LEGS

I attended a meeting of the LEGS Platform who are funding my visit to Lund. LEGS stands for Long-term Energy Growth and Sustainability.

As the website says: "It a new platform for inter-faculty and interdisciplinary knowledge creation and exchange at LUSEM (Lund University School of Economics and Management). It was founded March 2009 on the basis of a strategic decision by the vice chancellor of Lund University. The focus is on economic aspects of energy systems, which face the challenge of accomplishing large technological shifts in order to mitigate harmful climate change. To encourage shifts towards sustainability it is necessary not only to promote technical innovations, but also to learn more about firms under competitive pressure and new institutional settings."

The program is funded at a rate of SEK 1 million per year but also is a basis for seeking further grants. They are interested in bringing more visitors to Lund. We discussed various ways of raising visibility including conferences and workshops and I suggested starting a working paper series.

Generosity

Peter Martin reports on a generosity index. It combines data on charitable giving (which is highest in the US) with volunteering of time, and willingness to help strangers. In combination, Australia comes out top. It's worth also checking out some of the countries that come in with very low scores. One of these is China. We often here about a lack of trust in China and these numbers bear that out.

Another Push Towards a Directly Elected Executive President?

Back in June when Rudd was ousted I suggested that in the long-term that move could help push Australia towards adopting an executive presidency once the Republic was back on the agenda. Yesterday's emergence of a Gillard-Labor government with a one seat majority backed by the two relatively conservative independent MPs is another nudge in that direction I think. People commenting in the media over this period have tended to go on about the Australian people electing the prime minister and government when of course the system does no such thing. But when there will be a choice to completely reform the system, direct election of the prime minister or president maybe exactly what does happen.

Endogenous Price of Lighting Services

Another potential issue with the Tsao and Waide and Tsao et al. work on demand for lighting is that the price of lighting services is to some degree endogenous. If this is the case then estimates of a model of the sort suggested in my previous post will be subject to simultaneity bias. So why might the price be endogenous?

First, there are the usual reasons that we are not separating the effects of moves in the supply and demand curves here at all. Demand for lighting might affect the prices of the energy sources used to supply it and the prices of lamps. Lighting accounts for only a few percent of energy use so the effects on energy prices might not be that important. What seems to be a more fundamental problem here is that at many periods in time more than one lighting technology has been available. For example, at the moment there are incandescent bulbs, fluorescent lights, emerging solid state lighting etc. The efficiency with which energy is converted to light depends on the mix of these energy sources. Therefore, the cost of "lighting services" as defined by Tsao et al. depends on that mix of technologies. But the mix of technologies is chosen by consumers. That seems to be a problem I think?

Tsao & Waide: "The World’s Appetite for Light"

Following up yesterday's post I looked at the study that provided the background for the paper studied there:

Jeffrey Y. Tsao and Paul Waide:
"The World’s Appetite for Light: Empirical Data and Trends Spanning Three Centuries and Six Continents"
LEUKOS VOL 6 NO 4 APRIL 2010 PAGES 259 – 281

This paper gives a figure of per capita light consumption and GDP/cost of light:



I drew the thick black line on the chart which represents an alternative curve fit. I know it is very crude but I couldn't draw a nice smooth curve with my software. I'm not saying that this is a best fit curve, just that it is a vaguely plausible alternative. If something like this model was fitted then the rebound effect is less than 100%. Tsao and Waide do not test alternatives to their linear model that assumes an income elasticity of one and a price elasticity of minus one of lighting demand. I think more research in this area is definitely warranted though I praise Tsao and Waide's pioneering attempt to bring together different sources of data and begin the empirical analysis.

Whatever the truth, the Economist's proposal to just stick with incandescent lighting is wrong. Even if there were no energy savings from introducing solid state lighting, as Tsao et al. state people would have more lighting services for a given energy input. There are environmental impacts to having too much outdoor light. These should be addressed separately, not by halting technological progress. If regulation limited the amount of outdoor light then these innovations would result in saving of energy...

Will the Adoption of Solid State Lighting Lead to an Increase in Energy Use?

The Economist discusses an article in Journal of Physics D: Applied Physics by Tsao et al. on the effects on energy use of the adoption of solid state (i.e. LED) lighting (SSL) on global energy use. The Economist argues that it would be better to keep incandescent bulbs as a result. This seems a bit crazy. The literature on the rebound effect suggests that for energy saving innovations for consumers in developing countries the rebound effect is typically of the order of 30%. In other words, the net energy savings are around 70% of the amount of energy nominally saved by the innovation. Joshua Gans comments on this article taking a direction inspired by the Schumpetarian endogeneous growth literature where new innovations are sold by monopolist innovators.

To understand why the authors posit such a large rebound effect I took a look at the original article. The first key leg of their model is the following relationship between historical data on lighting use and a very simple model:



Most of the early data relies on the work of Fouquet and Pearson. The model treats light consumption as a function of two variables: GDP and cost of lighting. The elasticity of demand with respect to the cost of lighting is minus one and the income elasticity is plus one. Based on this data the model looks pretty plausible. It would be nice though to see this data in per capita terms or to see lighting intensity of GDP plotted against cost of lighting to get a better idea of how robust it is. The way in which the cost of lighting is computed will be very critical too. I'll look at that in a subsequent blogpost.

If the demand elasticity is minus one then any reductions in the cost of lighting will be exactly offset by increases in consumption of lighting services. Both these elasticities seem high in absolute value for developed economies. So it would be nice to at least test a model which allows the elasticities to vary with income level vs. a model which does not if you are going to make big predictions about the future.

Solid state lighting will certainly reduce energy costs of lighting but this is achieved partly by substituting capital for energy. At the moment, LED lights are expensive. This means that the cost of lighting is reduced by less than the energy use is reduced by the innovation currently. Therefore, even if the price elasticity of demand was minus one, adoption of solid state lighting would reduce energy use (ignoring indirect energy costs of capital). The authors argue of course that these costs will reduce rapidly. Historically, they argue that capital costs are typically 1/3 of energy costs of lighting. They assume that by 2030 the capital costs of SSL will be the same so that there is no capital-energy substitution in the adoption of SSL.

EERH Research Reports: August 2010

Peter Wood's paper on game theory and climate change continues to be popular this month. Follow this link for all the other stats.

Powerpoint Slide for Crawford School Research Retreat

Role of Fuel Economy Standards in Effecting Technological Change

I was fascinated to learn yesterday that Mercedes has paid the US government $300 million in fines due to violating the CAFE standards. As fuel economy standards continue to rise manufacturers will need to find innovative ways to reduce the fuel consumption of their luxury and sports models in order to end up with acceptable cross-fleet mean fuel consumption figures. The interesting thing is that luxury cars is exactly where it is easiest to absorb the costs of new technologies. Most automotive innovations have been introduced first on luxury models and then trickled down to mass-market vehicles. Why should fuel economy technologies be any different? But up till recently, manufacturers have tried to sell fuel efficient mass-market cars. Some of the more innovative such as the Prius have only been competitive beyond a green signalling niche market with government subsidies. But experimenting first with up-market models makes more sense to me. There are already Lexus hybrids but now BMW and Mercedes seem to be following suit.

Today, I went to the BMW Welt museum/exhibition here in München where I happen to be visiting:



A major theme of the exhibition was new technologies to reduce fuel consumption while maintaining performance. The suite of technologies is termed BMW Efficient Dynamics. Several BMW models already incorporate the technologies, which include regenerative braking, engines which shut off when the car isn't moving, more efficient fuel injection etc. Hybrid vehicles will be available soon.

BMW is still pushing hydrogen cars, which seem to be a mistake to me. Especially, using hydrogen to fuel an internal combustion engine makes no sense at all I think.