energy and economic develop - toman

SUMMARY Energy and economic Development

(Toman and Jemelkova, 2003)

(Toman and Jemelkova) mentioned that the current way the relationship between energy and

economic development are studied has mainly focused on the analysis of energy development

as a result from economic development and not otherwise.

The fact is that energy development and economic development are strongly correlated but

the causality between them is still matter of discussion. there are doubts about energy´s

absolute transcendence.

Development depends on many factors from which energy can be proven as one of the most

important. There is always a trade-off between factors for development when allocating

resources for development. By knowing the role of energy as a causal factor and its impact on

economic development, policy makers, project developers, governments and development

organizations can allocate resources to energy development in order to achieve the highest

returns on economic development. (“This is not just an academic question; energy

development competes with other development opportunities in the allocation of scarce capital

and in the allocation of scarce opportunities for policy and institutional reform.”)

There are many potential synergies between energy provision features and development, it

has been found (e.g. by (Schurr))1 that changes towards less energy-intensive productive

activities, increase in thermal conversion efficiency, the use of more flexible energy forms and

energy provision quality (rather than “physical availability per se” (Schurr) cited by (Toman and

Jemelkova)) generate positive effects on economic development.

Nevertheless the main approach of economics with respect energy and economic

development is energy development is driven by economic development and how to make

energy available and improved for developing countries instead of defining how “how energy-

1 This paper is difficult to get, this info is cited from Toman and Jemelkova

using societies develop” and how energy could boost development processes. By taking the

second approach, the dynamics of the economic system should be analyzed to define the

characteristics of energy provision input and the system response to that so to achieve

increasing returns to investment on energy (Z. Guevara). For this (Toman and Jemelkova)

pointed out that in literature much has been said about the effects of energy in production at

the micro level but less about macro-level (economy-wide level).

Energy and Development: conceptual Linkages

“The linkages among energy, other inputs, and economic activity clearly change significantly as

an economy moves through different stages of development”. The relationships between the

two are always dependent in the so-called energy ladder (i.e. form primary biomass less

efficient energy provision to electricity-based provision). However the advantages of a known

ladder imply the adaptability an early application of more advance energy provision to early

stages in the energy ladder.

Demand and supply highly depend on the cost of energy. Energy provision is costly and the

financing could be troublesome, many inputs are required and certain characteristics of

utilization must be met. However demand shows a “subtle optimizing behavior, given the

constraints faced by the economic actors (Barnes and Floor, OTA, 2003)”2. To increase the

outcome of transaction supply-demand barrier removal is the most used approach3.

( )

( )

( )

This simple model helps highlight the way in which energy can be used to generate increasing

returns. However this model does not consider other intermediate goods, environmental

residuals and the impact of specialization to classify human capital.


3 Not increasing benefits?

Increased benefits of baseline

consumption

Full cost of infra

marginal lighting

use

CS for increased

lighting

Provision of energy services

If increasing returns of energy provision (IREP), it follows that increased energy provision at the

expense of reducing investment in other development factor would induce a higher economic

growth level. IREP is different at different scales, while in large scale they require as well large

investment in infrastructure for applying large provision. in small scale the most important

benefit Is the reallocation efforts in other activities and economic structures (specialization,

education, production) rather than in the getting energy provision (reducing the opportunity

cost of energy provision).

Utilization of energy services

Increasing returns of energy utilization (IREU) should be pursued by improving the marginal

utility/productivity of energy over a wider specific range

( )

The A’s are known as factor augmentation terms by which the contribution of H and K can be

enhanced by other variables. In endogenous theory this factors are increased through R&D

activities, education and provision of public goods. If IREP and IREU, energy provision have an

augmentation effect on the factors of production in the contrary to that none effect with the

sole contribution of the energy availability per se.

Additionally, higher and lower quality energy can be included in the models to recognize the

need of the trade-off between these two types of energy in order to get the maximum benefits

with scarce resources.

Reliability: energy provision would pursue a reliable distribution in order to avoid disruption of

provision and the cost associated to it that could be really high (blackouts and equipment to

support generation)

Increase of factor productivity by switching the energy paradigm into other which enhances

efficient use of resources and time. For example by improving education through lighting,

health by better powered equipment for indoor conditions

Synergy with other infrastructure and services, for example transportation, large scale,

telecommunication and efficient markets can be supported and boosted by energy availability.

Channels for Increasing Returns

Note: limitations to separate the effect of just energy in the analysis of results to determine

IRP/U effects

reallocation of household time (especially by women) from energy provision to

improved education and income generation and greater specialization of economic

functions;

• economies of scale in more industrial-type energy provision;

• greater flexibility in time allocation through the day and evening;

• enhanced productivity of education efforts;

with more flexible and reliable as well as plentiful energy, greater ability to use a more

efficient capital stock and take advantage of new technologies;

lower transportation and communication costs: greater market size and access, more

access to information (the combined result of energy and other infrastructure); and

health-related benefits: reduced smoke exposure, clean water, and refrigeration

(yielding direct benefits and higher productivity).

“This discussion of how increased energy availability may promote different stages of

development also underscores the need to think about more than energy development in

isolation”. E,g by looking at the future of the labor services freed from energy provision

obtaining (e.g. directing them to education). However “Attempts to expand energy availability

will accomplish little if bottlenecks to such investments are not overcome.” for example the

institutional transformation, that will help the effect of energy provision to flow smoothly

without barriers and that enehance the effective use of IREP/U. Another constraint and flaw of

this approach Is an stuborn attention to the supply side without considering deman side

effects (e.g. rebound effects).

Empirical illustration of energy-development linkages

These linkages can be analyzed through input-output analysis in addition to the consideration

of other development factors. “One could explore the questions addressed above using

macroeconomic data on income or production, energy utilization, capital investment, human

knowledge acquisition, and other factors”. However the discussion of the processes between

energy provision and its consequences shows a complexity that cannot be dealt with simple

macroeconomic relationships. 1st method: make conclusion of the development process from

the analysis of cross-section analysis (risky) 2nd method, developed a general equilibrium

model though is not suitable for the approach in this paper. 3rd method: microeconomic

analysis of consequences. (OTA) and the The World Bank (1994)4 showed experiences in which

energy progress aimed economic progress though there is no economic value analysis of

energy advances.

Energy and industrial progress

Review better (Schurr, 1982, Schurr, 1984) and for a more econometric approach (Jorgenson,

1981, Jorgenson, 1984). “From the standpoint of the theme of this paper, we can likewise

conclude that patterns of energy use do seem to have some important broader productivity

implications, but more work is needed to determine their importance vis-à-vis other influences

and to understand the interactions between energy and non-energy influences”.


Rural Household Energy Use

For example (The World Bank) and (ESMAP) which prove that The availability of electricity

appears to markedly accelerate the rate at which household income rises with years of

schooling. In addition, electricity appears to be the most important service among those

considered for improving household welfare and access to two or more infrastructure services

appears to have greater-than-proportional impacts on household income, so there appear to

be some economies of scope in infrastructure service provision.

Concluding Remarks

• The influence may be especially important at lower levels of development, where the

overall opportunity cost of less efficient energy forms and the relative payoff from use

of more efficient forms seem especially high.

• econometric analysis along the lines of Jorgenson’s work also can be pursued, but with

underlying models that make it possible to investigate a wider range of ways in which

energy could drive economic progress

• The ultimate practical importance of such work is not just in the documentation of

benefits from improved energy availability: the analysis would also illuminate

complicated choices among different strategies for improving energy availability

• General equilibrium research on the energy-development linkage also would need to be

undertaken.

• The models need to be constructed in a way that reflects the structural and

institutional realities of developing economies.

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