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The Myth of energy and GDP

Discussions about the economic and financial ramifications of PEAK OIL

The Myth of energy and GDP

Unread postby Wildwell » Sat 16 Apr 2005, 06:28:48

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Unread postby marek » Sat 16 Apr 2005, 07:36:11

It's a result of a change in energy quality. The UK has substituted a higher-quality resource (natural gas) for a lower-quality resource (coal). Most of this uncoupling can be explained by this. Technological change did not allow us to become much more efficient, only to be able to use a resource which gives higher economic output per BTU. Plus, Western economies have become more of "service" economies, so industrial energy use is counted in the countries from which manufactured goods are imported.
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Unread postby Wildwell » Sat 16 Apr 2005, 08:00:20

marek wrote:It's a result of a change in energy quality. The UK has substituted a higher-quality resource (natural gas) for a lower-quality resource (coal). Most of this uncoupling can be explained by this. Technological change did not allow us to become much more efficient, only to be able to use a resource which gives higher economic output per BTU. Plus, Western economies have become more of "service" economies, so industrial energy use is counted in the countries from which manufactured goods are imported.


Fair point. I'll buy the last part, to an extent; I'd like further proof of the first part and how about transport? We are far less efficient in transport and use more of it. Imports and delocalized production means more transport. Air transport takes money out of the country and private car users use a disproportionate amount of energy, both in terms of vehicles (cars spend 95% of their time idle) and building.

But I still think people like Matt Simmon’s claims that 'Your economy cannot grow without more energy' is a flawed argument, at least judging by that graph. I think there is an awful lot of slack, waste and use of energy for convenient in western economies compared to what their use to be. And what is the effect of energy driven machines making people redundant, this they claim benefits or take lower wages and are therefore a drain on society?


I'll throw these into the pot as well:

http://www.sustainable-development.gov. ... uple/f.htm

http://www.sustainable-development.gov. ... uple/d.htm

http://www.sustainable-development.gov. ... uple/f.htm
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Unread postby lowem » Sat 16 Apr 2005, 09:08:04

That chart may be flawed. I don't know, perhaps it may be due to discovery and production of the North Sea fields, leading to UK being able to bring in more dollars (and pounds and euros, whatever), which, when spent into the local economy, produced GDP "growth". They might have been just trading away their energy resources in return for GDP "growth".

I'm not much of an economist so perhaps that may be totally off.
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Unread postby Wildwell » Sat 16 Apr 2005, 09:36:34

You can do a lot with statistics that’s for sure!

Here’s another one to ponder.

http://www.statistics.gov.uk/cci/nugget.asp?id=151

And this is interesting: *Direct* use of energy by sector:

http://www.statistics.gov.uk/statbase/s ... ?vlnk=5542

All energy 2002 (millions barrels of oil eq):

Agriculture 2.0
Wholesale and retail trade 8.7
Transport and communications 31.3
Financial 6.8
Public admin 4.6
Education and social work 5.8
Manufacturing 48.1
Mining and quarrying 4.8
Electricty, gas and water supply 52.2
Construction 1.4
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Unread postby MonteQuest » Sat 16 Apr 2005, 10:23:15

Wildwell wrote:
But I still think people like Matt Simmon’s claims that 'Your economy cannot grow without more energy' is a flawed argument, at least judging by that graph.


Simmon's statement is factual, in that in order for an economy to grow you must increase energy consumption or make better use of it to produce the same production.

As they note, this was due to efficiency and changing energy sources. All the low-hanging fruit has probably been picked in regard to this fix. In the end, technological fixes still run into the wall of diminishing returns and are only a temporary fix to an unsustainable situation.

And, as you can see, Jevon's Paradox has been at work as the net energy consumption due to all this energy efficiency has still risen.
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Unread postby Wildwell » Sat 16 Apr 2005, 10:37:49

MonteQuest wrote:
Wildwell wrote:
But I still think people like Matt Simmon’s claims that 'Your economy cannot grow without more energy' is a flawed argument, at least judging by that graph.


Simmon's statement is factual, in that in order for an economy to grow you must increase energy consumption or make better use of it to produce the same production.

As they note, this was due to efficiency and changing energy sources. All the low-hanging fruit has probably been picked in regard to this fix. In the end, technological fixes still run into the wall of diminishing returns and are only a temporary fix to an unsustainable situation.


I don’t agree. If you look as the road transport freight stats the energy intensity is getting greater, not less. Moreover we’re shipping things around the country, that would have otherwise been produced locally and seasonally. Part of the problem is our demand for out of season food produce.

I got rid of my car last year. I now walk and have more money to buy local goods and services. The same would be true taking bikes and even the bus. Private road transport encourages people to be lazy and buy things and go places in a very inefficient manner. There’s no money to be made in that, only for the oil and car companies.

Simmons states the economy cannot grow unless you grow more energy quite clearly on a number of occasions - clearly this is not true, at least for the UK. Other people will need to research their own country.

There are scare stories about oil being pivotal in food production, yet the above figures, at least in terms of direct use, agriculture is one of the smallest energy users.

I would prefer hard facts rather than rhetoric. Are people being frightened into going to war to defend their way of life? I’ll let them decide and look at the credentials of the people making some of the arguments.
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Unread postby smiley » Sat 16 Apr 2005, 11:19:30

I'll aim for the middle road here.

If I take a gallon of oil and burn it in my garden I have not produced economic growth.

If, instead, I convert the oil into a useful item I have produced economic growth.

So energy consumption is indeed linked to economic growth, but it is linked via an efficiency factor. It is this factor which determines how much of your energy is going to be converted into economic growth.

After the oil crisis in Europe the efficiency of our energy consumption increased. Cars got smaller, houses got smaller, appliances got more efficient, public transport became more available etc. I use less energy than my parents when they were my age to achieve a similar standard of living. This explains how the economy could grow even though the energy consumption remained level .

So it is possible to achieve economic growth by increasing the efficiency of your energy consumption. However this is not a process which can go on forever. Once you reach the maximum possible efficiency further economic growth is not possible without a further increase of the energy supply.
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Unread postby MonteQuest » Sat 16 Apr 2005, 11:32:22

Wildwell wrote:Simmons states the economy cannot grow unless you grow more energy quite clearly on a number of occasions - clearly this is not true, at least for the UK.


I just explained that. Did you not read it? Even with your chart taken at face value, the net energy consumption increased 11%.

I would prefer hard facts rather than rhetoric. Are people being frightened into going to war to defend their way of life? I’ll let them decide and look at the credentials of the people making some of the arguments.


Ok, start up a business, but don't expend any energy in the process.

Energy is required to produce any work. If you grow GDP without increasing energy consumption or making what you use more efficient, then this grow is based upon producing nothing, but rather an increase in value or wealth based upon an increase in debt load.

The notion that there is a free lunch and we can get something for nothing goes against the basic laws of thermodynamics and common sense.
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Unread postby nero » Sat 16 Apr 2005, 12:13:45

GDP is simply a crude indicator of economic activity. Some long term trends that do not actually increase the output will have a very large impact on the longterm growth of the GDP number. The increase in transportation distances is an example already given. I think the largest factor is the counting as economic activity items that previously were done in non-monetary transactions (eg. pedicures, childcare, lawncare, etc.). I've harped on this before but since this thread is specifically about the energy consumption versus GDP graph I thought I'd repeat myself.

As others have said, improvements in efficiency can cover up the direct relationship between energy use and economic growth. I also agree that efficiency is subject to diminishing returns. That being said, there are alot of efficiency improvements still to be had.
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Unread postby Starvid » Sat 16 Apr 2005, 12:50:49

So we may conclude that there are two ways in which we can increase GDP without increasing energy production:

1) Increased efficiency

2) Less energy intensive production (Industry economy -> service economy)


What hasn't been concluded is if all the low hanging fruit has been picked yet. To pick any fruit at all incentives are needed. Experience shows that the greatest increases in energy efficency has been reached during times of high energy prices. When prices have fallen (after 1984) energy efficency has been less prioritized.

As far as I know, higher energy prices (and governement meddling) will result in higher efficiency.


And by the way, it is possible to avoid Jevons paradox. Since the 70's Swedish GDP has grown 50 %. Energy consumption has grown... 0 %. :)

Some interesting links:

http://globalis.gvu.unu.edu/indicator_d ... Country=SE

http://globalis.gvu.unu.edu/indicator_d ... Country=SE
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Unread postby Wildwell » Sat 16 Apr 2005, 13:57:45

MonteQuest wrote:
Wildwell wrote:Simmons states the economy cannot grow unless you grow more energy quite clearly on a number of occasions - clearly this is not true, at least for the UK.


I just explained that. Did you not read it? Even with your chart taken at face value, the net energy consumption increased 11%.

I would prefer hard facts rather than rhetoric. Are people being frightened into going to war to defend their way of life? I’ll let them decide and look at the credentials of the people making some of the arguments.


Ok, start up a business, but don't expend any energy in the process.

Energy is required to produce any work. If you grow GDP without increasing energy consumption or making what you use more efficient, then this grow is based upon producing nothing, but rather an increase in value or wealth based upon an increase in debt load.

The notion that there is a free lunch and we can get something for nothing goes against the basic laws of thermodynamics and common sense.


It depends what work you're doing. If you burn it away by taking joy rides in cars are leave lights on for the hell of it, it doesn't benefit anyone. Face it, Oil consumption is 32% of UK front end energy and a good deal of that is being burnt away in cars, when people could walk, bike or take up bus seats or by an inefficient truck and food network.

As far starting up a business it depends what you’re doing. Some businesses produce more returns for energy expended, others may save energy by completely eliminating other energy use. There's always some input in energy, but you're too caught up in this idea of a closed system.

You CAN get something for nothing - if I'm walking instead of driving then the only energy input is to me, which is food, which can be renewable and will be renewable as far as planet earth is concerned until the sun falls out the sky. And if you think about it where was the orginal input for coal, gas and oil? When the sun falls out the sky I'll start worrying, until then this is nonsense and an excuse for people to behave in irrational ways.
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Unread postby MonteQuest » Sat 16 Apr 2005, 14:16:18

Wildwell wrote:
It depends what work you're doing. If you burn it away by taking joy rides in cars are leave lights on for the hell of it, it doesn't benefit anyone.... You CAN get something for nothing - if I'm walking instead of driving then the only energy input is to me, which is food, which can be renewable and will be renewable as far as planet earth is concerned until the sun falls out the sky.


It makes no difference whether it is wasted or not, if it gets used it benefits those who sold it, i.e., the gas companies and electricity companies. Millions of people have their entire livelyhood based upon this wanton consumption. You are not looking at the Big Picture.

Wildwell, the bottom line is that even if you eliminate all that waste and inefficiency, all you gain is a temporary fix. It treats the symptoms, not the disease, which is a society based upon a phantom carrying capacity utilizing fossil fuels, one that cannot be replaced with renewables. We will be going from a stock to a flow of energy that we cannot control.

And no, no matter how you phrase it, you cannot get something for nothing, 2nd law of thermodynamics.
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Unread postby MonteQuest » Sat 16 Apr 2005, 14:23:08

Starvid wrote:And by the way, it is possible to avoid Jevons paradox. Since the 70's Swedish GDP has grown 50 %. Energy consumption has grown... 0 %. :)



According to IAEA.org, Sweden's GDP growth from 1980 to 2001 was 2.7%. while total energy use rose at .36% (mainly due to their aggressive conservation and efficiency programs during those years and making do with less) primary electricity use rose at 1.9% just like I said. There are no free lunches out there.

There has never been a growth in GDP without an increase in electrical energy consumption, period. All of this is a rehash of material already covered in my thread on our money sytem and growth.

Our Money System and Oil Depletion; Are they Compatible?
http://www.peakoil.com/fortopic3761.html
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Unread postby Wildwell » Sat 16 Apr 2005, 14:53:06

MonteQuest wrote:
Wildwell wrote:
It depends what work you're doing. If you burn it away by taking joy rides in cars are leave lights on for the hell of it, it doesn't benefit anyone.... You CAN get something for nothing - if I'm walking instead of driving then the only energy input is to me, which is food, which can be renewable and will be renewable as far as planet earth is concerned until the sun falls out the sky.


It makes no difference whether it is wasted or not, if it gets used it benefits those who sold it, i.e., the gas companies and electricity companies. Millions of people have their entire livelyhood based upon this wanton consumption. You are not looking at the Big Picture.

Wildwell, the bottom line is that even if you eliminate all that waste and inefficiency, all you gain is a temporary fix. It treats the symptoms, not the disease, which is a society based upon a phantom carrying capacity utilizing fossil fuels, one that cannot be replaced with renewables. We will be going from a stock to a flow of energy that we cannot control.

And no, no matter how you phrase it, you cannot get something for nothing, 2nd law of thermodynamics.


In terms of fossil fuels you can get something for nothing, which is what the website is about - the depletion of finite resources. You use renewable sources. Okay, it's not something for nothing in terms of energy input, but that energy is only finite in terms of billion of years.

So what are the symptoms? Are they, people being bone idle and not cycling, walking or taking other methods of transport that could be fuelled by renewable sources? Agreed. That should change, but people do things the easy way which is why we have the problem, nothing to do with actual solutions. Will people riot if they can’t drive? I doubt it, maybe in America. 50% of people in many UK cities do not have a car and most of them probably won’t loose too much sleep. You’ll have your hard core petrol heads, whose car is a substitute for penis size that will moan of course. The odd person too anal to get on a bike, bus or train, or not rich enough afford the alternative, it goes without saying. Too bad, the blacksmiths complained when the canals and trains replaced horses, the steel workers moaned when Mrs Thatcher closed the steel works because of cheap foreign imports. The miners moaned when we closed all the mines. The railwaymen moaned when Dr Beeching raised his axe. The world moves on, in a state of perpetual change. These industries employed millions of people and were killed off by oil.

The indigenous population of Europe and the USA is hardly increasing. One foul swoop of bird flu will knock that out. Most of the population increase is coming from Asia, relatively low energy economies, not high energy ones.

Whether the gas companies or the electric companies are making money is irrelevant in the bigger picture in terms of finite resources. It does not get away from the fact that you can grow your economy without using more energy, which was my original point. I’m not all that interested if other countries have an archaic energy and transport policy built on greed, waste, and mutual masturbation through the worship of personal transport and military force. You call it a temporary fix as far as the UK and Sweden (and others) are concerned, but you have no evidence for that other than by the ideas of a slightly mad economist who lived a very long time ago. I don’t wish to be rude, but you know, he might just have been wrong.

I am not saying Peak oil is not a problem, it clearly is. But I've yet to see any real evidence of phantom carrying capacity, which would assume that we would never figure out a way to create other agricultural products among other things.

Don't keep telling me I'm wrong, prove it with facts, figures and scientific input. And even then I doubt you would be able to because the opinions of the so-called experts differ so much.

Look if you drive a car or like flying, peak oil is about as welcome as a slap round the face with a wet kipper. A few people with investments might loose out as the economy goes down hill. Those with debts may find it going - after all we have a rather theoretic 'Science of scarcity'. We’ll have a collection for those in hardship. But I don't drive and fly anyway, and other than that I don't see very much clear evidence my life might be about to end, unless of course we all vote megalomaniacs into power, which for me (and no doubt others) is a far greater concern.
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Unread postby smiley » Sat 16 Apr 2005, 16:18:57

Montequest wrote:It makes no difference whether it is wasted or not, if it gets used it benefits those who sold it, i.e., the gas companies and electricity companies. Millions of people have their entire livelyhood based upon this wanton consumption. You are not looking at the Big Picture.


I'm sorry to say Monte, but you're wrong here.

Let's say I use one gallon of fuel to make product A and I manage to increase the efficiency to half a gallon per product.

Now this enables me to make twice the amount of product A. The energy consumption is the same as before so for the supplier it doesn't make a difference. However my economic output has doubled.

It is a temporary fix, to that I must agree, but it is a fix nevertheless.
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Unread postby Wildwell » Sat 16 Apr 2005, 16:30:59

And the point is the money system is based on confidence, nothing to do with energy. If it was based on energy we might well have problems. This is how you can sell a pair of John Lennon's old shoes for $100,000 on the hope that, because of their historic value, there will be a demand for them in the future. A similar pair of shoes might be worth only $100, but only because they aren't John Lennon’s, yet they took the same energy to create.
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Unread postby DamianB » Sat 16 Apr 2005, 16:53:18

If we assume that economic growth does require energy input then surely our long-term growth rate is going to revert to the rate at which we can capture the planet's flow of energy from renewable sources. This will obviously be much lower than the past but it will still be growth.

Also our current economic system places high value on things that require a lot of energy like cars and green beans flown in from Kenya. In a post-peak world the value placed on items we exchange will be different and people who grow things by capturing the sun's energy will be able to buy things from people who use a PV powered lathe or row a boat out into the ocean and catch fish. This may not be a very appealing life for the poor saps who like playing video games and watching TV buts that's tough!
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Unread postby Wildwell » Sat 16 Apr 2005, 17:13:29

DamianB wrote:If we assume that economic growth does require energy input then surely our long-term growth rate is going to revert to the rate at which we can capture the planet's flow of energy from renewable sources. This will obviously be much lower than the past but it will still be growth.

Also our current economic system places high value on things that require a lot of energy like cars and green beans flown in from Kenya. In a post-peak world the value placed on items we exchange will be different and people who grow things by capturing the sun's energy will be able to buy things from people who use a PV powered lathe or row a boat out into the ocean and catch fish. This may not be a very appealing life for the poor saps who like playing video games and watching TV buts that's tough!


Well not necessarily. Take the car example you used. Let’s say oil goes up in value so much, that hydrogen cars are a must. But hang on, there’s not enough energy to make hydrogen at low cost to run mass motoring and transport it and we might not be able to build cars for less than $75,000 per unit. But there will always be demand for personal travel. On this basis the car makers might sell just 100,000 vehicles in Britain a year, but because they become an elitist, relatively rare, high value item the market might be able to stand a price of $150,000 per car or a 100% mark up. Clearly the car maker is onto a winner. As cars would be no longer such a mass produced item with a higher perceived value their price would increase- assuming the market could withstand such a price.

Another example: Say a great artist produces a painting – it might be worth $500,000 because of his perceived skill. But it took no more energy to produce than a school kid doing an art assignment

So it’s too simplistic to say energy = economic growth. It’s all perceived worth.
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Unread postby MonteQuest » Sat 16 Apr 2005, 18:43:51

Wildwell wrote: You call it a temporary fix as far as the UK and Sweden (and others) are concerned, but you have no evidence for that other than by the ideas of a slightly mad economist who lived a very long time ago. I don’t wish to be rude, but you know, he might just have been wrong.


The evidence is not Jevon, the evidence is that our society and civilization is based upon a temporary phantom energy source (fossil fuels) and it is unsustainable. Conservation and efficiency only go so far. Forget about Jevon's Paradox, that is another factor altogether. And Jevon's has been 100% right so far. Will he be wrong this time? Doubt it.

I am not saying Peak oil is not a problem, it clearly is. But I've yet to see any real evidence of phantom carrying capacity, which would assume that we would never figure out a way to create other agricultural products among other things.


Then you don't have enough basic understanding of ecology. Read my thread on Liebig's Law. I have 30 years of background on the subject.

Don't keep telling me I'm wrong, prove it with facts, figures and scientific input. And even then I doubt you would be able to because the opinions of the so-called experts differ so much.


I have: 2nd Law, and the fact that no GDP growth has ever occurred without an increase in electrical consumption. My god man, to assume that you can have growth without consuming energy is beyond reason. You must consume energy to be able to do work. That is basic science.
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