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Wednesday, February 08, 2012

Energy Production's Direct Correlation With National Wealth part I

   OK here is a pdf on the complete correlation in America between energy production and GDP from 1900 (before which we don't exactly have a big electricity industry) and 1970 (after which "environmental" regulation severely and artificially depressed power production.

   In economics, being at least as much art as science, let alone engineering, you simply do not expect to find such mathematically precise relationships. From page 20/21
Summary and conclusions


In the `standard’ model a forecast of GDP requires a forecast of labor L, capital stock K and the Solow multiplier – multifactor productivity or technical progress — A(t). We have shown that introducing energy and/or material resource (i.e. exergy) inputs does not significantly improve the explanatory power of traditional production functions. A time-dependent Solow-multiplier is still needed.

However a much better explanation of past economic growth can be obtained by
introducing exergy services (useful work) as a factor of production, in place of exergy inputs.
Exergy services can be equated to exergy inputs multiplied by an overall conversion efficiency
which, of course, corresponds to cumulative technological improvements over time. Based on
this hypothesis economic growth from 1900 to 1975 or so is explained almost perfectly, except for wartime perturbations.
   It then goes on to suggest that the rate of energy production has been less than that of overall growth since about 1975 and suggests that this may be because of improved efficiency or of the oil crisis in 1974 raising prices. Of course if the underlying cause of the diversion of effort to increased efficiency and the underlying cause of oil price hikes (though oil prices have varied widely in the interim and have at times been in real terms significantly lower than in the 1960s) is shortage of energy this would also explain it.

    The question then becomes whether the shortage of energy is because we are hitting peak oil/coal/gas/uranium/thorium/solar power satellite power/cold fusion etc. or whether it is because of political limitations on developing some or even all of these. Looking at that list in full it is obvious that there is no possibility of hitting peaks in some of them ( shale gas, nuclear SPS)  and that in all the others the reserves are still increasing so the limits on energy production and thus national wealth can only be purely political.

    Part II and part III to follow.

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