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Friday, October 18, 2013

An Energy Policy to Get Out Of Recession

   I am proud to present Mike Haseler's speech and graphs from his recent talk at UKIP Glasgow's Getting Out Of Recession discussion here and here. It starts with the basics and goes on to prove, in my opinion, the virtual total correlation between energy use and growth, which I regard as a significant contribution to economics :

An Energy Policy to Get Out Of Recession

By Mike Haseler 

  • In this talk I will outline an argument that a good energy policy is not only critical to get us out of recession but that energy is so intrinsically linked to GDP that energy policy more or less dictates how our economy performs.
Energy
  • My five year old son said: “ENERGY IS THE POWER TO MAKE US DO THINGS"
  • Coriolis introduced the idea of energy being the work done.
  • Work is things such as lifting a weight up or e.g. the work done by a weight dropping. For example the weight in an old clock does so much work or a certain weight of water turning a water mill.
  • With the development of steam power, people began to realise that burning things to produce heat was also a way of creating energy or replacing the work done by a human or animal turning a wheel.
  • At first people like the Luddites thought that all this "cheap labour" produced by burning wood or fossil fuels like coal was a "bad thing" because in effect coal was a cheap labourer replacing the more costly "food powered labourer".
  • That did not happen.
  • Replacing human labourers, by machinery did not end the need for human labour. In the industrial age, mankind's labour was needed in addition to machinery.
  • We had "human machines" whose energy derived from food. And machines producing work, first from water & wind, and then the cheaper coal and eventually gas and oil.
  • Both machines and humans "work".
GDP
GDP or gross domestic product can be measured or more accurately estimated, by a number of techniques. For our purposes the best measure to illustrate the point is that:
  • GDP is total (inflation adjusted) earnings from work (+ a few others)
  • Rising GDP is an indication of a prosperous economy. In other words when GDP is rising even allowing for inflation, we are all earning more and more or to turn it around, we are all spending more and more.
  • But what does this really mean?
  • The key to understanding GDP, is to understand how inflation is calculated. This is done by calculating the cost of a "basket of goods" which is thought to represent the cost of goods purchased by the typical household.
  • So, if the cost of this basket increases, inflation goes up (seldom comes down).
  • So, another way to describe rising GDP is that on average we can all purchase a bigger and bigger basket of typical goods.
GDP & Energy
  • Both energy and GDP are related to work.
  • GDP is the goods the average person can purchase on an average income.
  • Energy is the work done by a unit of energy ... which at one time was the average work by a person.
  • GDP is earnings from the work done by the average person.
Why Energy increases Prosperity
  • A long time ago, the work done in the economy was entirely human.
  • That work was powered by food.
  • The energy per adult male was about 2-3000 calories per day (c10,000kj or 10megajoule) (about 100ml of petrol.)
  • Then about a million years ago, man stumbled across fire - the energy available increased and so did our comfort.
  • A couple of thousand years ago, that energy increased still further when we domesticated animals. Animals could labour in our place or in some societies slavery increased the work done per "citizen". Those labourers had to be fed - our energy demand increased alongside increased prosperity.
  • So, even before money, energy was adding to prosperity.
A side issue Correlation
  • We have all heard that some warmist say that they "are certain" manmade CO2 caused the 20th century temperature rise.
  • They mean CO2 levels rise was "correlated" with global temperature rise (Fig1).
Enerconics1_html_m544c8644Fig 1: Caution: The match of the CO2 and temperature graph above is somewhat deceptive. Since one is temperature and one is CO2
  • this is not exactly convincing.
  • Much of the global temperature change such as the 1940 bump is unexplained by changes in CO2.
The graph is bogus
  • graph is in fact entirely bogus.
  • no reliable CO2 data before 1958, so that portion of the graph is entirely fiction.
  • Effect of CO2 is much smaller than suggested.
  • Actual rise due to CO2 greenhouse warming is as shown below (blue line).
  • The graph breaks down after 1998 as shown by my graph #3.
Enerconics1_html_m7a832eb9Fig 2: Real relationship - not known before 1958 and much less after
Enerconics1_html_41d9e56Fig 3: ... and relationshop breaks down after 2000
GDP is energy
  • World GDP and world energy show a much higher degree correlation.

Enerconics1_html_m68263661Fig 4: World Energy. (in exajoules) versus worldGDP (scaled to fit)

Enerconics1_html_73710a2
Fig 5: Change in world GDP against change in energy usage
Enerconics1_html_2fc8ea1bFig 6: GDP per country versus energy usage
  • As world GDP (blue) rises and falls, total world energy use (pink) also rises and falls in sync.
  • And if we look at Fig 6 we see that GDP per capita rises the more energy each country has.
  • This shows that for all reasonable purposes Energy is a proxy for world GDP. In other words if GDP rises, energy rises, or if energy usage rises then we should expect GDP to rise.
Enerconics1_html_629264eFig 7: Changing energy use and GDP for selected countries
  • As fig 7 shows, there is a natural increase in energy use as countries increase GDP.
  • Or is it the other way around? Does rising energy availability lead to rising GDP?
Enerconics1_html_43888f0e
Fig 8: Cost of meterials against energy in production
  • graph shows energy used in producing materials is very closely linked to the cost.
Energy use does not increase as a result of rising GDP,
but rising GDP and rising energy use are the same thing!
The problem with Green economics - destroy the economy to "Save the planet"
  • Long known that we cannot have GDP growth without growing the availability of energy.
  • Usually, argument is: we must reduce economic activity to "save the planet".
  • What happens when we reduce energy usage?
  • Looking at energy use of the USA, China, India and the EU from 1980, only the EU has seen a drop in energy usage
Enerconics1_html_1141c965
Fig 9: Energy Usage of USA (brown) EU (blue) China(Orange) India (purple)
  • And what has been the effect on GDP?
  • GDP has gone down
Enerconics1_html_m4289fcb2Fig 10: GDP (inflation adjusted) for USA (blue) & EU (orange Kyoto signatory) and India (yellow) & China (green) which were not obliged to cut CO2 under Kyoto
The problem with green economics - CO2 is not a problem
  • Global temperature has not risen in last 16 years
  • Severe weather has not increased
  • CO2 is an essential plant food which increases agricultural output
  • Moderate warming as we expect from the greenhouse effect of the small increase in CO2 is overwhelmingly beneficial ... as anyone with a greenhouse will know! ... particularly in Scotland.
  • So, the anti-capitalist argument of "destroy the world economy to save the planet" is just hogwash.
The problem with green economics - Energy saving schemes don't work
  • The reason for this is obvious when we understand that energy and money are two sides of the same measure.
  • However in practical terms, all saving money from e.g. insulating our homes does, is to save us money.
  • What do we then do with this extra money?
  • We spend it .... on goods which have taken just as much energy to produce as the energy saved.
  • So ... just the same amount of energy is used ... just in a different place.
The reality of energy and economics - money is stored energy
  • Rising GDP means we can all afford to buy a bigger and bigger basket of the typical goods.
  • Those goods take energy to produce. For food, that energy is largely natural. For manufactured goods, most of that energy is from fossil fuels.
  • The energy used to produce goods - the "stored energy value" of e.g. a "Mars bar" or an apple, or even a simple steel knife, set by energy costs in manufacture.
  • Whilst energy use may vary between manufacturers.
  • In a free market, all other things being equal we choose the lowest cost goods.
  • The cost of goods is largely determined by the energy use
  • In free market we choose the goods using the lowest energy to produce.
From this I think we can draw three conclusions:
  • In a free market, the cost of any good largely reflects the energy used in producing that good.
Therefore because free markets encourage the lowest priced goods.
  • In a free market, the energy used in producing any good is minimised.
The cost of energy, whether food like wheat, oil, coal or wind is mainly determined by the goods used in producing the means to harvest the wind and the process of harvesting it. And as the price of those goods like steel for windmills is largely determined by the energy used in their production it is almost certainly true that:
  • If any energy source per KWH costs more than the average market price for energy in KWH, then the energy consumed in producing that energy is greater than that produced.
  • Rather than a free market being wasteful ... free markets are the best way to ensure maximum energy efficiency.
  • Distortions to the market tend to reduce energy and economic efficiency.
  • The result is economic decline as we have seen in Europe.
How to revitalise the Scottish Economy:
  1. Stop politicians interfering with the cost of energy. Even if CO2 were a problem, because wind is so expensive, it is almost certain that more CO2 is produced as a result of this policy than without it.
  2. Stop wasting our money on wasteful wind.
  3. Stop trying to reduce energy usage
  4. Encourage fracking
  5. Encourage nuclear fusion.

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