To Infinity and Beyond!
In a world not constrained by resources, anything is possible.
I am struggling to finish another post on energy-resources-finance-economics… kind of a big subject that ends up giving migraines. In the meantime, today in a smaller bite-sized chunk I’m going to argue that best-selling authors and Nobel laureates don’t know what they are talking about. God Complex - me?
Buzz Lightyear Economics
Consider this graph - which is referenced to the work of Nobel Laureate W Nordhaus, although published by Bjorn Lomborg. In the tweet, Lomborg argues that climate mitigation is expensive and that by the end of the century the world will be SO much richer, that the climate damage will only be a -4%. Or in other words - whether we spend trillions now or not, we will end up in the same place economically +/- 4%.
Today, global average income/person is about $15K In 2100, because of growth, it will be $71,200, if there was no global warming Because warming creates damages, the actual income will be $68,400 or 4% less
To be very clear I am not taking any position on any of the complex financial/ emotional/ climate arguments. Least of all the fun you can have using different discount rates on an 80 year projections :-)
No, the point I highlight here is the assumption of growth. In this example global GDP per person rises from $15k to c. $71k - an approximate 4.5x. Someone smarter than me can comment on the real-vs-nominal implications of this. But simply ask the question - is there any real-world scenario in which the global economy could grow by 4.5x in 80 years?
Economic Growth is Energy Growth
There is ample evidence that economic growth is almost perfectly correlated with increase in energy use. Always has been.
There are different ways of showing this, but the trend is always the same. GDP is a measure of getting things done, getting-things-done requires energy.
Decoupling has been demonstrated in certain localities - in which GDP has increased without a concomitant rise in energy - but in general this can be explained by a focus on service industries producing GDP (with the energy used in manufacturing being outsourced and accounted for in other counties). Printing money can also boost the illusion of GDP growth - buying growth with debt, but that just accelerates energy use.
Unlimited ExaJoules
So in a world that is using c. 550 Exajoules per year, of which about 82% comes from fossil-fuels, and in which energy and mineral resources are finite (lets skip nuclear fission and fusion for the moment) one has to ask… what could possibly happen to see a 4.5x increase in energy - the number that implicitly underlies the 4.5x economic growth?
Even if we take a more modest 2x, this still seems pretty unimaginable (apologies that this example is in Quadrillion BTU not Exajoules, and global GDP not per-capita etc, but the relative increase is the subject, not the unit of energy).
What we see here is an implicit recognition that GDP should increase (with population growth and affluence) and that the historical correlation with energy demand would follow the dotted line - but miraculously the future is several times richer, but requires only a modest increase in energy - because “Energy Savings”. Did anyone say “Jevons Paradox?”
Well isn’t that a comforting scenario! Kind of eating your cake and having it too.
I get that we are talking about Primary Energy and we need to think about Exergy, but even in an “electrify everything” scenario, the simplistic argument about efficiency of electrification underestimates the system requirements - so yes, work done may require less energy, but not by a factor of 2. And the question remains, can we double or quadruple the size of the global economy?
If your inputs are wrong, quid your outputs?
I struggle to see how the world will be able to access 2x, let alone 4x the current energy demand - and certainly not at the level of affordability required to underpin economic growth. For me this implies that we have to turn the equation around. Energy is an input to GDP; if energy is less available and/or more expensive then the GDP curve (and prosperity) will be constrained by the energy input. Energy is the input, the economy is the output.
Techno-Optimists
Yuval Noah Harari touches on this his blockbuster Sapiens, and it neatly summarises the techno-optimist point of view (all quotes in this section are from Sapiens):
Economic growth also requires energy and raw materials and these are finite. When and if they run out, the entire system will collapse.
Hard to disagree, but then in the very next sentence (emphasis added)…
But the evidence provided by the past is that they are finite only in theory.
continuing a few pages further on…
At heart, the Industrial Revolution has been a revolution in energy conversion. It has demonstrated again and again that there is no limit to the amount of energy at our disposal. Or, more precisely, that the only limit is set by our ignorance. Every few decades we discover a new energy source, so that the sum total of energy at our disposal keeps growing.
This is techno-optimism in a nutshell: “we solved it in the past, so have faith, we can do it again.”
He then waffles on about the amount of energy from the sun that is incident on the earth every day etc…
His historical view is likely correct, his assertions about the potential energy are probably also correct. However, the Industrial Revolution has been characterised by progressive increases in energy density. Which can also be re-phrased as: the energy used in acquiring more energy has been a diminishing proportion of the whole. However, easily accessible energy resources are not limitless, and “Economics” doesn’t deal with a world in which the cost of getting energy increases.
During the Industrial Revolution, people realized that there are near-infinite energy resources in the world.
Which reflects Jean Baptist' Say’s view from 1828:
“Natural resources are infinite because, if they weren’t, we would not obtain them freely. Since they cannot be multiplied, nor exhausted, they cannot be the object of economic sciences.” or as my kids would say. LOL #facepalm. And yet… that is how economists manage to get all fancy with monetary and fiscal policy whilst abstracting from the real world of resources and energy.
Finite Infinity
The question of “how much energy” is a question of physics and philosophy - and can be pushed to the more extreme conceptual ideas such as the Kardashev Scale in which levels of civilization can (conceptually) be ranked on the ability to use some of, all of, or more than a single sun’s energy…
In practical terms, and from the point of view of energy-economics (and in the absence of the “next level” energy sources (nuclear fusion)), human civilization is confronted with finite amounts of easy-to-access energy.
This limitation - the cost (think either in $ terms or in energy terms, it’s the same thing) of harvesting energy in the future is likely to rise, as we find that the cheap stuff isn’t infinite and the clean stuff isn’t cheap. More costly energy means less prosperity - and there is a very real danger that that leads to less R&D, less technological progress and for the first time in human history a reversal of the idea “Every few decades we discover a new energy source, so that the sum total of energy at our disposal keeps growing”.
To continue that progression the logical step would be to use the existing energy sources to do a massive build-out of nuclear (fission) power. Thereby buying us time to find “the next big thing”.
In a world not constrained by resources, anything is possible. In a world constrained by resources, don’t expect GDP to keep growing.
Apologies to Nobel prize winners and much-lauded authors.
Techno optimism is a genuine problem. I am interested if you ever explore the SCNC (Social Cost of No Carbon) scenario, there are serious things to be said about that.
Great article 🔥