Chapter 5 In Search of Solutions II: Efficiency Improvements

Definition of Efficiency Technological efficiency (e) is defined as the ratio of “amount of benefit (B) per unit limited resource (R)”, i.e., Examples of benefits (B): Examples of limited resources (R): non-renewable or renewable fuels and minerals arable land waste-absorption capacity of the environment time (labor) and money work done by machines food produced by industrialized agriculture years of life extended by high-tech medicine material affluence, expressed as per capita GDP

Reducing the Use of Limited Resources by Increasing Efficiency The use of a limited resource (R) can be reduced by increasing efficiency (rearrange the e=B/R equation): Resource use (R) declines with time ONLY IF efficiency (e) improvements outpace the growth in the demand for benefits (B), i.e., e increases FASTER than B.

Rising Material Affluence Source: Huesemann and Huesemann (2008)

Causes of Economic Growth There are at least three important aspects worth considering to understand why continuous progress in science and technology has played a key role in rising living standards (per capita GDP) in industrialized nations: The nature and drivers of technological innovation The rebound effect in response to efficiency improvements Factor analysis from neoclassical growth theory

The Nature and Drivers of Technological Innovation Modern technologies are nothing more than highly efficient processes designed to convert large quantities of energy and mineral resources into a wide variety of products and services while minimizing the input of human labor. Science and technology have increased affluence by: substituting capital and energy for labor, thereby increasing labor productivity which translates into rising per capita production and consumption. creating a large number of new products and services, thereby opening up new avenues for consumption. continuously increasing efficiencies, thereby decreasing the costs of goods & services, thus stimulating their consumption.

Rebound Effect or Jevons’ Paradox Efficiency gains do not necessarily decrease the use of limited resources but rather stimulate their consumption as a result of efficiency-induced price reductions. This phenomenon is called “rebound effect” or Jevons’ Paradox, since it was first observed by British economist Stanley Jevons in (Note: He found more efficient steam engines will increase rather than decrease demand for coal). Example: Increases in automobile fuel efficiency will result in more driving due to lower fuel consumption cost, thereby reducing originally predicted fuel savings. The rebound effect is directly or indirectly responsible for a large increase in per-capita consumption/affluence.

The Contribution of Technological Change to Economic Growth Source: Huesemann and Huesemann (2008) This growth accounting equation has been used by neoclassical economists to determine how much technological change (TC or TFP), relative to increases in capital (K) and labor (L), is responsible for the total growth in economic output (Q): % Q growth = % L growth + % K growth + TC

Efficiency Improvements and Limited Resources Science and technology has caused growth in material affluence (B) as well as continuous improvement in efficiencies (e). According to the equation R=B/e, the use of limited resources (R) will only decline with time if technological efficiency improvements (e) occur faster than the technology-induced growth in (material) benefits (B). To determine whether efficiency improvements have reduced the use of limited resources, historical data are analyzed to evaluate whether efficiency improvements have occurred faster than the respective demands for benefits.

Energy Efficiency & Total Energy Use Source: Huesemann and Huesemann (2008)

Automobile Fuel Efficiency & Total Automobile Fuel Use Source: Huesemann and Huesemann (2008)

Lighting Efficiency & Total Energy Use for Public Lighting Source: Huesemann and Huesemann (2008)

Efficiency of Materials Use & Total Material Requirements Source: Huesemann and Huesemann (2008)

Efficiency of Carbon Use & Total Atmospheric CO 2 Emissions Source: Huesemann and Huesemann (2008)

Labor-Saving Technology & Number of Hours Worked Source: Huesemann and Huesemann (2008)

Medical Progress & Health Care Costs Health care spending in the United State is expected to reach 20% of GDP by High-tech medicine is believed to be responsible for 50% to 85% of the growth in health care costs. Medical technology increases health care costs because of: greater availability and accessibility of tests and treatments due to efficiency-induced cost reductions (rebound effect). hope for new cures which, if successful, become permanent needs. prolonging life as long as possible, no matter what the costs. As long as demand is unlimited, cost will continue to escalate despite efficiency improvements in health care delivery.

Inherent Limits to Efficiency Improvements There are inherent thermodynamic limits to energy conversion efficiencies (2 nd law of thermodynamics). The supply-side energy efficiency, currently at 37%, can be increased by at most two-fold. The end-use energy efficiency can probably be increased by two to three-fold. Total energy efficiency can be increased by five-fold. There are limits to improving the efficiency of materials use since one cannot indefinitely “angelize” the economy. There are limits to improving labor productivities since service sector and professional jobs cannot be mechanized.

Unintended Consequences of Efficiency Solutions Increased vulnerability to resource shortages. The problem of reverse adaptation: Efficiencies (means) become ends in themselves. Optimization of technical efficiencies strengthens materialistic values and leads to neglect of non-material values. Excessive focus on efficiency improvements may destroy the quality of life. Greater exploitation of workers and the environment (e.g., assembly line). Positive bias towards the quantifiable, leading to neglect of cultural or personal values such as fairness, equity, freedom, creativity, faith and aesthetics. Strong focus on rational problem solving while ignoring subjective viewpoints, potentially creating a world devoid of love and empathy.

Conclusions Historical data demonstrate that many efficiency improvements have not been able to reverse the growth in the use of limited resources. There are inherent thermodynamic and practical limits to all efficiency improvements. Therefore, it is impossible to have continued economic growth without increased use of limited natural resources and associated pollution. The are numerous unintended side-effects to efficiency solutions. Society must avoid the “reverse adapation” problem by first defining societal values and goals BEFORE using technology with better efficiency to achieve them. Resource use (R) declines with time only if efficiency (e) improvements outpace the growth in the demand for benefits (B), i.e., e increases FASTER than B.