Eco-nomics: Energy and Development

As a companion to the post on population here is a little data to think about regarding development and energy usage. We often see the chart of energy usage per capita which shows the high income countries (and especially the US) as outliers using huge amounts of energy per person. But this is not the right way to think about it in my mind. Compared to most of the world we in the US enjoy long lives relatively free of hunger, malnutrition, disease, infant mortality, war, famine, etc. I would hope that we all think that every human being should be able to live similar lives. So a chart of energy per capita seems to suggest that the best thing for the planet is for us all to be poor. But I am uncomfortable with the notion that the rest of the world should not strive to have an equal quality of life.

We know this connection between poverty and environmental sustainability is not true either, just look at the way poverty taxes natural resources - the deforestation of the Brazilian Amazon for example. Rich countries can afford to protect natural resources much more than can low income countries. A picture of energy use per capita also diverts attention to the big threats in the future: densely populated developing countries that are experiencing fast growth.

The fact is that the energy efficiency of the US economy has improved tremendously. Here is a graph of the energy use per dollar of GDP since just 1980.



Here is a similar picture for the US since 1950.



How does this compare to the rest of the world? Here is a graph of a set of countries and their energy use per GDP. Note that the middle income countries, those that are moderately industrialized, tend to be the least efficient (there is also a very strong correlation between inefficiency and resource availability - take Venezuela for example). While the US, and especially Western Europe where energy is very expensive, are relatively efficient. So are lower income economies that are still largely traditional. [As I mentioned above, don't romanticize traditional economies, they tend to have things like infant mortality rates and life expectancy rates that would make you wince] By the way, these are selected from a list of countries from North America, South American, Western Europe, Eastern Europe, Middle East, Africa, and Asia, in that order. Here is the source data for both this graph and the first one.



Finally, here is a scatterplot that plots energy usage per GDP against GDP (in this case using a PPP rather than an exchange rate comparison - better but harder - so you might notice a difference)

Eco-nomics: Full Information and Efficiency

One of the requirements necessary for a free market to reliably achieve an efficient outcome is full and symmetric information. So this article on a smart electricity grid pilot project is pretty interesting. What this project did, in essence, is give customers real-time information on energy usage from all parts of the house.

Consert attached controllers on hot water heaters, air conditioners and pool pumps and then let customers go online and set targets for their monthly electricity bill. Smart meters and a wireless communications system provide real-time electricity consumption data to allow the utility to cycle appliances on and off to achieve the savings and help it manage peak demand.

The initial results are pretty dramatic: a 20% decline in average energy usage.

Regardless of the 'target' usage, what this system does is provide information to consumers about how much energy they are consuming and how much it is costing them. Not knowing this information apparently causes consumers to use more energy than they would in the full information setting. This suggests that current market outcomes for energy are inefficient (in the economics sense - we are not maximizing societal welfare) and that this inefficiency comes from an asymmetric information problem.

I think what this suggests in general is that if technology can allow consumers to understand the real-time monetary cost of energy usage, some pretty substantial conservation could be achieved, both in current consumption (like the pilot project) and in energy saving investments which, this suggests, would more likely occur if the true cost of energy usage were immediately apparent.

Economist's Notebook: The Economics of Individual Energy Consumption

I once joked to my colleague, as he criticized me for being lazy by suggesting taking the elevator from the first to the third floor of our building at Oregon State and thus wasting energy, that it was quite possible that walking up the stairs was less energy efficient. After all, I argued, think of all the energy it takes to provide us with all the calories we need to make it up the stairs: fossil fuels for the farm equipment, transport trucks and electricity for the store; energy to create the fertilizers and pesticides, packaging; plus all of the carbon impacts from these plus methane from livestock, etc. (All good reasons to shop at the local farmer's market perhaps) Factoring in our relative lack of fitness, it seemed like the elevator might be a pretty good deal. I was joking, of course, but it turns out that, according to a couple of people who claim to have done some calculations, I was not too far off the mark.

Now, some caveats: this was mostly about the "typical American diet" which is heavy in processed foods, dairy and meats and comes mostly from supermarkets - nonetheless, it does give one pause. There is one thing that the two researchers did not factor in: that in walking regularly one improves ones health and thus may need much fewer health care interventions throughout life and this may mean a considerable energy savings. It also brings up another conundrum: farmers markets may definitely be the best place to go and get local produce that is in-season and climate appropriate, but what is better, a local hot-house that grows tomatoes in the winter, say, or shipping tomatoes from a hotter climate? (By the way, the obvious rejoinder, that an Oregonian perhaps should not eat tomatoes in the off-season is not particularly helpful - assuming there is a demand, we need to decide how best to deal with it?)