Energy Inefficiency in the US Economy: A New Case for Conservation

It is argued that the US is much less efficient at converting energy into useful final goods and services than has generally been assumed. Defining efficiency as the ratio of theoretical minimum energy consumption to actual energy consumption, for essentially the same mix of goods and services we have now, the current level of energy efficiency for the US is about 2.5% plus or minus 1%. This implies that energy efficiency for the nation as a whole could be increased tenfold without exceeding efficiency levels currently claimed for internal combustion engines. Conversely, it means that GNP could increase by a factor of ten without using more energy than the US now consumes. It also implies that a sufficiently strong combination of policies to encourage energy conservation technology worldwide would permit accelerated economic development in the third world without further global environmental degradation

On the Practical Limits to Substitution

This paper began as a commentary on a draft paper by Pezzey and Toman on the economics of sustainability (Pezzey and Toman 2002), although it has evolved considerably since then. The authors characterize economists' views on the potential for substitution of man-made capital for natural capital as a continuum between the strongly neoclassical positions of Solow and Weitzman, at one extreme and the "entropy pessimists", notably Georgescu-Roegen and Daly, at the other. Solow has argued that man-made capital can, in principle, replace all natural capital except for unique places such as the Grand Canyon (Solow 1992). He has support from some scientists, such as Goeller and Weinberg, who argued (using mercury as an example) that there is a substitute for any and all scarce materials (Goeller and Weinberg 1976). On the other hand, the entropy pessimists and "strong sustainability" advocates in general, argue that the natural resource stock of fossil fuels -- representing millions of years of accumulations of solar energy, as well as many natural ecological functions are irreplaceable. In the following, I will argue that both extremes are demonstrably inconsistent with both facts "on the ground" and -- in some particulars -- with the laws of physics. Hence the debate -- if any -- should not be framed as a contest between the two extremes. There is room for debate, but I hope to show that it is considerably narrower

Complexity, Reliability, and Design: Manufacturing Implications (Revised Version)

A major component of IIASA's Technology-Economy-Society (TES) Program is a project to assess "Computer Integrated Manufacturing" (CIM), by which is meant the whole range of application of computers to discrete parts manufacturing and assembly. The various familiar acronyms and buzzwords, such as NC, CNC, DNC, CAD/CAM robotics, FMS, "group technology" and MRP all fit under the broad CIM umbrella. The present paper is the first to be generated, at least in part, under the project. (In fact, an earlier draft was written while the author was at Carnegie-Mellon University). The paper presents some interesting and new ideas about the nature of the forces driving the worldwide trend toward flexible automation. It suggests, in brief, that the demand for CIM arises from what Nathan Rosenberg has termed as "mismatch", i.e. a problem that was created, in effect, by technological progress itself. In this case the "problem" is that defects in manufacturing have become intolerable. The reason for that is that demand for higher and higher levels of product performance, over many decades, has required orders-of-magnitude increases in mechanical complexity, on the one hand, and higher precision, on the other. To satisfy these high standards requires a level of error control that increasingly precludes the use of human workers in direct contact with workpieces as they move through the manufacturing system. This working paper is being made available more widely to stimulate discussion and comment. We hope that it will succeed in that regard

Disequilibrium, 'Lock-in' and Potential Double Dividends: The Case of Distributed Combined Heat and Power (DCHP)

This paper addresses the potential for so-called 'double dividends', a possibility still largely dismissed by economists and, consequently by policy-makers. To come to grips with this question, the paper begins with a discussion of the notion of competitive equilibrium. This is followed by a discussion of the link between disequilibrium and innovation, and the non-linear dynamics of competition between technologies with increasing returns, resulting in path-dependence. Increasing returns to adoption permit lock-in of inferior technologies due to economies of scale and experience. However, in time, the initial advantage can be lost due to further innovation. This, in turn, is largely responsible for the existence of opportunities for double dividends. Double dividends can result when technological progress enables a technology that was originally locked out to become competitive at a later time. The paper concludes with a detailed analysis of what is arguably the most important opportunity for double dividends in the US and world economy, namely overcoming the lock-in of the monopoly electric power distribution system. This would encourage wider application of co-generation and/or decentralized combined heat and power (CHP) technology, with dramatic reductions in costs, carbon dioxide output and improved overall system reliability

Mass, Energy, Efficiency in the US Economy

This paper summarizes energy (exergy) flows for the US from 1900 through 1998. It then considers the various processes for converting crude exergy into "useful work", as the term is understood by engineers and physicists. There are five types of work, namely muscle work by humans or animals, mechanical work by stationary or mobile heat engines (prime movers) and heat, either at high temperatures (for metallurgical or chemical processes) or at low temperatures for space heating, water heating, etc. The ratio of output work to input exergy is the thermodynamic efficiency of the conversion process. Efficiencies vary considerably from process to process, and over time. In general, primary conversion efficiencies have increased dramatically during the 20th century. While electric power may be regarded as (almost) pure work, it is convenient to define "secondary work" as the work done by electricity, such as electric light, electromotive power, electric furnaces, electrochemistry and electronics. Surprisingly, the efficiency of secondary work has barely increased during the century, because high efficiency uses have declined in terms of market share, while low efficiency uses have increased share. In conclusion, it is argued that overall exergy efficiency constitutes a good measure of technological change and may prove to be an important explanatory factor for economic growth

The Economic Benefits of Computer-Integrated Manufacturing (Paper I)

Two papers are presented here together in one package. The first is a general introductory and theoretical discussion of the problem of economic benefits estimation for CIM technologies. It was written by Robert U. Ayres, leader of the CIM project and Jeffrey L. Funk, now at Westinghouse R&D center. The second paper presents a particular (macroeconometric) methodology as applied to the benefits of robots and NC machine tools for a single country: Japan. It was written by Shunsuke Mori, a member of the CIM project team at IIASA. It is hoped that the results will be of considerable interest in themselves, as well as providing a viable model for future extension to other countries

Time Preference and the Life Cycle: The Logic of Long-Term High Risk vs. Short-Term Low Risk Investment

This paper argues that time-preference functions (or "discount rates") for R&D should properly be considered to be functions of the economic environment. In particular, during periods of accelerating growth and general increasing prosperity it is appropriate and rational to prefer a marginal dollar in the present to a marginal dollar in the future. Conversely, during periods of saturating growth and deteriorating prospects, the converse holds: it is rational to prefer a marginal dollar in the future to one in the present. Periods of increasing general prosperity -- rising tide -- are likely to be associated with the early phases of an industry "life cycle". Periods of declining prosperity, by contrast, may occur towards the end of the life cycle. The implications for R&D policy are derived in terms of a simple model. The results suggest that at the beginning of the life cycle the optimal R&D policy is to invest in short-term, low risk ventures (i.e. product or process improvements). Late in the cycle, however, the optimal policy reverses to long-term high-risk projects. In simple terms: a firm in a declining industry needs to find a new product or business to replace the old one. Unfortunately, the appropriate behavior is discouraged by most existing B/C methodologies

1) A Non-Equilibrium Evolutionary Economic Theory. 2) Self-Organization of Markets & The Approach to Equilibrium

Modifying some of the canonical assumptions of general equilibrium theory, in this paper we derive a computable economic progress function Z for any economic unit (EU) with bounded rationality (BR). The progress function depends only on the internal economic state of the unit, as measured by possessions: goods, money and (for individuals) the value of future labor and leisure. In the absence of depreciation and aging the progress function is non-decreasing. It does not presume utility maximization or general equilibrium. Thus, the underlying theory is essentially in the evolutionary tradition. Arguments are presented for interpreting the progress function as a stock of economically useful information