No Limits to Growth

by Will Wilkinson on August 4, 2008

Here is a thumbnail sketch of my position on the sustainability of economic growth. What do you think is wrong with it?

(a) energy is not scarce; the historically most efficient sources (oil, coal, etc.) are;

(b) a well-functioning price system will shift energy consumption to (cleaner) alternative energy sources as prices for historical extracted sources of energy rise;

(c) the initial high price of alternative energy will temporarily slow growth, but competition and technological progress will eventually push prices below the historical trend and even asymptotically approach zero, increasing average rates of growth;

(d) environmental quality is a global public good, but;

(e) this is most likely to be secured as a consequence of growth — as a consequence of the technological innovation that both creates and is created by growth — together with the rising scarcity and prices of the most environmentally degrading energy sources.

So,

(f) there are no meaningful limits to growth from either the scarcity of energy, or from negative environmental externalities from economic production, since in the medium run, those externalities are positive.

Viewing 36 Comments

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    I think I pretty much agree although growth is not only energy dependent. There's food, water , infrastructure, homes, things like copper and a dysfunctional finance system to consider.

    This step;

    (b) a well-functioning price system will shift energy consumption to (cleaner) alternative energy sources as prices for historical extracted sources of energy rise;

    Is key and is a problem with oil companies controlling the message, the politicians and in effect the market. The "free market" oil companies rely heavily on big government to protect them. They are basically using a product of the commons and buying off our government and controlling the energy market with those profits. Well functioning price system... absolutely but how to get there??

    The current senatorial debate ( I think ended now on Republican filibuster) was to shift current subsidies from oil producers to renewables). The oil guys won out again.

    ""Make no mistake," Carl Pope, executive director of the Sierra Club, said in a statement, "this minority chose protecting big oil instead of promoting affordable clean energy and protecting their constituents from the crippling energy prices that are wrecking our economy."

    Under the bill, roughly $17 billion in tax breaks to the oil industry would be transferred to promote wind, solar and other renewable energies over the next 10 years."

    http://washingtonindependent.com/view/big-oil-s...
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    Pretty good argument you have
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    (e) is irrelevant to your point. We need to know whether it is _likely_ in absolute terms that growth will result in good environmental quality, not whether it is the _most likely_ cause of good environmental quality
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    What if a particularly sharp increase in resource scarcity overwhelms the price signal subpoint (b) assumes? Although I don't subscribe to peak oil hysteria, I am somewhat worried by the prospects of an extremely increase in the cost of petroleum extraction. In other words, an abbreviated transition period between readily available oil and the absolute collapse of fossil fuel infrastructure would probably undermine alternative fuel development.
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    Extremely sharp increase . . .*
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    Nothing's wrong with it except for Congress. Your model doesn't show huge amounts of corn being grown to make ethanol. And so on. Models that attempt to make predictions but which don't incorporate public-choice theory are incomplete.
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    (b) begs the question of whether it is possible to develop suitable alternatives to oil. We seem to be able to generate electricity through nuclear/wind/solar/hydro/etc but I'm not sure if that's enough to work as a replacement for the place oil takes in the global economy.

    But if we accept that we can I think we're all good and the rest of your argument works. I definitely see that there's no chance of the rich countries voting themselves into poverty to save the environment.
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    (f) is an assertion and not a conclusion, moreover, with the double whammy of global warming and ocean acidification happening *now* you cannot necessarily hold that the externalities will be positive, absent some cap-and-trade mechanism in the medium run.

    (e) is patently false, as in recent history environmental quality has been secured by law and not by innovation in a vacuum. Consider for example the CFC ban or the great reduction in acid rain. Absent a change in the law, there would have been no market mechanism that having businesses installing scrubbers and developing cleaner ways to burn coal "just because", likewise, there was no short or medium-run market mechanism that resulted in a great decrease in use of halogenated hydrocarbon use.
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    The devil is in (c). It reminds me a little bit of how an economist opens a can on a desert island. (Assume the can opener.)
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    (a) energy is not scarce; the historically most efficient sources (oil, coal, etc.) are;

    That seems like a big (and optimistic) premise; "theoretically" there should be plenty of energy to go around but the actual amount capturable from non-fossil fuel sources could well turn out to be pretty low, especially when compared with the windfall of millions of years of stored up solar energy we've been harvesting through the industrial revolution. If (a) is in doubt (and I imagine it must be), then I think you may want to modify your conclusions based that uncertainty.

    In those old Victorian novels you often see a young rake fall into a large inheritance and spends through it quickly on gambling and claret. You could say "well, young Farnsby is profligate now, but money isn't scarce (even if his inheritance is) and he'll make right soon enough". Or you could foresee the inevitable, and recognize that one bout of good fortune does not guarantee a happy ending.
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    This is pretty much exactly the form of the reply to Malthus that was made by Marx and Engels . It's interesting how that argument has migrated across the political spectrum.
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    Thomas Beagle writes,
    "(b) begs the question of whether it is possible to develop suitable alternatives to oil."


    If it's not we're in big, big, BIG trouble. It's concerning to me that no easy alternatives have presented themselves thus far. It seems to imply one of several bothersome explanations

    1) as you suggest it's just not feasible or damn near so.
    2) the market is doing a poor job... any time now Mr. Invisible Hand.
    3) the market is being manipulated to suppress alternatives suggesting a deep dark Bilderberg Group- like conspiracy.



    One big hope I have is for high storage capacitors that will run a car 200-300 miles a charge, charge as fast as you fill your tank and ideally are solid state long lasting and not produced with environmentally harmful products.


    http://tech.blorge.com/Structure:%20/2008/06/27...
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    It's not clear that (a) is true. Maybe for oil, but certainly not for coal. Coal is abundant, but simply because it's not liquid, it is more costly in some applications. Thus coal may be one of the "alternative" sources, along with coal liquefication.
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    I largely have issues with (b) and (e). I discuss here:

    http://economics.about.com/b/2008/08/04/are-the...

    In a nutshell - there is no guarantee that our new energy sources will be less polluting than what we use now. As well, even if our sources are less polluting per-unit-of energy, there still may be an increase in pollution due to increases in per-capity energy uses and through population growth.
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    I also didn't understand (a). Oil is more expensive than it historically has been, but it's still cheaper than alternatives; that's why the market is still using oil, and why politicians are promising billions in subsidies and tax credits to "wean us" off oil.

    We also have a record amount of proven crude reserves. So in what sense is oil more scarce than biofuels or whatever?
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    Mostly correct. a few points:

    1. A well functioning price system would price oil and it's externalities much higher than even current levels even ignoring global warming, for national security reasons. We need a gas tax or equivalent for those national security reasons.

    2. Since all available petroleum will eventually be burned by someone, it is silly to enter into any global agreements that restrict our consumption or emissions.

    2. Rapid price rises will be good in the long run. That's a function speculators are taking care of to some extent, connecting forecast future prices to spot prices. No change in gas consumption occurred in the US until prices quadrupled. We want to be on the elastic part of the demand curve to spur innovation and discourage consumption.

    3. We don't have an energy supply problem, we have an energy storage problem. That's the problem coal and oil have solved for us. We really need better batteries for electric cars.

    4. Nuclear power, sequestered coal and large solar farms are all feasible at 2x-3x current prices.

    5. Globally, wealthier economies will be cleaner and more easily able to adapt to climate changes of most varieties. Above all else, we should spend most of our efforts creating wealthy economies.

    6. Finally the argument for higher petroleum prices/taxes for national security reasons, but not for global climate reasons, needs to be articulated carefully, lest warming reverses.
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    I will tackle (b). The meaning of the phrase "a well functioning price system" is subject to debate. "Cleaner" is a relative term, and its inclusion in a formula does not make for anything approaching the solidity of a mathematical identity. Example, does a "cleaner" power grid mean pushing the development of an HIV or Cancer vaccine back 15-20 years or more? How clean will such a power seem to your average Prius driving yet AIDS ribbon wearing celebrity? Which technological advances in the short term should we sacrifice in order to reach this "clean" energy? Keep in mind that the power structures necessary to "ration" technological advances in the furtherance of a switch to "clean" energy will be top-down and bureacratic in nature, and will hence further decrease the efficiency of our capital allocation mechanisms, an you have got a reduction of our ability to progress towards technological advance, again.
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    You really need to read some Herman Daly concerning steady state economics and our current badly flawed econometrics. There's a whole field of ecological economics that Daly essentially founded that your musings here do not engage. The temptation to say "...and a pony!" is pretty high on this one.
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    Dear Will,
    The argument's problems are in (b) and (c). The problems can be well summarised in the concept of EROEI - Energy return on Energy Invested. As we move from richer sources of fuel with high EROEI, we have to spend more and more of the GDP in getting the SAME energy output that was required to keep us at the status quo. With an EROEI of 99 to 1, just one unit of energy combined with low human effort gets us 99 units of energy that can be used for powering civilization. Now if the old energy source is gone and the new one has EROEI of 9 to 1, to get those same 99 units of energy for powering your civlization, you need to invest 11 units of energy. The endgame really comes in when the EROEI starts approaching one and greater and greater levels of complexity is required to sustain the same level of consumption that industrial civilization provides. If however, you are booted once onto a >1 EROEI renewable energy source, you are set.. provided you don't reproduce...
    For much clearer expositions, Pls. see the debates on Net Energy in the Oil drum. www.theoildrum.com
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    The problem is that a) is irrelevant. The question isn't whether energy is scarce; the question is whether usable energy is scarce. It is, and always will be.

    The question then is, "how scarce?" The answer to that depends on the state of the world (how much oil is in big, easily reached pockets? how much does the sun shine?) and the state of technology.

    The state of the world is changing as we pick the low hanging fruit, e.g., drain the big oil and natural gas reservoirs. Prices go up because it's more expensive to pick the fruit that's way up. That creates incentives to develop and implement new technologies that can undersell the remaining fruit. Agreed.

    However ... New technology may make if possible to get usable energy at low costs--with costs defined broadly to include environmental costs. For example, it may be possible to genetically modify bacteria to make usable hydrocarbons from water, carbon dioxide, and sunshine. Or it may not.
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    Roger,
    Good point about usable energy. I think we can all agree that energy is abundant - it's radiating from the sun all day, every day, and it will continue so for longer than is relevant to plan for. And for electricity, I'm convinced we can rely on non-fossil fuels, many countries already do.

    The problem is liquid fuels for transportation. Can we rely on the sun for that? Yes, ethanol works just fine. Growing crops for ethanol is a very obvious sort of use of solar energy. Thus, usable energy is abundant.
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    I don't think ethanol is a good example of abundant usable energy. Growing corn doesn't just require sunlight. It also requires land and water (and fertilizer and tractors and ...). Most of the energy of the sun goes to making roots and stems and leaves and cobs, and to keeping the plant alive for 4 months. Very little makes it into the kernels. Even the little bit of ethanol we have produced so far has taken a large chunk of land.