Energy Externality and the Economy of Switzerland

409 Energy Externality and the Economy of Switzerland by Gonzague Pillet and Howard T.Odum, Gainesville Fla. 1. Presentation In the economic literature an externality is any effect caused by market decision making, but all benefits and costs regarding the community and the environment are not taken into account in the setting up of market equilibrium and in the definition of its optimality. However, these external economies or diseconomies can be inter nalized either through bargaining, tax, or subsidy. In general, such externalities are priced and a new market equilibrium is set up. Now if we go further and look at externalities that are not merely market and micro external effects, but joint productions of goods and "bads" parallel to econ omic production in general, their internalization has to be formulated in another way. Any attempt at internalizing these effects gives rise to "new" goods such as clean water and air, free space, or healthy environment, all entities we cannot easily price. Unlike micro market externalities those externalities now look like public goods or bads whose typical features have to be therefore taken into account. Fi nally, this criterion prevents use of the old way of internalizing micro-externalities (Pillet, 1980). Moreover, in order to tell one thing from another, we call these large-scale exter nalities, externalities of second generation because they set out effects, which not only deal with market decision-makers, but strictly speaking have their origin out side of the economic sphere. They really are energy flows that come in from outside and go out into a used form after having done useful work. Classic externalities had their causes and effects in the market-place. Now externalities of second generation have their sources outside the market circle but have effects on the general course of the economy of a country. So we may stress that they are literally external effects. As a result, if we want to deal with externalities of second generation, we have to pro ceed both on an economic and on an eco-energetic scale. It is with the intention of acquiring a better understanding of this ecoenergetic- type externality that a concept of energy externality has been considered regarding energy analysis (Odum, 1971,1976,1983; Pillet, 1983). The part this concept has to play at the interface between ecoenergetics and economics is to evaluate external environmental effects upon the economic sphere. By extension it is concerned with economic impacts upon environment. In general, this is a key principle regarding economics of the environment. On a macro-level, such an energy externality analysis takes place in an energy an alysis "overview" of a nation, the task in this paper. Therefore, according to energy Schweiz. Zeitschrift für Volkswirtschaft und Statistik, Heft 3/1984 410 systems procedure (Odum, Odum et al., 1983) we try here to draw a somewhat novel energetic overview of the Swiss economy, featuring its typical energy externality. This study is in three parts. The first one deals with the concept of Energy Externality by means of different "cas défigure." In addition, it presents the energy language concerned with the study of Energetics, Environment, and Economics. The second part gives practice in understanding energy analysis procedure as a contribution to the economic internalization of energy externalities. According to the above analysis, part three delivers an overview of the Swiss economy regarding its external energy basis. This part concentrates on some of the important means of achieving an evaluation of the energy externality at the inter face between environment, energetics, and economics. 2. Energy Externality Unlike market externalities, which are potentially internal to revised market deci sions, externalities of second generation are real edge effects. Their main character istic is to be a flow that comes in through a source from outside the main economy and goes out into a used degraded form through the heat sink. In addition, external ities cannot be appropriated through a price-oriented system. Therefore, we cannot place cash value on air, water, open space and even human life from an economic point of view in order to "internalize" either external contribution from the environ ment or negative economic impact upon it. Energy externalities, as far as they are externalities of second generation are to be neither internalized nor priced. Market prices deal with human service only, not with environmental service. They need to be evaluated on a macro level both from an indépendant point of view (i. e. from out side the price-circle) and from an economic one. In this sense, energy externality is the proportion of economic work ultimately caused from outside without any pric ing process, in other words through pathways of action that are indirect and even unrecognized. For example, the price paid for the raw material does not take into ac count the contribution of renewable or nonrenewable sources, and of the environ mental system. However, from the point of view of the interface between energetics and economics, such a contribution is an effective one. Finally, evaluating energy externalities may give us a better understanding regarding evaluations of environ mental contributions or effects on dollar economy as well as a better understanding of environmental economics on a macroeconomic level. (1) Energy Externality as a Concept The real basis of the economic systems is outside the price circle. On one hand, such an externality is concerned with sources of energy. On the other hand, energy 411 as a property of all other flows is the common denominator for evaluating the re source basis for economies. At this interface the keyword is therefore "work." In order to keep our attention fixed on energy externality sources let us first con sider energy analysis and consequently the interface word "work." Earlier efforts to use energy and work as a value measure were not very successful because energy of various types were regarded as equivalent, whereas energies of different types do not accomplish similar work. However, by converting all types of energy into equivalent units of one type of energy, that of sunlight, various environ mental goods and economic commodities may be compared on an equivalent abil ity-to-do-work at the interface between systems of humanity and nature1. There fore, speaking about energy externalities does not mean speaking about one typical kind of energy as economists often do regarding only high quality energy products like fuel, but it means considering many kinds of energy flows, from the low quality to the high quality ones. It means considering environmental contributions to the main economy on an equivalent ability-to-do-work. Hence, we can emphasize two points about energy externalities as follows: as a general construction, energy externalities are concerned with all kinds of external contributions to the main economy from the environment; as a concept, energy ex ternality deals with the evaluation by means of indices and ratios, of such contribu tions or of economic miscontributions regarding the environment. (2) Energy Systems Analysis The study of energy externalities deals with Energy Systems Analysis, which is the process of representing a system, such as a nation, with a network diagram in which the pathways are flows of energy and the pathway connections represent pro cesses and entities of the system. With a special set of symbols that have mathemati cal and energy meanings, the energy network diagram shows in overview the way energy sources generate work processes and the workings of the economies of the nation at the interface with its environmental partner. Evaluating the energy flows of principal pathways provides quantitative measures of the energy-economic sys tem2. (3) Energy Language Symbols An overview of a nation is facilitated by diagrams that show energy basis, causal relationships, parts, sources, and hierarchical relationships. Energy language sym bols used by Odum (1971,1972,1983) are given here in Table 2.1. Drawn on the left of a diagram are abundant forms of low quality whereas high quality forms of en- 1 For more elaborate discussions of the historical roots of these energy theories of value that were continued by M.Boltzmann and A. P. Lotka, see recent review by Odum (1983). 2 For more elaboration, see Odum (1983) and Odum, Odum et al. (1983). 412 Table 2.1: Symbols of the energy language used to represent national systems in overview (Odum, 1983) . Energy circuit. A pathway whose flow is proportional to the quantity in the storage or source upstream. /^N Source. Outside source of energy delivering forces according to a program controlled V^/ from outside; a forcing function. Tank. A compartment of energy storage within the system storing a quantity as the balance of inflows and outflows; a state variable. Heat sink. Dispersion of potential energy into heat that accompanies all real trans formation processes and storages; loss of potential energy from further use by the T system. Interaction. Interactive intersection of two pathways coupled to produce an outflow in proportion to a function of both; control action of one flow on another; limiting factor action; work gate. Consumer. Unit that transforms energy quality, stores it, and feeds it back autocatal- ytically to improve inflow. -> Switching action. A symbol that indicates one or more switching actions. Producer. Unit that collects and transforms low-quality energy under control interac tions of high-quality flows. X Self-limiting energy receiver. A unit that has a self-limiting output when input drives are high because there is a limiting constant quantity of material reacting on a circu •p- lar pathway within. Box. Miscellaneous symbol to use for whatever unit or function is labeled. 1 S Constant-gain amplifier. A unit that delivers an output in proportion to the input / but changed by a constant factor as long as the energy source S is sufficient.

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