20.05.2005IV International Workshop on Oil and Gas Depletion 1 IV INTERNATIONAL WORKSHOP ON OIL AND GAS DEPLETION Lisbon, 19-20 May 2005 The Urgency for

20.05.2005 IV International Workshop on Oil and Gas Depletion

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IV INTERNATIONAL WORKSHOP ONOIL AND GAS DEPLETION

Lisbon, 19-20 May 2005

The Urgency for Energy Economics

Rui Namorado RosaGeophysics Centre of Évora

The University of ÉvoraPortugal


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Natural Resources

• Finite vs Reneable resources: how different they really are? Rates of harvesting and of exploitation vs natural rates of generation or replenishment

• The “availability” of raw-materials • Natural-resources are depletable and several have

become or are becoming scarce (declining availability)• Which is the value of natural capital? One takes it for

free? How to value rents? • Who collects rents and taxes and for what purpose?


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Evolution of the world energy consumption (no biomass). Sources : Schilling & Al. (1977), IEA (2002), Observatoire de l'Energie

(1997).


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Economic Growth

• Economic growth is growth of product but requires also growth of the factors of production

• Therefore, economic growth implies growth of natural resources use and of environmental wastes

• The technosphere is an open system within the geosphere, between which mass and energy flows are maintained

• Flows are subjected to conservation (mass and energy) and to dissipation laws (entropy generation).

• Economic growth with dematerialization is it reality or plain wishful thinking?


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Source: Arnulf GRÜBLER, The Rise and Fall of Infrastructure, 1990, quoted in Climate Change 2001, Mitigation, IPCC, 2001


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Productivity of Factors• Interdisciplinary discourse on energy and entropy in

economy began after the first oil shock, the report on The Limits to Growth (1972), and Georgescu-Roegen’ (1971) and Göran Wall’ (1977) incorporation of Thermodynamic laws in economic theory.

• To what extent can production factors be interchanged?• Does the cost share measures the productive power?• To what extent can quality adjusted energy input explain

the growth of economic output?• The answer is to set aside Cobb-Douglas classic

production function and adopt an econometric model reflecting real productive shares of factors.


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• Consider a K, L, E, C space, impose mathematical integrability and asymptotically meaningful boundary conditions (KLEC model – Kümmel et al, 1985 Lindenberger et al. 2000, etc.)• Elasticity of production/Productivity powers of capital α, labour β, energy γ and human creativity δ, in the most developed economies show

α ≈ γ ≈ 0.4 and β ≈ δ ≈ 0.1 In their industrial sectors

γ > 0.5, 0.2< α <0.4, β ≈ 0.1 and γ < 0.1• Conclusion: Elasticities of production differ significantly from factor-cost shares (about a ≈ 0.25 for capital, b ≈ 0.70 for labour and c ≈ 0.05 for energy.


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The real productive power of Energy:

q = q [ k(t),l(t),e(t);t ]

dq/q = α (dk/k) + β (dl/l) + γ (de/e) + Cr

a = α0 (l+e)/k ; β = α0(c0(l/e) - l/k) ; γ = 1 – α – β

q = q0 e exp[α0 (2 – (l+e)/k) + α0c0 (l/e – 1)]

The LINEX production function:


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Material Flow Accounting

• Material resource use: life-cycle analysis, scarcity at one end and pollution at the other

• How to salvage the sustainable development ?• MFA – Material Flow Analysis has its roots in the

MIOT and PIOT developed since the 1930’s• Direct economic flows and indirect (invisible)

associate flows• Imports and Exports (direct and indirect flows) • Analytical Indicators: Total material requirement -

TMR and Domestic material consumption – DMC. Net addition to economic stock - NAS


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National Accounting

System of National Accounting

• Simon Kuznets (1930’s) and Richard Stone (1945) basics.

• The GNP (US, 1940’s) measure - from factor costs to market price valuation (profits, interest, taxes)

• SNA - OEEC 1952 and UN 1968 versions; the 1970’s ESA (EC), 1993’s SNA (UN, IMF, WB, OECD, EC) and 1995’ ESA versions

• The co-evolution of economic theory and national accounting


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GNP Criticisms

• How to impute non-market services? • How to valuate natural capital?• How to allow for the true final purpose of economic activities (inclusion or exclusion of expenditures)? • Where is the borderline between final expenditure, intermediate expenditure and investment?• Volume vs Price change for capital goods – how to measure and incorporate quality changes into volume changes? Producer vs consumer point of view. Hedonic methods mean enhancement of GDP growth?• NDP vs GDP: inclusion or exclusion of fixed capital consumption or depreciation?


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Taking Nature into Account

• SEEA: a provisional SNA satellite account• 1993’s SNA introduces resources as natural assets in wealth accounts. How to value them? How to estimate rent? Extraction is change in assets volume or fixed capital consumption? How to reflect it on the measure of output? • Non-renewable resources: how to assess the volume of assets (free gifts becoming scarce acquire economic value)?• Renewable resources: at least as complex, given the relation between rates of extraction and renewal • Non-marketable natural resources valuation: stretching the boundaries of monetarization!


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Materials and Energy Accounting

• Conservation of Mater and of Energy

• Dissipation of Mater and Energy (Second Principle)

• Both Mater and Energy can be accounted for by the single Exergy concept

• All economic throughput can be measured in the common measure Exergy

• Information capacity is proportional to exergy power


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The Exergy Measure

• Exergy measures the thermodynamic physical and chemical distance from equilibrium with rhe Environment

• Natural resources (fuels and mineral ores) have relatively high exergy content

• Exergy has to be spent to concentrate and extract raw materials from Nature and to produce goods and services

• Wastes disturb the Environment to the extent of their exergy content. Why recycling? Energy cost of recycling

• k'T0 = 2.9 x 10-21 J is the amount of exergy connected to one bit of information at room temperature.


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E = k'T0I Relation between exergy and information

k' = k ln2 = 1.0x10-23 J/K


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• Energy and material resources occur partly as flows, partly as stocks. • There are continuous flows such as solar radiation and water. A flow has a finite rate, but is permanent. • A live ecosystem is a stock, constructed out of flows of sunlight, water, carbon and minerals. These give rise to a new flow of biological matter, part of which can be diverted without causing the destruction of the stock. • Other stocks, such as oil field and ore deposits, can give rise to a flow only while being progressively drained. • As to stocks, we therefore differ between deposits or

dead stocks, and funds or live stocks.


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• A fund or live stock, converts one resource flow into another. It is an exergy converting system. • The Earth's climatic system is a fund which catches and transfers solar exergy. This live stock re-distributes the incoming energy over the Earth. It circulates and purifies the water. It provides the basis for another fund, the biosphere, by converting the flow of sun radiation into exergy rich biological and societal structures.• In farming, the cultivated land is a fund which, for some amount of labour and added energy, can give a greater return, by converting the incoming flow of solar radiation into flows of edible or useful biomass.


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Energy Flow: Sweden 1971Göran Wall (1977)


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Exergy Flow: Sweden 1971Göran Wall (1977)


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THE END• ENERGY EMPOWERS LABOUR AND CREATIVITY

AND ACTIVATES CAPITAL • WE ARE LIVING THROUGH PAST THE APOGEE OF

THE FOSSIL ENERGY AGE• HIGH QUALITY ENERGY IS BECOMING A SCARCE

RESOURCE – AVAILABILITY IS DIMINISHING • THE ECONOSPHERE IS CONTAINED IN AND

WORKS SIMILARLY TO THE GEOSPHERE• MAJOR ECONOMIC-SOCIAL CHANGES WILL TAKE

PLACE• A NEW ECONOMIC THOUGHT IS URGENTLY

NEEDED

Documents

20.05.2005IV International Workshop on Oil and Gas Depletion 1 IV INTERNATIONAL WORKSHOP ON OIL AND GAS DEPLETION Lisbon, 19-20 May 2005 The Urgency for