Tuesday, January 5, 2010

Energy/Capital Ratio and Capital Density

Back in October, I blogged about the energy/capital ratio arguing that it was a rough proxy of the level of energy efficiency and/or environmental technology in a country. The following chart plots the energy/capital ratio against the capital density - the amount of capital per unit land area in a country (both are averages for 1971-2007):

Now there could be quite a lot of explanations of the strong correlation (-0.72) between the two variables including lower transport distances in more densely populated countries and measurement errors. But I'd argue that capital density is a rough proxy of the potential environmental disruption in the absence of any ameliorating policies and that E/K is a rough measure of the stringency of policy. In my 2005 paper in Journal of Environment and Development I argued that one of the key determinants of environmental policy was likely to be the level of damage in the absence of action, finding found some support for the hypothesis. I am now testing this idea more rigourously in my current research. So far it is holding up.

The important point is that K/T isn't just a function of the level of income per capita. Australia ($329k per km^2) and Canada ($362k per km^2) have similar levels of this variable. But so do Brazil and Peru. The USA has near $4 million per square kilometre, while Britain has $20 million...

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