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Understanding Energy Demand: Factors Influencing Consumption and Welfare

Energy services are vital for both social and economic development, encompassing survival, security, comfort, and social interactions. Arnulf Grubler’s analysis explores the determinants of energy demand, highlighting how income, price, infrastructure, and lifestyles impact consumption. The interrelationship between demand quantities and qualities, modernization, and traditional fuel use reveals the complexities of energy access and utilization in different socio-economic contexts. Key demographic indicators further illustrate how energy use correlates with welfare, showcasing the importance of efficiency in enhancing human well-being.

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Understanding Energy Demand: Factors Influencing Consumption and Welfare

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  1. 86025_4 Energy Systems Determinants 1: Demand Arnulf Grubler

  2. Energy (services) are one of the fundamental requirements for social and economic develop-ment and not just their consequence Former US DOE chair Arnulf Grubler

  3. Energy Services for: • Survival and security (basic needs) • Building and maintaining material environment • Comfort (in using material env.) • Social interactions (communication, self-actualization) Arnulf Grubler

  4. Energy Services • Demand quantities: income, price, lifestyles, infrastructure,.. • Demand qualities: availability, income, price, comfort, “(in-)convenience”,… • Quantities and qualities interact! • “Modernization” indicator: quantity/quality of energy, e.g. non-commercial, traditional biomass use (cow-dung, residues, wood) Arnulf Grubler

  5. Traditional Fuel Use and Demographic Indicators 140 7 infant mortality, deaths per 120 6 1000 life births 100 5 female life-expectancy, years 80 4 3 60 male-female life expectancy gap, years 40 2 total fertility rate, 20 1 children/woman 0 0 Source: WEA, 2000, p. 53 <20 20-40 40-60 60-80 >80 Source: WEA 2001 percent non-commercial in total energy use Arnulf Grubler

  6. (Primary) Energy Use per Capita Source: Modified from V. Smil, 1991.

  7. Mapping Energy AccessFinal Energy per Capita vs Population Density AD 2000 Source: Chirkov&Grubler, IIASA, 2007. Arnulf Grubler

  8. Energy Use Distribution of Indian Households 1998-99 Source: S. Pachauri, IIASA, 2006.

  9. India – Per Capita HH (Direct) Energy Use vs. Income: Useful, Final and Hypothetical (with non-commercial fuel efficiencies)Σ: Efficiency is biggest contributor to human welfare gains Hypothetical final if used with non-commercial fuel efficiencies Final energy Useful energy Data: TERI, 1995. Arnulf Grubler

  10. India - Primary Direct and Indirect Household Energy Use Per Capita (1) Source: S. Pachauri, IIASA, 2006.

  11. India - Primary Direct and Indirect Household Energy Use Per Capita (2) Source: S. Pachauri, IIASA, 2006.

  12. India – Fuel Use Structure of Urban and Rural Households vs. Income Arnulf Grubler

  13. Western Europe (average) 13,000 $ PPP income ~ 2.5 toe final energy Floorspace: 40 m2 Residential energy: .8 toe Industry energy: 1 toe Transport energy: .7 toe Passenger-km (cars #):10,700 (.74) Ton-km (trucks #):3,400 (.24) Latin America (average) ~5,000 $ PPP income ~ 1 toe final energy Floorspace: 10 m2 Residential energy: .5 toe Industry energy: .3 toe Transport energy: .2 toe Passenger-km (cars #): 4,700 (.21) Ton-km (trucks #): 2,000 (.09) Per Capita Energy & Services Data characteristic for 1990s Arnulf Grubler

  14. Primary Energy Use and Income: Path Dependence 10 1800 9 1850 USA 1900 1800-1998 8 1925 1950 7 1975 6 1995 UK Austria toe per capita 1800-1998 5 1922-1995 4 Japan 1900-1998 3 2 Data: Butschek, 1997; Fouquet & Pearson, 1998; Grubler, 1998; Martin, 1988 & JStO, 1998. 1 0 0 5000 10000 15000 20000 25000 30000 GDP (1990 US$) per capita Arnulf Grubler

  15. Energy Use & Wealth: OECD Past and IIASA-WEC and IPCC Scenarios for DCs 10 1800 9 1850 USA 1900 1800-1998 8 1925 1950 7 1975 6 1995 UK Austria 1800-1998 toe per capita 5 1922-1995 4 Japan 3 1900-1998 2 1 0 0 5000 10000 15000 20000 25000 30000 GDP (1990 US$) per capita Arnulf Grubler

  16. Energy Demand: The Economist’s Perspective • Income growth, e.g. US real-term per capita income: +2%/yr (AFTER inflation) since 1900 = a Factor >7! • Elasticity of demand with respect to:-- income-- energy prices (incl. taxes!)-- different for different income groups, fuel types, etc. • Biggest impacts: Income growth, cost reductions, quality improvements • Rate of time preference: consumption ”impatience” (discounting) • Tradeoffs, e.g. transportation: income – price – time (air vs. car travel) Reminder: elasticity: >0 = % change of A per % change of B, 0><1 called “inelastic”;>1 called “elastic” e.g. income elasticity:  = +0.7 = 1% income growth  +0.7% demand e.g. price elasticity:  = -0.3 = 1% price growth  –0.3% demand

  17. Household Ownership (% of HH with) 1978 to 1985 (78-85 growth = colored) TV Refrigerator Washer Vaccum cl. Arnulf Grubler

  18. Cost Declines in Refrigerator Costs in US Source: OTA, 1991. On example of cost declines + quality improvements (efficiency) see Bill Nordhaus example. of Light https://classesv2.yale.edu/access/content/group/fes83026_f06/readings/nordhaus_lighting_1998.pdf

  19. Consumption Impatience: Discounting • Preference to consume nowrather than later • Incentive to save (consumption deferral): interest rate • A bet: I give you 1 $ today, or will put 2.3 Million $ in a trust fund to be paid out to your descendents in 300 years (a Yale story). What would you prefer?* • Different discount rates:social < entrepreneurial (ROI) < < individual consumption * If you prefer 1$ today then your rate of time preference >5% (often too high for climate cost benefit assessments)

  20. Denmark – Distribution of Discount Rates Source: Harrison, Lou& Williams AmEconRev., 2002 Arnulf Grubler

  21. Implict Discount Rates vs. Income: Purchase of Air Conditioners in US Source: Hausmann, 1979. Arnulf Grubler

  22. Energy Demand: The Industrial Ecologist’s Perspective • Product/service orientation • “Cradle-to-grave” accounting: Net energy analysis (direct+indirect energy requirements) • How to deal with structural change? • How to deal with multi-factor productivity? Arnulf Grubler

  23. US- Energy per $ Value Added(TJ per Million $, energy embodiment, 1992 I-O data)Source: Carnegie Mellon Univ. www.eiolca.net Direct energy Indirect energy Note product and value orientation: Energy embodied in car vs. total energy use over lifetime of car Energy $ per VA $: industry vs. services (energy price differences) Arnulf Grubler

  24. Carbon Intensity of Products/Services (2 digit SIC level) Source: Marland&Pippin, 1990. Arnulf Grubler

  25. US - Time and Energy Use * Excluding sleeping time #Passenger travel only, rest of transportation accounted for “at work” Arnulf Grubler

  26. US – Time –Energy-Diagram(cumulative percentage distribution) Arnulf Grubler

  27. Energy – Time – Information: Intensity of Products/Activities Energy Chemical products Asphalt Iron & steel Plastics Paper Working time = 0 Real estate Communication Paints Drugs Radio/ TV broad casting Eng ines / turbines Metal products Constru ction Food Textiles Enter tainment Shoes Information = 0 Primary Energy = 0 Restaurants Agricultural services Source: D. Spreng, 1993.

  28. Economic Structural Change(based on Kuznets, 1971) Arnulf Grubler

  29. Energy Demand: Social Science Perspectives on Value and Lifestyle Changes • Given: Hierarchy of needs (Maslow)economists (actionrevealed preferences?) • Constructed: Preferences “discovered” in process of establishing social relations (Mary Douglas)cultural theory (perceptionspreferencesactions?) • Generational change: Succession of cohorts (e.g. Nathan Keyfitz)demographers, “cross-over” scientists Arnulf Grubler

  30. Consumer Expenditures Structure in US (based on: Lebergott, 1993) Arnulf Grubler

  31. Typology of “Value-ists”Along 2 Dimensions of Social Relations & Associated Myths of NatureSource: M. Thompson based on M. Douglas and P. Timmerman Arnulf Grubler

  32. Keyfitz quote N. Keyfitz, 1992.

  33. N. Keyfitz, 1992.

  34. Germany: Car Ownership by Gender and Age Cohorts Source: Buttner&Grubler, 1995. Arnulf Grubler

  35. Germany: Car Ownership of Female Age CohortsSource: Buttner&Grubler, 1995. Arnulf Grubler

  36. Scenarios of Car Diffusion for a United Germany: Greens are Outnumbered by Greys!! 3 Scenarios: Constant 1990 Rates, Trend,Green Generation 1990: 79 Million Germans 35 Million Cars (26% female owners) 2030: 77 Million Germans (70 by 2050) 30 Million cars (24% female owners) 38 Million cars (36% female owners) 33 Million cars (41% female) Arnulf Grubler

  37. “Take-back” Effects Arnulf Grubler

  38. Percent Change since 1970 in US Automobile CO2 Emissions and Driving Forces Arnulf Grubler

  39. IPAT • Impacts = Population x Affluence x Technology • Widely used decompositional technique* • Component growth rates additive:e.g. POP 1%/yr, GDP 3%/yr, E/GDP -1%/yr= GDP/POP 2%/yr, Energy 2%/yr • See previous car emissions exampleC (emissions) = gallons fuel usegal = gal/miles x miles/vehicle x vehicle/people (“empty seats”) x people xε (adjustment for increasing SUV share), canceling out all elements: gal=gal = identity • Assumes variables are independent!Beware of fallacy of spatial aggregation (POP growth in India, Car growth in US lumped together in global IPAT)! *See e.g. Ausubel&Waggoner, 2002; and review of Chertow, JIE, 2001. Arnulf Grubler

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