1. A Historical Perspective on Economic Growth, Energy and the Environment
Roger Fouquet
Grantham Research Institute on Climate Change and Environment
London School of Economics (LSE)
Exergy Economics, Sussex University, 14 July 2016

2. The Importance of History
“Those who cannot remember the past, are condemned to repeat it” George Santayana
Long Run and Very Long Run Trends
Experiences to Learn from (Price Shocks, Transitions)
Generalizable from Many Experiences
“History Matters”: Tech., Inst. and Cultural Lock-In matter to Present Behaviour and Development
System Transformation and Evolution
Yet, Lack of Historical Lessons for Policy

4. Purpose Relationship between
Energy Technologies and Transitions and Economic and Social Development
Relevance for Future Energy Tech. and Transitions
and Economic and Social Development
Relationship between Low Carbon Energy System
and Knowledge Economy

5. History of Economic Growth and Development
Part 1
History of Economic Growth and Development

6. GDP per capita for selected European Countries, 1300-1800
Holland
England
Italy
Sweden
Spain
Portugal
Sources: Fouquet and Broadberry (2015)

7. English/British GDP per capita, 1300-1900
Phase VI: Second Industrial Revolution
Phase V: First Industrial Revolution
Phase IV of English Economic Development
Phase III of English Economic Development
Phase II of English Economic Development
Phase I of English Economic Development
Source: see Broadberry et al (2013)

8. The Role of Energy in Economic Development
Part 2
The Role of Energy in Economic Development

9. Energy Intensity in the United Kingdom, 1700-2010
Primary Energy Intensity
Final User Energy Intensity
Source: updated from Fouquet (2008)

10. The Role of Energy in Industrial Revolution
Many Factors: Tech., HK, Finance, Institutions, Culture
Historians: Cipolla (1962), Wrigley (1988), Allen (2009)
Importance of the Transition to Coal
Ayres and Warr (2009)
Role of Energy and Technical Efficiency
Toman and Jemelkova (2003)
Importance of Energy Services
Different Channels of Effect of Energy Services
Effects Change with Economic Development
(Confirmed by Stern and Kander 2012 for Sweden)

11. Price of Producer Energy Services in the United Kingdom, 1700-2010
GDP per capita
Sea Freight Transport
Power
Iron Heating
Land Freight Transport
Source: Fouquet (2011) REEP, Broadberry et al (2013).

12. Impact of 1% Decline in Energy Service Prices on GDP per capita, 1750-1950
Land Freight Transport
Power
Iron Heating
Sea Freight Transport
Source: Fouquet (2014)

13. Drivers of First Industrial Revolution (1760-1830)
Cheaper Iron (Switch from Charcoal to Coke):
Efficiency: 10t (1750) to 4t (1800) of Coke/1ton of Iron
Iron Production:
: 8-fold Increase
: 8-fold Increase
But, ‘Impact’ on GDP pc only
Cheaper Power ( )
Cheaper Land Freight in 1790s

14. Drivers of Second Industrial Revolution (1830-1913)
Cheaper Sea Freight (from 1820s)
Cheaper Land Transport (from 1830s)
Cheaper Power for Industrial Production (from 1870s)

15. The Role of Producer Energy Services on the Industrial Revolution
Technological Impact on GDP per capita:
Role of Efficiency in Reducing Energy Service Prices
Kick-Starters and Drivers of Periods of Ec. Growth
Declining Role for Energy in GDP
(Stern and Kander 2012)
Co-Evolution and Synergies between Technologies
Transformative Effect of Energy Technologies

16. Transformative Effects of New Energy Systems
New Modes of Power enabled Economic Transformation
Mills influenced decline of Feudalism
Water Mills enabled Factory System
Steam Engine enabled Mass Production
Electricity enabled 20th c. Capitalism
New Economic Systems Stimulate new Political Systems
and new Institutions (and new growth?)

17. Part 3 The Welfare Effects of Energy Transitions
(The Role of Energy Services in Social Development)

18. 0.1 0.01 Consumption of Energy Services in the UK, 1700-2010 Lighting
Domestic Heating
Industrial Power
PassengerTransport
Lighting
0.1
Freight Transport
0.01
Source: Fouquet (2014)

19. Price of Consumer Energy Services in the United Kingdom, 1700-2000
Passenger Transport
Domestic Heating
Lighting
Source: Fouquet (2014).

20. Income and Price Elasticity of Demand for Energy Services, 1800-2010
Values Greater than One: % Increase in GDP pc leads to a more than % increase in Energy Service
Lighting
Passenger Transport
Domestic Heating
Domestic Heating
Price Elasticities
Passenger Transport
Lighting
$(2010)3,300
$(2010)6,400
$(2010)11,800
$(2010)28,500
Source: Fouquet (2014).

21. Consumer Surplus CSQ1 = ½ . [(P1.Q1)/Y1]/η Supply Price Demand Q1
Quantity

22. How does Consumer Surplus Change?
Increase in Demand & Supply (declining Price)
Supply in 1880
Price
Increase in Demand due to Rising Income
Price
D(η(2000))
Supply in 2000
Price’
Q1880
Q2000

23. Demand for Passenger Transport in 2000
Demand for Heating in 2000
Demand for Passenger Transport in 2000
D1900
* units: 10s of kgs of oil equiv. heating
* units: passenger-kms
Demand for Lighting in 2000
D1900
* units: 1,000s of lumen-hours

24. Consumer Surplus of Domestic Heating, Passenger Transport and Lighting in the UK, 1800-2010
Dominance of Price elasticity (Transport CS rising in 20th C, Heating Falling in 19th C and Rising in 20th C, Lighting Falling in 19th C, Rising in early 20th C, and Falling from 1930s)
Domestic Heating
Source: Fouquet (2015)

25. Consumer Surplus from Lighting Technologies and Services
Electric Lighting
Kerosene Lighting
Gas lighting revolutionised lives. Cheaper gas was an “enabler” of or complement to other goods and services. Activities such as working, socialising, and education all became much easier to undertake (or cheaper to ‘produce’) at night. The expansion of street lighting also promoted urbanisation and reduced urban crime. Interestingly, lighting improvements also changed sleeping behaviour. Prior to the growth in lighting use, the long nights were often broken-up into two periods of sleep; however, as the day was ‘lengthened’, work, socialising or education replaced sleeping, which became more concentrated (Koslofsky 2011). However, by the 1950s those changes had occurred and better or cheaper lighting had more modest effects on welfare.
Gas Lighting
Tallow Candles
Source: see text

26. Consumer Surplus from Transport Technologies and Services
Cars
Buses
Railways
Horse-Drawn
Source: see text

27. Consumer Surplus from Heating Technologies and Services
Woodfuel Heating
Electric Heating
Gas Heating
Coal Heating
Energy transitions do not always increase consumer surplus (can just be an energy substitution)
Source: see text

28. Consumption of Energy by Energy Services
in the United Kingdom (mtoe),
Lighting
Transport
Domestic Heating
Industrial Heating
Power

30. Pollution Concentration (London)
Deaths from Bronchitis (London)
Deaths from Bronchitis (England & Wales)
Source: Air Pollution: Brimblecombe (1987); Deaths: Registrar General (1838 onwards)

31. External Costs of Energy Services as a % of GDP in the United Kingdom, 1700-2010
Domestic Heating
Passenger Transport
Industrial Heating
Freight
Lighting
Power
Source: Fouquet (2015).

33. Part 4
Growth and Limits

34. Global Population and GDP per capita, 1820-2008

35. Global Energy Consumption by Energy Source, 1800-2008
Nuclear Electricity
Hydro Electricity
Gas
Oil
Coal
Woodfuel

36. Global Carbon Dioxide and Methane Emissions, 1850-2000
CO2 Fossil Fuel
Methane
CO2 Land-Use
Marland et al (2007), Houghton (2008), Stern and Kaufmann (1998)

37. Energy Service Consumption
Energy Limits
Supply-Side Shift
Energy Consumption
Energy Limits
Supply-Side Shift
Energy Limits
Technological Revolution
Technological Revolution
1700
1800
1900
2000
2100

38. The Growth Agenda The Growth Machine
Modern Economic Systems: Largely Successful
Partly due harnessing and conversion of energy
Anthropocene (Alarm bell …)
Need to Change Signals and Incentives
Where to next?
Problems with ‘No-Growth’ Agenda
Rise of Unemployment and Social Tensions
Rise of Inequality (Picketty: r>g)
Decline of Social Progress (Benjamin Friedman)

39. The Development of the Knowledge Economy
Part 5
The Development of the Knowledge Economy

40. Pillars of the Knowledge Economy
Potential for Low-Energy/Resource Growth
Low Carbon Growth
Pillars of the Knowledge Economy
Information and Communication Technologies and Infrastructure
Human Capital
Knowledge Production and Innovation System

41. Price of Communication Services in the UK, 1700-2012
Telephone
Telegraph
Telegraph
Mail
Mail
Mobile Phone
Mobile
phone
Telephone
Source: Fouquet and Hippe (2016)

42. Consumption of Communication Services in the UK, 1700-2012
Mail
Mobile
phone
Telephone
Total
Telegraph
Source: Fouquet and Hippe (2016)

43. Energy Intensity and Energy Service Intensity in the UK, 1800-2010
Transport Intensity
Communication Intensity
Heating Intensity
Source: Fouquet and Hippe (2016)

44. Dematerialization of Communication
Dematerialization of Communication Services
How Many Mail Coaches for Global Internet?
2010: 9 Zetabytes = 13 trillion mail coach j.
183 billion horses/year = 18,000 mtoe
= 1.5 times Global Prim. Energy Cons.
= 800 times Global Data Center Cons.

45. Part 5
Conclusions

46. The Long Road to Green Growth
History of Economic Growth and Development
Avoid Major Risks of Decline
VLR Economic Growth: Transformation
Energy and Environmental History
Change in Energy Tech. in Ind. Revolution
Transformative Effective
Value of New Technologies for Society
Environmental Problems
The Development of the Knowledge Economy
Dematerialisation of the Economy
Structural Transformation
A Key to VLR Economic Growth

47. Low Carbon Economy Impact Cheaper Power?
Transformative Effect of Economy and Society?
Declining Role of Energy in Econ. and Social Devel.
Low Carbon Transition
Slow (50 years minimum)
All Sectors and Services (Very Slow)
Need Favourable Prices of Energy Services and Characteristics (Ease, Flexibility, New Features)
Incentives: Government to Internalise External Costs
Synergies/Co-Evolution with other Industries
Link with the Knowledge Economy

48. Toolkit for Thinking about the Very Long Run
Synergies and Coevolution
Development Blocks
Strong Lock-Ins
Path Dependence
Not in Equilibrium
Non-Linearities in Relationships
Critical Junctures/Tipping Points
Disruptive Change and Structural Transformation
Complex Adaptive Systems
Feedbacks Change System

50. Consumer Surplus of Domestic Heating, Passenger Transport and Lighting in the UK, (with Income Elasticity of Demand = 1)
Passenger Transport
Lighting
Dominance of Price elasticity (Transport CS rising in 20th C, Heating Falling in 19th C and Rising in 20th C, Lighting Falling in 19th C, Rising in early 20th C, and Falling from 1930s)
Domestic Heating
Source: Fouquet (2015)

51. Thinking about the Very Long Run
Part 5
Thinking about the Very Long Run

52. GDP per capita in Selected European and Asian ‘Countries’, 0-1300
Central and Northern Italy
China
Rome
Southern Iraq
Multiple causes of decline: vested interests and extractive institutions; lack of or misdirected of creativity; resource limits
Lesson: Civilisations can experience decline as well as growth
Japan
Source: Lo Cascio and Malanima (2011), Broadberry et al. 2013, 2014, Pamuk and Schatzmiller 2014, Malanima (2011)

53. Source: Fouquet (2008 p.246)

54. Source: UK Intellectual Property Office (2006)

56. The Very Long Run Infrastructure Strong and Long Lock-Ins
US Cities today based on Portage routes in 17th c.
Roman Road Network path dependence in France
Thus, the Very Long Run: can be more than 2,000 years
(Period in which Lock-Ins broken
and Return to Equilibrium)
So, Most Economic Analysis is in Disequilibrium
Potential Reconciliation between Neoclassical and INET (i.e. Neoclassical admit that we never reach equilibrium)

57. Maintaining Roman Road Network
Roman Baseline Towns (o) and Medieval Bishoprics and Archbishoprics, (8th and 9th century, o)
Britain abandoned Roman towns, and lost urban network
Sources: Michaels and Rausch (2014)

58. Energy System Lock-Ins
Once Technology part of System
Low Cost/High Benefit of Improving Technol.
Generations of Similar Energy Technologies:
Water Mills
Introduced around 10thC., Decline in 20thC.
Steam Engine
Introduced in 1740s, Decline in 1950s
Internal Combustion Engine
Introduced in 1890s, Decline in …?

59. Duration, Drivers and Barriers of Energy Transitions
Duration Innovation Chain Diffusion
Minimum : 45 Years Years
Average (Post-Ind Rev.): 135 Years Years
Drivers:
Necessary: Favourable Price of Energy Services
Stronger: Better Quality/New Characteristics
Barriers and Delays:
Higher Prices of Services
(Fuel or Efficiency or Inefficiency of Scale)
Unfavourable Characteristics (lowering Value)
Competition from Incumbent Energy or Technology

60. Creating a Learning Society
Mokyr (2009): “Economic Change in all periods depends […] on What People Believe”
Stiglitz and Greenwald (2014):
Attitudes to Change are Crucial
Social Construction of Learning
 Belief Systems
Government Needs to Correct Market Failures to Create Dynamic Learning Economy

61. Books Printed in selected European Countries, 1450-1800 England
Germany
N’lands
Italy
Spain
Sources: Fouquet, Rivera-Moreno, Carattini (2016)

62. The Trends in Inequality: r – g (Picketty)

63. Hitting Limits Hitting Limits
Labour, Capital (Financial, Physical, Human, Natural)
Natural Capital: Land, Material, Energy, Ecosystem
Find new Energy Reserves, new Sources, new Tech.
This time its different (e.g. Environmental Limits)
What happens when economies hit limits?
Soft Limits (e.g. 1970s, ): Capacity
Strong limits (e.g. Agriculture in ) Reserves
Extreme Limits: no substitutes
Leibig’s Law (of the minimum) and Limits of Substitutes
Labour limits occur in frontier economies (Spain after Black Death, USA West, etc..); Physical and human capital can be replenished in time, through investment

64. The Importance of Energy Price Shocks on Economic Growth
Kilian (2009), etc..:
Since 1948, Declining Impact of Energy Price Shocks
Our Hypothesis:
Impact of Energy Price Shocks declined
as Economies Developed
Separate Shocks into:
Supply Shocks
Aggregate Demand Shocks
Residual/’Speculative’/Energy-Specific Shocks

65. Aggregate Demand Shocks
Supply Shocks
1710, 1731, 1740: Poor Harvests
1893, 1921 & 1926: Coal Miners’ Strikes
1980: Iran-Iraq War
&
Economic
recovery
: Economic Recovery
1704: War of Spanish Succession
1815: Battle of Waterloo
1873: Economic Recovery
1915, 1942: First and Second World War
Aggregate Demand Shocks
Residual Shocks
Source: van de Ven and Fouquet (2014)

66. Aggregate Demand Shocks
Residual Shocks
Aggregate Demand Shocks
Supply Shocks
Source: van de Ven and Fouquet (2014)

67. Changing Impact of Energy Price Shocks on Economic Growth
Supply shocks:
Stronger with Increasing Dependence on Coal (1920s)
Declining Impact after WW-II Confirmed
Aggregate Demand shocks:
Positive Impact Dependent on Import-Export
Reject Hypothesis:
Impact does Not Decline as Economy Develops
But, Still a lot to Understand…
@ supply shocks: also note that initially lower with early transition biomass to fossil
@ demand shocks: explain high gains with exporting coal, low gains with importing petroleum  relevant demand shifts out of UK

68. 0.1 0.01 Consumption of Energy Services in the UK, 1700-2010 Lighting
Domestic Heating
Industrial Power
PassengerTransport
Lighting
0.1
Freight Transport
0.01
Source: Fouquet (2014).

69. Demand for Heating in 1900
Demand for Lighting in 1900
Demand for Heating in 2000
Demand for Lighting in 2000
Demand for Passenger Transport in 1900
Demand for Passenger Transport in 2000
Source: see text; * units: passenger-kms; 1,000s of lumen-hours; 10s of kgs of oil equiv. heating

70. Consumer Surplus = ½ . ((P.Q)/Y)/η = Consumer Expend./
The Net Benefits of Energy Technologies and Services
Supply in 1880
Consumer Surplus =
½ . ((P.Q)/Y)/η
= Consumer Expend./
(2 * Price Elasticity)
Price
Demand in 1880
Price’
Demand with 2000 Price Elasticity (η)
Q1880
Q2000

71. Consumer Surplus of Lighting by Energy Source (relative to GDP)
Consumer Surplus of Lighting by Energy Source (relative to GDP) in the UK,
Kerosene Lighting
Tallow Candles
Gas Lighting
Electric Lighting
Source: Fouquet (2015).

72. Consumer Surplus of Domestic Heating, Passenger Transport and Lighting in the UK, 1800-2010
Dominance of Price elasticity (Transport CS rising in 20th C, Heating Falling in 19th C and Rising in 20th C, Lighting Falling in 19th C, Rising in early 20th C, and Falling from 1930s)
Lighting
Source: Fouquet (2015).

73. Net Welfare (i.e. Cost-Benefit Analysis) of
Domestic Heating, Passenger Transport and Lighting in the UK,
Domestic Heating
Passenger Transport
Lighting
Source: Fouquet (2015).

74. Net Welfare Effects of Energy Services
Value of Innovations to Society
Are some Technologies Socially Undesirable?
Where should we focus Investment in R&D rel. to Energy Services, Sources and Technologies?
Do Economies fail to take the Optimal Path?
Net Welfare

75. The Development of the Knowledge Economy
Part 3
The Development of the Knowledge Economy

76. Knowledge Economy Index and GDP per capita, 2012
Source: World Bank (2008).

77. Pillars of the Knowledge Economy
Human Capital
Information and Communication Technologies and Infrastructure
Knowledge Production and Innovation System
Seeking to Understand
the Development of Knowledge Economy
Potential for Low-Energy/Resource Growth

78. The Role of the Knowledge Economy in Green Growth
Potential for Low-Energy/Resource Growth
Dematerialisation of the Economy
Lessons from History of Governance
Openness to Change
Investments in Public Goods

79. The Human Capital Transition
Why the Shift from Low to High Human Capital?
Was it Demand- or Supply (ICT)-Driven?
Were there Market or Government Failures?
What Role did Government Play?
What Lessons does the Transition offer?

80. The Printing Press (ICT) and Government
Gutenberg Press (Late 1440s)
Responding to Demand
Revolutionised
Government/Authorities Response
Europe:
Church Initially Positive
Governments: Lack of Power to Control
Ottoman Empire: Effective Ban
Korea: Strong State Control

81. Price of Books in the Netherlands, 1460-1800
Source: van Zanden (2009).

82. Book Production in Selected European Countries, 500-1750
Source: Based on Buringh and van Zanden (2009).

83. European Human Capital Transition
Supply
Cheaper Books ( , 1800s)
Church Provider of Education
Private Demand (Religious, Political, ...)
Broader Interest amongst Wealthier Pop.
‘Public’ Demand
Military: Educated Soldiers
Industrialists: Educated Worker
Public Education
Direct Benefit: Moulding Minds of Nation State

84. Public Expenditure on Education in Europe, 1850-1910
Germany
USA
Italy UK
France
Source: Lindert (2004).

85. Literacy in the world, 1870-2010 Eastern Europe Europe and Offshoots
Latin America
Africa
Other Asia
South Asia
Korea-Japan
China
Source: Morrisson and Murtin (2013).

86. Creating a Learning Society
Mokyr (2009): “Economic Change in all periods depends […] on What People Believe”
Stiglitz and Greenwald (2014):
Attitudes to Change are Crucial
Social Construction of Learning
 Belief Systems
Government Needs to Correct Market Failures to Create Dynamic Learning Economy

87. Towards a Dematerialised Economy?
ICT: Pillar of the Knowledge Economy
What Insights from ICT for Dematerialisation?

88. Price of Communication Services in the UK, 1700-2012
Telephone
Telegraph
Telegraph
Mail
Mail
Mobile Phone
Mobile
phone
Telephone
Source: Fouquet and Hippe (2015).

89. Consumption of Communication Services in the UK, 1700-2012
Mail
Mobile
phone
Telephone
Total
Telegraph
Source: Fouquet and Hippe (2015).

90. Energy Intensity and Energy Service Intensity in the UK, 1800-2010
Transport Intensity
Communication Intensity
Heating Intensity
Source: Fouquet and Hippe (2015).

91. Dematerialization of Energy Services
Dematerialization of Communication Services
How Many Mail Coaches for Global Internet?
2010: 9 Zetabytes = 13 trillion mail coach j.
183 billion horses/year = 18,000 mtoe
= 1.5 times Global Prim. Energy Cons.
= 800 times Global Data Center Cons.
Can Other Energy Services Dematerialise?
Race between Rebound Effects & Income Elast.
versus Dematerialization…

92. Price of Producer Energy Services in the United Kingdom, 1700-2010
GDP per capita
Sea Freight Transport
Power
Iron Heating
Land Freight Transport
Source: Fouquet (2011) REEP, Broadberry et al (2013).

93. Impact of 1% Decline in Energy Service Prices on GDP per capita, 1750-1950
Land Freight Transport
Power
Iron Heating
Sea Freight Transport
Source: Fouquet (2014) IAEE Energy Forum.

94. Energy and Economic Growth
Technological Impact on GDP per capita:
Kick-Starters and Drivers of Periods of Ec. Growth
Co-Evolution and Synergies between Technologies
Transformative Effect of Energy Technologies
Need to Understand How Cheap Energy Services
Intensifies Energy Service Use in the Economy
Energy-Intensive Industries Impacts on the Environment

95. Welfare Effects of Energy Systems
Part 4
Welfare Effects of Energy Systems

97. External Costs of Energy Services (by cause) as a % of GDP in the United Kingdom, 1700-2010
Climate Change
Air Pollution
Fires
Mining
Source: Fouquet (2015)