Working Papers

R & D CMER

The Centre for the Management of Environmental Resources

RESOURCES, SCARCITY, TECHNOLOGY, AND GROWTH

by

R. AYRES*

2002/118/EPS/CMER (Revised Version of 2001/31/EPS)

This working paper was published in the context of INSEAD’s Centre for the Management of Environmental Resources, an R&D partnership sponsored by Novartis, Shell, and Paul Dubrule.

* Emeritus Professor of and Political Sciences, Centre for the Management of Environmental Resources (CMER) at INSEAD, Boulevard de Constance, 77305, Fontainebleau Cedex, France.

A working paper in the INSEAD Working Paper Series is intended as a means whereby a faculty researcher's thoughts and findings may be communicated to interested readers. The paper should be considered preliminary in nature and may require revision.

Printed at INSEAD, Fontainebleau, France. RESOURCES, SCARCITY, TECHNOLOGY, AND GROWTH

Robert U. Ayres

Center for the Management of Environmental Resources INSEAD, Boulevard de Constance F-77305 Fontainebleau Cedex France Tel: 33(0)-1-6072-4011 Fax: 33(0)-1-6498-7476 Email: [email protected]

Abstract

This paper reviews the history of since the industrial revolution, viewed as a positive feedback process involving resource scarcity, conversion efficiency, substitution, innovation and new applications leading to increased demand. Related notions including thermodynamic measures, exergy, power, work, the Kuznets curve, and the so-called `rebound effect’ are also discussed. The rebound effect is, in effect, the growth dynamic. Some implications for the future are discussed.

Thermodynamics and natural resources

The term `resources’ is used in many ways in different disciplines. For purposes of this paper, a resource is an essential input to the economic process. Resources may be material or immaterial (e.g. information) and material resources may be of natural origin or man-made. Services provided by nature (e.g. air, biodiversity, `assimilative capacity’) are also sometimes called resources. However, in this paper, the term natural resources is restricted hereafter to energy – actually exergy– carriers, products of photosynthesis (phytomass) and other industrial raw materials extracted from the natural environment by intentional human activity. The word energy is widely misused, and for the sake of precision I will introduce a different term, exergy that is less familiar but more precise. Energy is a conserved quantity (the first law of ) , which means that it can only change form or quality (e.g. temperature) but can never be created or destroyed.. Energy and mass are inter-convertible, in principle (recall Einstein’s formula E = MC2 ), although nuclear reactions convert only infinitesimal amounts of mass into energy, while there are no practical processes for converting energy to mass. For all other processes of concern to humans, both the mass and Page 2

the energy-content of materials and energy flows are independently conserved, which means the mass and energy of inputs (including water and air) are exactly the same as the mass and energy-content of the outputs. including waste products. What has changed is the availability of the energy in the inputs (solar insolation or fuel) for doing work. This availability is quantifiable. A number of terms have been used for it, including `available work’, `availability’, and `essergy’, but by general agreement it is now denoted `exergy.’ The formal definition of exergy is the maximum amount of work that can be extracted from a material by reversible processes as it approaches thermodynamic equilibrium with its surroundings. Exergy is therefore a quantity that is not definable in absolute terms. It can only be defined in terms of a reference state, namely the environment. But exergy can be calculated for any material with reference to whatever environmental medium that material would be likely to reach thermodynamic equilibrium with, namely the atmosphere, the ocean or the surface layer of the earth’s crust (topsoil or subsoil). Thus gases tend to equilibrate with the atmosphere, liquids or soluble solids with the oceans, insoluble solids with the land. (Detailed tabulations can be found for many materials in [Szargut et al 1988] and some additional ones are in [Ayres & Ayres 1999]). The exergy content of most fuels, per unit mass, is very nearly the same as the measure usually tabulated, which is heat-of-combustion (or enthalpy, to be technically accurate) per unit mass. This means that when economists or engineers speak of energy, they usually mean exergy. However, even minerals and metal ores have characteristic exergy values, which are really measures of their `distance’ from thermodynamic equilibrium as defined by the average mix of materials in the lithosphere. The higher the grade of ore, for instance, the more it is unlike – hence distinguishable from – the surrounding rock and the greater its exergy value. The above paragraph has two points of relevance to this paper. First, of all, for any given metal or other chemical element it can be seen that the greater the exergy content of the ore per unit of mass (i.e. the higher its grade, or distinguishability from its lithospheric environment), the less exergy is likely to be required to concentrate it and refine it, ceteris paribus. In short, exergy is a very general way of keeping track of physical scarcity, on the one hand, and difficulty of separation and purification, on the other. Obviously this is not to say that the exergy required to extract chlorine from rock salt is in any way comparable to the exergy required to refine copper or extract gold from placer deposits. However, it is clear that different copper ores, or gold ores, and especially, ores with different compositions (in terms of sulfur and other more or less valuable by-products) can be meaningfully compared in exergy terms. It seems reasonable to postulate that two ore bodies of equal size and equally distant from markets and confronting similar labor and capital costs, will probably have monetary values – taking into account both beneficiation, smelting and refining costs and by- product credits – pretty much in proportion to their respective exergy values. This leads to a second point of relevance, namely the possibility of measuring all kinds of resource reserves in common (i.e. exergy) terms, for purposes of both international and temporal comparison [Wall 1977, 1986]. From a theoretical perspective, the economic system can be viewed as a system of exergy flows, subject to constraints (including the laws of thermodynamics, but also others) and the objective of economic activity can be interpreted as a constrained value maximization problem (or its dual, an exergy minimization problem) with value otherwise defined [Eriksson 1984]. Exergy analysis can also be used empirically as a measure of , to evaluate and compare wastes and emissions from period to period or country to country [Ayres et al 1998]. Page 3

As already noted by Wall (op cit) it is possible to measure copper reserves, iron ore reserves, coal reserves, petroleum or gas reserves and forest biomass in the same units (e.g. kJ or pJ). To be sure, these different resources do not have equal market values per unit mass. Nor do they have the same market values per unit exergy content. Market value of finished materials is not proportional to their direct or indirect exergy content. This is partly because some resources – natural gas, for instance – can be used with an absolute minimum of treatment (mainly to remove hydrogen sulfide) whereas others, such as copper ore, require a great deal of treatment indeed to yield a useful product. This treatment consumes large amounts of exergy from fuels, not to mention other intermediates (like solvents) and capital equipment. Equally important as regards valuation, some materials, such as platinum, palladium and rhenium, have enormous economic value because of their unique physical properties (e.g. as catalysts). Yet other elements have very little economic value because they have no specially useful properties or because they are extraordinarily difficult to work with. For instance, the light metals, beryllium, lithium and magnesium are quite commonplace in the earth’s crust, but rarely used in industry, at least in relation to their availability in the earth’s crust. The 9th most common metal in the earth’s crust, rubidium, has virtually no industrial uses. A third point might be mentioned here, though it is only distantly related to scarcity and growth. It is that, just as resources can be measured in common physical (exergy) units, so can pollutants [Ayres et al 1998; Ayres & Ayres 1999, p. 48]. The exergy content of wastes is not necessarily proportional to the potential environmental harm the wastes may cause, but the exergy content of a waste stream is a rough measure of its reactivity in air or water, i.e. its tendency to initiate uncontrolled chemical reactions in environmental media. In this regard, one can say that, although the exergy content of a waste stream is not a measure of human or eco-toxicity, it is certainly a better measure of its potential for causing harm, than is its total mass.1

Scarcity and technological innovation in economics

Until the mid 19th century the industrial revolution last few hundred years, land was virtually the only economic `resource’, with a few minor exceptions, mainly metals. However the most productive agricultural land in Europe and most of Asia was already occupied and fully utilized by the end of the 18th century. The idea of resource (land) as a factor of production originated with the French physiocrats, especially Quesnay, and Adam Smith [Kuczynski 1971; Smith 1763(1978), 1776(1976)]. Quesnay and Smith were disputing Locke’s assertion [Locke 1698(1960)] that land only generates wealth through the application of labor and tools. He regarded tools as a `store’ of labor. Obviously Locke’s view was the intellectual precursor of the so-called labor theory of value, as refined by Marx and others [Weissmahr 2000]. The notion of scarcity as a constraint on economic growth goes back to Malthus [Malthus 1798(1946)]. It was only later that other natural resources, and especially exhaustible resources, began to be seen as `factors of production’ in their own right. Only in recent decades has scarcity been seen clearly as a driver of innovation – and thus a driver of economic growth. [e.g. Barnett & Morse 1962; Goeller & Weinberg 1976; Smith & Krutilla 1979; Simon 1980; Kahn & Simon 1984; Simon et al 1995]. Page 4

There have been number of cases of actual resource scarcity – or even exhaustion – usually limited to a particular resource or country. To name a few historical examples: oak timbers and charcoal became scarce in western Europe, especially England and Spain, by the 17th century. (Naval ship-building was a major factor.) Coal came into general use in Britain as a substitute for charcoal in the 18th century. Sperm whales, the preferred source of lamp oil and tallow for candles was becoming scarce by the mid-19th century. Whaling ships in those days were often away for as long as three years; this prompted a search for substitutes. The search took place in two phases. The first was an extended series of tests and experiments by many people with alternative liquids, including turpentine (from pine trees), oil derived from animal fats (from the slaughter-houses in Cincinnati) and so-called `rock oil’ which was found floating in streams in various places around the world. An extensive analysis of the properties of the latter material was undertaken by Benjamin Silliman, a chemist at Yale University [Nordhaus 1994b]. Silliman’s work on fractional distillation of rock oil led to the conclusion that kerosine, an intermediate fraction, would be a suitable lamp oil. This discovery prompted the second phase of the search (financed by speculators) and led by Edwin `Colonel’ Drake. In 1854 (?) Drake found rock oil in northwestern Pennsylvania in substantial quantities near enough to the surface to be accessible by conventional well-drilling methods. The petroleum industry was created originally to supply `illuminating oil’ to the world [Ayres 1989]. Gasoline was a low-value by-product used only for dry-cleaning until the 1890s when horseless carriages based on internal combustion engines generated a new (but small) use for the volatile natural gasoline. It continued to be less important economically than kerosine until about 1910. Natural fertilizers – guano and nitrate deposits from the West coast of South America – were also largely exhausted by the end of the 19th century. However superphosphate from bones, and later from mineral apatites, replaced natural guano. Similarly, synthetic nitrogen- based fertilizers from coke-oven gas, calcium cyanamid and finally synthetic ammonia provided an alternative source of fixed nitrogen for agriculture (and military explosives). Again, the search for alternatives to natural nitrates was deliberate and well-organized. Germany led this scientific search, with the objective of breaking the British monopoly control over the Chilean sources of nitrates [Smil 2001]. The successful Haber-Bosch process arrived too late (1918) to influence the outcome of WWI, but it is nevertheless the most valuable chemical discovery of all time and has helped feed the world since then. Natural rubber appeared to be a problem at the outset of World War II, thanks to the Japanese conquest of Indochina and Malaysia, the major loci of natural rubber plantations; however synthetic rubbers such as chloroprene, isoprene and acrylonitrile-butadiene-styrene (ABS) from petrochemicals were already known and available to replace the natural rubber. The substitution was mainly an acceleration of existing trends. A parallel case was the substitution of polyethylene for gutta percha as an insulating material for undersea cables, initiated by AT&T Bell Labs to break the German monopoly. Natural (Frasch) sulfur deposits have largely been exhausted, but sulfur is now obtained easily from hydrogen sulfide in natural gas, from petroleum refining and from smelting copper, lead and zinc. Sulfuric acid, by far the main product of sulfur chemistry, can also be manufactured directly from sulfur dioxide captured from smelting or combustion processes. Natural cryolite, a sodium-aluminum fluoride mineral which is needed for aluminum smelting by the electrolytic process, has long been exhausted. Now synthetic cryolite for the aluminum industry is manufactured from a by-product of phosphate rock processing. Page 5

Up to now, scarcities have not proven to be obstacles to economic growth. Far more often they have been stimulants to innovation that, in case after case, has led to new applications, new markets and accelerated growth rather than inhibiting it. However, there are two important scarcities in the world today for which past history offers no clear lessons. One is the increasingly severe world-wide shortage of fresh water. There is no substitute for water, as such, and there are only two technologies that offer real hope. One is the development of salt-tolerant species of crops. The other is desalination. The first would require a deliberate, major and long-term investment in genetic modification – which environmentalists would likely oppose – while the second would require enormous amounts of heat or electric power (i.e. exergy), either from fossil fuels (as currently exemplified in the Persian Gulf) or more directly from the sun. The other emerging scarcity is environmental assimilative capacity for wastes and pollutants. As it happens, most of the pollutants of concern, regionally and globally, are direct consequences of the use of fossil hydrocarbon fuels, especially coal. There is now a worldwide search for technological `fixes’ for the various environmental problems, from smog, acidification to global climate warming. But the most promising solutions involve reduced emissions, either by capture, treatment or storage of pollutants or by more efficient use of energy. As Alvin Weinberg has said, energy – he meant exergy – is “the ultimate resource” [Weinberg 1978]. Available energy (exergy) is, evidently, the key to finding substitutes for other scarce resources. From a biological-ecological perspective, solar exergy is the ultimate source of all life on earth. This view of economics was first proposed by the Nobel laureate chemist [1922, 1933], but was ignored or dismissed by economists.2 The energy theory of value was openly revived by the ecologist Howard Odum [1971, 1973, 1977]. About the same time economist Nicholas Georgescu-Roegen called energy and “the wellspring of economic value” [Georgescu-Roegen 1971, 1976]. There have been a number of attempts to justify this view of the economy by econometric methods using empirical data followed, viz. [Hannon 1973, 1975; Herendeen 1974; Costanza 1980, 1982; Hannon and Joyce 1981; Kümmel 1982; Cleveland et al 1984; Kümmel et al 1985]. Apart from other problems, the bio-physical approach offers no real explanation of how exergy consumption (or production) actually drives growth. To assert that energy is essential for life does not explain growth. The close correlation between energy (exergy) consumption and economic output over selected periods is evident, but even a high degree of correlation does not necessarily imply causation. The direction of causality must evidently be determined empirically by other means.3 Indeed, most economic models in use today assume the opposite: that economic growth is responsible for increasing energy consumption. This automatically guarantees the observed correlation. But it implies – erroneously, I believe – that economic growth can be de-linked from exergy consumption. The computable general equilibrium (CGE) models currently dominating the policy scene also suffer from another significant deficiency: contrary to the evidence from economic history (sketched briefly above) they imply that innovation driving growth is automatic, exogenous and costless. This, in turn, enables modelers to make the convenient but unrealistic assumption that government interventions (not to mention political crises or natural disasters) can only inhibit growth rather than inducing the technological innovations that accelerate it. This myopic view has seriously distorted US policy with regard to climate warming, in my view. Page 6

I argue, primarily from first principles, that the exergy consumption vs growth causal relationship is not uni-directional, but bi-directional (i.e. mutual). In short, exergy consumption has been the key resource being driven by, and driving economic growth in the past. This will continue for the foreseeable future. At the present time exergy is overwhelmingly derived from fossil fuels. However for several scarcity- related reasons that have already been hinted and need not be elaborated in detail here, alternative sources (including conservation) must be exploited intensively in the coming decades.

Energy (exergy) inputs to the economy (and the Kuznets curve)

If exergy is the ultimate resource, and if fossil fuels are by far the major source of this resource, the possibility of future scarcity must be taken seriously. The availability of fossil fuels has been a subject of controversy since 1865 when W. S. Jevons predicted that the British coal reserves would be exhausted within a few decades [Jevons 1865]. A similar concern arose with respect to petroleum reserves in the 1920s, then again in the aftermath of World War II, when the so-called Paley Commission (among others) took up the question in the US.4 The scarcity issue was revived once again in the early 1970s, even before the oil embargo precipitated by the Sinai War between Israel and the Arabs.5 However, up to now none of these scares has been well-founded. As noted in the opening section fuel exergy is proportional to the usual measure of fuel energy (namely, heat of combustion). Most economists have traditionally considered only commercial fuels (plus hydro-power and nuclear heat) as `energy’ inputs to the economy. Fuelwood has generally been ignored, while agricultural inputs – which also have significant energy (exergy) values – have been totally neglected in this context. Perhaps this was justified because fuelwood data have been hard to locate, most fuelwood was gathered locally and consumed locally without passing through a market, and anyhow fuelwood has been relatively unimportant in recent years. The omission of agricultural inputs – both harvested crops and crop wastes – is harder to explain. I have explicitly included them, along with exergy associated with mineral inputs such as metal ores. The various exergy inputs are plotted for the US economy since 1900 in Figure 1 and tabulated in Appendix A. Figure 2 shows the ratio of exergy inputs to GDP over the same period. It will be noted that when only commercial fossil fuels are considered there is an increase in the total exergy/GDP ratio during the first quarter of the twentieth century, followed by a gradual decrease. This has been called the `Kuznets curve’6 and is commonly interpreted in terms of increasing investment in infrastructure and so-called heavy industry during the earlier periods, while the gradual decline since the mid 1920s is generally interpreted in terms of the increasing efficiency and growing service content of the GDP. The latter interpretation is not unreasonable. However, when other commercial exergy inputs (fuelwood and agricultural biomass) are taken into account there is no peak in the curve; the decline is more or less continuous, although the rate of decline decelerates in the period 1900-1920 and accelerates again in the 1930s. I suspect that the increase in commercial fuels share early in this century is largely a substitution effect, as commercial fuels became cheaper and more widely available thanks to railways and pipelines, whereas land-clearing – which made fuelwood very cheap for farmers and other rural users during the 19th century, had largely finished by 1900. Page 7

Energy (exergy) conversion and work

Writers on energy commonly use the term `energy conversion’ with reference to the use of energy to perform `useful work’. The latter term is rarely defined. The best explanation may be historical. Work was originally conceptualized in the 18th century in terms of a horse pulling a plow or a pump raising water against the force of gravity.7 Since the discovery of the pendulum it has been realized that raising a bucket of water or going up a hill converts kinetic energy into potential energy (of gravitation) and that gravitational potential can be converted back into kinetic energy by reversing the process. In the absence of frictional losses the two forms of energy are equivalent. (Frictional heat becomes unavailable, of course.) Work is also performed when a force acting on a mass increases its velocity and hence its kinetic energy, which is essentially mechanical exergy. Subsequently it was realized that a piston compressing a gas does work by increasing the pressure of the gas, just as a gas expanding against a piston can do work by turning a wheel. Effectively a change in the pressure of a subsystem can generate a force capable of acting against resistance or accelerating a mass. Adding heat to a compressible fluid in a fixed volume (increasing its temperature) increases its pressure. This fact makes it possible to convert heat into work. However, it turns out that whereas kinetic and potential energy are inter-convertible without loss (in principle), this is not true of heat and pressure. The theory of heat engines, beginning with the work of Sadi Carnot (1816) and subsequently extended to other engines (Rankine, Stirling, etc.) is all about converting `thermal energy’ in the form of heat into `kinetic energy’ – i.e. doing work. Later still it was realized by Michael Faraday and Joseph Henry that electric and magnetic fields also constitute forms of potential energy analogous to the gravitational field, and that kinetic energy and electromagnetic field energy are inter-convertible through the phenomenon of magnetic induction. It follows that changes in electro-magnetic potential – known as voltage – can also generate a force and do work. Similarly, kinetic energy of motion – as when a conductor moves through a magnetic field, can generate a voltage and a current. Normally there are frictional losses in both processes (known as electrical resistance), but in their absence the two forms of energy (kinetic and electromagnetic potential) are essentially equivalent. Finally, in the late 19th century the notion of potential energy was generalized by J. Willard Gibbs to chemicals.8 Combustion is a process that converts chemical energy – strictly, chemical potential energy – into kinetic energy (motion) and electromagnetic radiation at the molecular level. This heat energy can, in turn, perform physical work by means of a heat engine as mentioned above. But there are also chemical processes that generate electrical potentials directly without producing (much) heat, as in storage batteries. Similarly, there are chemical and electrochemical processes that convert heat, chemical potential and/or electromagnetic potentials into chemical potential, albeit with some entropic losses. Obvious examples are carbothermic reduction (smelting) e.g. of iron or electrolytic reduction e.g. of aluminum. Such processes can also be considered as examples of doing (chemical) work. Summarizing the above, one can say that whatever increases the kinetic or potential energy of a subsystem (within a larger system in which energy is always conserved, by definition) can be called `work’. This is not a totally satisfactory definition, perhaps, but the foregoing examples of `doing work’ may help. In the past, watermills and windmills converted the kinetic energy of falling water and wind, respectively, into mechanical work. Page 8

Horses and mules were valued for their ability to do physical work, as bullocks and water buffalo still are used in India and China, respectively. It is convenient to introduce the notion of `quasi-work’. This refers to driving an endothermic chemical process or moving heat from one place to another across some thermal barrier. (Metal smelting is an example of the first; home heating is an example of the second. Note that the radiator, and the air around it, gains energy from the combustion in the furnace. This is a sort of conversion.) Electricity can be regarded as `pure’ work, since it can perform either mechanical or chemical work with very high efficiency, i.e. with very small frictional losses. It is also convenient to distinguish primary and secondary work, where the latter is work done by electrical devices or machines. In all of these cases the physical units of work are the same as the units of energy or exergy. In physical terms, power is defined as work performed per unit time. Before the industrial revolution there was only one source of heat (fire) and only four sources of mechanical power, of any economic significance. They were human labor, animal labor and water power (near flowing streams) and wind power. The advent of practical steam power in the mid-18th century – which converted the heat-energy from fire into mechanical work – triggered the industrial revolution. Estimates of mechanical work output in billions of horsepower-hours (hph) in the US from all sources except humans, for the period 1850-1920, have been compiled and reproduced here [Dewhurst et al 1955 Appendices; Schurr and Netschert 1960 p.55, footnote].

Year from animals from inanimate sources 1850 5.4 3.6 1860 7.6 5.9 1870 8.4 8.5 1880 11.1 16.0 1890 14.4 30.3 1900 16.9 57.6 1910 18.0 142.8 1920 15.2 268.1

As a point of interest, inanimate sources of work exceeded animal work for the first time in 1870. However, only during the present century has the contribution from combustion and heat engines using fossil fuels outstripped the contribution from biomass (agriculture and forests), and then only for industrial countries. In many developing countries the agricultural and forest contributions to total work are still dominant. Prior to the eighteenth century essentially the only source of chemical work (needed mainly for iron and copper smelting, cement, quicklime and plaster-of-Paris production, ceramics and glass manufacturing) was heat from charcoal-fired furnaces. Coal had mostly replaced charcoal in England before 1780 because of prior deforestation. In the US the substitution process took about a century longer. Other fossil fuels, especially natural gas, now play a significant role as industrial fuels. Page 9

Exergy allocations and conversion efficiency

For purposes of empirical estimation, it is helpful to distinguish between two categories of fuel use. The first category is fuel used to generate heat as such, either for industry (process heat and chemical energy) or for space heat and other uses such as hot water for washing and cooking heat for residential and/or commercial users. The second category is fuel used to do mechanical work, via so-called `prime movers’, including all kinds of internal and external combustion engines, from steam turbines to jet engines. (Electric motors are not prime movers because a prime mover – such as a steam turbine – is needed to generate the electricity in the first place). A few words on heat transport as heat are appropriate here, since the subject is widely neglected. Prior to the industrial revolution heat transport from one place to another occurred essentially by direct radiation or by convection.9 The fire in the fireplace radiated some heat into the house, but by far most of it went up the chimney. The radiation also heated the pot of soup on the hob. The invention of ceramic tile stoves (and bed-warmers) in the late middle ages sharply increased the efficiency of thermal distribution within an enclosed area, but such stoves were hopelessly expensive and essentially unavailable to any except royalty or the very rich. This was the situation until the price of cast iron fell – while incomes were rising – and cast iron pot-bellied stoves became widespread in the late 19th century. The use of metal (iron, or copper) pipes for carrying hot water or steam for heating purposes within buildings was a direct outgrowth of the development of high pressure steam engines, which had a famously dangerous tendency to explode (especially, if legend is accurate, on the Mississippi steamboats). The technological answer to the explosiveness problem was the so-called monotube boiler, invented by Babcock & Wilcox in the mid 19th century. There was a corresponding invention, of pipe-manufacturing technology, by Mannesmann, in Germany. These two inventions led to the standard central heating system that has changed so little since first being introduced, except that coal and coke have been displaced by oil or gas as fuels. Within the class of centrally heated buildings, the main improvements since the early days have been achieved by means of thermal insulation. Insulation was essentially unknown before 1900. Asbestos was introduced (mainly to insulate the pipes), and remained standard until well after the mid-twentieth century until its environmental hazards were discovered. Fiberglass and `rockwool’ came next, followed by styrofoam, which is the current standard (despite its flammability). Overall, insulation increased the efficiency of low temperature heat transport by at least a factor of four from 1900 to the mid 1950s [Schurr et al 1960, footnote p. ?]. I now consider mechanical work. It is possible to estimate human and animal contributions to mechanical work crudely on the basis of food or feed intake, times a biological conversion efficiency adjusted for the fraction of time spent doing physical (muscle) work. However, since human labor is treated independently in economic analysis – and since human muscle power is not an important component of human labor in the industrial world as compared to eye-hand coordination and brainwork – I neglect it hereafter. (The magnitudes would be trivial in any case). However work done by animals, especially on farms, was still important at the beginning of the 20th century and remained significant until trucks and tractors displaced horses and mules by mid-century. The numbers of horses and mules in the US is given in [Historical Statistics, Table ?] Page 10

On average 18.5 units of animal feed are needed to generate one unit of work [Dewhurst et al pp. 1113, 1116, cited in Schurr et al footnote 19 p. 55.]. This implies an effective energy conversion efficiency of 5.4% for work animals. To confuse matters, however, more recent estimates by several authors converge on 4% efficiency or 25 units of feed per unit of work [Grübler 1998, Box 7.1 p.321 and references cited therein] I chose the latter figure, right or wrong. Luckily, higher precision is probably unnecessary for the quantitative estimates in the US case because the magnitude of animal work is relatively small compared to inanimate power sources. Historical statistics have never been compiled to distinguish between the two major categories of fuel use (heat and work), so the detailed statistics are provided in the Appendix to this paper. The results for the three major fossil fuels (coal, petroleum and natural gas) are plotted in Figures 3-5. (Fuelwood has never been used to a significant extent for driving prime movers, except in early 19th century railroads or Mississippi River steamboats, and there are no statistics.) The first of these graphs (Figure 3) shows the fraction of coal consumption fuel allocated to mechanical work, since 1900. During the first half of the century steam locomotives for railroads were the major users, with stationary steam engines in mines and factories also significant contributors. These uses are not distinguished in published US statistics prior to 1917. Industrial uses for heat and work were estimated by assuming that fuel consumption for each category is proportional to total horsepower in that category of prime movers, for which data have been estimated separately [Historical Statistics, Table S 1-14, p. 818]. Electric power generation gradually became the by far the dominant use of coal, as it is today [Historical Statistics Tables M-113,114, p.591 and S-100, p. 82610] and [Annual Energy Review, 1998]. Figure 4 for petroleum, is based on published data for liquid fuels, by type. At the beginning of the century only natural gasoline – a very small fraction of the petroleum consisting of hydrocarbons with 6 to 12 or so carbon atoms – was used for motor vehicles. The heavier, less volatile fractions had little value except for `illuminating oil’ (kerosine) used for lamps in rural areas. The rapid increase in motor vehicle production and use created a correspondingly rapid growth in demand for gasoline, which led to a series of technological developments in `cracking’ heavier petroleum fractions. Thermal cracking was later supplanted by catalytic cracking, until today roughly half of the mass of petroleum is converted into gasoline, with other liquid fuels (diesel oil, jet fuel, residual oil) accounting for much of the rest. The basic sources of data are [Historical Statistics, M-162-177 p. 596, and Annual Energy Review, 1998]. Evidently the fraction of crude oil used to drive prime movers, rather than for heating, has been increasing for a long time. Figure 5 for natural gas, is comparable. It shows the fraction of all gas consumption that is used to drive compressors in the gas pipelines, plus the fraction used by electric utilities to generate electric power [Historical Natural Gas Annual Nov. 1999, Table 3]. The next step is to combine the three sources of mechanical work according to the contribution of each fuel to the national fossil energy supply (Appendix A-5) Finally, Figure 6, combining the other three, shows the fraction of all fossil fuel exergy used to drive prime movers (i.e. to perform mechanical work) either for purposes of generating electric power or mobile power. This fraction has been increasing more or less continuously since the beginning of the 20th century, mostly because of the increasing fraction of fossil fuels that has been devoted to electric power generation. The other uses of fuel exergy are chemical or Page 11

thermal: they include industrial heating (direct or via steam), space heating, water heating, and cooking, which I have termed `quasi-work’. Figures 3-6 discussed above, reflect two different phenomena. One is structural change, most notably the substitution of machines for animals in transportation and agriculture, and for humans in factories and workshops. The other is increasing efficiency of converting heat or other power sources into useful work. (Needless to say, efficiency changes, reflected in prices for exergy or power, drove some of the structural changes.) It is worth noting that the dramatic increases in demand for fuels, for purposes of doing mechanical work have occurred despite – indeed, arguably because of – dramatic technological improvements in exergy conversion efficiency. In other words, increasing efficiency did not lead to reduced fuel consumption. Exactly the contrary occurred: prices fell sharply and demand rose even more sharply. This phenomenon has been called the `rebound effect’.11 I discuss this phenomenon subsequently, in terms of economic growth mechanisms. The fuel required to perform a unit of mechanical work (e.g a horsepower-hour or kilowatt hour) has decreased dramatically during the same period. In the case of electric power, the heat rate (BTU per kWh) has fallen from 90,000 in 1900 to just about 10,000 BUT/kWh today. The heat rate is the inverse of conversion efficiency, which has increased by nearly a factor of ten, from 3.6% in 1900 or so to nearly 34% on average (including distribution losses) and 48% for the most advanced units Figure 7 [Federal Power Commission, various years]. I have plotted the retail price of electricity (in constant dollars) to residential and commercial users on the same chart, for later convenience. It will be noted that the average price fell continuously before 1972, but has risen somewhat and fluctuated since then. Historical trends in the efficiency of exergy conversion (to primary work) since 1900 have been estimated in another paper [Ayres and Warr 2002]. The overall efficiencies by category are shown in Figure 8. The allocation of primary exergy to different work categories is shown in Figure 9. It will be noted that the fraction required for space heating is sharply lower, whereas the fraction going into electric power generation is rising equally rapidly. From exergy inputs and work outputs, it is possible to derive the technical efficiency12 of the US economy since 1900. There are two cases depending on whether or not agricultural phytomass and animal work are included (Figure 10). In both cases the curves are monotonically increasing, as might be expected. Several other interesting relationships are easily derived. For instance, the overall work/GDP ratios for the US economy since 1900 are plotted for two cases – with and without animal work – in Figure 11 . These curves are a direct parallel with the so-called Kuznets curves shown in Figure 2. Curiously, there is a very pronounced change of slope in the work/GDP curve, with a sharply defined peak in 1972. Since economic growth is the focus of this paper, it is of interest to introduce production functions. I take the liberty of summarizing the results from another paper [Ayres & Warr 2002]. In brief, it is easy to show that a 3-factor production function based on capital, labor and primary exergy, which also satisfies the standard constant-returns to scale (Euler) condition, cannot explain US economic growth over the past century without a Solow-type multiplier. The problem is simply that growth has been faster than any of the three factors inputs, and therefore faster than any homogeneous first order function combining them. However, if exergy is replaced by work (`converted exergy), along with capital and labor, the result is quite different. The Cobb-Douglas production function is not a good choice for the 100 year time frame, because of its assumption that factor productivities remain constant. A rather different production function, known as LINEX (linear- Page 12

exponential) retains the usual assumption of first order homogeneity (constant returns to scale) but relaxes the constant productivity assumption [Kümmel et al 1985]. It turns out that the combination of capital, labor and work as factors explains economic growth from 1900 to 1972 or so with reasonably high fidelity (as plotted in Figure 12).The more inclusive definition of work (including animal work) gives by far the best fit, as shown in Figure 12. The unexplained residual (since 1972) is plotted in Figure 13. The corresponding productivities are plotted in Figure 14a,b.13

Economic growth and positive feedback

I have argued at length elsewhere that exergy consumption (and resource consumption generally) within the economy is as much a driver of growth as a consequence of growth, i.e. that the causality is bi-directional [Ayres 2001]. Based on the empirical results exhibited in the previous section, it is work rather than exergy as a `raw’ input, that drives (most) economic growth. However, exergy inputs and physical work two march together in the short to medium term. They only diverge significantly in the longer term. Having clarified this point, I think the growth mechanism is unquestionably a positive feedback cycle. Declining resource costs lead to declining prices which enable new uses and drive increased consumption. That, in turn triggers investments in new capacity (resulting in increased economies of scale) or R&D aimed at cutting production costs or increasing product performance. The entire cyclic process also results in `learning by doing’ which also increases efficiency. All three of these phenomena push costs down and complete the cycle. The `growth engine’ is illustrated schematically in Figure 15. The qualitative history of energy/work technology since 1700 confirms the importance of feedbacks as drivers of growth. Newcomen’s invention of the first crude steam engine (really a pump) in the first years of the 18th century was the first substitution of work performed by a machine powered by heat for work done by animals. As such, it can be regarded as the beginning of the industrial revolution. The first coal mines were constantly being flooded and water had to be removed. Before Newcomen the only way to do it was to hitch two horses to a horizontal treadmill geared to an endless chain of buckets. Horses were expensive and they had to be fed oats (since they could not graze while doing heavy work.) Newcomen’s scheme replaced the horses by a fire, burning coal from the mine itself. It cut the cost of coal and, hence, all the downstream uses of coal, such as iron-smelting and forging. By mid-century there were around 60 steam pumps operating in mines in Britain. Newcomen’s reciprocating pump-engines were very inefficient, however. James Watt improved the simple Newcomen pump so much, in several ways, that he is regarded as the true inventor. Watt’s engines were much smaller, they delivered rotary motion – which enables many new uses – and they used far less fuel. The first Watt and Bolton engine was sold to Wilkinson, who put it to work driving a boring machine to make cannons. The same boring machine later found a use drilling cylinder holes for Watt and Boulton’s steam engines (a classic feedback loop.) The second Watt engine sold was put to work pumping air into a blast furnace, to increase the blast temperature and reduce the quantity of fuel needed to make iron. Some of that cheaper iron went into more Watt steam engines, as well as iron rails for the mines (and – in due course – the steam-powered railways), not to mention many other iron-based objects, from farm implements to printing presses and power looms. So the steam engine reduced the cost of coal, which cut the cost of making steam. Later it cut the cost of iron and the cost of metal-working and ultimately all products made of Page 13

iron, including steam engines (feedback). It made railways possible, which cut the cost of transportation sharply, and further cut the cost of coal and iron delivered to consumers in the cities, encouraging more demand. Town gas as an illuminant (a mixture of carbon monoxide and hydrogen manufactured by steam reforming) was a direct outgrowth of the steam revolution. (It was developed and first applied in a Watt and Boulton factory), but was soon used for street lighting in London and Paris, and subsequently for interior lighting in theaters, restaurants and private homes. I have already noted that the tendency of high pressure steam engines to explode, induced an important innovation, the so-called monotube boiler. This, together with the development of new technologies for manufacturing pipes, enabled the development of central heating plants, which are now universal in the industrialized world. (In the next century it is likely that more efficient electric heat pumps will displace this fossil-fuel-based technology.) Demand for guns (for the Napoleonic wars), and later, for railways, encouraged major technological developments in the British iron and steel sector, especially the substitution of cheap coal for costly charcoal in the conversion of pig iron to wrought iron and crucible steel. By the end of the eighteenth century England had replaced Sweden as the low cost producer of iron and steel. Rapid technological progress in the British iron industry continued with McNeill’s introduction of the blast air stove in 1830. As the method was perfected the coal requirement per ton of iron decreased by a factor of three between 1830 and 1860, cutting costs dramatically. Meanwhile, demand for wrought iron– from the growing British railway industry – increased tenfold [Jevons 1865; Jevons 1974; Ayres 1989]. This exemplifies the so-called `rebound effect: savings in resource use per ton of iron due to increased efficiency were swamped by increases in the demand for iron. The growth of the wrought iron industry was followed by breakthroughs by Henry Kelly in the US (1847) and Henry Bessemer in the UK (1856), who independently discovered a revolutionary way to convert pig iron directly to steel, in liquid form suitable for casting or rolling. This was quickly commercialized and triggered a remarkable further decline in the prices. of steel rails.– the main application of Bessemer steel. Kelly-Bessemer rails cost $170/ton in 1867 [Ayres 1989]. Thirty years later – after many additional steel- making innovations, such as Thomas-Gilchrist, and Siemens-Martin,– the price of rails had fallen to $15/ton, the low point. After a slight rebound, the price of steel rails remained essentially constant in real terms. The increased demand for steel rails after 1867 was equally spectacular: 413,000 (long) tons in 1867, 893,000 tons in 1871, 1.3 million tons in 1880, 2.14 million tons in 1886, 2.273 million tons in 1899 and nearly 4 million tons in 1906 (peak year). Demand for steel rails slacked off after that, but demand for other steel products such as structural shapes, barely begun by 1888, outstripped demand for rails by 1914. By 1957 demand for rails was 1.168 million tons, compared to 7.674 million tons for structural shapes for the building industry. Still later, rolled steel products for the automobile industry and for a host of other products drove further growth of the steel industry. There is no doubt at all that the efficiency gains of 1830-1870 triggered the price reductions that, in turn created new demand for steel on an enormous scale. In this case the `rebound effect’ resulted in a tremendous increase in consumption of the product and played a major role in driving general economic growth. The iron-steel example has, if anything, been surpassed by the example of electric power. As noted earlier, the efficiency of generation and delivery of electric power increased Page 14

roughly ten fold from 1900 to 1960; the most rapid increase in efficiency actually occurred after 1920. Retail prices to all users declined in real terms from about 42 cents per kWh (in $ 1992) to about 3 cents today (Figure 7). The price reduction for retail users has been far more dramatic. A considerable part of the demand for electric power in the late 19th and early 20th centuries resulted from the substitution of electric light for gas light and electric motors for stationary prime movers (e.g. steam engines or gas engines in factories [Devine 1982]) or for horses in urban transport (trams). The electrification of lighting and manufacturing was 90% complete by 1925. Since then the increased demand for electric power has arisen from other demand categories, especially in households. These included substitution of electrical devices for heat or light formerly obtained from direct flame (e.g. electric lighting, electric water heating, electric stoves, microwave ovens, toasters, irons, electric heat pumps, etc.). Domestic refrigerators and freezers replaced `iceboxes’ utilizing ice collected in winter and stored in cellars or delivered daily to retail customers in cities. Another source of new demand was devices substituting small electric motors for household human labor (e.g. electric washing machines, electric dishwashers, electric mixers, electric garbage grinders, electric ventilating fans, etc.). A major source of increasing demand after 1900 – and especially after 1925 – was from new materials or services that were essentially impossible without cheap electricity. This category can be further subdivided. The new materials subcategory included materials produced in electric furnaces capable of extremely high temperatures. These included calcium carbide (to produce acetylene), silicon carbide and other carbide abrasives for grinding, as well as extremely hard, temperature-resistant alloys of nickel, chromium, cobalt, tungsten and so on – needed for stainless steel, cutting tools, incandescent lamps and so on). This category also includes products of electrolytic reduction (aluminum, chlorine, magnesium, silicon, phosphorus etc) and electrolytic refining (e.g. copper). Finally, it includes all uses of the electromagnetic spectrum except simple heating and lighting, in short, telecommunications, radio, TV, electronics and information technology. The first point to be made is that the so-called rebound effect is essentially the same mechanism that has driven economic growth over the past two centuries. Aluminum is another case in point. The metal was scarce and expensive and used only for decorative purposes prior to the work of Hall and Heroult (independently) in the 1880s. (The aluminum tip on the Washington monument was supposed to symbolize its rarity and costliness!) The metal could never have been produced on an industrial scale without large-scale availability of electric power (thanks to Edison’s innovations in generator design and the hydroelectric plant at Niagara Falls. The introduction of the Hall-Heroult process in 1887 cut the price of aluminum within two years from $17/lb in the 1860s to $8/lb by the end of the 1880s. By 1897 ALCOA was selling aluminum at $0.30 /lb. and many new uses began to appear, notably in the area of kitchenware. Surprisingly, aluminum did not have a major impact on the burgeoning aircraft industry until the late 1920s, when the first all-metal plane was built. (Prior to that, aircraft were flimsy constructions of metal tubular frames and cloth.). Now the aircraft industry would not exist without aluminum. In recent times aluminum has found new uses for beer and soft-drink cans (replacing glass, to a large extent), roofing, drainpipes, window frames, high voltage transmission lines and kitchen wrapping material (foil). Again, increased conversion efficiency in the aluminum industry did not lead to lower electricity consumption. Far from it, as efficiency improved, costs fell dramatically, and more and more uses were Page 15

found for the product. Aluminum consumption has increased by hundreds of times as costs have fallen. In case after case, it is evident that exergy efficiency and service delivery improvements in basic materials since 1900 have been significant. However, although I have not attempted a thorough material-by-material analysis, it appears that, in very few cases, have efficiency improvements actually resulted in reduced aggregate exergy consumption.14 Normally, efficiency improvements have initially resulted in lower costs which subsequently triggered greater demand. The most recent example, of course, which is already thoroughly well documented, is that of computers and semiconductor products. The famous Moore’s Law, now nearly forty years old, is essentially an expression of the rebound phenomenon. Some economists, notably Daniel Khazzoom and Leonard Brookes have argued that the rebound effect is so general that energy conservation policies can have little benefit [Khazzoom 1980; Brookes 1979, 1990, 1992, 1993, 2000]. This has now been termed the Khazzoom-Brookes postulate [Saunders 1992] Nevertheless, there are also clear exceptions to the Khazzoom-Brookes postulate, which undermine the notion that there is any general macroeconomic law involved. The most obvious exception is the US passenger car fleet which, thanks to the application of regulatory standards, now consumes significantly less fuel than it would have been doing in the absence of the regulations. The gradual introduction of compact fluorescent lights in place of incandescent bulbs is likely to be another exception. Detailed empirical work by Lee Schipper and Michael Grubb has concluded that improvements in energy efficiencies introduced since the 1970s have led to measurable reductions in demand for which the `rebound phenomenon’ compensated for only about 20% [Schipper and Grubb 2000]. In other words, 80% of the post 1970 efficiency gains were real. The state of the debate has been summarized nicely by Herring [Herring 1998, 1999]. The resolution is probably simpler than the debaters have apparently realized, however. There is no direct link between efficiency and demand. The link is through costs and prices. When an efficiency breakthrough occurs during the early stages of a general `infant’ technology development – as it did for iron and steel, electric power, aluminum and computers, the rebound effect is virtually automatic. (Indeed, I have argued that it is nothing less than the main driver of economic growth.). On the other hand when the energy efficiency gain is achieved late in the life of a mature industry, and where improvement affects energy costs but has little impact on overall operating costs, the rebound effect will be minor or negligible. That is the case with automobiles today: lower fuel costs may have a small impact on vehicle miles driven per year, but it will sell few if any more (or bigger) cars. Similarly, substituting compact fluorescent lights for existing incandescent lights will cut operating costs for existing installations significantly but will not induce extensive rewiring to add new lighting units. All of this has serious implications for future economic growth, however. The prospects for decoupling economic growth from fossil fuel consumption must be regarded as dependent on early and rapid development of alternative sources of exergy.

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Endnotes

1. The above remarks have direct relevance to the notion of using indirect mass flows associated with mining, agriculture and construction as a `measure’ of sustainability by the Wuppertal Institute [Schmidt-Bleek 1992, 1994; Bringezu 1993; Adriaanse et al 1997].

2. Soddy’s contribution was reviewed a few years ago by [Daly 1980].

3. There are statistical approaches to addressing the causality issue. For instance, Granger and others have developed statistical tests that can provide some clues as to which is cause and which is effect [Granger 1969; Sims 1972]. These tests have been applied to the present question (i.e whether energy consumption is a cause or an effect of economic growth) by Stern [Stern 1993; Kaufmann 1995]. In brief, the conclusions depend upon whether energy is measured in terms of heat value of all fuels (in which case the direction of causation is ambiguous) or whether the energy aggregate is adjusted to reflect the quality (or, more accurately, the price or productivity) of each fuel in the mix. In the latter Page 22

case the econometric evidence seem to confirm the qualitative conclusion that energy (exergy) consumption is a cause of growth. Both results are consistent with the notion of mutual causation.

4. The first major postwar assessment of resource needs and availabilities was sponsored by the Twentieth Century Fund, namely America’s Needs and Resources by J. Frederick Dewhurst [Dewhurst 1947]. The American Petroleum Institute commissioned a paper by Eugene Ayres of Gulf Oil Co. (uncle of the present writer) entitled “Major Sources of Energy”, presented at its meeting on Nov. 9, 1948 [Ayres 1948]. After 6000 reprints it was decided to publish a book, entitled Energy Sources - The Wealth of the World with Charles Scarlott, of Westinghouse. It was published in 1952[Ayres and Scarlott 1952]. President Truman created the Materials Policy Commission, chaired by William Paley, for which Ayres and his colleagues provided much of the background data. The Commission’s report, entitled Resources for Freedom was published in 1952 [MatPol 1952]. To continue the work of the commission, Resources For the Future Inc. (RFF) was created and funded by the Ford Foundation, also in 1952. RFF sponsored its first major conference in 1953, resulting in a book A Nation Looks at its Resources [RFF 1954], and many others since then.

5. A partial list of studies carried out in the US alone during the years 1972 and 1973 includes the following: “Patterns of Energy Consumption in the United States” Office of Science and Technology, Executive Office of the President, January 1972 [USOST 1972]; “The Potential for Energy Conservation” Office of Emergency Preparedness, Executive Office of the President” October 1972 [USOEP 1972];“US Energy Outlook”, Committee on US Energy Outlook, National Petroleum Council, December 1972 [USNPC 1972]; “Understanding the National Energy Dilemma” Livermore National Laboratory, for the Joint Committee on Atomic Energy, U.S. Congress, Fall 1973 [Bridges 1973] (later updated and republished as “Energy: A National Issue”, F. X. Murray, Center for Strategic and International Studies, Georgetown University [Murray 1976]); “Energy Facts” prepared by the Congressional Research Service for Subcommittee on Energy, Committee on Science and Astronautics, U.S. House of Representatives, November 1973 [USCRS 1973]; “The Nation’s Energy Future” A Report to Richard M. Nixon, President of the United States, submitted by Dixy Lee Ray, Chairman of the United States Atomic Energy Commission, December 1973 [Ray 1973]. The multi-volume Ford Foundation Energy Policy Study was also commissioned in 1971, although the publication did not occur until 1974[FordFound 1974].

6. However, as applied to energy, it may have been exhibited for the first time by Schurr and Netschert [1960].

7. The first steam engines were used for pumping water from mines, an application where horses had previously been used. This enabled a direct comparison to be made. Ever since then power has been measured in terms of horsepower or a metric equivalent.

8. The notion of potential energy has been further extended (in the twentieth century) to include the binding energy of atomic nuclei.

9. A minor exception could be argued for the case of burning coals transported for ignition of fires or fire transported via burning torches or candles for illumination purposes. However, it was the burning fuel that was moved, not the heat.

10. Unfortunately, the two tables do not agree; the differences are small but not negligible.

11. This is, of course, the `rebound effect’ that has recently preoccupied energy conservation advocates. The point is that in some circumstances energy efficiency gains translated into price reductions result in demand increases that over-compensate for the efficiency gains, thus undermining the case for attempting to achieve conservation through efficiency. [See Lovins 1977; Brookes 1979, 1990, 1992,1993; Khazzoom 1980, 1987; Saunders 1992; Herring 1998, 1999].

12. The technical efficiency is the work output divided by the exergy input. Page 23

13. Using average productivities calculated from the LINEX function one can fit a Cobb-Douglas production function for the whole period. The fit is not as good, of course.

14. There is just one case (space-heating) where technological improvements, cited briefly in the text, have resulted in a declining share of the total exergy demand. However a declining share does not imply a declining absolute consumption, although it does partly explain the declining E/GDP ratio. Figure 1: Exergy inputs to the US economy by type: 1900-1998 80% PHYTOMASS FOSSIL FUELS OTHER METALS

70%

60%

50%

40%

30%

20%

10%

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 1.6 TOTAL EXERGY (incl. Phytomass) / GDP RATIO TOTAL EXERGY (excl. Phytomass) / 1.4 GDP RATIO FOSSIL FUEL EXERGY / GDP RATIO

1.2

1

Great Depression 0.8 ratio WW I

0.6

0.4 WW II

Peak US 0.2 Domestic Petroleum Production

0 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 year Figure 3: Coal consumption; Exergy allocation among types of work, USA 1900-1998

90%

80%

70%

60%

50%

HEAT LIGHT 40% ELECTRICITY PRIME MOVERS NON-FUEL

30%

20%

10%

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 Figure 4: Petroleum and NGL consumption; Exergy allocation among types of work USA 1900-1998 90%

80%

HEAT LIGHT 70% ELECTRICITY PRIME MOVERS NON-FUEL

60%

50%

40%

30%

20%

10%

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 Figure 5: Natural gas consumption; exergy allocation among types of work, USA 1900-1998

100%

90%

80%

70%

60%

50% HEAT LIGHT ELECTRICITY PRIME MOVERS 40% NON-FUEL

30%

20%

10%

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 Figure 6: USA 1900-1998; percent of fossil fuel exergy consumed by type of enduse

80%

70%

60%

50%

HEAT LIGHT 40% ELECTRICITY PRIME MOVERS NON-FUEL

30%

20%

10%

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 Figure 7: Electricity prices and electric power generation as a percent of total electricity production; USA 1900-1998

35% LEFT SCALE = electricity 160 prices (cents/kWh) historical residential non-industrial commercial historical other industrial 30% industrial 140 historical all users all users

25% 120 RIGHT SCALE = electric power generation as percent of total electricy production 100 20%

80

15%

60

10%

40

5% 20 cents per kWH (constant 1992 $) 1992 (constant per kWH cents

0 0%

1900 1920 1940 1960 1980 2000 Sources: 1960-1998: Annual Energy Review Table 8.13 1907-1970: Historical Statistics: Vol 1, Series S116,118, 119 40% High Temperature Industrial Heat

35% Medium Temperature Industrial Heat

Low Temperature Space Heat 30% Electric Power Generation and Distribution

Other Mechanical 25% Work

20% Fraction (%)

15%

10%

5%

0% 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 year 90% HEAT

LIGHT 80% ELECTRICITY

OTHER PRIME 70% MOVERS NON-FUEL

60%

50%

40%

30%

20%

10%

0% 1908 1918 1928 1938 1948 1958 1968 1978 1988 1998 year 0.30

Exergy including animal work & phytomass inputs

Exergycalculated excluding animal work & phytomass

0.25

0.20 ratio

0.15

0.10

0.05

0.00 1908 1918 1928 1938 1948 1958 1968 1978 1988 1998 year Figure 11. Exergy service (useful work) intensity of GDP, USA 1900-2000

5.00

4.50 Ur/GDP

4.00 Ue/GDP

3.50

put 3.00

2.50

2.00 exergy services / out

1.50

1.00

0.50

3yr moving average 0.00 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 year

20 empirical GDP Theoretical estimates:

work excluding animal contributions 15 work including 7 animal contribution

10 GDP (1992$)

5

1900 1920 1940 1960 1980 2000

year 12

10

8

6

% of growth 4

2

0

1975 1980 1985 1990 1995

year Capital - K Labor - L Work – UE 0.0 0.2 0.4 0.6 0.8 1.0

1900 1920 1940 1960 1980 2000

year Capital - K Labor - L Work - UB 0.0 0.2 0.4 0.6 0.8 1.0

1900 1920 1940 1960 1980 2000

year Figure 15: Salter cycle growth engine

Lower unit price P = mC

Declining unit costs (due to scale economies Increased consumer & learning-by-doing) Increasing demand for products labor C = (c + N) -b (due to price elasticity) t productivity ln Y ln P N = Y(t')dt' t = - O ( t ) o

Investment to increase physical capacity (& scale of production); substitution of capital & C = cost N = cumulative production natural resources for labor P = price Y= economic output sigma = price elasticity of demand c,m parameters