Shifts in the Composition of Output

This is the penultimate section of the paper that I'll post. Now I'm going on to rewriting the conclusions and then a massive edit. I've got 15,000 words and 179 references!

Shifts in the Composition of Output

Output mix typically changes over the course of economic development. In the earlier phases of development there is a shift away from agriculture towards heavy industry, while in the later stages of development there is a shift from the more resource intensive extractive and heavy industrial sectors towards services and lighter manufacturing. Different industries have different energy intensities. It is often argued that this will result in an increase in energy used per unit of output in the early stages of economic development and a reduction in energy used per unit output in the later stages of economic development (Panayotou, 1993).

However, there is reason to believe that the energy-saving effects of structural changes are overstated. When the indirect energy use embodied in manufactured products and services is taken into account, the US service and household sectors are more energy intensive than they first appear (Costanza, 1980). Service industries still need large energy and resource inputs. The service being sold may be intangible but the office towers, shopping malls, warehouses, rental apartment complexes etc. where the activity is conducted are very tangible and energy is used in their construction, operation and maintenance. Furthermore, consumers use large amounts of energy and resources in commuting to work, shop etc.

The effect of the Internet on the energy intensity of commerce has received increasing attention (Yi and Thomas, 2007). Obviously, individual technologies such as news websites vs. newspapers can greatly reduce emissions (e.g. Toffel and Horvath, 2004) but the effects on other activities could outweigh the gains. Romm et al. (1999) argue that the environmental costs of the greater dispersal of population engendered by telecommuting would not outweigh the reduction in commuting costs suggesting a strong energy-conserving Internet effect. But Matthews et al. (2002) and Williams and Tagami (2008) provide evidence that online book retailing use more energy than traditional retail while Herring and Roy (2002) show that electronic distance learning results in more energy use than traditional distance learning with printed material.

There may also be a tendency for consumers to use more energy directly over time as their consumption of the services appliances, housing, transport etc. increases. Judson et al. (1999) find that the consumer sector sees rising energy intensity over time, ceteris paribus, while the manufacturing sector sees decreasing energy intensity.

Furthermore, on a global scale there may be limits to the extent to which developing countries can replicate the structural shift that has occurred in the developed economies to the extent that this has occurred by outsourcing manufacturing overseas rather than simply from an expansion in service activities. However, the evidence shows that trade does not result in reductions in pollution in developed countries through the off-shoring of pollution intensive industries (Levinson, 2010, Aguayo and Gallagher, 2005; Kander and Lindmark, 2006). Additionally, if the service sector does require substantial material support, it is not clear whether the developed world can continue to shift in the direction of a growing service share of GDP indefinitely. In fact, as manufacturing prices have fallen relative to the prices of services (Baumol’s disease), even the relative decline of manufacturing in developed countries is exaggerated when the relative sizes of the sectors are computed in current prices (Kander, 2005).

Kander (2002) and Stern (2010) find a relatively small role for structural change in reducing energy intensity in Sweden (1800-2000) and the world (1971-2007), respectively. But, using a much finer disaggregation of industries, Sue Wing (2008) finds that structural change explained most of the decline in energy intensity in the United States (1958-2000), especially before 1980.

References
Aguayo, F., and K. P. Gallagher (2005) Economic reform, energy, and development: the case of Mexican manufacturing, Energy Policy 33: 829–837.
Costanza, R. (1980). “Embodied energy and economic valuation.” Science 210: 1219-1224.
Herring, H. and R. Roy (2002). “Sustainable services, electronic education and the rebound effect.” Environmental Impact Assessment Review 22: 525-542.
Judson, R. A., R. Schmalensee, and T. M. Stoker (1999). “Economic development and the structure of demand for commercial energy.” The Energy Journal 20(2): 29-57.
Kander, A. (2002). Economic Growth, Energy Consumption and CO2 Emissions in Sweden 1800-2000, Lund Studies in Economic History No. 19, Lund, Sweden.
Kander, A. (2005). Baumol's disease and dematerialization of the economy, Ecological Economics 55(1): 119-130.
Kander, A. and Lindmark, M. (2006). "Foreign trade and declining pollution in Sweden: a decomposition analysis of long-term structural and technological effects," Energy Policy 34(13): 1590-1599.
Levinson, A. (2010) Offshoring pollution: Is the United States increasingly importing polluting goods? Review of Environmental Economics and Policy 4(1): 63-83.
Matthews, H. S., E. Williams, T. Tagami, and C. T. Hendrickson (2002). “Energy Implications of Online Book Retailing in the United States and Japan.” Environmental Impact Assessment Review 22: 493-507.
Panayotou, T. (1993). Empirical Tests and Policy Analysis of Environmental Degradation at Different Stages of Economic Development. Working Paper WP238, Technology and Employment Programme, International Labour Office, Geneva.
Romm, J., A. Rosenfeld and S. Herrmann (1999). The Internet Economy and Global Warming: A Scenario of the Impact of E-Commerce on Energy and the Environment. The Center for Energy and Climate Solutions, The Global Environment and Technology Foundation, Arlington, VA.
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