The macroeconomic impacts of reducing energy use What lies beyond orthodox growth models? Lukas Bunse, University of Leeds International Exergy Economics Workshop, 14/07/2016 www.see.leeds.ac.uk/people/l.bunse

Outline Background of my PhD Results of my literature review Ideas and questions to take forward

Background In 30 years we will use less energy than now How to get there without making a mess of it? Two stories: decoupling vs. economic decline

Literature review question Why do different researchers reach so different conclusions on the possibility of decoupling energy use from economic growth?

My answer … Orthodox growth theory … and the distinction between the short-term and the long-term

Example of peak oil Orthodox paradigm Oil shock GDP Time Equilibrium Growth Trend = Production function + factor inputs + technical progress Time

Example of peak oil Alternative Paradigm High oil prices Higher oil demand Recession Dynamic limits to growth Economic growth Lower oil demand Low oil prices Adapted from Murphy & Hall 2011

Transmission belt model Tug of war model (orthodox) Transmission belt model (alternative) Economic growth Economic growth Energy Energy https://commons.wikimedia.org/wiki/Tug_of_war#/media/File:Tug_of_war_pictogram.svg

Problems with orthodox theory Possibility of decoupling often built in by assumption Growth trend is often exogenous Abstracts from complex dynamics

Moving forward How to conduct research under alternative, non-equilibrium paradigm ? How to go beyond aggregate production functions? What are alternative paradigms?

Looking for inspiration … Heterodox schools of economic thought Post-Keynesian economics Evolutionary economics Ecological Macroeconomics

Specific questions? Case studies of decoupling. Are they sustainable? How do effects of energy price shocks vary over different time scales? What is the relationship between energy and labour productivity growth?

Thanks for listening! Questions or ideas?

Reference(s) Murphy, D. J., & Hall, C. A. S. (2011). Energy return on investment, peak oil, and the end of economic growth. Annals of the New York Academy of Sciences, 1219, 52–72