A.13.  

                                          

The trends in the 1950-2019 highlight a fundamental reality: technological change cannot solve the problem of ever-growing energy consumption within an economic system dedicated to the pursuit of unconstrained economic growth in the context of population growth, which is also stimulated by higher living standards.

 

The pursuit of unconstrained economic growth, with the associated growth in energy consumption, is usually justified by economists, business leaders, and policy makers on grounds that it is necessary for raising living standards. This argument has merit only when living standards are measured only in terms of material wellbeing and the externalities generated in the process of economic growth are ignored. Even in this unusual case, global averages are not very meaningful because they conceal interregional differences. We need to know not just by how much real output and energy consumption rose during a certain period, but also who gained from those increases. To examine this issue, I start with information on changes in income among a variety of regions during the past two centuries. 

 

Table VI-4 shows the ratio of real per capita income for several regions to the world average for three selected years during the past two centuries.  The first year, 1820, is associated with an economic structure dominated by agriculture and related industries and an energy supply mix overwhelmingly based on renewable resources (fuelwood and fodder accounted for 92 percent of the total).

 

The period from 1820 to 1950 was characterized by low economic growth, with average annual real GDP growth less than 1 percent, and is associated with the energy transition from renewables to coal. In 1820 there was substantial variation in per capita income among regions with four regions having YPC in excess of the average (North America, Europe, Latin America and the Middle East plus North Africa), and a range of close to double the average. The YPC in the top three regions (North America, Europe, and Oceania) was 3.6 times that of the bottom two regions (Sub-Sahara Africa and South plus South East Asia). Despite this low growth, inter-regional per capita income disparities widened during this period. The range nearly doubled and the YPC advantage by the top three regions to the bottom two nearly quadrupled. Economic growth was much stronger during the following 70 years (over 2 percent per year). This period witnessed the consolidation of fossil fuels as the dominant energy source and the proliferation of energy sources with the addition of nuclear power and a variety of renewable forms of energy.  Inter-regional variation in per capita income declined moderately during this period as the range of the ratio-to-the-average was reduced from 3.8 to 3.2. The advantage by the top three regions over the bottom two fell substantially, but still remained 2.3 times its level in 1820. 

 

 

Table VI-4. Changes in the Real per Capita Income (YPC) by Region: 1820, 1950, and 2020

 

Region           Ratio to World Average YPC

                       1820            1950          2020

 

Europe            1.92             2.01            2.39

Russia/Central Asia                             0.71             1.44            1.10

North America/Oceania                       2.55             4.04            3.46

Latin America                                      1.13             1.13            0.90

Middle East and North Africa              1.73             1.17            1.21

Sub-Saharan Africa                              0.62             0.25            0.47

East Asia          0.84             0.29           1.13

South and South East Asia                    0.62            0.56            0.23

Ratio^a for Europe and North America/

Oceania Divided by Ratio for

Sub-Sahara Africa and South and

South East Asia                                     3.6             13.8              8.4

Notes:^a Simple Average

Source:  Lucas Chancel and Thomas Piketty (2021), “Global Inequality, 1820-2020: the Persistence and Mutation of Extreme Inequality,” World Inequality Lab, Working Paper No. 2021/19, Table 3.                         

 

Table VI-5 addresses the question of how changes in the rate of economic growth and in the energy mix affected the distribution of real income. In 1820 there was a substantial concentration of income as the top ten percent received half of total income, a share five times its share of the population.  The middle-income group received a share slightly below its population share, while to the bottom went only 14 percent of income. The distribution of income became even more unequal during the transition to coal. The main beneficiaries were those in the top 10 percent of the income distribution whose share of total income rose by five percentage points, followed by the middle-income group with a gain of 2 percentage points. The bottom half was the big loser as its income share fell by half from 14 to 7 percent. The ratio of the average income of the top ten percent to that of the bottom half more than doubled. By 1950, the average income of the top ten percent was 40 times that of the bottom half. During the high growth and energy proliferation period from 1950 to 2020, there were fluctuations in the degree of global income inequality, but the income shares in 2020 were equal to those in 1950. This means that, in relative terms, the bottom half of the world population gained nothing from the expansion of output and energy consumption as its income share remained at 7 percent. 

 

 

Table VI-5. Measures of Global Income Inequality: 1820, 1950. 2020

 

                                       1820            1950          2020

 

Share of Top 10%            50                55              55

Share of Middle 40%       36                38             38

Share of Bottom 50%       14                 7               7

Average Income: Top 10%/Bottom 50%               18               40             37

Source:  Lucas Chancel and Thomas Piketty (2021), “Global Inequality, 1820-2020: the Persistence and Mutation of Extreme Inequality,” World Inequality Lab, Working Paper No. 2021/19, Tables 5-7.                         

 

The high concentration of income was associated with large regional differences in poverty rates. In 2020, over one-third of the 172 countries listed in the list by Index Mundi) had poverty rates in excess of 30 percent, 27 percent between 20 and 30 percent, and 24 percent between 10 and 20 percent. Many developed countries, including the US were in the latter category. Only 25 countries (14 percent) had poverty rates below 10 percent.¹

 

A more meaningful measure of global economic disparities is the distribution of wealth, because wealth represents the accumulation of unspent income over a number of years and is more representative of economic and political power than annual income. As shown in table VI-6, global wealth is even more unevenly distributed than income. In 2021 the top ten percent of adults possessed three-quarters of global wealth while the bottom fifty percent owned only 2 percent. The average wealth of the top ten percent of adults was 189 times that of the bottom 50 percent. Focusing on the extremely wealthy, a small number of adults (51,700 or 0.001 % of adults) possesses more than three times the wealth owned by the bottom half. Inequality in the distribution of wealth may become even more unequal in the future as the share of the top ten percent of adults is projected to rise to 24 percent in 2050, 25 percent in 2070 and 32 percent in 2100.    

 

Table VI-6. Global Distribution of Wealth in 2021

 

                              Average Wealth   Shares

                              Per Adult, 2021 Euros        2021        2050        2070       2100

 

Total Adults                  72,913                              

Top 0.1 %                     14.1 million                 19.4         24             25            32         

Top 1 %                          2.8 million                 37.8

Top 10 %                    550,920                          75.6

Middle 40 %                 40,915                          22.4

Bottom 50 %                   2,908                            2.0          2               3              4

Top 10%/

Bottom 50%                 189.4

Source: World Inequality Report, 2022, Table 4.1, p. 90, and Table 4.6, p. 96.        

 

The inequality of income and wealth is associated with wide differentials in other important indicators of standard of living among countries at different stages of development. For example, life expectancy at birth in Nigeria is 65 percent of the average of France, Germany, Italy, and the U.K.; child mortality in India, Indonesia, South Africa and Kenya (simple average) is 8 times that in the above four developed countries; and the average number of years of schooling in Nigeria and Kenya is half that in Germany and the US.

 

The dominant position of oil in the energy mix and its control by a cartel has created a high degree of instability in both the supply of energy and economic performance. As mentioned earlier, the economic power of the cartel of oil exporting countries (OPEC) was evident during most of the 1970s and part of the 1980s. As OPEC’s power led to wild fluctuations in oil prices, the economies of the western world experienced a sequence of business cycles coupled with stagflation, a condition of persistent inflation and low output growth. More recently, the power of energy control has been expressed in the relationship between Russia and Europe. As the main supplier of natural gas to Europe, Russia used its power to weaken the will of European countries in opposing its expansionist policies towards Ukraine and eastern Europe. The collapse of the energy flow from Russia after its invasion of Ukraine forced painful economic adjustments in many European countries, depending on their degree of their energy dependence on Russian supplies. The control of energy has also been evidenced by the recent policy of OPEC+, which in practice means agreements between Russia and Saudi Arabia, to curtail oil production to maintain high oil prices in the midst of stubborn inflation. That this policy helps Russia and weakens politically those who oppose its expansionism is hardly a coincidence.

 

The control of energy by exporters, individually or as part of a cartel, jeopardizes the energy security of energy-dependent countries. Because of the crucial role that energy plays not only in the process of economic growth but also on living standards, strengthening the degree of energy security should be a primary objective of any country’s public policy. But energy security cannot be enhanced as long as there is a cartel that controls the supply and price of the most crucial energy source. While a limited focus on CO2 emissions leads to a policy of cutting down coal use, I suggest that the primary objective of global energy policy should be the rapid decline in the consumption of oil. While reducing coal use affects mainly greenhouse gas emissions, curtailing oil consumption has two crucial impacts: it reduces CO2 emissions and it weakens the power of the oil cartel, resulting in a more stable pattern of oil prices, greater global economic stability, and enhanced energy security.

 

The supply-based energy policy associated with the Great Energy Transformation, has also led to the centralization of energy the supply, the opposite of the situation that had existed through the earlier human history. This centralization resulted from both the nature of the dominant energy sources (all three forms of hydrocarbons) and the commonality of interests between big business and government.  The capital-intensive nature of the production, transformation, and distribution of hydrocarbons facilitated the consolidation of the energy industry. This condition also applies to hydro-electric power generation and to nuclear power. Historically it has led either to the nationalization of energy resources/industries or to the concentration of energy, production, transformation, and distribution in the hands of a few very large firms. The concentration of the energy industry also benefited government which now had easily identifiable tax bases: the profits of corporations, the income of the energy workers, and the sellers of the final forms of energy. This concentration has also strengthened the ties between business and government through effective lobbying and the capacity of large energy corporations to finance political parties and election campaigns. The economic and political power of the large corporations that control the non-renewable energy industry is one of the main reasons for the persistent resistance to more sustainable energy strategies. These obstacles may extend to renewable energy if we ignore the capacity of renewables to decentralize production and distribution and favor a highly concentrated industry by design for energy sources that by nature are more suitable for decentralization.

 

The forgoing discussion highlights some of the negative impacts of a supply-based energy policy directed at sustaining the pursuit of unconstrained growth. This policy has led to the atmospheric concentration of greenhouse gases that have contributed to global warming, a climate change that has intensified catastrophic weather events that threaten food security and the safety of entire areas and render parts of the globe unsuitable for human habitation. It has intensified international military and economic conflicts and created instability and insecurity. It has contributed to the increase in international and intra-national inequality of income and wealth because accelerated economic growth has overwhelmingly benefited the top 10 percent of adults. The pursuit of unconstrained growth has also led to greater instability of macroeconomic aggregates. In the attempt to stimulate growth, governments have embarked on a policy of cutting income taxes in the unsubstantiated belief that they would be self-financing. As the growth-generated additional revenue fell short of the mark, the result of income tax cuts has been budget deficits which over time have swelled the public debt. By 2022, 17 countries �" including Japan, Canada, the United States, Greece, Italy, Portugal, Spain, Belgium and France �" had debt-to-GDP ratios in excess of 100 percent. High economic growth needs to be sustained also by strong private spending, especially consumer spending that absorbs the goods and services produced by business. Private spending has been stimulated by a new monetary stance by central banks that focused on maintaining low interest rates. Consumers have responded by spending beyond their means and accumulating debt. By feeding excessive borrowing by private and public economic agents, monetary policy aimed at keeping interest rates low has supported a path of economic growth through periodic bubbles which inevitably burst, intensifying economic instability.      

 

Continuing to pursue supply-based energy policies in support of unconstrained growth will ensure the persistence of the negative effects described above: Higher atmospheric concentration of greenhouse gases, increasing frequency and higher intensity of catastrophic weather events, accelerated depletion of non-renewable resources, widening international and intra-national inequality of income and wealth, intensifying international conflicts, and higher economic instability.

 

As an alternative I suggest an approach to energy policy that supports the pursuit of Sustainable Progress. By the term “progress” I mean a universal improvement in the quality of life, which includes a variety of components. First, progress is measured at the community not at the individual level. This means that the concept of progress incorporates a normative element, namely, the reduction of economic inequality and of the concentration of economic and political power, which in turn leads to the strengthening of democratic institutions and practices. Second, the quality of life includes the material standard of living, still viewed within a community context, but it goes beyond. It embraces inclusiveness, lack of discrimination, safety from violence and abuses, equal access to education and health services, and a social environment conducive to personal growth and social cohesion. “Sustainable” means that “progress” is not achieved at the expense of the environment, international and intra-national equity, and peace. Instead, it serves to enhance the health of this planet, foster international co-operation, and reduce economic disparities. The pursuit of sustainable progress envisions a humanity connected through time and space. Spatially, it acknowledges our responsibilities to other human beings, even those who are unknown to us, and our obligation to minimize the impact of our actions on the wellbeing of others. Timely, we are connected to the past by our shared history as we embrace the wisdom of those who explored life before us and we remain committed to bequeathing to future generations a healthy planet, and thriving institutions of justice and peace.

 

The foregoing discussion indicates that supply-based energy policies are not suitable for the pursuit of sustainable progress. For the achievement of this objective, we need demand-based policies in the context of de-carbonization.  This shift in approach to energy policy has the major advantage of addressing directly a fundamental shortcoming of supply-based energy policies: the substantial “waste” in energy consumption. As shown in an earlier chapter, a recent study by Jackson et al. (2022) used 9 metrics of human well-being to determine the impact of energy consumption. They found that as we move along a list of countries from lowest to highest per capita energy consumption, human well-being first increases rapidly and then reaches a plateau at about 74 GJ per person. A similar conclusion was reached by Smil (2000). This means that curtailing per capita energy consumption to about 80 GJ per year would have little effect on a country’s quality of life. In 2021, China, the United States and Europe accounted for over half of the world’s energy consumption, and all three regions had per capita energy consumption in excess of 80 GJ. This excess was largest for the United States (72 percent of total energy consumption) and lowest in China (28 percent). Even if the excess that could be eliminated without affecting living standards was only 25 percent, it would amount to 83 EJ for these three regions alone. If we added other countries with above-average per capita energy consumption - such as Canada, Australia, and Russia �" this amount would exceed 100 EJ, which would be equivalent to 35 percent of the total supply of renewable energy, 68 percent of natural gas supply, and 55 percent of oil supply.

 

The need for alternatives to supply-based energy policies is not a novel idea. Parrique et al. (2019) have debunked the argument that rapid economic growth, and the associated increase in energy consumption, can be sustained in an environmentally sustainable manner. They have suggested seven reasons in this rebuke. First, the cost of additional energy resources, especially fossil fuel, will increase as the cheaper options are exhausted. Second, savings from technological advances are likely to stimulate additional consumption of goods and energy. For example, higher fuel mileage may induce consumers to replace sedans with SUVs. Third, to some extent replacing fossil fuels with renewable energy involves a shift from one environmental bad (CO2 emissions) to another (mining). Fourth, the expansion of the service economy does not replace the goods-producing sector, it just adds to it. Fifth, recycling to conserve resources is an energy intensive activity. Sixth, most of technological change is not taking place in energy-intensive industries. Finally, to a certain extent structural economic changes are simply shifting energy consumption from high-income to low-income income regions. These researchers concluded that, “Policymakers have to acknowledge the fact that addressing environmental sustainability may require a direct downsizing of economic production and consumption in the wealthiest countries.”²

 

The IEA’s projections to 2050 shed some light on this issue. The annual growth of energy consumption is projected to decelerate to 0.6 percent from 2021 to 2050, but this deceleration is largely due to lower population growth (from about one per  cent per year to 0.7 percent) and decelerating economic growth (from 3.3 percent per year during 2021-2030 to 2.6 percent from 2030 to 2050). Moreover, the lower growth of population and output will be recorded in the most developed countries which contain a small portion of the world’s population. This means that the potential effect of energy-saving technological change will be constrained. The largest population increases will occur in Africa and India. These regions will account for over 40 percent of the world’s population in 2050 and their economic structure is not in a stage favorable to the decoupling of economic growth and environmental sustainability. The biggest driver of energy consumption is population growth. Decoupling affects only the production side and at best it can mitigate the demographic effect. In the IEA’s projection under the Stated Policies Scenario, the average annual growth of energy consumption (0.6%) is slightly lower that population growth (0.7%).

 

The IEA has recognized the limited potential of decoupling. Evaluating its Net Zero Emission scenario (NZE), it unequivocally stated, “The decarbonization pathway in the NZE scenario cannot be achieved without the rapid and large-scale         

measures that limit the growth in energy demand. Absent such measures, deployment of clean energy sources would be outpaced by fast rising demand for energy services.”³

 

The foregoing discussion suggests that we have a double large potential for the decarbonization of the energy mix and the pursuit of a sustainable energy policy: the expansion of renewable energy and the elimination of the wasteful use of energy. Some details on the latter are discussed in the next chapter.

 

Notes

 

¹Population Below Poverty Line, 2020, www.indexmundi.com/g/r.aspx?v=69.

 

² Parrique, T, J. Barth, F. Briens, C. Kerschner, A. Kraus-Polk, A. Koukkanen, J. H. Spangenberg (2019), “Decoupling Debunked,” European Environmental Bureau (EEB), p.5. www. eeb.org/wp-content/uploads/2019/07/Dcoupling-Debunked.pdf

 

³IEA (2022), World Energy Outlook 2022, p. 155.

 

Reference

 

Vaclav Smil, 2000, “Energy in the Twentieth Century: Resources, Conversions, Uses, and Consequences,” Annual Review of Energy and the Environment, Vol. 25, pp. 21-51.