A recent article in ‘Carbon Brief’ bemoans the well known paradox of energy having to decline whilst all the while GDP is supposed to increase.
The writers have developed the UK MAcroeconometric Resource COnsumption (MARCO-UK) model:
As they indicate, the major novelty in MARCO-UK is that it includes a thermodynamic representation of energy flows through the economy – from primary energy sources, such as coal, through to final energy carriers, such as electricity, and then to what is known as “useful energy”, as their diagram below indicates:
They have devised a analysis system to suggest lower GDP would have resulted from an energy system which was at unchanging efficiency:
As a result consumers can buy energy at lower cost, even though I’m not sure that is actually evident for consumers, (if my experience, at least, is anything too go by!) though energy clearly is, these days, at a somewhat lower cost with regard to the environment. Some of this may indeed be lost by using the energy saving lightbulb in order, perhaps, to be able to afford a warmer thermostat setting…
Could companies upgrade their capital investment with the efficiency improvements? Possibly, though I doubt that the relatively small price reductions actually experienced are much swaying investment decisions, unless in very high-energy-consuming industries.
Where there is some much more interesting speculation is:
Does this more efficient energy consumption help to explain the productivity puzzle?
Potentially there is a case for the goods and services per hour worked to stay static or even decline if you take advantage of the cheaper energy cost but still keep on all the original staff, because it is more than likely, that when you have skilled staff, getting rid of them could imperil your company’s future prosperity.
Or, just as likely, (and I begin to fear even more so) that in fact, the reduction in energy cost allows you to produce less and still broadly, retain your profits, hoping eventually for better times.
The last is, I think, what has to be their most incisive, and, for me, rather unhappy conclusion.