Roger Fouquet Grantham Research Institute on Climate Change and Environment

1. A Historical Perspectiveon 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. 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. Phase VI: Second Industrial Revolution English/British GDP per capita, 1300-1900 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. 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 Sea Freight Transport Iron Heating 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: 1750-1780: 8-fold Increase 1785-1815: 8-fold Increase • But, ‘Impact’ on GDP pc only 1750-1780 • Cheaper Power (1780-1810) • 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. 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: 10% Increase in GDP pc leads to a more than 10% 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 P1 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 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 Passenger Transport Lighting Domestic Heating Source: Fouquet (2015)

25. Consumer Surplus from Lighting Technologies and Services Electric Lighting Kerosene Lighting 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 Source: see text

28. Consumption of Energy by Energy Services in the United Kingdom (mtoe), 1800-2000 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 Freight Industrial Heating Lighting Power Source: Fouquet (2015).

33. Part 4 Growth and Limits

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

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. Consumption 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. 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 Energy Intensity 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, 1800-2010 (with Income Elasticity of Demand = 1) Passenger Transport Lighting Domestic Heating Source: Fouquet (2015)