Video from Arndt-Corden Seminar

Today, I gave a seminar in the Arndt-Corden Department of Economics Seminar Series, titled: "Electricity Markets with Speculative Storage and Stochastic Generation and Demand." We hope to post a working paper soon. In the meantime, here's the video * of my seminar: 

 * Introduction and question time deleted

Video of My Presentation on Asymmetric Carbon Emissions

I recently gave a seminar in Italy (virtually) on our paper on asymmetric carbon emissions over the business cycle. Here is the video:

Fifth Francqui Lecture: Econometric Modeling of Climate Change

The video of my fifth and final Francqui lecture on the econometric modeling of climate change is now on Youtube:  

The lecture begins by introducing the issue of global climate change. The first image of the Earth's energy balance is from an IPCC assessment report. Probably, the 4th Assessment Report. The graph of global temperature is the Berkeley Earth combined land and sea series. The graph of CO2 concentration is based on the data we used in our Journal of Econometrics paper updated with recent observations from Hawaii. The original source of the global CO2 emissions series is the now defunct CDIAC website updated from the BP Statistical Review of World Energy. Following that are three charts from the IPCC 5th Assessment Report. World sulfur dioxide emissions are from the CEDS datasite.

The next section – "Why Econometrics" – opens with a graph of the relationship between economic growth and CO2 emissions, which I put together from World Bank, International Energy Agency, and BP data sources.

The following section – "Do GHG Emissions Cause Climate Change?" starts with original research using the temperature and CO2 time series in the previous graphs. The CO2 concentration acts as a proxy variable for all radiative forcing in this analysis. It then goes on to present results from my 2014 paper with Robert Kaufmann published in Climatic Change. Details of the data are given in that paper.

Finally, I presented my paper coauthored with Stephan Bruns and Zsuzsanna Csereklyei, which was published in the Journal of Econometrics.

Fourth Franqui Lecture: Energy and the Industrial Revolution

The video of my fourth Francqui lecture on the energy and the industrial revolution is now on Youtube:

 

The opening graph of population and GDP per capita in the United Kingdom since 0CE combines data from the Maddison Project at the University of Groningen and data produced by Steven Broadberry. The energy data in the next graph was compiled in a 2007 publication by Paul Warde. The graph of energy use in Europe since 1500 and the graph of the composition of energy use are from "Power to the People" by Astrid Kander, Paolo Malanima, and Paul Warde.

The next section of the presentation gives a high level summary of Daron Acemoglu's theory of directed technical change and applies it to the two case studies. The first is my paper coauthored with Jack Pezzey and Yingying Lu, forthcoming in JAERE, on directed technical change and the British industrial revolution. The second is my 2012 paper coauthored with Astrid Kander on the role of energy in the industrial revolution and modern economic growth. As I mentioned in the lecture, we didn't know much about the theory of directed technical change when we wrote this paper and it didn't influence our research. Yet we can explain the results in terms of the theory.

The graphs that open the section on the British industrial revolution use data from Broadberry and Warde as well as from Robert Allen's book on the industrial revolution (the price data). The painting of the Iron Bridge is by William Williams.

Opening the section on Sweden is a photo of the Aitik copper mine. We used data from the Historical National Accounts of Sweden and Astrid's PhD research. If you are wondering how the value of energy could be as large as the GDP in 1800 in Sweden this is because energy is an intermediate good. GDP is value added by labor and capital with land included in capital usually. Gross output of the economy is much larger than the GDP. A huge amount of economic activity was dedicated to producing food, fuel, and fodder.

The solar panels that open the concluding section are in Japan. I've forgotten where.

Second Francqui Lecture: Energy and Economic Growth and Development

The video of my second Francqui lecture on energy and economic growth is now on Youtube:

The first part of the presentation comes from my teaching material on the biophysical foundations of economics. There are a couple of slides of energy units and energy flows from the Global Energy Assessment. The slide of the Earth and economic system is from Perman et al.

The next section of the lecture on the "stylized facts" is based on my 2016 paper with Zsuzsanna Csereklyei and Mar Rubio published in the Energy Journal. I updated the data from 2010 to 2018 using the Penn World Table and International Energy Agency data. The third section on the meta-analysis of the energy and economic growth literature is based on my 2014 paper with Stephan Bruns and Christian Gross also published in the Energy Journal. Finally, I talked about my work with Akshay Shanker in our 2018 working paper: "Energy Intensity, Growth and Technical Change". This material was the most technical and "inside baseball" of the lecture (though a lot less technical than the paper). I think I got a bit lost towards the end when I was talking about the effect of the price of energy on energy intensity and other speculations... But the key message is that there is a lot to research still in this area.

Inaugural Francqui Lecture: Economic Growth and the Environment

The video of my inaugural Francqui lecture on economic growth and the environment is now on Youtube:

 

The first part of the presentation comes from my teaching material on the environmental Kuznets curve. The slide of turning points in the literature is based on my 2001 paper with Mick Common in JEEM: "Is there an environmental Kuznets curve for sulfur?". The cross-sectional graphs on sulfur and carbon emissions are from my 2017 paper in the Journal of Bioeconomics: "The environmental Kuznets curve after 25 years". The longitudinal EKC for five countries uses data from the latest release of CEDS. The idea behind "explaining the paradox" – that there is a monotonic frontier that shifts down over time – is, I think, first expressed in the JEEM paper and then developed in my following papers in Ecological Economics (2002), World Development (2004), Journal of Environment and Development (2005), and then more recently in EDE (2017). Reyer Gerlagh created the original growth rates figure for greenhouse gas emissions, which was in the part I wrote of Chapter 5 of the WG3 volume of the 5th IPCC Assessment Report. A paper on carbon and sulfur emissions was eventually published with Reyer and Paul Burke as the EDE (2017) paper. The research on total greenhouse gas emissions was carried out with my masters student Luis Sanchez and published in Ecological Economics in 2016. This was before the first paper in this series – the EDE one – was eventually published because of the long review process that one went through. The research on PM 2.5 was carried out with my masters student Jeremy Van Dijk and published in Climatic Change in 2017.

Francqui Lectures Plan

I have now made a plan for my series of Francqui Lectures at Hasselt University. Unfortunately, given Australian government pronouncements, we have decided to make this an online only series. I had hoped to travel to Belgium mid-year, but that is now not going to be possible.

 

The inaugural lecture will take place in March and following that there will another 4 lectures over the next couple of months. They will focus on key areas of my research in recent years with introductions based on my ANU course material in environmental and energy economics. I have now written abstracts and made plans for each one:

Inaugural Lecture: Economic Growth and the Environment
What is the relationship between economic growth and environmental quality? The environmental Kuznets curve (EKC) hypothesis proposes that growth initially damages the environment but at higher income levels eventually improves the quality of the environment. The EKC has been a very popular idea over the last three decades despite being criticized almost from the start. The lecture will first review the history of the EKC and alternative approaches. Then applying an approach that synthesizes the EKC and alternative convergence approaches, it will show that convergence and non-growth time-related effects are important for explaining both pollution emissions and concentrations. Future research should focus on developing and testing alternative theoretical models and investigating the non-growth drivers of pollution reduction.

Lecture 2: Energy and Economic Growth and Development
All economic activity requires energy, but what is the relationship between energy use and economic growth and development? Richer countries tend to use more energy per person than poorer countries, but energy used per dollar of GDP tends to be lower in richer countries and decline over time globally. Countries are also becoming more similar – converging – in their energy use. This lecture will present evidence on these patterns and investigate the drivers of change.

Lecture 3: The Rebound Effect
Energy efficiency improvements that reduce the cost of providing energy services result in more use of those services reducing the energy saved. This is the direct rebound effect. There are also follow-on effects across the economy – such as the energy required to produce the other goods and services that consumers buy instead of energy – that can potentially make the economy-wide rebound much larger. Could the rebound be large enough for energy efficiency improvements to “backfire” by actually increasing rather than reducing energy use? The lecture will show how we can use a structural vector autoregression model to estimate the effect of energy efficiency shocks on energy use. The model is applied to the US, several European countries, and Iran demonstrating that economy-wide rebound is large, and backfire may be possible.

Lecture 4: Energy and the Industrial Revolution
Ecological and mainstream economists disagree on how important energy is for economic growth, and economic historians are divided on the importance of coal in fueling the increase in the rate of economic growth known as the Industrial Revolution. The lecture will argue that energy is much more important for growth when it is scarce than when it is abundant. Increasing energy services has much less effect on growth in developed economies than in pre-industrial or developing economies. The lecture will present models of the role of energy, and coal specifically, in economic growth and apply them to understanding the Industrial Revolution in Britain and Sweden, two countries with extensive historical data.

Lecture 5: Econometric Modelling of Global Climate Change
Economic growth has increased anthropogenic emissions of greenhouse gases and their concentration in the atmosphere leading to climate change. This means that greenhouse gases follow similar stochastic processes to macroeconomic variables, allowing us to apply the toolkit of time series econometrics to analyzing global climate change. However, though economic activity has immediate impacts on the climate, there is also a “tail” of much slower effects due the role of the ocean in storing heat and the slow processes of the carbon cycle and changing land-cover. The lecture will show how time series econometrics can be applied to understanding global climate change and estimating the impact of economic activity on the climate.

Francqui Chair

I am one of the two recipients (one is Belgian and one international) of a Francqui Chair at Hasselt University. This sounds like an academic position but actually is a one year appointment during which the chair is supposed to give 10 hours of lectures in their field. I'm not sure yet what they are exactly looking for. But here are Siem Jan Koopman's planned lectures at the University of Antwerpen.

 

So, I'm thinking if I weave my research into a more pedagogical narrative I would be on the right track. I am hoping the lectures will be recorded and I will be able to post them here on Stochastic Trend. My coathors Stephan Bruns and Robert Malina nominated me for this award.

I am hoping I will actually be able to visit Belgium next year assuming that I will be able to access a COVID-19 vaccine.

Barcelona Talk

I'll be giving a presentation in the "distinguished speakers series" at ICAT, Autonomous University of Barcelona on 5th December. I just wrote the abstract:

The Role of Energy in the Industrial Revolution and Modern Economic Growth

Abstract: Ecological and mainstream economists have debated the importance of energy in economic growth. Ecological economists usually argue that energy plays a central role in growth, while mainstream economists usually downplay the importance of energy. Using the (mainstream) theory of directed technological change, I show how increasing scarcity of biomass could induce coal-using innovation in Britain, resulting in the acceleration in the rate of economic growth known as the Industrial Revolution. Paradoxically, industrialization would be delayed in countries with more abundant biomass resources. However, as energy has become increasingly abundant, the growth effect of additional energy use has declined. Furthermore, both directed technological change theory and empirical evidence show that innovation has increasingly focused on improving the productivity of labor rather than that of energy. This explains the focus of mainstream economic growth models on labor productivity enhancing innovation as the driver of economic growth.

The paper will draw on my 2012 paper with Astrid Kander – it shares the same title after all – my recent working paper with Jack Pezzey and Yingying Lu, and maybe my ongoing work with Akshay Shanker on understanding trends in energy intensity in the 20th and 21st Centuries. The talk is for an interdisciplinary audience, so that will be challenging, but I think I can do it :)

Business as Usual Emissions Projection from Sanchez and Stern Econometric Model

I finished preparing my presentation for Thursday in Brisbane. The topic of my talk is "Drivers of Industrial and Non-Industrial Greenhouse Gas Emissions". It's mostly based on my paper with Luis Sanchez. I'm also adding some material from Chapter 5 of the IPCC AR5 report (WG3) to give context. This is because this "trends and drivers" research theme came out of my work on the IPCC chapter. Reyer Gerlagh produced our original "iconic image" (yes, we called them that in the IPCC process) of the long-run growth rates of emissions and income per capita and then I suggested to do an econometric analysis along those lines. I think it was Reyer also who suggested how to model the EKC in a growth rates model.

I've also "added some value" by doing a business as usual projection using our model. This is something we are thinking to do as part of the revise and resubmit for a related paper. The graph shows projections to 2030 for 3 developing and 3 developed countries and the world (well, our 129 country sample) as a whole:

Indonesia and India have similar income per capita, so an EKC model would project similar emissions growth in both countries. The graph shows the value added of our model, which suggests that emissions will grow slower in Indonesia, which is more emissions intensive. The global outcome is similar (a little bit higher) to RCP 8.5, which is the highest emissions growth scenario used in AR5. RCP 8.5 assumes slower economic growth than we are here but slower than historic progress in energy intensity.

To get the projection, I used our model parameters estimated for the 1991-2010 period and the UN median projection for population growth. I used USDA ERS projections for economic growth rates in each country. Other variables are at their values for 2010.

Managing the Transition to a Sustainable Economy

On Thursday morning at 9:35am I'll be presenting at the Managing the Transition to a Sustainable Economy Conference at Griffith University in Brisbane. I'll be presenting my paper on Drivers of Industrial and Non-Industrial Greenhouse Gas Emissions. This is a slight change from the original paper I was supposed to present, as that got published in the meantime, and the organizers only want unpublished research. I blogged about the paper in March. Right after me, John Foster is speaking.  John Gowdy from my former university RPI is also speaking at the conference. The full schedule is here.

Seminar @ Arndt-Corden 17 March

I am giving a seminar at Arndt-Corden on Tuesday 17th March at 2pm (Seminar Room B, Coombs Building, ANU) titled: "Directed Technical Change and the British Industrial Revolution". The abstract isn't entirely accurate any more - well specifically you won't see me talk about the last two sentences as we don't use a Monte Carlo analysis and we left the low elasticity of substitution for further research. We (myself, Jack Pezzey, and Yingying Lu) are close to having a paper that we are ready to put out as a working paper and submit to a journal. So, am looking forward to getting some useful comments to help us get there.

Arik Levinson Seminar 24 February at ANU

Arik Levinson will be presenting at the Arndt Corden Seminar at 2pm on 24th February (Seminar Room B in the Coombs Building). The Freakonomics Radio Show just did a podcast on the paper which he is going to be presenting.

Seminar at University of Kassel

I promised more details on my seminar at University of Kassel: here they are. I will present our paper on modeling the emissions income relationship using long-run growth rates. My presentation will be at 2pm on 18 November in Sitzungsraum K33/FB07. If you need more details about location, ask Stephan Bruns who is organizing the "Empirical Workshop on Energy, Environment, and Climate Change" of which this talk is part. The workshop starts at 10 am and there will also be presentations by Heike Wetzel, Andreas Ziegler, Astrid Dannenberg, and Stephan.

Upcoming Seminars

I am giving three seminars in Europe in October and November. First up is 28th October at 1pm at the Grantham Research Institute on Climate Change at the London School of Economics. I will talk about "Energy Transitions and the Industrial Revolution." Then on 12th November at 2:15pm I will talk at the Department of Economic History at Lund University. Topic: "Energy and Economic Growth: The Stylised Facts"  - a topic that blog readers should be pretty familiar with by now.

Finally, I will be presenting at the University of Kassel in Germany on 18th November. More details to come.

A Toxa Meeting Website

The website with links to recordings of all the presentations at the 6th Atlantic Workshop in A Toxa is now up. I presented our paper on modelling the emissions-income relationship using long-run growth rates. There are also a few pictures. I'm somewhere in the back row in this one:

Global Growth Rate of GDP and Energy Use

Another slide from Wednesday's opening lecture. It shows the tight correlation between the annual global economic growth rate and the growth rate of energy use. In all but one year, energy use grew more slowly than GDP implying a decline in energy intensity. That year was 2010 - the year of strong rebound growth in the global economy and energy use following the Great Recession in the US and Europe. We analysed these movements in our short 2012 paper in Nature Climate Change.

Top Twenty Carbon Emitters, Coal Consumers, and Coal Producers

Some slides from my upcoming introductory lecture for my Energy Economics course:

This slide uses CDIAC data on the top twenty countries by emission of carbon dioxide globally in 2010. Carbon dioxide emissions here include only those from fossil fuel combustion and cement production. I also have summed up the emissions from the European Union and added it as if it was a single country (as the EU negotiates as a bloc) in addition to including all its member countries in the ranking. The three big emitters stand out clearly from all the rest. Emissions are measured by mass of carbon. To get carbon dioxide multiply by 3.66.

 

Of course, coal use is a big driver of CO2. This chart shows how China consumers so much more coal than any other country and after the US and India, the rest look pretty inconsequential.

 

On the whole, coal is consumed where it is produced with two important exceptions - Indonesia and Australia - the two biggest coal exporters. China produces the overwhelming majority of the coal it uses despite large imports. The majority of Australian exports are coal for iron smelting, so-called "metalurgical coal".

Follow Up on "Energy and Economic Growth: The Stylized Facts" at Econbrowser

James Hamilton has a new post on Econbrowser based partly on our paper Energy and Economic Growth: The Stylized Facts which I recently presented at the IAEE meeting in New York. I'd add that oil use has been flat in recent years but that was compensated for by increases in the use of natural gas, coal, and renewables. So, recent data don't substantially deviate from our stylized fact.

Today, I arrived at A Toxa, an island in Galicia, in the northwest of Spain. It is really beautiful here. Tomorrow the 6th Atlantic Workshop on Energy and Environmental Economics
starts here. I am giving a presentation in the final session tomorrow on our paper on modeling the emissions-income relationship using long-run growth rates.

Energy and Economic Growth: The Stylized Facts

I contributed an article to the IAEE Energy Forum as part of their report on the New York City conference of IAEE. The topic of our paper that I will present in New York on 16th June is "Energy and Economic Growth: The Stylized Facts". The full paper is available as part of the conference proceedings. This has been a project under development for a while, being the subject of my "foundation seminar" (=inaugural lecture) here at Crawford School. Things progressed further once Zsuzsanna Cserekylei put a consistent dataset together for the 1971-2010 period and did the analysis. Then Mar Rubio contributed historical data and analysis. Anyway, this is the text of our article:

What overall patterns, or stylized facts, characterize the relationship between economic growth and energy use both across countries and over time? Energy economists and economic historians have investigated these issues, but existing research has either looked at how energy use and economic development vary across countries at one point in time or how they evolve over time in individual countries or groups of countries. Researchers have not linked together the cross-sectional and time series behaviors despite their obvious dependence on each other.

We investigate the links between the time and cross-sectional (or income per capita) dimensions using two datasets. One is a dataset for 99 countries from 1971 to 2010 that uses IEA and Penn World Table data. The other comprises historical data for the U.S. and a number of European and Latin American countries that extends back to 1800 for the U.S. and some Northern European countries and to later dates in the 19th and early 20th century for the other countries.

In recent years, economic historians, including one of the authors of this paper, Mar Rubio, have been working to reconstruct the energy history of many countries in Europe and the Americas for the years before the Second World War. Some of the historical data we use was prepared for the recently published Power to the People, authored by Astrid Kander, Paolo Malanima, and Paul Warde and published by Princeton University Press. Mar Rubio collaborated with Kander et al. on the Spanish data for that volume and led a team that developed historical data for Latin America. Though these data are obviously much more uncertain than those for recent years, they can provide insights into the long-run relationship between energy and economic development.

Our key finding from the recent data is that there has been a fairly stable relationship between countries’ GDP per capita measured in purchasing power parity adjusted Dollars and their per capita energy use over the last 40 years. A 1% increase in income per capita across countries is associated with a 0.7% increase in per capita energy use. This implies that energy intensity (energy use/GDP) is lower in richer countries and that on average a 1% increase in income per capita is associated with a 0.3% decrease in energy intensity.

The relationship is also stable in the sense that the average energy use per capita associated with any given level of income per capita has not changed over the four decades. This means that the typical country only managed to reduce its energy intensity by increasing its income per capita. A different way of looking at the same data is to compare countries’ average GDP per capita growth rate from 1971 to 2010 to the rate of change in their energy intensity over the same period. This relationship is shown in Figure 1:

The graph shows that higher rates of economic growth are associated with higher rates of decline in energy intensity. The graph also shows that if a country’s economic growth was zero then not only did its energy intensity not decline, but actually it increased on average.

Figure 1 also indicates that there are many countries where energy intensity rose despite economic growth. Our second main finding is that there was convergence in energy intensity over time and that the countries whose energy intensity rose typically had low energy intensity at the beginning of the period. Countries that were very energy intensive typically saw declines in energy intensity. There is now a tighter relationship between income and energy use than there was forty years ago.

In other words, though there has been some degree of “decoupling” of energy and growth in some formerly energy intensive economies, this has not been the common experience. Rather, there has been a homogenization, with countries increasingly resembling each other, while energy intensity globally has declined, but not by enough to reduce energy use.

This picture is borne out in the historical data too. Figure 2 shows the evolution of energy intensity and income over the last two centuries for four representative countries. Energy intensity appears to have declined the most in the United States, which was the most energy intensive economy in the 19th Century. On the other hand, energy intensity has been fairly stable in Spain, which was a very low energy intensity economy in the 19th Century. These time-paths are superimposed on the global distribution of energy intensity and income in 2010. This shows that in the past the United States was more energy intensive for its income level than any countries are today but that in the last few decades it has ceased to be remarkable in that way. On the other hand, the time paths of Sweden, Brazil, and Spain are mostly within the present day energy intensity distribution.

Our paper in the online proceedings also covers other regularities in the data. Specifically, there is some evidence that the share of energy in costs declines over time. But this “stylized fact” is still more of a prediction than a proven regularity. As is well known, the quality of energy increases over time and with income as countries have transitioned from traditional biomass, to fossil fuels, to primary electricity over time. We also find that the energy/capital ratio, which is an alternative to energy intensity as an indicator of overall energy efficiency, behaves somewhat similarly to energy intensity.

Future theoretical models of the relationship between energy use and economic development will need to take these stylized facts into account and make sure that their predictions match the facts. The stylized facts might also be useful for developing simple business as usual energy use scenarios.