Wednesday, December 18, 2019
Economic growth: the engine of collapse
Economists and environmental scientists are working to develop strategies that forestall our worst visions of the future, so we can maintain a healthy environment alongside a robust growing economy that meets development goals. The hope is that, with astute academic guidance and sufficiently powerful doses of political will, we can safely navigate our way through the Anthropocene.
But there are physical limits to what is possible. The human world is as much part of the natural universe as anything else. If we readily accept that the complex motions of the earth’s climate march to physical laws, it's hard to see how society should somehow be divorced from the rest of the universe.
To be sure, many of us see treating people as physical systems seems a bit abhorrent, somehow an abnegation of the essence of what it means to be human. The music of J.S. Bach surely is proof that we are not mere automatons! We're different. And if we truly want to triumph against profound societal challenges, then surely we can.
But - sigh - even music appears to obey simple mathematical laws seen throughout nature. Perhaps if we really want to address our 21st century existential crises we should start trying to think more broadly about what it means to be human.
To get a sense of any physical limits, it helps to look at how physical systems function. A useful concept here is a thermodynamic “heat engine” where available energy powers cyclical motions thereby enabling “work’’ to be done to move something else while giving off waste heat. This process is as familiar as burning gasoline in a car to power its pistons and propel it forward.
What is less recognized is how this basic idea from physics can be extended to living systems. Organisms take high potential chemical energy (food and oxygen) and release it in an unavailable chemical state (mostly heat radiation, water and carbon dioxide). The interesting part is that organisms employ a selfish self-propagating twist. Unlike a car, if conditions are right, living things can use the energy and matter in food to grow, allowing themselves the opportunity to consume more energy in the future.
So, for example, people use the energy in fats, proteins, and carbohydrates, along with the matter in oxygen, water, vitamins and minerals, to sustain their daily motions and metabolic processes. Whenever we manage to consume more than our daily metabolic needs, we get bigger, and usually our appetite grows too, meeting our newly larger metabolic demands.
Groups of organisms take this self-reinforcing cycle to the next level. A lioness expends energy to hunt gazelles so that she can feed herself and her pride. With enough extra food, her fertility allows her to reproduce and support cubs, so increasing the predatory population.
The global economy is just a natural extension of these thermodynamic concepts, what has been termed by some a “superorganism”. Collectively, we bootstrap ourselves to greater heights by extracting energy and material resources from our environment in order to sustain interactions among the accumulated fruits of our prior labours. Growth happens only when there is a remainder of raw resources available to make more people and new stuff.
Suppose for a moment that we were offered the opportunity to look down at our growing civilization from afar. We might see, for example, the back-and-forth of people and their vehicles as they move over the land, sea, and air. Looking even closer, we could measure the activities of human brains and notice that, as part of a larger whole, these brains use some combination of past experiences and new information to make estimates of economic and societal market value, acquired through Google searches, social gatherings, travel, and trade.
All these activities that form our judgments require a continual consumption of food and fuel. Going a step further, we could hypothesize that there is some connection between total market value and energy. Indeed, quantitative analysis reveals that in any given year, the historical accumulation of past global economic production has had a fixed ratio to the current rate of global energy consumption, give or take a couple of percent. In each year between 1970 and 2016, each additional one thousand U.S. dollars of net worth that we collectively added to civilization through the global inflation-adjusted GDP has required an additional 5.6 Watts of continuous power production capacity.
This existence of a mathematical “constant” tying society to physics offers a critical piece of the human puzzle: economic wealth is inseparable from energy consumption; any diminished capacity to recover the energy necessary to maintain the steady hive of civilization must lead to economic collapse. If for whatever reason we fail to adequately fuel ourselves, we can expect the cyclic motions of our machines and ourselves to slowly grind to a halt. Our interest in crypto-currency or the auction price of a self-destructing Banksy will be replaced by more primal values like having a tool for opening a can of Spam. In the logical extreme, with an absence of food, we will wither and die, with all our perceptions of economic worth buried along with us.
Of course, macro-economists would call linking wealth to energy through a constant absurd, even those that acknowledge the key role of energy in economic production. They would likely point out that the global GDP has been rising faster than energy consumption, and offer the utopian dream of “decoupling” the economy from its basic environmental needs.
Dream on. How much is your home worth in an uninhabitable city where there the fuel supply and electrical power are shut off for the foreseeable future? GDP represents the accumulated production of worth over an arbitrary period of just one year; meanwhile, energy is required to sustain the activities of a healthy civilization that has been steadfastly built up over all of history. Current energy consumption is far more tied to maintaining the fruits of centuries of collective effort than to the national vagaries of a single prior year. We cannot erase the past; it is always with us, and it must be fed.
So if we want growth over and above repairing decay of everything we have previously built, requires us to extract and transform wood, copper, iron, and crops sufficiently fast. Rust never sleeps. Only when energy is sufficiently plentiful that the material balance between extraction and decay can be tipped in our favour is it possible for civilization to gain weight.
Admittedly, we're pretty good at this! Recently, total net worth and energy consumption, the size of civilization, has been expanding by up to 2.3% each year and the GDP slightly faster. Ever since the end of the last ice age with the innovation of agriculture, we have collectively grown by leaps and bounds, from global populations of millions to billions, and from comparative poverty to extraordinary total wealth. It took 10,000 years to learn how to achieve 200 Quadrillion Btu’s of annual energy consumption in 1970s; we doubled that rate just 30 years later.
Feats of innovation have enabled us to accomplish not just exponential growth – e.g. growth at a fixed rate of 1% per year -- but the incredible mathematical feat of super-exponential growth: a growth rate that has increased with time. Humanity has been uncovering and exploiting ever newer and richer fuel resources – from wood, to coal, to oil – and ever more exotic raw materials – from wood, to copper, to niobium – and each has done its part to amplify the pace of expansion into the terrestrial buffet.
Unfortunately, we have become so consumptive that our future success is competing with the ongoing resource demands of a growing unchangeable past. The larger we get, the more energy and raw materials we require simply to sustain ourselves, forcing us to deplete the finite resource larder faster than ever before.
In the two decades following World War II, a remarkable period of rapid gas and oil discovery created an epoch of super-exponential growth. More recently, new extraction technologies and discoveries of fossil fuel reserves have only barely kept up with previously created demand. GDP growth is stagnating and individuals, professions, and nations are increasingly competing for their share.
Inevitably, there will come a point where collectively we can no longer access sufficient resources to sustain the current period of expansion. The question is not whether civilization is ultimately in trouble, but instead whether we will gradually subside or crash like a wave on the beach.
The negative impacts of past growth are already clear with accelerating climate change and environmental degradation. They will become particularly pronounced when resource depletion makes it challenging to self-repair, as flooded cities and drought-stricken farmland is abandoned. In biological and physical systems, when growth stagnates, fragility sets in. Following even small crises, recovery times slow, and there arrives a tendency for larger-scale collapse.
Of course, predicting the future is hard. But there are always going to be basic physical limits to what can and cannot happen. We can say with confidence that if civilization maintains current rates of economic growth over the next 30 years, within just one generation sustenance will mean doubling the current rate of energy consumption, extracting as much total energy from the environment as it has since the beginnings of the industrial revolution.
Can we really do this? Perhaps. Maybe we will continue to find the energy and raw materials on our finite planet to accomplish this extraordinary feat, but with the trade-off that sustaining “economic health” now means more potentially catastrophic consequences of global climate change later. Absent an extraordinarily rapid metabolic shift away from carbon based fuels, persistence of growth implies that we will face a likely 4 °C to 9 °C temperature rise within the lifetimes of those born today.
To all but Nobel Prize winning climate economists, such warming seems impossible to survive. Smaller civilizations have succumbed to much less. Looking to history may provide lessons for what actions are required to avoid the worst of what is to come.
Monday, November 25, 2019
Frequently Asked Questions about the Nephologue theory of economic growth!
The theory of economic growth I've tried to explain is pretty foreign to many. There's a lot of questions that get repeated. This post aims to clarify what are probably understandable concerns. Any others?
“Do you conclude, that global energy consumption and global GDP has been practically perfectly coupled in the past? This would seem at odds with the data”
No they are not coupled. The relationship between energy consumption and GDP tends to change with time as civilization becomes more or less energy efficient. What is coupled is global energy consumption and the time integral (or summation) of GDP since the beginning of civilization.
Can we have a "steady-state" (non-growing) economy?
In general, no, as nothing in the universe is independent from its environment. Everything constantly evolves. Steady-states are only useful fictions that can be imagined to apply when things are evolving slowly compared to some other phenomenon of interest. With respect to our economy, we simultaneously discover and deplete energy resources. Maintaining steady-state wealth would require we discover and deplete these resources at precisely the same rate for a long period of time. Maintaining a steady-state GDP requires that net resources are never depleted.
In general, no, as nothing in the universe is independent from its environment. Everything constantly evolves. Steady-states are only useful fictions that can be imagined to apply when things are evolving slowly compared to some other phenomenon of interest. With respect to our economy, we simultaneously discover and deplete energy resources. Maintaining steady-state wealth would require we discover and deplete these resources at precisely the same rate for a long period of time. Maintaining a steady-state GDP requires that net resources are never depleted.
From where comes the statement that we would need to build approximately 1 nuclear power plant (1 GW?) every day in order to (just) stabilize CO2 emissions?
The current annual rate of growth of global energy consumption is 2.3%, or a few hundred GW. In a fossil fuel economy, CO2 emissions rise with energy consumption. It is often advocated that increasing energy efficiency can stall energy consumption growth. What I have shown is that this is only true locally. Globally increasing energy efficiency accelerates growth through a generalized version of Jevon’s Paradox. This leaves switching to non-carbon fuel sources as the only option for meeting the goal of stabilizing emissions while growing the economy. Divide a few hundred GW annual growth by the number of days in a year and one obtains the figure of 1GW of non-carbon energy per day. That’s roughly one nuclear power plant per day.
Can we meet a 2 degrees C warming target and maintain a healthy economy?
No. At least it is very hard to see how. Civilization health is predicated on consuming energy, and at least for the foreseeable future the energy source is primarily carbon based. Economic health is based on consuming energy at ever faster rates. Maintaining this energy growth would seem incompatible with achieving lower carbon dioxide emissions, especially to levels that would prevent the world from exceeding a 2 degree warming target.
Evidence shows that Jevons’ Paradox is wrong. Rebound effects that counteract efficiency gains are small
Studies showing “rebound” rather than “backfire” have focused on particular technological sectors (e.g. lighting) without considering knock-on effects on the entirely of the rest of the global economy. Making such a calculation would be extremely difficult. If the economy is only considered as a whole, then the problem becomes tractable, and global efficiency gains lead ultimately to global acceleration of energy consumption.
The current annual rate of growth of global energy consumption is 2.3%, or a few hundred GW. In a fossil fuel economy, CO2 emissions rise with energy consumption. It is often advocated that increasing energy efficiency can stall energy consumption growth. What I have shown is that this is only true locally. Globally increasing energy efficiency accelerates growth through a generalized version of Jevon’s Paradox. This leaves switching to non-carbon fuel sources as the only option for meeting the goal of stabilizing emissions while growing the economy. Divide a few hundred GW annual growth by the number of days in a year and one obtains the figure of 1GW of non-carbon energy per day. That’s roughly one nuclear power plant per day.
Can we meet a 2 degrees C warming target and maintain a healthy economy?
No. At least it is very hard to see how. Civilization health is predicated on consuming energy, and at least for the foreseeable future the energy source is primarily carbon based. Economic health is based on consuming energy at ever faster rates. Maintaining this energy growth would seem incompatible with achieving lower carbon dioxide emissions, especially to levels that would prevent the world from exceeding a 2 degree warming target.
Evidence shows that Jevons’ Paradox is wrong. Rebound effects that counteract efficiency gains are small
Studies showing “rebound” rather than “backfire” have focused on particular technological sectors (e.g. lighting) without considering knock-on effects on the entirely of the rest of the global economy. Making such a calculation would be extremely difficult. If the economy is only considered as a whole, then the problem becomes tractable, and global efficiency gains lead ultimately to global acceleration of energy consumption.
GDP numbers are unreliable. They should not be used to calculate any relationship between wealth and energy
Yes, GDP numbers are uncertain, although this is true of any measurement. Unfortunately, the magnitude of the uncertainty is not stated by reporting agencies like the United Nations. However, there are two things that are in the statistic’s favor. First, the countries that contribute the most to global GDP are likely always those with the greatest interest in having something at least close to a truthful number. Second, the calculation of Wealth discussed in this work is a summation of GDP over all of history. Unless there is a constant bias in the global GDP statistics one way or another, errors from one year to the next will have a tendency to average out towards zero. Further, the most recent statistics, which contribute most to total wealth due to their comparative size, should be the most accurate. Admittedly there is some faith in this statement, but GDP statistics are probably the most robust macroeconomic statistic we have.
Isn’t population growth the fundamental driver of increasing energy consumption?
The physics (and perhaps history) suggests that a better perspective is that population growth is rather a symptom. When civilization consumes energy with sufficient efficiency that it is able to experience net growth into new resources, then some combination of increasing standard of living and increasing population follows. It may sound odd to say it, but people are physical objects, and it takes massive amounts of energy consumption and matter to create and sustain an adult human. Without increasing access to reserves of energy and matter, population growth cannot be sustained.
GDP is only a measure of the part of human activity that is monetized. Even now, GDP doesn't include the work of self-sufficient farmers, or the work of unpaid housewives or retired people.
Yes, and that is entirely the point. At the moment of engagement, the vast majority of our activities do not require a financial transaction. We do not pay to have conversation, enjoy a meal, or clean the kitchen. We may pay to acquire access to conversation (e.g. by purchasing gasoline so we can drive to a friend’s house), to have a dish on the table (e.g. by buying food), or to live in a house (by buying real estate). But I believe that financial transactions themselves are instantaneous affairs whose value is a representation of their capacity to increase our ability to do things in the future. This is a subtle but very important distinction. The GDP is a tally of the instantaneous monetary exchanges that increase the right to access something in the future. Wealth is about what we can do now. GDP adds to our Wealth, but only Wealth can directly be linked to activities that consume energy. At any given instant, human activity and the GDP are two totally separate things.
Yes, GDP numbers are uncertain, although this is true of any measurement. Unfortunately, the magnitude of the uncertainty is not stated by reporting agencies like the United Nations. However, there are two things that are in the statistic’s favor. First, the countries that contribute the most to global GDP are likely always those with the greatest interest in having something at least close to a truthful number. Second, the calculation of Wealth discussed in this work is a summation of GDP over all of history. Unless there is a constant bias in the global GDP statistics one way or another, errors from one year to the next will have a tendency to average out towards zero. Further, the most recent statistics, which contribute most to total wealth due to their comparative size, should be the most accurate. Admittedly there is some faith in this statement, but GDP statistics are probably the most robust macroeconomic statistic we have.
Isn’t population growth the fundamental driver of increasing energy consumption?
The physics (and perhaps history) suggests that a better perspective is that population growth is rather a symptom. When civilization consumes energy with sufficient efficiency that it is able to experience net growth into new resources, then some combination of increasing standard of living and increasing population follows. It may sound odd to say it, but people are physical objects, and it takes massive amounts of energy consumption and matter to create and sustain an adult human. Without increasing access to reserves of energy and matter, population growth cannot be sustained.
GDP is only a measure of the part of human activity that is monetized. Even now, GDP doesn't include the work of self-sufficient farmers, or the work of unpaid housewives or retired people.
Yes, and that is entirely the point. At the moment of engagement, the vast majority of our activities do not require a financial transaction. We do not pay to have conversation, enjoy a meal, or clean the kitchen. We may pay to acquire access to conversation (e.g. by purchasing gasoline so we can drive to a friend’s house), to have a dish on the table (e.g. by buying food), or to live in a house (by buying real estate). But I believe that financial transactions themselves are instantaneous affairs whose value is a representation of their capacity to increase our ability to do things in the future. This is a subtle but very important distinction. The GDP is a tally of the instantaneous monetary exchanges that increase the right to access something in the future. Wealth is about what we can do now. GDP adds to our Wealth, but only Wealth can directly be linked to activities that consume energy. At any given instant, human activity and the GDP are two totally separate things.
Are you stating that value is tied to the amount of energy that goes into producing an item, what some call the “emergy”?
No, not at all. Consider that judgement of the current value is usually totally agnostic to its past. It’s pretty hard to know all what went into bringing a salmon all the way from a river in Alaska to the dinner table. And ultimately what drives the price is the usual mix of current market forces. Of course the present emerges from the past, so it’s not totally crazy to imagine that past energy consumption can be related to current prices -- after all why would people consume energy without some expectation that it might eventually support a future financial exchange? Nonetheless, there is a much more direct link between current value and current rates of energy consumption than between current value and past rates. The universe at any given time only knows the present.
Has any one else tried to reproduce your result of the constant λ relating wealth to energy consumption?
The most detailed investigation I am aware of is by Richard Nolthenius, a professor at Cabrillo College. His independent examination obtains a similar result.
No, not at all. Consider that judgement of the current value is usually totally agnostic to its past. It’s pretty hard to know all what went into bringing a salmon all the way from a river in Alaska to the dinner table. And ultimately what drives the price is the usual mix of current market forces. Of course the present emerges from the past, so it’s not totally crazy to imagine that past energy consumption can be related to current prices -- after all why would people consume energy without some expectation that it might eventually support a future financial exchange? Nonetheless, there is a much more direct link between current value and current rates of energy consumption than between current value and past rates. The universe at any given time only knows the present.
Has any one else tried to reproduce your result of the constant λ relating wealth to energy consumption?
The most detailed investigation I am aware of is by Richard Nolthenius, a professor at Cabrillo College. His independent examination obtains a similar result.
Energy is just one factor of production among many, including labor and capital.
This argument ignores that the dissipation of potential energy is fundamental to any process in the universe. Energy is not just one factor among many. It is the motivating force that enables anything to happen. People cannot be sustained or do labor without energy. Physical capital has no meaning or value without energy to connect its elements through physical flows of, e.g. people, raw materials, and information. In an effort towards simplicity, one can focus on energy alone.
Wealth is a stock and GDP is a flow. You cannot compare energy consumption (a flow) to a stock.
That wealth is best characterized as a stock may be the standard perception. Certainly it is the most obvious. But I don’t believe it is necessarily the best. Civilization is an open thermodynamic system. What that means is that it dissipates energy and consumes matter, and it gives off waste heat and exhales CO2 and garbage. Thermodynamically, one could represent the size of this open system in two ways, both related. One is as the potential difference, or gradient, required to drive these flows. The other is the flows themselves. They are both two sides of the same coin. Wealth is an abstract financial representation of either. GDP on the other hand is a measure of the increase in the potential and associated flows due to a net convergence of matter in civilization. A measurable GDP occurs only when we consume more matter than we get rid of as waste.
It is inappropriate to use market exchange rate (MER) measures of GDP. Purchasing power parity (PPP) measures should be used instead.
PPP measures of GDP adjust MER measures to account for relative price differences of baskets of goods between nations. A well-known illustration of this is that the MER price for a Big Mac can vary widely from, say, Norway to India. From a personal perspective, making such adjustments makes sense. It helps us better compare relative standards of living. But from a thermodynamic standpoint that considers the world as an aggregate whole, with people mixed in with everything else that dissipates energy, PPP has less obvious utility. If the calculations are done right, positive and negative PPP adjustments from one nation to another should add up to zero. A basket of goods for the world as a whole can’t be compared to any other world.
Do your energy consumption estimations include the energy captured by photosynthesis of crops?
No they don’t, at least not directly. But my feeling is that they shouldn’t, although for reasons that are subtle. Sunlight is all around us, but some other energy resource is required to make the sunlight accessible to civilization through crop production. Combustion energy is required to clear grassland and forests, either by burning them or mechanical extraction. Burning further fixes the nitrogen that is required as fertilizer, and where there is nothing left to burn we manufacture free nitrogen with fossil fuels. Deserts are bathed in sunlight but have little crop energy of value until we burn other fuels to irrigate and fertilize. Accessible energy and total energy are not the same.
Energy is not value. A country like Switzerland has no energy resources of its own at all, but its currency is strong
The relationship between energy consumption and wealth applies to the world as a whole. Unlike the global economy, which has no connection to any other world, Switzerland is not an isolated system. It maintains its wealth through energy consumption just as any other location, but much of the primary energy consumption is done elsewhere in places to which Switzerland is connected, through such things as its banking system. As long as the world as a whole has access to sufficient access to primary energy supplies, and Switzerland is deeply connected to the rest of the world, its economy will be fine.
The correlation between energy and wealth you find means nothing. Correlation does not mean causation.
Sure, except it is not a simple correlation, but rather a scalar transformation. Normally, where there is a linear correlation between two quantities, the ratio of the two quantities is variable unless the two quantities pass through the origin (0,0) instead of having an intercept. GDP and energy consumption are an example of two correlated quantities, where the ratio is changing with time even though the two quantities generally are linearly related for periods of a decade or two. I would agree that GDP and energy consumption are not causally related (at least not without considering a couple other things). Wealth and energy consumption are not the same. They have a fixed ratio within reasonable observational uncertainty. Terming this ratio λ as an eigenvalue describing the system may be more mathematically appropriate.
Your work omits consideration of the role of debt
When considering the global economy, where wealth includes all aspects of civilization, who is the debt to? It appears to be me, that when everything is properly accounted for, global debt must add to zero because any remainder cannot be to anyone or thing that is not already part of the global financial system. Perhaps some day we will have debts to our Alien Overlords. But until then, for answering global questions at least, debt seems like a red herring.
By considering wealth as an accumulation of all past production you fail to consider depreciation
It might at first seem so, but no, this is not the case. Depreciation (or more physically, decay) is very much a part of the model. A particularly elegant result (IMHO) that comes out of the framework is that inflation and decay are two sides of the same coin. Wealth is not the sum of past nominal GDP but instead the sum of real GDP. This difference is calculated through the standard economic quantity called the GDP deflator. There are some subtleties: for example in the very general framework I consider a closer measure of this depreciation or decay might include things like unemployment, as absent retooling we forget and our skills become less needed.
This argument ignores that the dissipation of potential energy is fundamental to any process in the universe. Energy is not just one factor among many. It is the motivating force that enables anything to happen. People cannot be sustained or do labor without energy. Physical capital has no meaning or value without energy to connect its elements through physical flows of, e.g. people, raw materials, and information. In an effort towards simplicity, one can focus on energy alone.
Wealth is a stock and GDP is a flow. You cannot compare energy consumption (a flow) to a stock.
That wealth is best characterized as a stock may be the standard perception. Certainly it is the most obvious. But I don’t believe it is necessarily the best. Civilization is an open thermodynamic system. What that means is that it dissipates energy and consumes matter, and it gives off waste heat and exhales CO2 and garbage. Thermodynamically, one could represent the size of this open system in two ways, both related. One is as the potential difference, or gradient, required to drive these flows. The other is the flows themselves. They are both two sides of the same coin. Wealth is an abstract financial representation of either. GDP on the other hand is a measure of the increase in the potential and associated flows due to a net convergence of matter in civilization. A measurable GDP occurs only when we consume more matter than we get rid of as waste.
It is inappropriate to use market exchange rate (MER) measures of GDP. Purchasing power parity (PPP) measures should be used instead.
PPP measures of GDP adjust MER measures to account for relative price differences of baskets of goods between nations. A well-known illustration of this is that the MER price for a Big Mac can vary widely from, say, Norway to India. From a personal perspective, making such adjustments makes sense. It helps us better compare relative standards of living. But from a thermodynamic standpoint that considers the world as an aggregate whole, with people mixed in with everything else that dissipates energy, PPP has less obvious utility. If the calculations are done right, positive and negative PPP adjustments from one nation to another should add up to zero. A basket of goods for the world as a whole can’t be compared to any other world.
Do your energy consumption estimations include the energy captured by photosynthesis of crops?
No they don’t, at least not directly. But my feeling is that they shouldn’t, although for reasons that are subtle. Sunlight is all around us, but some other energy resource is required to make the sunlight accessible to civilization through crop production. Combustion energy is required to clear grassland and forests, either by burning them or mechanical extraction. Burning further fixes the nitrogen that is required as fertilizer, and where there is nothing left to burn we manufacture free nitrogen with fossil fuels. Deserts are bathed in sunlight but have little crop energy of value until we burn other fuels to irrigate and fertilize. Accessible energy and total energy are not the same.
Energy is not value. A country like Switzerland has no energy resources of its own at all, but its currency is strong
The relationship between energy consumption and wealth applies to the world as a whole. Unlike the global economy, which has no connection to any other world, Switzerland is not an isolated system. It maintains its wealth through energy consumption just as any other location, but much of the primary energy consumption is done elsewhere in places to which Switzerland is connected, through such things as its banking system. As long as the world as a whole has access to sufficient access to primary energy supplies, and Switzerland is deeply connected to the rest of the world, its economy will be fine.
The correlation between energy and wealth you find means nothing. Correlation does not mean causation.
Sure, except it is not a simple correlation, but rather a scalar transformation. Normally, where there is a linear correlation between two quantities, the ratio of the two quantities is variable unless the two quantities pass through the origin (0,0) instead of having an intercept. GDP and energy consumption are an example of two correlated quantities, where the ratio is changing with time even though the two quantities generally are linearly related for periods of a decade or two. I would agree that GDP and energy consumption are not causally related (at least not without considering a couple other things). Wealth and energy consumption are not the same. They have a fixed ratio within reasonable observational uncertainty. Terming this ratio λ as an eigenvalue describing the system may be more mathematically appropriate.
Your work omits consideration of the role of debt
When considering the global economy, where wealth includes all aspects of civilization, who is the debt to? It appears to be me, that when everything is properly accounted for, global debt must add to zero because any remainder cannot be to anyone or thing that is not already part of the global financial system. Perhaps some day we will have debts to our Alien Overlords. But until then, for answering global questions at least, debt seems like a red herring.
By considering wealth as an accumulation of all past production you fail to consider depreciation
It might at first seem so, but no, this is not the case. Depreciation (or more physically, decay) is very much a part of the model. A particularly elegant result (IMHO) that comes out of the framework is that inflation and decay are two sides of the same coin. Wealth is not the sum of past nominal GDP but instead the sum of real GDP. This difference is calculated through the standard economic quantity called the GDP deflator. There are some subtleties: for example in the very general framework I consider a closer measure of this depreciation or decay might include things like unemployment, as absent retooling we forget and our skills become less needed.
Friday, September 27, 2019
Why use physics to describe economics?
Do you mistrust the predictions of mainstream macroeconomic growth models and reject the policy prescriptions of their practitioners? Many do.
Is this fair? And what would we do instead?
How about using physics ? Certainly as a field it has a pretty good track-record for describing nature, at least as an alternative to religion and magic. The big thing in physics as a field or any other science is that it demands falsifiable hypotheses rather than the opinion or Ivy league pedigree of its practitioners. Results should enable useful predictions, those that offer the potential for robust long-range forecasts subject to physical constraints.
On the other hand, the scientific method is certainly not at the core of modern macroeconomics, probably because economist's are lured by influencing public policy, or they don't believe that social systems are physical systems. Making mathematical models to describe reality is common in macroeconomics. No problem there. Math is a useful tool. And quantifying things is good. But making mathematical models that can't be falsified is terrible! Neoclassical economic models employ equations for the GDP, or “production functions”, that are dimensionally inconsistent formulae that can be “tuned” to match observations of labor and capital. And they always are. It is not possible to falsify these moving theoretical targets because they can always be made “right” by adding layers of social complexity or by tweaking the production function exponents. If conditions change and the formula no longer works, economists just tune again and call it a “structural break”! This is strange, at least if the goal is to understand how things work rather than show off one's mathematical aptitude. It would be abhorrent to imagine a basic physics equation being adjusted as time progresses or for the situation at hand. The speed of light in a vacuum doesn’t get to be different for you than for me or for last year versus this year.
Perhaps economics and science can be reconciled. It would be nice to think so. Unfortunately, I don’t think this is possible without some important adjustments. Mainstream economic models take the approach that human labor is distinct from physical capital. Labor uses capital for production. Some portion of production is short-term “consumption” of things like food and entertainment, that contributes nothing to the future. The other portion is a long-term “investment” in physical capital that enables labor to produce more in the future depending on labor productivity. The feedback loop of this "virtuous cycle" forms the basis of unconstrained long-run economic growth. The division between long-term investment and short-term consumption is set at the time of one year. In this model if you store a bottle of wine in your cellar for years it adds to capital. If you drink it next week it counts as consumption and does nothing for growth.
Is this fair? And what would we do instead?
How about using physics ? Certainly as a field it has a pretty good track-record for describing nature, at least as an alternative to religion and magic. The big thing in physics as a field or any other science is that it demands falsifiable hypotheses rather than the opinion or Ivy league pedigree of its practitioners. Results should enable useful predictions, those that offer the potential for robust long-range forecasts subject to physical constraints.
On the other hand, the scientific method is certainly not at the core of modern macroeconomics, probably because economist's are lured by influencing public policy, or they don't believe that social systems are physical systems. Making mathematical models to describe reality is common in macroeconomics. No problem there. Math is a useful tool. And quantifying things is good. But making mathematical models that can't be falsified is terrible! Neoclassical economic models employ equations for the GDP, or “production functions”, that are dimensionally inconsistent formulae that can be “tuned” to match observations of labor and capital. And they always are. It is not possible to falsify these moving theoretical targets because they can always be made “right” by adding layers of social complexity or by tweaking the production function exponents. If conditions change and the formula no longer works, economists just tune again and call it a “structural break”! This is strange, at least if the goal is to understand how things work rather than show off one's mathematical aptitude. It would be abhorrent to imagine a basic physics equation being adjusted as time progresses or for the situation at hand. The speed of light in a vacuum doesn’t get to be different for you than for me or for last year versus this year.
Perhaps economics and science can be reconciled. It would be nice to think so. Unfortunately, I don’t think this is possible without some important adjustments. Mainstream economic models take the approach that human labor is distinct from physical capital. Labor uses capital for production. Some portion of production is short-term “consumption” of things like food and entertainment, that contributes nothing to the future. The other portion is a long-term “investment” in physical capital that enables labor to produce more in the future depending on labor productivity. The feedback loop of this "virtuous cycle" forms the basis of unconstrained long-run economic growth. The division between long-term investment and short-term consumption is set at the time of one year. In this model if you store a bottle of wine in your cellar for years it adds to capital. If you drink it next week it counts as consumption and does nothing for growth.
But from the perspective of physics this all seems a bit ad hoc. Surely, in a finite world nothing can grow forever. And why prescribe the division between consumption and investment at one year and not some other time? Other than paying annual taxes to the IRS on April 15, there's nothing inherently special about the frequency with which the high density rock we call Earth revolves about the larger accumulation of hydrogen and helium we call the Sun, especially in a non-agricultural economy. And what makes labor so distinctive from physical capital? People are not all that special in the universe, at least there’s nothing in the fundamental equations of physics that says “people” or "labor".
Thinking about the economy more generally, it might make most sense to make the following adjustments:
- Subsume people into a very general physical representation capital that includes all components of civilization.
- Remove the one-year separation between consumption and investment
- Link consumption to physical resources like energy and raw materials
The model I’ve introduced is based on the very simple premise that accumulated economic production of everything in civilization must be sustained by a proportionate amount of global primary energy consumption. Turn off all the power and civilization is worth nothing; and the more we accumulate the more power is required for sustenance.
This is a hypothesis that might seem crazy to a traditional economist. But crucially it is an assumption that is falsifiable. A test can be set up that could potentially show it to be wrong. Making this test however, it turns out that it is a premise that is supported by available statistics: 7.1 ± 0.1 milliwatts of continuous power consumption has been required to sustain the historically accumulated global production associated with every inflation-adjusted 2005 dollar in every year statistics have been available since 1970.
This is a hypothesis that might seem crazy to a traditional economist. But crucially it is an assumption that is falsifiable. A test can be set up that could potentially show it to be wrong. Making this test however, it turns out that it is a premise that is supported by available statistics: 7.1 ± 0.1 milliwatts of continuous power consumption has been required to sustain the historically accumulated global production associated with every inflation-adjusted 2005 dollar in every year statistics have been available since 1970.
Consumption versus production
From an accounting point of view it makes a lot of sense for economists to selectively subtract short-term household and government consumption from economic output (or GDP) to obtain a long-term capital investment that adds to previously accumulated capital. Capital investments are then independent and additive; it is assumed that the whole is the sum of its parts. If saving an ounce of gold - an item that lasts - adds $1000 then it seems obvious that saving two ounces adds $2000.
But a little added thought suggests it’s not quite so straight-forward. Neither labor nor physical capital means anything without the other. “No man is an island, Entire of itself. Each is a piece of the continent, A part of the main...” An ounce of gold has no intrinsic worth as it’s just a rock. But it has a great track record of providing value as a collectively appreciated part of society. Someone with lots of gold must be a very important person because they got the gold and others didn't. Value appears to lie in access not the thing itself.
Viewed physically, gold as a tool in society’s banking system networks, which in turn are maintained by the accumulated knowledge capital of bankers. But if the ounce of gold was left abandoned and forgotten in the middle of the desert it would currently be worthless. It only has value as part of a larger society.
Viewed physically, gold as a tool in society’s banking system networks, which in turn are maintained by the accumulated knowledge capital of bankers. But if the ounce of gold was left abandoned and forgotten in the middle of the desert it would currently be worthless. It only has value as part of a larger society.
And if everyone else tried to sell their gold for $1000, the value per ounce would fall, including the ounce you kept . Value, therefore, does not lie in individual “things” or people by themselves. True value lies in a larger global network and the role we and our structures play in it. Physiological, social, computer, communication, and transportation networks are all part of the living organism we call civilization. Capital value is not strictly additive because no element is completely independent of any other.
And this "super-organism" must continuously consume energy and raw materials to survive. Without energy consumption, there is no investment that will be worth anything. We would all be dead if nothing else. So there is no really legitimate separation of short-term consumption and long-term investments in capital. because each requires the other. And individually the value of any element must compete with all others as constrained by the amount of energy and raw material consumption that is possible.
For contrast with our current capitalist state, it helps to think of a subsistence society at near steady-state where nothing can be stored for the future: food rots quickly; the society maintains a more-or-less fixed population; and in its purest form there is no currency and no GDP. Even though the society has to consume food, the consumption is not part of any measurable economic output that contributes to growth.
For contrast with our current capitalist state, it helps to think of a subsistence society at near steady-state where nothing can be stored for the future: food rots quickly; the society maintains a more-or-less fixed population; and in its purest form there is no currency and no GDP. Even though the society has to consume food, the consumption is not part of any measurable economic output that contributes to growth.
I have personally experienced something like a subsistence society working as a Science, Math, and Physics teacher for a couple years in the beautiful, remote tropical South Pacific island group of Ha’apai, Tonga. Even though there was a little money to go around for luxury items, it was almost totally impossible to buy traditional foods like coconuts, taro, and octopus that anyone could access. Only revolting imported “specialties” like canned beef and mutton flaps were readily found for sale in small shops. Any given root crop was more or less available from whomever had it; everyone except a handful of foreigners had direct or indirect access to a fixed, finite quantity of fertile land where they could grow throughout the year -- if you didn’t have a yam, get your own or ask (or even take). The local mantra was “Ha’apai is good; food is free”.
In an expanding civilization, matters are rather different, as essential to expansion is the idea that products can be acquired and stored for the future. Food is treated quite differently as it is a real commodity -- in most homes we have a fridge, freezer, and larder. Owning money gives us a right to buy access to something, whether a house or a tasty sandwich. We tend to like sandwiches, and buying access to a sandwich is an investment in our well-being. If we're really really hungry, in fact it's probably the only investment we can possibly think of. The sandwich offers the future potential - no matter how near in time - to be content, better able to interact with others, and more productive in our jobs. The wonderfully consumptive process of actually eating the energy and raw materials in the bread, mayo, lettuce, ham and cheese provides fuel for our bodies and the lingering memory of sublime satisfaction that spurs future purchase of even nicer sandwiches. Nothing about the purchase of food is “consumed” in a way that becomes totally lost to the past as expressed in standard economic models.
So all financial transactions, whether for a sandwich or a bar of gold, that count in the GDP are really just monetary expressions of small, instantaneous increments in the growth of civilization’s networks of connection and access. Certainly some are larger than others, but we might expect that the accumulated GDP, adjusting for inflation, is a representation of the growth of these networks, and that the total networks must be sustained by a corresponding consumption rate of energy. Total global capital can be tallied as historically accumulated GDP (units currency), or more strictly, as the time integral of every little differential increment in productivity (units currency per time). Even the most ancient inflation-adjusted economic production has to some degree sustained us through to our activities today. Subsistence cavemen did nothing for our wealth today -- we should expect the GDP was zero. But growing cavemen societies, if they persisted, did, by creating fire and building language and social structures.
This approach, leads to the rather wonderful result that 7.1 ± 0.1 milliwatts of continuous power consumption is required to sustain the worth associated with every inflation-adjusted 2005 dollar of civilization, year after year after year. Simply put, consumption of energy and raw materials sustains all of civilization’s previously accumulated value as calculated by the summation of all prior economic production adjusted for inflation. This value or wealth must be sustained by a proportionate amount of energy consumption.
And with this we're off to the races. Economics can now be moved from the nebulous world of mathematical confabulation and Ivy league pedigree to a problem in thermodynamics. It may remain difficult, with much to be understood about such key problems as wealth distributions. But things can be readily said about e.g. population growth, long-run economic growth, and the fallacy of appealing to energy efficiency to solve climate change. There lies a tested physical foundation with which to attach such problems, one that rests on physical constraints and can be tested with observations like any other true science.
And with this we're off to the races. Economics can now be moved from the nebulous world of mathematical confabulation and Ivy league pedigree to a problem in thermodynamics. It may remain difficult, with much to be understood about such key problems as wealth distributions. But things can be readily said about e.g. population growth, long-run economic growth, and the fallacy of appealing to energy efficiency to solve climate change. There lies a tested physical foundation with which to attach such problems, one that rests on physical constraints and can be tested with observations like any other true science.
Friday, June 21, 2019
Population growth is not a driver of climate change
It seems so easy to blame excess population for our planet’s woes. It could hardly appear more straightforward: people consume resources; more people means more consumption; if we have any prayer of reducing our collective damages to the environment, we must make fewer babies.
There’s a well-known equation first devised in 1970 by John Holdren and Paul Ehrlich called the IPAT identity:
Impact = Population x Affluence x Technology
The environmental impact of society is proportional to our population, our GDP per person (affluence), and the environmental damages per unit of GDP (technology).
On the face of it, the IPAT identity is totally clear, and dimensionally irrefutable. An increasingly affluent and growing population is going to have an increasing impact on its environment.
A step further is the Kaya Identity, which looks specifically at the impact from carbon dioxide emissions, and breaks down Technology into two components: energy efficiency measured as annual energy consumption per annual GDP and carbon intensity measured as CO2 emissions per Energy:
Emissions = Population x (GDP/Population) x (Energy/GDP) x (CO2/Energy)
Again, at least on the face of it, nothing is wrong with this expression. Modifying any of population, affluence, energy efficiency and carbon intensity, will allow us to help the environment: we can maintain our affluence and reduce carbon dioxide emissions provided that we invest in energy efficiency, switch to renewables, and support birth control.
What’s not to like? Certainly, countless politicians and scientists have argued that with sufficient political will, we can accomplish these combined goals to save our planet while supporting our economy.
The devil is that the Kaya and IPAT identities are constructed so that affluence, energy efficiency and population can be seen as being largely independent of one another, making it seem possible to tweak one without affecting the other.
In fact, each of the ingredients of the Kaya and IPAT identities can be better seen as symptoms not causes. One perspective is that, broadly put, civilization is a heat engine. What this means is that all of the internal circulations defining what we do in civilization are driven by a consumption of energy, mostly fossil, and a dissipation of waste heat, including carbon dioxide as a by-product. From this perspective, only about 1/20th of the total caloric consumption by civilization as a whole is due to the caloric consumption of people themselves. The remainder is used to support the appetites of everything else, such as the energy required for industry, transportation, and communications. Globally averaged, people have each about 20 energy slaves working around the clock to help them accomplish all of civilization’s tasks.
People themselves are a relatively small proportion of the world’s total resource consumption. Imagine someone visiting Earth for the first time, knowing nothing ahead of time about the planet or its inhabitants. The visitor would witness all the marvelous phenomena of the earth, atmosphere and oceans. Maybe they would even have a special sensor they use to detect massive plumes of heat, particulates, carbon monoxide and carbon dioxide emitted into the atmosphere from all over the planet, some from small stationary sources and others moving quickly across the oceans and land. Almost all would come from objects made of steel. The visitor would probably fail to perceive people and conclude they are insignificant relative to civilization’s machinery.
You as a staunchly proud human might tell the visitor that they are missing important context. It’s people who are running the machines not the other way round, and that the measured environmental impacts are proportional to population.
But this perspective is based on a belief that people are independent drivers of environmental impacts, that make and grow babies independent of environmental conditions, and affect the environment proportionately.
As a counterweight to this perspective, there is a more simple and effective alternative to the IPAT identity. Using some physics, it was shown that:
Population growth rate + Affluence growth rate = λ x Energy efficiency + Energy Efficiency growth rate
Where the symbol λ had a constant value of 0.22 exajoules per year per year 2005 trillion USD. For example, for the period 1970 to 2015, plugging numbers into the equation gives the following for the annual growth rate of each of the terms:
1.5% + 1.5% = 0.22 x 0.089 x 100% + 1.0%
where the value 0.089 has units of inflation-adjusted year 2005 trillion USD per exajoule. Simplifying:
1.5% + 1.5% = 2.0% + 1.0%
or,
3.0% = 3.0%
Both sides of the equation add up to 3.0% per year. This is pretty cool. A simple equation for the growth of humanity derived using physics rather than economics agrees surprisingly well with what is actually observed.
But what does it all mean? The upshot is that being energy efficient, as on the right hand side of the equation, is what enables civilization as a whole (not at just the national level) to increase its population and affluence, as on the left hand side of the equation. If we become more energy efficient, we accelerate growth of population and affluence, and increase our environment impact. It is not the reverse!
Moreover, because the first term on the right hand side of the equation -- current energy efficiency -- reflects the history of prior energy efficiency gains, and we cannot erase the past, past advances in energy efficiency are effectively the single parameter that determines current growth of population and affluence.
Intellectually, this is a really nice simplification that removes some of the uncertainty in making long-run forecasts of population and affluence. On the other hand, it might seem totally counter-intuitive. Understandably, most would assume that we can increase energy efficiency independent of population and affluence; and more importantly, increasing energy efficiency will reduce our overall environmental impact. Let’s buy a Prius!
But this comes back to the previous point that the components of the Kaya and IPAT identities are coupled symptoms of something more important. To understand how each IPAT component is linked through the equation above, it is necessary to understand a bit about the very special nature of how a self-organizing civilization operates like a heat engine.
The heat engine in your car is of fixed size. Civilization differs because it can grow. It grows because it is able to successfully use energy to incorporate raw materials from its environment into its internal structure.
If civilization is energy efficient, then it is able to rapidly incorporate raw materials from the ground into its structure. Energy efficient civilizations are productive and grow quickly. There are two ways we can witness this material growth. One is that population increases: we ourselves are constructed from raw materials. The other is that we increase the amount of our stuff, or our economic affluence.
With greater efficiency, we can have faster growth, and more of everything, more people included. Interestingly, as shown above, increased energy efficiency appears to increase population and affluence in roughly equal parts, both 1.5% per year.
So, does population growth matter? Well, I think it’s the wrong question. Instead it makes more sense to ponder the external forces that control the energy efficiency of civilization as a whole, and how efficiently it can use energy resources to incorporate raw materials from the environment.
Waves of accelerated discovery and exploitation of coal and oil that began around 1880 and 1950 preceded unprecedented explosions in population and affluence. Looking ahead, many question whether we will sustain continued discovery of the energy and material resources that constitute our make up. If we can’t, what does a declining civilization look like? If we can, what is the end game when there are inevitably accelerating negative impacts on the environment?
Tuesday, April 9, 2019
Can we use physics to forecast long run global economic growth?
One of the more challenging problems in physics is the evolution of complex systems. Atmospheric scientists study phenomena ranging in scale from those of molecules to the size of the planet, and struggle with integrating the full gamut of interacting forces into a usefully comprehensive whole.
The world’s economy could easily be another example. Individual actions have become intertwined with markets, supply chains, and global trade agreements. Economic forces seem uniquely human, subject to the vagaries of consumer choices and the whims of political and business leaders, almost impossible to predict with any degree of accuracy.
Yet, humanity is undeniably part of the physical universe. An immense body of work in the social sciences demonstrates that - taken in aggregate - we collectively exhibit the same mathematical characteristics seen in many well-established physical phenomena, such as power-laws for our musical compositions, writing, or income distributions, and negative exponentials (or Boltzmann distributions) for the proximity and number in our social circles.
Perhaps, well-established tools from physics can also be used to help address questions about where the economy is headed. Forecasting is well-developed in the geosciences for prediction of such complex phenomena as earthquakes, the wind, and tides. Can similar tools be used to help determine our financial future?
To be sure, this line of thought is not exactly new. Practitioners of a sub-field called econophysics invoke physical analogs to explain market movements.
My own approach is rather different. Like many physicists, I believe a first approach to any complex problem is to step back as far as possible, to constrain the big picture first before getting bogged down in any details.
Looking at the whole, one technique is to imagine successive degrees or "moments" of complexity that determine current rates of change, each with its own tendency to persist. For example, things stay still - except when they are perturbed by velocity, which is constant - except where it is perturbed by acceleration, which is constant, except where it is perturbed by the jerk, and so on.
Or, consider this beautiful woodcut. We might ask ourselves which way is the boat in the foreground going? Up, down, or staying still? To me, Hokusai conveys the artistic sense that the oarsmen in the foreground are moving upward towards the crest of a wave.
Maybe you see something different. And more scientifically, we cannot know: all we see is a snapshot in time. Without additional information, assuming the boat stays in roughly the same place would be as safe a guess as any.
Economic hindcasts and Skill Scores
My own approach is rather different. Like many physicists, I believe a first approach to any complex problem is to step back as far as possible, to constrain the big picture first before getting bogged down in any details.
Looking at the whole, one technique is to imagine successive degrees or "moments" of complexity that determine current rates of change, each with its own tendency to persist. For example, things stay still - except when they are perturbed by velocity, which is constant - except where it is perturbed by acceleration, which is constant, except where it is perturbed by the jerk, and so on.
Maybe you see something different. And more scientifically, we cannot know: all we see is a snapshot in time. Without additional information, assuming the boat stays in roughly the same place would be as safe a guess as any.
This "stationarity" is what we might call "Persistence", or steady-state in the "zeroth" moment. Naturally, we'd hope to do better by going to higher order moments. If we could, we might ask the artist in his grave where the boat was just a few moments earlier. Then we might sensibly suppose that the boat will continue its upward or downward trend.
As a means for making a forecast of the boat’s position, we might call this technique “Persistence in Trends” or steady-state in the first moment. We could feel confident that such a forecast would do better than assuming a model of mere “Persistence” that does not consider that the boats moves at all.
As a means for making a forecast of the boat’s position, we might call this technique “Persistence in Trends” or steady-state in the first moment. We could feel confident that such a forecast would do better than assuming a model of mere “Persistence” that does not consider that the boats moves at all.
And more sensibly, we know that the boat cannot continue moving up or down indefinitely. To account for this, we would try to go further to the second or even higher moments. For this we might look at other waves for a guide or use a model of the fluid mechanics of an ocean wave to predict how far and fast a wave rises before it falls or breaks.
Economic hindcasts and Skill Scores
My contention is that we can do something similar with long-term predictions of the global economy, by using thermodynamically-based expressions for how economic systems respond to external forces such as resource discovery and depletion to offer robust, physically-constrained economic forecasts.
It can be (has been) argued that it's pretty arrogant - even nuts - to imagine that something so complicated as humanity is predictable. But in its defense, using physics simplifies the economics problem to a level that any theory can at least be tested.
One way to test any prognostic model framework is to perform what in meteorological forecasting is called “hindcasting” : How well can a deterministic model predict present conditions initialized with the conditions observed at some point in the past? Model accuracy is evaluated using a “Skill Score”, which expresses how well the model hindcast reproduces current conditions relative to some Reference Model that requires zero skill.
In the Hokusai woodblock, a zero skill Reference Model of “Persistence” would assume the boat stays still; “Persistence in Trends” would assume the boat continues on its existing trajectory. A model based on the well-established physics of ocean waves would hopefully beat either of these simple models to exhibit “positive skill”. Then, the Skill Score would be
It can be (has been) argued that it's pretty arrogant - even nuts - to imagine that something so complicated as humanity is predictable. But in its defense, using physics simplifies the economics problem to a level that any theory can at least be tested.
In the Hokusai woodblock, a zero skill Reference Model of “Persistence” would assume the boat stays still; “Persistence in Trends” would assume the boat continues on its existing trajectory. A model based on the well-established physics of ocean waves would hopefully beat either of these simple models to exhibit “positive skill”. Then, the Skill Score would be
Skill Score = [1 - (Error of the hindcast)/(Error of the Reference model)]x100%
If a physics-based model of the global economy does no better than the reference at predicting the present, then the Skill Score is zero percent. If it does perfectly, then the Skill Score is 100%.
If a physics-based model of the global economy does no better than the reference at predicting the present, then the Skill Score is zero percent. If it does perfectly, then the Skill Score is 100%.
Hindcasts of civilization growth
I have applied these techniques to evaluate the predictive skill of a new economic growth model for the long-run evolution of civilization. This model approaches the global economy rather like an organism. Civilization's growth rate is determined by its past well-being, environmental predation, whether it eats all its food, and whether it is able to move on to discover new food sources.
For civilization, food is things like oil and iron. We use the energy in oil to incorporate iron into our structure just as people use carbs, protein and fat to turn bread into flesh. Civilization depletes reserves at the same time it uses them, to discover and grow into new reservoirs - provided the remain. Our ability to discover and exploit new reservoirs might easily be impeded by natural disasters, such as those we might experience from climate change.
A model based on these concepts provides deterministic expressions for civilization’s rates of economic growth and energy consumption. Input parameters are the current rate of growth of global energy consumption and wealth and a rate of technological change that can be derived from, among other things, past observations of inflation and raw material consumption. Output parameters include the rate of return on wealth and primary energy consumption, how fast this rate is growing (or what is termed the “innovation rate”), and the world GDP growth rate (or GWP).
I have applied these techniques to evaluate the predictive skill of a new economic growth model for the long-run evolution of civilization. This model approaches the global economy rather like an organism. Civilization's growth rate is determined by its past well-being, environmental predation, whether it eats all its food, and whether it is able to move on to discover new food sources.
For civilization, food is things like oil and iron. We use the energy in oil to incorporate iron into our structure just as people use carbs, protein and fat to turn bread into flesh. Civilization depletes reserves at the same time it uses them, to discover and grow into new reservoirs - provided the remain. Our ability to discover and exploit new reservoirs might easily be impeded by natural disasters, such as those we might experience from climate change.A model based on these concepts provides deterministic expressions for civilization’s rates of economic growth and energy consumption. Input parameters are the current rate of growth of global energy consumption and wealth and a rate of technological change that can be derived from, among other things, past observations of inflation and raw material consumption. Output parameters include the rate of return on wealth and primary energy consumption, how fast this rate is growing (or what is termed the “innovation rate”), and the world GDP growth rate (or GWP).
Gray lines: Fully prognostic model hindcasts initialized in 1960 for the global rate of return on wealth, economic innovation rates, and the GWP growth rate. Hindcasts are derived assuming an average rate of technological change of 5.1%/yr (dashed lines) derived from conditions observed in the 1950s. Solid colored lines: Observed decadal running means. The model reproduces observations with skill scores > 90%.
As shown in the figure above, a first principles physics-based model initialized in 1960, based only on observations available in the 1950s, does remarkably well at hindcasting evolution of energy consumption and GDP growth through the present. For example, average rates of energy consumption growth in the past decade would have been forecast to be 2.3 % per year relative to an observed average rate of 2.4 % per year. Relative to a persistence prediction of 1.0% per year observed in the 1950s, the Skill Score is 96%.
Or, using the same model, a physics-based forecast of the world GDP growth rate for 2000 to 2010 based on data from 1950 to 1960 is 2.8% per year compared to the actual observed rate of 2.6% per year. The persistence forecast based on the 1950 to 1960 period is 4.0% per year, so the skill score is 91%.
No other economic model I am aware of is capable of such accuracy, at least not without cheating by tuning the model to data between 1960 and 2010. How is it then that a physics-based economic model does so well at predicting the present based only on conditions 50 years ago?
Well, the obvious answer might be that humanity acts as a physical system and the model at least has the correct physics. But it helps too that the model was initialized in the mid-twentieth century when civilization was responding to an exceptionally strong impulse of fossil fuel discovery. The figure above uses the IHS PEPS data base to show that between 1950 and 1970, remaining global reserves of oil and natural gas doubled because discoveries outpaced depletion. Since, discovery and depletion have been in approximate balance; remaining reserves have been more or less stable.
It is as if civilization suddenly found itself in 1950 at an enormous restaurant buffet. Each time it visited the table it discovered new plates of delicious energy to consume, and its appetite increased apace. At some point around 1970, however, its appetite increased to the point that it discovered new food not much faster than it consumed the food that was already there. The amount of known food on the table stayed stable.
Or, using the same model, a physics-based forecast of the world GDP growth rate for 2000 to 2010 based on data from 1950 to 1960 is 2.8% per year compared to the actual observed rate of 2.6% per year. The persistence forecast based on the 1950 to 1960 period is 4.0% per year, so the skill score is 91%.
No other economic model I am aware of is capable of such accuracy, at least not without cheating by tuning the model to data between 1960 and 2010. How is it then that a physics-based economic model does so well at predicting the present based only on conditions 50 years ago?
Well, the obvious answer might be that humanity acts as a physical system and the model at least has the correct physics. But it helps too that the model was initialized in the mid-twentieth century when civilization was responding to an exceptionally strong impulse of fossil fuel discovery. The figure above uses the IHS PEPS data base to show that between 1950 and 1970, remaining global reserves of oil and natural gas doubled because discoveries outpaced depletion. Since, discovery and depletion have been in approximate balance; remaining reserves have been more or less stable.
It is as if civilization suddenly found itself in 1950 at an enormous restaurant buffet. Each time it visited the table it discovered new plates of delicious energy to consume, and its appetite increased apace. At some point around 1970, however, its appetite increased to the point that it discovered new food not much faster than it consumed the food that was already there. The amount of known food on the table stayed stable.
For civilization, uncovering a new energy buffet was far more innovative than merely going back to the table, and it had a correspondingly large and lasting impact on economic growth.
There was a remarkable fossil fuel discovery event between 1950 to 1970 period, and what followed was a clear physical response to this strong prior forcing. Forecasting the future should also be possible, but it will probably be more of a challenge than hindcasting the past 50 years...unless, once again there is a new wave of massive energy reserve discovery, possibly associated with renewables. If discovery once again outpaces growing demand, it might propel civilization to a renewed phase of accelerated innovation and growth. Then, I anticipate that our future trajectory will once gain be amenable to deterministic forecasts using economic equations based on physics.
Thursday, September 20, 2018
Is increasing energy efficiency driving global climate change?
Improving energy efficiency is our best hope to slow global energy consumption and limit carbon dioxide emissions.
Makes perfect sense, right? Better technology for more jobs and a healthier planet! Yay capitalism.
But let's look a little closer. People may choose to drive more often if a vehicle is fuel efficient: driving is useful or pleasurable and now it is more affordable. Or, less money spent on fueling energy efficient vehicles could enable more money to be spent on fuel for home air conditioning.
Economists do acknowledge such offsets to some degree referring to a phenomenon called "rebound". A very few studies even argue for “backfire”: gains in energy efficiency ultimately lead to greater energy consumption. The idea was first introduced by William Stanley Jevons in 1865. Jevons was emphatic that energy efficient steam engines had accelerated Britain’s consumption of coal. The cost of steam-powered coal extraction became cheaper and, because coal was very useful, more attractive.
Calculating the total magnitude of rebound or backfire has proved contentious and elusive. The problem for academics has been that any given efficiency improvement has knock-on effects that can eventually propagate through the entire global economy. Estimating the ultimate impact is daunting if not impossible.
Imagine you buy a nice new fuel efficient car. An unequivocal good for the environment, right? Sure feels good to do one's part to save the planet. And you have a fatter wallet too since you spend less on gas. Life's good! You can spend that saved money now (for argument’s sake) on better household heating and cooling so that you sleep better at nights. Being more rested you become more productive at work, giving you a raise and your employer higher profits. The business grows to consume more while you take that much deserved flight for a vacation in Cancun.
In this fashion, the ramifications of any given efficiency action might multiply indefinitely, spreading at a variety of rates throughout the global economy. Barring global analysis over long time scales, conclusions about the magnitude of rebound or backfire may be quantitative but highly uncertain since they are always dependent on the time and spatial scales considered.
Analyzing the global economy like a growing child
There’s a way around this complexity - to ignore it, by treating the economy only as a whole.
Now, an inefficient, diseased child who cannot successfully turn food to body mass may become sickly, lose weight, and even die. But a healthy, energy efficient child will continue to grow and some day become a robust adult who consumes food energy at a much higher rate than as an infant.
What could be treated as a tremendously complicated problem can also be approached in a fairly straight-forward manner, provided we look at the child as a complete person and not just a complex machine of component body parts.
Efficient civilization growth
We can take the same perspective with civilization. Without a doubt, consuming energy is what allows for all of civilization’s activities and circulations to continue -- without potential energy dissipation nothing in the economy can happen; even our thoughts and choices require energy consumption for electrical signals to cross neural synapses. Just like a child, when civilization is efficient it is able to use a fraction of this energy in order to incorporate new raw materials into its structure. It was by being efficient that civilization was able to increase its size.
When civilization expands, it increases its ability to access reserves of primary energy and raw materials, provided they remain or are there to be discovered. Increased access to energy reserves allows civilization to sustain its newly added circulations. If this efficiency is sustained, civilization can continue to grow. In a positive feedback loop, expansion work leads to greater energy inputs, more work, and more rapid expansion.
This is the feedback that is the recipe for emergent growth, not just of civilization, or a child, but of any system. The more efficiently energy is consumed, the faster the system grows, and the more rapidly the system grows its energy consumption needs.
Ultimately there are constraints on efficiency and growth from reserve depletion and internal decay. But in the growth phase, efficient conversion of energy to work allows civilization to become both more prosperous and more consumptive.
Implications for climate change
It is easy to find economists willing to express disdain for the concept of backfire, or even rebound, by pointing to counter-examples in economic sectors or nations where energy efficiency gains have led to less energy consumption. For example, the USA has become more efficient and thereby stabilized its rate of energy consumption.
While these counter-examples may be true, they are also very misleading, especially if the subject is climate change. Nations do not exist in economic isolation. Through international trade the world shares and competes for collective resources. Quite plausibly, the only reason the USA appears to consume less energy is that it has outsourced the more energy intensive aspects of its economy to countries like China. Should an economist argue that “There is nothing particularly magical about the macroeconomy, it is merely the sum of all the micro parts” we can be just as dismayed as we would upon hearing a medical practitioner state that “there is nothing particularly magical about the human body, it is merely the sum of all its internal organs”. Connections matter!
Fundamentally, through trade, civilization can be treated as being “well-mixed” over timescales relevant to economic growth. In other words, trade happens quickly compared to global economic growth rates of a couple of percent per year. Similarly, excess atmospheric concentrations of CO2 grow globally at a couple of percent per year. They too are well-mixed over timescales relevant to global warming forecasts because atmospheric circulations quickly connect one part of the atmosphere every other. For the purpose of relating the economy to atmospheric CO2 concentrations, the only thing that matters is global scale emissions by civilization as a whole.
Taking this global perspective with respect to the economy, efficiency gains will do the exact opposite of what efficiency policy advocates claim it will do. If technological changes allow global energy productivity or energy efficiency to increase, then civilization will grow faster into the resources that sustain it. This grows the economy, but it also means that energy consumption and CO2 emissions accelerate.
CO2 emissions can be stabilized despite efficiency gains. But this is possible only if decarbonization occurs as quickly as energy consumption grows. At today’s consumption growth rates, this would require roughly one new nuclear power plant, or equivalent in renewables, to be deployed each day.
For more details
Garrett, T. J., 2012: No way out? The double-bind in seeking global prosperity alongside mitigated climate change, Earth System Dynamics 3, 1-17, doi:10.5194/esd-3-1-2012
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