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The energy demand elasticity in relation to gross domestic product
The energy demand elasticity in relation to gross domestic product A relevant indicator?
Patrice Ramain
The value of the ratio of energy consumption growth to economic growth forms the subject of strenuous debates, particularly in France. This article attempts to show, by taking data over an extended period for the industrialized countries, that one should treat with caution the values this indicator can have; any resulting energy forecast would be fragile. Consequently, one may say that it is the notion of the elasticity itself which is most often used improperly. This indicator is too global, and is useful only ex post. Keywordr:
Energy demand; Economic growth; Elasticity
The energy consumption elasticity, in relation to gross domestic product, is ‘mathematically equal to 1’ [3] in a static system. In a transitional system’ it may diverge from unity but has a tendency to return to it. There is little point here in repeating the numerous conclusions made by various authors concerning this assertion which, in our opinion, remains to be proved. We are going to contribute yet another document to this file, based on statistics available to everyone; in doing so, we hope that we will add even more confusion to the notion of the energy-economic growth elasticity. We will then question both the elasticity concept and return to the question of the ‘The idea of a ‘static system’ and a ‘transitional system’ is introduced by R. Lattes and A. Jeanblanc. The first is characterized by ‘a stable structure of the GDP unit’; ie quasi homothetic evolution -or growth -of GDP [3]. p 9). The transitional system is the opposite.
The author is with CNRS, Juridique Grenoble, France.
Institut Economique et de I’Energie, Universite Sciences Sociales de BP 47 Centre de Tri, 38040 Grenoble Cedex,
Final manuscript received 15 February 1985.
0140-9883/86/010029-10
$03.00
0
1986 Butterworth
validity of the hypotheses relating to the static and transitional systems in economics.
Impact and limitations of a statistical approach Type of statistics used In order to calculate an elasticity it is enough to relate the evolution of the relative growth of energy consumption to that of the economy.* All manner of unknown factors prevent a year-by-year calculation; the determination of an energy-growth elasticity therefore relates to a period of which nobody is capable of defining the appropriate length. But as we are talking about economics, as the statistician can give us criteria without which the established relationship - elasticity - has little or no statistical significance, and as we take into account both the static and transitional systems, we have retained these three ‘constraints’ in order to evaluate elasticities which abide by the latter. ‘At least this is the formulation generally used. which more often than not means that the conditions of validity which allow the ‘transition from a theoretical definition to a numerical determination’ are forgotten. Jacques Girod [2] lays great stress on this point and proposed the ‘empirical elasticity’concept.
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g
119.29 121.55 124.82 130.X9 136.88
94.56 92.77 95.23 100.42 97.3 1
124.99 133.60 142.56 146.05 148.84
4.71 5.09 5.10 6.11 5.81
116.48 120.01 123.88 129.40 131.88
170.75 178.75 1X6.62 193.20 180~x0
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80.96 86.01 91.18 92.64 X9.71
103.44 11004 115.13 12oaJ 122.45
4.58 4.60 4.72 4.94 4.58
78.38 84.00 89.50 94.96 100
103.23 107.00 112.24 112.85 110.76
170.97 179.58 188.86 182.17 172.00
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62.11 65.96 69.66 71.61 73.95
34.34 38.65 43.85 46.04 50.24
68.73 71.26 74.71 78.49 79.38 5464 59.53 65.35 70.14 79.09
82.47 82.33 87.51 94.36 100
135.77 137.49 147.51 161.73 171.36
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2.46 2.48 244 2.61 2.77
45.90 48.33 50.67 53.98 57.40
35.32 36.89 39.66 41.10 43.85
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22.00 22.72 24.24 26.44 31.30
13.96 14.11 15.88 18.16 19.79
E (mtoe)
Italy
61.04 60.97 5Y.70 62.16 65.62
56.72 58.17 59.74 60.33 61.83
GDP index (1970 = 100)
80.16 84.29 91.24 96.65 100
66.38 69.31 71.38 76.17 80.46
105.73 115.47 125.76 128.35 132.60
1961 1962 1963 1964 1965
1.72 1.72 1.78 1.99 2.06
1.92 1.66 1.66 1.77 1.87
E (mtoe)
Ireland
(continued).
3.04 3.29 3.38 3-82 4.10
49.38 52.16 54aO 58.00 63.17
32.41 35.27 38.20 41.12 46.07
GDP index (1970 = 100)
Y5.36 96~00 91.10 93.OY 102.54
70.11 76.41 73.54 79.43 89.13
E (mtoel
Germany
Final energy consumption
1956 1957 1958 1959 1960
1951 1952 1953 1954 1955
Year
Table 1.
44.49 43.90 47.66 50.27 46.84
35.04 40.15 42.21 40.38 41.15
22.30 23.45 26.70 30.34 33.48
15.46 17.62 20.02 20.27 21.51
13.05 12.71 13.09 14.20 14.86
lo-63 10.16 10.46 11.23 11.86
123.02 125.94 129.32 131.61 132.35
104.27 107.84 113.99 118.02 116.80
78.60 X2.75 88.06 93.72 100
62.31 64.78 67.13 72.69 76-50
51.93 53.48 52.96 55.45 60.46
39.46 40.23 43.55 46.46 49.72
Netherlands GDP index E (1970 (mtoe) = 100)
13.12 12.70 13.78 15.53 15W
12.05 12.28 1260 12.43 12.59
9.51 9.79 1060 11.24 12.09
6.58 6.97 7.51 7.99 8.67
5.27 4.98 5.54 5.76 6.41
4.07 4.12 4.16 4.45 4.97
E (mtoe)
Norway
134.02 138.82 145.12 151.6X 137.41
104.58 109.98 114.51 120.45 125.47
42.07 43.70 45.52 46.01 46.32
32.29 33.64 37.73 37.71 39.15
20.90 21.93 23.56 26.66 29.41
15.17 15.91 17.15 17.96 18.90
70.52 72.50 75.25 79.02 83.19 86.34 91.74 93.81 98.04 100
12.25 13aO 13.27 13.60 14.12
9.46 10.19 10.85 11.15 11.30
E (mtoe)
Spain
58.54 60.23 59.69 62.76 66.35
47.97 49.70 51.99 54.57 55.62
GDP index (1970 = 100)
134.77 130.22 142.97 143.83 145.56
31.26 30.24 28.58 29.44 27.63
28.47 29.02 30.7 1 28.12 29.55
23.95 23.83 26.07 27.59 29.09
78.17 82.60 88.19 96.08 100 104.95 113.50 122.41 122.89 130.83
16.48 17.72 19.35 20.70 22.49
13.80 13.05 13.94 14.33 15.93
10.82 11.10 10.67 11.68 12.74
E (mtoe)
Sweden
55.10 60.22 65.50 69.55 73.96
45.02 46.95 49.06 48.13 49.17
39.94 42.01
GDP index (1970 = 100)
104.08 107.41 110.68 112.20 104.11 102.65 105~15 105.58 108.21 112,‘)s
14.58 14.99 16.14 14.86 14.31 14.93 IS.32 15.87 15.46 1605
lOO~7X 102.96 106.96 111.39 114.05 115.38 113.10 114.61 119.35 121 .05
83.36 85.91 88.99 94.01 100
68.16 71.43 74.91 78.85 Xl.36
54.48 56.64 55.43 58.93 63.05
43.41 43.77 45.32 47.86 51.09
10.40 10.85 11.66 12.71 13.97
7.(x) 7.85 9.57 9.53 10.29
5.61 5.87 5.72 5.77 6.63
4.01 3.86 3.70 4.29 4.66
Switzerland GDP index E (1970 (mtoe) = 100)
83.49 86.30 8944 93.92 100
67.21 70.09 73.74 78.77 81.78
55.55 56.86 58.20 61.24 63.57
46.90 47.71 49.25 52.19 53.76
GDP index (1970 = 100)
133.33 136.24 137.59 144.14 - I3 I CI
137.21 138.16 143.45 138.10 133.Yh
126.08 127.97 133.32 136.84 13X.98
121.87 124.89 127.73 127.06 130~04
124.66 120.09 119.37 116.02 123.45
117.46 116.40 117.83 122.49 123.97
E (mtoe)
UK
120.38 122.05 120.34
115~09 116.54
111Wl
102+19 104.97 111.73 112.86
00.23 92.56 96.40 97.83 too
78.25 79W X2.11 X6.41 X8.43
67.81 69.13 60.25 72.00 75.76
59.49 62.23 64.62 66.76
GDP
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2
The energy demand elasticity and GDP: P. Ramain Table 2.
Country
Before 19X%74 Period -fl
R
GDP (%)
After 197%74 Period
R
?
GDP (%)
1951-61 1961-73
0.69 0.99
0.890 0.975
4.4 5:5
1973-80
0.63
0.966
3.1
USA
1951-60 196&73
0.89 0.97
0.864 0.972
2.5 4.1
1973-80 1975-80
0.31 0.40
0.319 0.415
3.0 3.7
Japan
1952-58 195a73
0.98 1.12
0.931 0.998
7.2 10.2
1974-80
0.34
0.252
4.9
-
1973-80
1.62
0.936
2.4
0.65
0.363
2.7
Canada
Australia Belgium
-
-
-
1953-57 1958-74
1.21 1.01
0.814 0.975
3.5 4.9
1975-80
195 l-58 1958-70
1.47 1.69
0.624 0.982
2.7 4.8
1970-80
1951-68 195a74 1958-75 1966-74 1968-74
3.18 2.54 1.80 1.23 0.93
0.872 0.879 0.941 0.926 0.893
4.5 4.7 4.9 5.6 5.9
1974-80
0.25
0.025
2.5
1951-58 19s-64 1958-80 1966-74
-0.32 1.37 1.26 1.27
-0.131 0.879 0.958 0.944
0.8 4.6 4.3 5.1
1958-80 1975-80
1.26 1.26
0.958 0.780
4.3 4.4
1951-59 1959-74
0.69 0.98
0.798 0.995
4.4 5.5
1975-80
0.54
0.875
3.3
1951-58 1958-70
0.63 1.06
0.897 0.980
7.9 4.8
1970-80
o-31
0.408
2.7
1951-58 195a70
0.80 1.45
0.875 0.977
5.0 5.3
1970-80
1.23
0.897
2.9
1951-58 195&80
1.31 1.04
0.825 0.930
3.5 4.4
1958-80
I.04
0.930
4.4
Spain
1954-58 1960-66 1960-77 1966-77
0.94 0.80 1.17 1.31
0.953 0.972 0.982 0.989
5.4 8.0 6.2 5.5
196&77 196677 1977-80
1.17 1.31 1.37
0.982 0.989 0.958
5.5 5.5 1.4
Sweden
1951-64 1964-75 1964-80
1.30 0.81 0.71
0.978 0.830 0.735
4.0 3.5 2.8
1964-80
0.71
0.735
2.8
Switzerland
1952-61 1961-73
1.52 1.59
0.949 0.975
4.7 4.1
1973-80 1976-80
0.57 0.63
0.117 0.507
0.03 2.2
UK
1952-78
0.26
0.824
2.8
1952-78
0.26
0.824
2.8
Italy
1951-70
1.70
0.997
5.7
1970-80
0.63
0.868
3.0
Austria
1952-58 1952-74 1958-74
0.92 1.04 1.12
0.942 0.990 0.988
7.6 5.2 4.9
1974-80
0.49
0.606
3.0
Denmark
Finland
Ireland
France
Germany
Netherlands
Norway
32
-0.03
-0.108
ENERGY ECONOMICS
2.3
January 1986
The energy demand elasticityand GDP: P. Rama&
First, we have used the period 1950-80 for all countries classified as developed countries within the OECD area. This has meant the exclusion of Greece, Portugal, Turkey and Yugoslavia and, because of the small size or lack of economic Luxembourg and New Iceland, importance, Zealand. We could be criticized for having retained Ireland, included here as it is a member of the Common Market. Each country is studied separately, which only goes to prove that in economics all aggregation more often than not reduces differences to an average. As far as GDP is concerned, the series cover the period 1950-80 (without exception), with a base index of 100 in 1970.3 The complete corresponding series may be found in Table 1. Second, in an attempt to give some substance to the ideas of ‘static’ and ‘transitional’ systems, the evolution of each country’s GDP has been reproduced in a graph (on a semilogarithmic scale). For each country, based on these graphs, we have ‘stable’ periods based on a steady pinpointed growth for each period; in other words, for each period examined there is a corresponding straight line touching the curve and whose series marks the breaks in the slope, hence in the average annual growth rate. As an example, for Canada we have three periods 1951-61, 1961-73 and 1973-80. At this point we should mention two things: l
so as not to eliminate any absurd point a priori unfortunately an all too common tendency - the same point (year) can mark the end of one period and the beginning of another at the same time;
l
when the curves follow a fairly tortuous path, the ‘periodization’ ends at the intersection of the same year; for example for Finland we have 1951-74 and 1966-74.
The changes in economic growth rate, thus highlighted, attempt to reflect breaks which occurred in economic growth: (transitional) breaks followed by a certain continuity (permanent system). For each country the corresponding energy consumption was then combined with each period in order to calculate an elasticity. We should, however, mention that the energy series were subjected to some minimum preliminary processing:
all basic data provided by the OECD statistical yearbooks [4] were processed in specific units; the same conversion (or equivalence) coefficients were applied to each type of energy, and electricity was converted into tons of oil equivalent (toe) based on its calorific power. energy products for ‘non-energy’ end-uses were excluded; it should be noted that basic statistics for the beginning of the 1950s (until 1956) vary; an equivalence was made, based on the last common year (usually 1956). Table 1 contains the energy consumption series used, that is final consumption (in the OECD sense of the term), after deducting non-energy and enduse consumption (see above) and energy consumption in the energy sector. The results: preliminary lessons
All this information has been given so that the results can be checked. These results are shown in Table 2 and comprise the following for each country: subperiods, determined from a semilogarithmic scale graph of the evoluation of GDP; 0 the ‘energy-growth’ elasticity for each period; l the corresponding correlation coefficient; and l the GDP growth rate. l
For the sake of clarity everything relating to the pre-crisis days is clearly distinguished from postcrisis (1973) events; there are, however, some cases where this change in course is barely noticeable or even non-existent. A-preliminary look at Table 2 illustrates that on average the elasticity was equal to or greater than 1 before the crisis. This average, if it has any meaning, is 1.16 (43 examples); in 10 out of 43 instances, it is less than 0.9, in 20 out of 43 greater than 1.1. We can also see that three countries (Finland, Ireland and Spain), two of which are much less developed than the other, were at the root of a difficult ‘periodization’ (four to five examples for the years 1950-73); if we exclude them, the ‘average’ elasticity, with all the above reservations, is 1.07 (28 cases), ie it is close to unity. As far as the post-crisis periods are concerned (23 examples) the ‘average’ elasticity is 0.74. However, the following points should be noted: l
The series are obviously calculated at constant prices (41. Note: (1) GDP is not defined in the same way in each country: the use of indices eliminates largely - or totally - this disadvantage. (2) In addition, as both the definition of GDP for certain countries and the base year for evaluation at constant prices may have changed, a statistical connection was practised.
ENERGY ECONOMICS
January 1986
Seven examples (out of 23) correspond to an elasticity greater than 1.1. But in five instances (out of seven) we find examples relating to Ireland and Spain. If, as previously, we exclude these two countries plus Finland, the average elasticity drops to 0.61, but seven results (out of
33
The energy demand elasticity and GDP: P. Ramain 17) correspond to a poor correlation between energy and GDP. In 15 cases (out of 23), the elasticity is less than 0.75; but eight (out of 15) of the examples examined, show an energy-growth correlation coefficient which invalidates the calculations. There remain therefore seven cases at most which are meaningful from a purely statistical point of view and their ‘average’ elasticity is 0.56!
l
economic growth or during an economic crisis. This first impression is confirmed if we attempt to transfer the elasticities and growth rates on to a graph. With regard to the pre-crisis periods, we can clearly see that the elasticity is usually close to or greater than 1 (Figure I). Likewise. the elasticity is very obviously much lower than unity for the post-crisis periods (Figure 2), thus confirming the hypothesis according to which the energy-growth elasticity is equal to or even greater than unity in a static system, and only less than 1 in a transitional system. But all these certainties vanish if we regroup all the figures in a single graph (Figure 3). The dispersion of the elasticities with respect to the rates to
If we take only these considerations into account, we would be led to retain an elasticity of the order of 1 during a period of sustained economic growth, and of the order of 0.5-0.8 during a period of poor 2.c l. Finland 0 Finland
51 58 (3.18 4.51 51 70 (2.54 4.7)
l Finland Denmark
58.70
58.75 0 Italy 51.70
0
0 Switzerland
61.73
0 Switzerland
1.5 , -
0 Denmark
51.58
0 Ireland Norway Belgium
. 51.64 Sweden 58.80 0
51.58 l Ireland 53.57 0
52.61
0 Netherlands
58.70
58.64
l Spain 66.77 0 Ireland
66.74 0 Finland
66.74 0 Spain 60.77
Australia Norway =
58.74
58.80 l
0 .FRG 0
1.c I-
USA 60.73 USA 51.60
0
S&den
0
Belgium 58.74
64.75
l
64.80
0
France 51.58OCanada
0 Japan 52.58
f--Canada France 51.74 61.73
_r_... Snnin 54.58
Finland
0
0 Netherlands Sweden
0 Japan 58.73
58.7( I l Auntra -iia 52.74
68.74
51.58
0 Australia
52.58
0 Spain 60.66
51.61
l FRG 51.58
0.5 , -
0 UK 52.78
CI
-
0
I
I
I
I
I GDP growth
Figure 1.
34
I
I
I
I
I 10
5 1%)
Energy-GDP elasticity before the 1973 oil crisis.
ENERGY ECONOMICS
January 1986
The energy demand elasticity and GDP: P. Ramain
growth is almost a rule, and no-one can guarantee that the elasticity tends towards this or that value depending on the type and pace of economic growth. Consequently, and fundamentally, the ideas of elasticity, of static and transitional systems are themselves to be challenged.
(zero growth, identical reproduction of goods and services) this intensity would remain fixed and the elasticity indeterminate. But if the static system is understood to exclude ‘major’ economic disturbances (according to which criteria?) and simultaneously refers to periods of stable growth. it is the concept itself of elasticity which seems inadequate. This tool would only be meaningful in terms of time and
Energy and economic growth
space if the following partially unjustified.
There is no doubt that developed countries require large amounts of energy. Quite often the concept of energy intensity (monetary value of energy per production unit) is used, and in a strictly static system
observations
were
totally
or
The cost of access to energy resources ought to be the same in the various countries at various
l
2.0
OAustralia
73.80
1.5
OSpain
77.80 0 Spain 66.77 Ireland 0 Netherlands
75.80
COlreland
58.80
70.80
o Spain 60.77
0 Norway
58.80
0 Sweden 64.80 Belgium 75.80 Switzerland 76.80 0 Switzerland
0
0 Canada 73.80 o Italy 70.80
73.80
0 France 75.80
0.5
OAustralia
74.80 0 USA 75.80
OUSA
FRG 70.800 Finland
0
I
74.800
I
’
OJapan
73.80
UK 52.78
I
I
0
I
I
5 GDP growth
Figure 2. Energy-GDP
74.80
I
I
I 10
(%I
elasticity after the 1973 oil crisis.
ENERGY ECONOMICS
January 1986
35
The energy demand elasticity and GDP: P. Ramain 2.0
l Finland
&nark
l
My
0 Australia 0 Switzerland 0 Switzerland
1.5
0 Denmark
0 Netherlands
0 Spain
0
Norway 0
Ireland a3 Spam
Yden W Ireland
Netherlands 0
l Ireland
0 Finland C, Spain
FRG
Nowavl =
1.0
USA.
0 Australia JaTan
l
Belgium
@Australia Canada
l Japan
0 Fran&a Spain Finland
0 Sweden 0 USA
l Australia
0 Netherlands
0 Spain
0 Sweden France m Canada
Belgium0 Switzerland 0
0 Canada O Italy
.FRG
Switzerland 0 France 0 Australia
0.5
0 USA 0 Japan FRGO Finland0
O_
I
1
0 USA c, UK
I
I
I
I
I
I
I
I 10
5
U
GDP growth (%)
Figure 3. Energy-GDP
elasticity, 1950-1980.
times and therefore the resources structures should be almost the same. However, as regards the first point, developed countries may differ radically: eg the USA and Japan. As far as the second point is concerned, the evolution of the energy supply structure occurred neither at the same time nor at the same rate: for charcoal burning resources headed towards hydrocarbons (liquid and/or gas), tomorrow it will be towards nuclear energy or coal. It is obvious, however, that average energy efficiency varies with time and depends on the source used. Therefore final consumption has never been in a position to reflect the real energy requirements of the whole economy. Consequently, elasticity and energy
36
intensity become tricky to handle. The same reality is never involved from one year to the next, from one country to another. In a sustained economic growth system, which is sometimes confused with the static system, everything moves. Many sectors are running at almost total production capacity which leads to over-consumption of energy in comparison to the original equipment used, generally the most efficient. The growth differential between sectors changes the overall energy intensity and hence the elasticity. High-technology industries may spring up to the detriment of others. Generally, the price of energy is not a limiting factor, for example as far as labour is concerned.
ENERGY ECONOMICS
January 1986
The energy demand elasticity and GDP: P. Ramain
Nevertheless, for extra-economic - let us say strategic - reasons, developed countries are induced, even in this context, to attempt to manage their energy supply for the best, particularly when this supply is based on imports. Therefore, the use of elasticity as a forecasting tool by analogy should first depend on the analysis of implicit or explicit energy policies implemented in the reference countries. can we assimilate transitional In addition, systems and economic crisis? In what way is poor economic growth, which historically has been the rule for the evolution of the economy (except for the 30 years following World War II), a product of a transitory phenomenon? The use of this ‘concept’, which is extremely important in physics, is improper at an economic level; the ‘transitory’ has a very short lifetime in comparison to the static system and the nature of the ‘transitory’ influences the rest. It is not inevitably the case here as the current ‘transitory system’ may last beyond the 1990s. A change in the levels of economic growth will induce measures which no-one can foresee. Will we see the systematic resiting of energy-intensive industries to countries rich in energy resources? Will we see the countries which accept or encourage this evolution move over to hightechnology industries? Are the two the same? At the most we can say that an industrial revolution is not the production of a transitory system - it is the transition of an economic type and structure towards another economic type and structure over a period of several decades. And in as much as energy was, at least once, regarded historically as being a production factor which is in fact scarce, people are not likely to forget this fact. Therefore the construction of a future energy system using the hypothesis of an elasticity approaching 1 in order to face the economic ‘recovery’ is based on two risky bets: (i) That developed countries naturally tend towards a purely quantitative economic growth; and even within this hypothesis no-one can deny a priori that technological progress will be systematically brought into play in order to lower the energy intensity of goods and services, thus drawing the energy-growth elasticity towards a level actually lower than 1 on a longterm basis (at least over a period of time equal to the most distant economic horizon envisaged). (ii) that when there is weak, albeit constant, economic growth, there will automatically be a relationship equal to unity between energy
ENERGY ECONOMICS
January 1986
growth and economic growth. In this case it would be a good thing for the supporters of this thesis to check themselves how the short-, medium- and long-term GDP growth rates are ‘forecast’. The disaggregation of the econometric models used shows just how delicate an operation it is to define these growth rates, and all too quickly only the magic simplicity of the overall result is retained; for example 3%. The same level of analysis should be required for energy, and this cannot be done by turning to elasticity which is a global indicator merely tracing over the past to synthesize an evolution which has taken place. Numerous components must be integrated into this elasticity rate following the example of the GDP growth rate; but the energy components have not been analysed and are even ignored, since one reasons initially with a global elasticity. For all energy forecasting the same effort must be made and to make energy (in overabundance) the locomotive which pulls the tender, that is the economy, is a nonsense. The elasticity of energy consumption to economic growth is an attractive concept, easy to calculate, but remarkably unstable. As a number without a dimension resulting from an ‘econometric model’ whose resolution validity conditions (see footnote 2) are more often than not forgotten, is not a value close to 1 merely a reflection of the model user’s preferences, who is thereby reassured by the stability of economic laws which are just as intangible as the laws of physics? The observation of numerous examples does not confirm such a result. Over the short economic period represented by the years 1945-50 to 1980-82, it is possible to believe that before the crisis this figure was greater than unity and noticeably lower after the crisis. But nothing guarantees the validity of the ‘crisis’ concept generally used. Ten years after the October 1973 war, forecasts made for the years 1990 and 2000 draw a picture for the last quarter of the century which illustrates weak and/or irregular economic growth, if not ‘completely different’ from the previous 30 years. Consequently, the automatic nature of economic phenomena induced by strong and sustained growth disappears along the energy-growth elasticity. In two different worlds, the use of identical concepts makes no sense at all. Energy consumption forecasting simply must leave behind the bad habits of the past and call on new approaches, and fortunately this is now being done; however, the results thus obtained are disturbing, as they do not conform with what has been learnt
37
The energy demand elasticity and GDP: P. Ramain
and quite new other tudes
measured over 30 years which were in fact specific. Yet we will have to learn to devise measuring tools to understand an economic era than that one which has moulded the attiof a whole generation of ‘decision-makers’.
References 1 Commissariat
38
2
3
4 General du Plan (1x2 Plan), Rapport du
Groupe Long Terme de I’Energie, La Documentation Francaise. Paris. Vols 1 and 2. 1983. J. Girod. La demande d’knergie. MPthodes et techniques de modklisation. CNRS. Collection Energie et Soci&C. Paris, 1979. R. Lattes and A. Jeanblanc. Croissance kcononrique. besoins d’e’nergie et Pconomie d’knergie, Commissariat BI’Energie Atomique. Paris. 1981. OECD. Energy Statistics, 19.50-1981, Paris; and National Accounts, 1950-1981, Paris.
ENERGY ECONOMICS
January
1986
Patrice Ramain
The value of the ratio of energy consumption growth to economic growth forms the subject of strenuous debates, particularly in France. This article attempts to show, by taking data over an extended period for the industrialized countries, that one should treat with caution the values this indicator can have; any resulting energy forecast would be fragile. Consequently, one may say that it is the notion of the elasticity itself which is most often used improperly. This indicator is too global, and is useful only ex post. Keywordr:
Energy demand; Economic growth; Elasticity
The energy consumption elasticity, in relation to gross domestic product, is ‘mathematically equal to 1’ [3] in a static system. In a transitional system’ it may diverge from unity but has a tendency to return to it. There is little point here in repeating the numerous conclusions made by various authors concerning this assertion which, in our opinion, remains to be proved. We are going to contribute yet another document to this file, based on statistics available to everyone; in doing so, we hope that we will add even more confusion to the notion of the energy-economic growth elasticity. We will then question both the elasticity concept and return to the question of the ‘The idea of a ‘static system’ and a ‘transitional system’ is introduced by R. Lattes and A. Jeanblanc. The first is characterized by ‘a stable structure of the GDP unit’; ie quasi homothetic evolution -or growth -of GDP [3]. p 9). The transitional system is the opposite.
The author is with CNRS, Juridique Grenoble, France.
Institut Economique et de I’Energie, Universite Sciences Sociales de BP 47 Centre de Tri, 38040 Grenoble Cedex,
Final manuscript received 15 February 1985.
0140-9883/86/010029-10
$03.00
0
1986 Butterworth
validity of the hypotheses relating to the static and transitional systems in economics.
Impact and limitations of a statistical approach Type of statistics used In order to calculate an elasticity it is enough to relate the evolution of the relative growth of energy consumption to that of the economy.* All manner of unknown factors prevent a year-by-year calculation; the determination of an energy-growth elasticity therefore relates to a period of which nobody is capable of defining the appropriate length. But as we are talking about economics, as the statistician can give us criteria without which the established relationship - elasticity - has little or no statistical significance, and as we take into account both the static and transitional systems, we have retained these three ‘constraints’ in order to evaluate elasticities which abide by the latter. ‘At least this is the formulation generally used. which more often than not means that the conditions of validity which allow the ‘transition from a theoretical definition to a numerical determination’ are forgotten. Jacques Girod [2] lays great stress on this point and proposed the ‘empirical elasticity’concept.
& Co (Publishers)
Ltd
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g
119.29 121.55 124.82 130.X9 136.88
94.56 92.77 95.23 100.42 97.3 1
124.99 133.60 142.56 146.05 148.84
4.71 5.09 5.10 6.11 5.81
116.48 120.01 123.88 129.40 131.88
170.75 178.75 1X6.62 193.20 180~x0
1976 lY77 lY78 lY79 lY80
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80.96 86.01 91.18 92.64 X9.71
103.44 11004 115.13 12oaJ 122.45
4.58 4.60 4.72 4.94 4.58
78.38 84.00 89.50 94.96 100
103.23 107.00 112.24 112.85 110.76
170.97 179.58 188.86 182.17 172.00
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62.11 65.96 69.66 71.61 73.95
34.34 38.65 43.85 46.04 50.24
68.73 71.26 74.71 78.49 79.38 5464 59.53 65.35 70.14 79.09
82.47 82.33 87.51 94.36 100
135.77 137.49 147.51 161.73 171.36
1966 1967 1968 1969 1970
2.46 2.48 244 2.61 2.77
45.90 48.33 50.67 53.98 57.40
35.32 36.89 39.66 41.10 43.85
GDP index (1970 = 100)
22.00 22.72 24.24 26.44 31.30
13.96 14.11 15.88 18.16 19.79
E (mtoe)
Italy
61.04 60.97 5Y.70 62.16 65.62
56.72 58.17 59.74 60.33 61.83
GDP index (1970 = 100)
80.16 84.29 91.24 96.65 100
66.38 69.31 71.38 76.17 80.46
105.73 115.47 125.76 128.35 132.60
1961 1962 1963 1964 1965
1.72 1.72 1.78 1.99 2.06
1.92 1.66 1.66 1.77 1.87
E (mtoe)
Ireland
(continued).
3.04 3.29 3.38 3-82 4.10
49.38 52.16 54aO 58.00 63.17
32.41 35.27 38.20 41.12 46.07
GDP index (1970 = 100)
Y5.36 96~00 91.10 93.OY 102.54
70.11 76.41 73.54 79.43 89.13
E (mtoel
Germany
Final energy consumption
1956 1957 1958 1959 1960
1951 1952 1953 1954 1955
Year
Table 1.
44.49 43.90 47.66 50.27 46.84
35.04 40.15 42.21 40.38 41.15
22.30 23.45 26.70 30.34 33.48
15.46 17.62 20.02 20.27 21.51
13.05 12.71 13.09 14.20 14.86
lo-63 10.16 10.46 11.23 11.86
123.02 125.94 129.32 131.61 132.35
104.27 107.84 113.99 118.02 116.80
78.60 X2.75 88.06 93.72 100
62.31 64.78 67.13 72.69 76-50
51.93 53.48 52.96 55.45 60.46
39.46 40.23 43.55 46.46 49.72
Netherlands GDP index E (1970 (mtoe) = 100)
13.12 12.70 13.78 15.53 15W
12.05 12.28 1260 12.43 12.59
9.51 9.79 1060 11.24 12.09
6.58 6.97 7.51 7.99 8.67
5.27 4.98 5.54 5.76 6.41
4.07 4.12 4.16 4.45 4.97
E (mtoe)
Norway
134.02 138.82 145.12 151.6X 137.41
104.58 109.98 114.51 120.45 125.47
42.07 43.70 45.52 46.01 46.32
32.29 33.64 37.73 37.71 39.15
20.90 21.93 23.56 26.66 29.41
15.17 15.91 17.15 17.96 18.90
70.52 72.50 75.25 79.02 83.19 86.34 91.74 93.81 98.04 100
12.25 13aO 13.27 13.60 14.12
9.46 10.19 10.85 11.15 11.30
E (mtoe)
Spain
58.54 60.23 59.69 62.76 66.35
47.97 49.70 51.99 54.57 55.62
GDP index (1970 = 100)
134.77 130.22 142.97 143.83 145.56
31.26 30.24 28.58 29.44 27.63
28.47 29.02 30.7 1 28.12 29.55
23.95 23.83 26.07 27.59 29.09
78.17 82.60 88.19 96.08 100 104.95 113.50 122.41 122.89 130.83
16.48 17.72 19.35 20.70 22.49
13.80 13.05 13.94 14.33 15.93
10.82 11.10 10.67 11.68 12.74
E (mtoe)
Sweden
55.10 60.22 65.50 69.55 73.96
45.02 46.95 49.06 48.13 49.17
39.94 42.01
GDP index (1970 = 100)
104.08 107.41 110.68 112.20 104.11 102.65 105~15 105.58 108.21 112,‘)s
14.58 14.99 16.14 14.86 14.31 14.93 IS.32 15.87 15.46 1605
lOO~7X 102.96 106.96 111.39 114.05 115.38 113.10 114.61 119.35 121 .05
83.36 85.91 88.99 94.01 100
68.16 71.43 74.91 78.85 Xl.36
54.48 56.64 55.43 58.93 63.05
43.41 43.77 45.32 47.86 51.09
10.40 10.85 11.66 12.71 13.97
7.(x) 7.85 9.57 9.53 10.29
5.61 5.87 5.72 5.77 6.63
4.01 3.86 3.70 4.29 4.66
Switzerland GDP index E (1970 (mtoe) = 100)
83.49 86.30 8944 93.92 100
67.21 70.09 73.74 78.77 81.78
55.55 56.86 58.20 61.24 63.57
46.90 47.71 49.25 52.19 53.76
GDP index (1970 = 100)
133.33 136.24 137.59 144.14 - I3 I CI
137.21 138.16 143.45 138.10 133.Yh
126.08 127.97 133.32 136.84 13X.98
121.87 124.89 127.73 127.06 130~04
124.66 120.09 119.37 116.02 123.45
117.46 116.40 117.83 122.49 123.97
E (mtoe)
UK
120.38 122.05 120.34
115~09 116.54
111Wl
102+19 104.97 111.73 112.86
00.23 92.56 96.40 97.83 too
78.25 79W X2.11 X6.41 X8.43
67.81 69.13 60.25 72.00 75.76
59.49 62.23 64.62 66.76
GDP
2. u” 2
: i$ R 3 g CL
2
The energy demand elasticity and GDP: P. Ramain Table 2.
Country
Before 19X%74 Period -fl
R
GDP (%)
After 197%74 Period
R
?
GDP (%)
1951-61 1961-73
0.69 0.99
0.890 0.975
4.4 5:5
1973-80
0.63
0.966
3.1
USA
1951-60 196&73
0.89 0.97
0.864 0.972
2.5 4.1
1973-80 1975-80
0.31 0.40
0.319 0.415
3.0 3.7
Japan
1952-58 195a73
0.98 1.12
0.931 0.998
7.2 10.2
1974-80
0.34
0.252
4.9
-
1973-80
1.62
0.936
2.4
0.65
0.363
2.7
Canada
Australia Belgium
-
-
-
1953-57 1958-74
1.21 1.01
0.814 0.975
3.5 4.9
1975-80
195 l-58 1958-70
1.47 1.69
0.624 0.982
2.7 4.8
1970-80
1951-68 195a74 1958-75 1966-74 1968-74
3.18 2.54 1.80 1.23 0.93
0.872 0.879 0.941 0.926 0.893
4.5 4.7 4.9 5.6 5.9
1974-80
0.25
0.025
2.5
1951-58 19s-64 1958-80 1966-74
-0.32 1.37 1.26 1.27
-0.131 0.879 0.958 0.944
0.8 4.6 4.3 5.1
1958-80 1975-80
1.26 1.26
0.958 0.780
4.3 4.4
1951-59 1959-74
0.69 0.98
0.798 0.995
4.4 5.5
1975-80
0.54
0.875
3.3
1951-58 1958-70
0.63 1.06
0.897 0.980
7.9 4.8
1970-80
o-31
0.408
2.7
1951-58 195a70
0.80 1.45
0.875 0.977
5.0 5.3
1970-80
1.23
0.897
2.9
1951-58 195&80
1.31 1.04
0.825 0.930
3.5 4.4
1958-80
I.04
0.930
4.4
Spain
1954-58 1960-66 1960-77 1966-77
0.94 0.80 1.17 1.31
0.953 0.972 0.982 0.989
5.4 8.0 6.2 5.5
196&77 196677 1977-80
1.17 1.31 1.37
0.982 0.989 0.958
5.5 5.5 1.4
Sweden
1951-64 1964-75 1964-80
1.30 0.81 0.71
0.978 0.830 0.735
4.0 3.5 2.8
1964-80
0.71
0.735
2.8
Switzerland
1952-61 1961-73
1.52 1.59
0.949 0.975
4.7 4.1
1973-80 1976-80
0.57 0.63
0.117 0.507
0.03 2.2
UK
1952-78
0.26
0.824
2.8
1952-78
0.26
0.824
2.8
Italy
1951-70
1.70
0.997
5.7
1970-80
0.63
0.868
3.0
Austria
1952-58 1952-74 1958-74
0.92 1.04 1.12
0.942 0.990 0.988
7.6 5.2 4.9
1974-80
0.49
0.606
3.0
Denmark
Finland
Ireland
France
Germany
Netherlands
Norway
32
-0.03
-0.108
ENERGY ECONOMICS
2.3
January 1986
The energy demand elasticityand GDP: P. Rama&
First, we have used the period 1950-80 for all countries classified as developed countries within the OECD area. This has meant the exclusion of Greece, Portugal, Turkey and Yugoslavia and, because of the small size or lack of economic Luxembourg and New Iceland, importance, Zealand. We could be criticized for having retained Ireland, included here as it is a member of the Common Market. Each country is studied separately, which only goes to prove that in economics all aggregation more often than not reduces differences to an average. As far as GDP is concerned, the series cover the period 1950-80 (without exception), with a base index of 100 in 1970.3 The complete corresponding series may be found in Table 1. Second, in an attempt to give some substance to the ideas of ‘static’ and ‘transitional’ systems, the evolution of each country’s GDP has been reproduced in a graph (on a semilogarithmic scale). For each country, based on these graphs, we have ‘stable’ periods based on a steady pinpointed growth for each period; in other words, for each period examined there is a corresponding straight line touching the curve and whose series marks the breaks in the slope, hence in the average annual growth rate. As an example, for Canada we have three periods 1951-61, 1961-73 and 1973-80. At this point we should mention two things: l
so as not to eliminate any absurd point a priori unfortunately an all too common tendency - the same point (year) can mark the end of one period and the beginning of another at the same time;
l
when the curves follow a fairly tortuous path, the ‘periodization’ ends at the intersection of the same year; for example for Finland we have 1951-74 and 1966-74.
The changes in economic growth rate, thus highlighted, attempt to reflect breaks which occurred in economic growth: (transitional) breaks followed by a certain continuity (permanent system). For each country the corresponding energy consumption was then combined with each period in order to calculate an elasticity. We should, however, mention that the energy series were subjected to some minimum preliminary processing:
all basic data provided by the OECD statistical yearbooks [4] were processed in specific units; the same conversion (or equivalence) coefficients were applied to each type of energy, and electricity was converted into tons of oil equivalent (toe) based on its calorific power. energy products for ‘non-energy’ end-uses were excluded; it should be noted that basic statistics for the beginning of the 1950s (until 1956) vary; an equivalence was made, based on the last common year (usually 1956). Table 1 contains the energy consumption series used, that is final consumption (in the OECD sense of the term), after deducting non-energy and enduse consumption (see above) and energy consumption in the energy sector. The results: preliminary lessons
All this information has been given so that the results can be checked. These results are shown in Table 2 and comprise the following for each country: subperiods, determined from a semilogarithmic scale graph of the evoluation of GDP; 0 the ‘energy-growth’ elasticity for each period; l the corresponding correlation coefficient; and l the GDP growth rate. l
For the sake of clarity everything relating to the pre-crisis days is clearly distinguished from postcrisis (1973) events; there are, however, some cases where this change in course is barely noticeable or even non-existent. A-preliminary look at Table 2 illustrates that on average the elasticity was equal to or greater than 1 before the crisis. This average, if it has any meaning, is 1.16 (43 examples); in 10 out of 43 instances, it is less than 0.9, in 20 out of 43 greater than 1.1. We can also see that three countries (Finland, Ireland and Spain), two of which are much less developed than the other, were at the root of a difficult ‘periodization’ (four to five examples for the years 1950-73); if we exclude them, the ‘average’ elasticity, with all the above reservations, is 1.07 (28 cases), ie it is close to unity. As far as the post-crisis periods are concerned (23 examples) the ‘average’ elasticity is 0.74. However, the following points should be noted: l
The series are obviously calculated at constant prices (41. Note: (1) GDP is not defined in the same way in each country: the use of indices eliminates largely - or totally - this disadvantage. (2) In addition, as both the definition of GDP for certain countries and the base year for evaluation at constant prices may have changed, a statistical connection was practised.
ENERGY ECONOMICS
January 1986
Seven examples (out of 23) correspond to an elasticity greater than 1.1. But in five instances (out of seven) we find examples relating to Ireland and Spain. If, as previously, we exclude these two countries plus Finland, the average elasticity drops to 0.61, but seven results (out of
33
The energy demand elasticity and GDP: P. Ramain 17) correspond to a poor correlation between energy and GDP. In 15 cases (out of 23), the elasticity is less than 0.75; but eight (out of 15) of the examples examined, show an energy-growth correlation coefficient which invalidates the calculations. There remain therefore seven cases at most which are meaningful from a purely statistical point of view and their ‘average’ elasticity is 0.56!
l
economic growth or during an economic crisis. This first impression is confirmed if we attempt to transfer the elasticities and growth rates on to a graph. With regard to the pre-crisis periods, we can clearly see that the elasticity is usually close to or greater than 1 (Figure I). Likewise. the elasticity is very obviously much lower than unity for the post-crisis periods (Figure 2), thus confirming the hypothesis according to which the energy-growth elasticity is equal to or even greater than unity in a static system, and only less than 1 in a transitional system. But all these certainties vanish if we regroup all the figures in a single graph (Figure 3). The dispersion of the elasticities with respect to the rates to
If we take only these considerations into account, we would be led to retain an elasticity of the order of 1 during a period of sustained economic growth, and of the order of 0.5-0.8 during a period of poor 2.c l. Finland 0 Finland
51 58 (3.18 4.51 51 70 (2.54 4.7)
l Finland Denmark
58.70
58.75 0 Italy 51.70
0
0 Switzerland
61.73
0 Switzerland
1.5 , -
0 Denmark
51.58
0 Ireland Norway Belgium
. 51.64 Sweden 58.80 0
51.58 l Ireland 53.57 0
52.61
0 Netherlands
58.70
58.64
l Spain 66.77 0 Ireland
66.74 0 Finland
66.74 0 Spain 60.77
Australia Norway =
58.74
58.80 l
0 .FRG 0
1.c I-
USA 60.73 USA 51.60
0
S&den
0
Belgium 58.74
64.75
l
64.80
0
France 51.58OCanada
0 Japan 52.58
f--Canada France 51.74 61.73
_r_... Snnin 54.58
Finland
0
0 Netherlands Sweden
0 Japan 58.73
58.7( I l Auntra -iia 52.74
68.74
51.58
0 Australia
52.58
0 Spain 60.66
51.61
l FRG 51.58
0.5 , -
0 UK 52.78
CI
-
0
I
I
I
I
I GDP growth
Figure 1.
34
I
I
I
I
I 10
5 1%)
Energy-GDP elasticity before the 1973 oil crisis.
ENERGY ECONOMICS
January 1986
The energy demand elasticity and GDP: P. Ramain
growth is almost a rule, and no-one can guarantee that the elasticity tends towards this or that value depending on the type and pace of economic growth. Consequently, and fundamentally, the ideas of elasticity, of static and transitional systems are themselves to be challenged.
(zero growth, identical reproduction of goods and services) this intensity would remain fixed and the elasticity indeterminate. But if the static system is understood to exclude ‘major’ economic disturbances (according to which criteria?) and simultaneously refers to periods of stable growth. it is the concept itself of elasticity which seems inadequate. This tool would only be meaningful in terms of time and
Energy and economic growth
space if the following partially unjustified.
There is no doubt that developed countries require large amounts of energy. Quite often the concept of energy intensity (monetary value of energy per production unit) is used, and in a strictly static system
observations
were
totally
or
The cost of access to energy resources ought to be the same in the various countries at various
l
2.0
OAustralia
73.80
1.5
OSpain
77.80 0 Spain 66.77 Ireland 0 Netherlands
75.80
COlreland
58.80
70.80
o Spain 60.77
0 Norway
58.80
0 Sweden 64.80 Belgium 75.80 Switzerland 76.80 0 Switzerland
0
0 Canada 73.80 o Italy 70.80
73.80
0 France 75.80
0.5
OAustralia
74.80 0 USA 75.80
OUSA
FRG 70.800 Finland
0
I
74.800
I
’
OJapan
73.80
UK 52.78
I
I
0
I
I
5 GDP growth
Figure 2. Energy-GDP
74.80
I
I
I 10
(%I
elasticity after the 1973 oil crisis.
ENERGY ECONOMICS
January 1986
35
The energy demand elasticity and GDP: P. Ramain 2.0
l Finland
&nark
l
My
0 Australia 0 Switzerland 0 Switzerland
1.5
0 Denmark
0 Netherlands
0 Spain
0
Norway 0
Ireland a3 Spam
Yden W Ireland
Netherlands 0
l Ireland
0 Finland C, Spain
FRG
Nowavl =
1.0
USA.
0 Australia JaTan
l
Belgium
@Australia Canada
l Japan
0 Fran&a Spain Finland
0 Sweden 0 USA
l Australia
0 Netherlands
0 Spain
0 Sweden France m Canada
Belgium0 Switzerland 0
0 Canada O Italy
.FRG
Switzerland 0 France 0 Australia
0.5
0 USA 0 Japan FRGO Finland0
O_
I
1
0 USA c, UK
I
I
I
I
I
I
I
I 10
5
U
GDP growth (%)
Figure 3. Energy-GDP
elasticity, 1950-1980.
times and therefore the resources structures should be almost the same. However, as regards the first point, developed countries may differ radically: eg the USA and Japan. As far as the second point is concerned, the evolution of the energy supply structure occurred neither at the same time nor at the same rate: for charcoal burning resources headed towards hydrocarbons (liquid and/or gas), tomorrow it will be towards nuclear energy or coal. It is obvious, however, that average energy efficiency varies with time and depends on the source used. Therefore final consumption has never been in a position to reflect the real energy requirements of the whole economy. Consequently, elasticity and energy
36
intensity become tricky to handle. The same reality is never involved from one year to the next, from one country to another. In a sustained economic growth system, which is sometimes confused with the static system, everything moves. Many sectors are running at almost total production capacity which leads to over-consumption of energy in comparison to the original equipment used, generally the most efficient. The growth differential between sectors changes the overall energy intensity and hence the elasticity. High-technology industries may spring up to the detriment of others. Generally, the price of energy is not a limiting factor, for example as far as labour is concerned.
ENERGY ECONOMICS
January 1986
The energy demand elasticity and GDP: P. Ramain
Nevertheless, for extra-economic - let us say strategic - reasons, developed countries are induced, even in this context, to attempt to manage their energy supply for the best, particularly when this supply is based on imports. Therefore, the use of elasticity as a forecasting tool by analogy should first depend on the analysis of implicit or explicit energy policies implemented in the reference countries. can we assimilate transitional In addition, systems and economic crisis? In what way is poor economic growth, which historically has been the rule for the evolution of the economy (except for the 30 years following World War II), a product of a transitory phenomenon? The use of this ‘concept’, which is extremely important in physics, is improper at an economic level; the ‘transitory’ has a very short lifetime in comparison to the static system and the nature of the ‘transitory’ influences the rest. It is not inevitably the case here as the current ‘transitory system’ may last beyond the 1990s. A change in the levels of economic growth will induce measures which no-one can foresee. Will we see the systematic resiting of energy-intensive industries to countries rich in energy resources? Will we see the countries which accept or encourage this evolution move over to hightechnology industries? Are the two the same? At the most we can say that an industrial revolution is not the production of a transitory system - it is the transition of an economic type and structure towards another economic type and structure over a period of several decades. And in as much as energy was, at least once, regarded historically as being a production factor which is in fact scarce, people are not likely to forget this fact. Therefore the construction of a future energy system using the hypothesis of an elasticity approaching 1 in order to face the economic ‘recovery’ is based on two risky bets: (i) That developed countries naturally tend towards a purely quantitative economic growth; and even within this hypothesis no-one can deny a priori that technological progress will be systematically brought into play in order to lower the energy intensity of goods and services, thus drawing the energy-growth elasticity towards a level actually lower than 1 on a longterm basis (at least over a period of time equal to the most distant economic horizon envisaged). (ii) that when there is weak, albeit constant, economic growth, there will automatically be a relationship equal to unity between energy
ENERGY ECONOMICS
January 1986
growth and economic growth. In this case it would be a good thing for the supporters of this thesis to check themselves how the short-, medium- and long-term GDP growth rates are ‘forecast’. The disaggregation of the econometric models used shows just how delicate an operation it is to define these growth rates, and all too quickly only the magic simplicity of the overall result is retained; for example 3%. The same level of analysis should be required for energy, and this cannot be done by turning to elasticity which is a global indicator merely tracing over the past to synthesize an evolution which has taken place. Numerous components must be integrated into this elasticity rate following the example of the GDP growth rate; but the energy components have not been analysed and are even ignored, since one reasons initially with a global elasticity. For all energy forecasting the same effort must be made and to make energy (in overabundance) the locomotive which pulls the tender, that is the economy, is a nonsense. The elasticity of energy consumption to economic growth is an attractive concept, easy to calculate, but remarkably unstable. As a number without a dimension resulting from an ‘econometric model’ whose resolution validity conditions (see footnote 2) are more often than not forgotten, is not a value close to 1 merely a reflection of the model user’s preferences, who is thereby reassured by the stability of economic laws which are just as intangible as the laws of physics? The observation of numerous examples does not confirm such a result. Over the short economic period represented by the years 1945-50 to 1980-82, it is possible to believe that before the crisis this figure was greater than unity and noticeably lower after the crisis. But nothing guarantees the validity of the ‘crisis’ concept generally used. Ten years after the October 1973 war, forecasts made for the years 1990 and 2000 draw a picture for the last quarter of the century which illustrates weak and/or irregular economic growth, if not ‘completely different’ from the previous 30 years. Consequently, the automatic nature of economic phenomena induced by strong and sustained growth disappears along the energy-growth elasticity. In two different worlds, the use of identical concepts makes no sense at all. Energy consumption forecasting simply must leave behind the bad habits of the past and call on new approaches, and fortunately this is now being done; however, the results thus obtained are disturbing, as they do not conform with what has been learnt
37
The energy demand elasticity and GDP: P. Ramain
and quite new other tudes
measured over 30 years which were in fact specific. Yet we will have to learn to devise measuring tools to understand an economic era than that one which has moulded the attiof a whole generation of ‘decision-makers’.
References 1 Commissariat
38
2
3
4 General du Plan (1x2 Plan), Rapport du
Groupe Long Terme de I’Energie, La Documentation Francaise. Paris. Vols 1 and 2. 1983. J. Girod. La demande d’knergie. MPthodes et techniques de modklisation. CNRS. Collection Energie et Soci&C. Paris, 1979. R. Lattes and A. Jeanblanc. Croissance kcononrique. besoins d’e’nergie et Pconomie d’knergie, Commissariat BI’Energie Atomique. Paris. 1981. OECD. Energy Statistics, 19.50-1981, Paris; and National Accounts, 1950-1981, Paris.
ENERGY ECONOMICS
January
1986