Energy, Growth, and Altruism: Forty Years On

Editor's note: This is the first of a two-part series by the author. Up next: "Energy, Growth, and Altruism: The View from 2016." 

Forty-one years ago, George P. Mitchell, the philanthropist, scientist and businessman announced the creation of the George and Cynthia Mitchell Prize to be awarded in conjunction with the first Woodlands Conference. The theme of the Conference and Prize reflected Mitchell’s desire to restate the original message of the Club of Rome: “Limits to Growth: The First Biennial Assessment of Alternatives to Growth.”  

Professor Bruce Hannon of the Energy Research Group (ERG) at the University of Illinois was one of five recipients of the first Mitchell Prize in 1975. ERG, which was also led by Professors Clark Bullard and Bob Herendeen, was part of the first generation of interdisciplinary academic research groups focused entirely on energy technology, economics, and policy.

How interdisciplinary? 

Hannon was a former plastics engineer turned geographer, Bullard an aeronautical engineer and Herdereen a nuclear physicist, working alongside economists Hugh Folk, Mike Reiber, and others.  In this formative era of energy policy research, energy experts were a diverse, self-educated group.

The award-winning paper, Energy, Growth, and Altruism (EGA), was an overview of much of ERG’s empirical work, mixed in with Bruce’s particular view of the deep, long-term challenges involved in creating a sustainable economy. 

Forty years later it is encouraging to see that much of what Bruce and his ERG colleagues advocated has indeed changed—and humbling to see how much remains to be done.

EGA (as it came to be known) summarized a number of interesting empirical energy policy findings that were quite new for the time. ERG pioneered the use of Leontief or “input-output” (IO) modeling to trace the flow of energy throughout the U.S. economy, laying the foundation for what we now call carbon footprints

For the first time, this allowed policymakers to understand the approximate total amount of energy required to build, operate, and fuel alternative economic activities, not just the more-easily-observed fuel consumption. 

For example, ERG found that urban autos took 8,900 British Thermal Units (Btu) to move one passenger one mile (PM), while buses took 5,300 Btu/PM and one electric commuter rail took 9,900.  For buses and cars, fuel use was only a little over half the total energy required; the remaining energy use was consumed to make and service the vehicle, build and maintain rights of way, and so on.  

ERG also used a similar form of input-output modeling to estimate the average labor impacts of the same economic activities, allowing a comparison of labor and energy impacts for specific economic choices and policies. For the same urban autos, buses, and rails, ERG found that one passenger-mile created 4.2, 8.3, and 8.5 millionths of a job. 

From these results, ERG and a handful of early counterparts made a comparison that is now quite commonplace: comparing the energy saved and the jobs created by various energy policies.  In a nation that had just experienced its first energy crisis (the Arab oil embargo of 1973) and an accompanying recession, these path-breaking results were of immense interest to newly-minted energy policymakers in Washington and elsewhere.

Many of ERG’s papers wrestled with thorny methodology and data issues that accompany any attempt to measure total energy and labor use with an economy-wide input-output model. In EGA, Hannon stepped back to survey ERG’s findings and reflect on three dilemmas that surfaced repeatedly in the energy policy debates that directed ERG’s work. 

In brief, the dilemmas were:

(1)  The Energy-Labor tradeoff. Greater energy use allowed labor productivity to go up, increasing wages and the standard of living. Energy policies like shifting consumers from disposable to recyclable bottles would lower energy use and increase total employment, but they would (under normal economic conditions) also lower the overall average wage.  What political leader could be expected to adopt energy policies that led to a larger but less-well-paid-on average workforce?

(2)  The Income-Energy tradeoff.  In these early days of energy research, much work pointed to the fact that the poor were disproportionately affected by high gasoline and electricity prices because outlays for these two commodities take a large fraction of their paycheck.

While this was (and remains) true, ERG findings clearly illustrated an equally unfortunate fact:  when you count all of the energy consumed directly and indirectly for all of the goods and services bought by families, energy use rose quite linearly with income. 

Wealthy people did not spend a very large fraction of their wages on fuel purchases per se, but they took many more plane trips (about double the average energy intensity of consumption), owned more autos and larger homes, and simply purchased more goods that required energy to make. As the unstated goal of most world leaders is to increase all citizens’ income, how could this be reconciled with sustainable energy use?

(3)  The Respending Effect. The final vexing dilemma arises from the fact that policies that yield more efficient energy use typically save money for consumers, leaving them with added money to spend.  If they spend these savings on energy-intensive activities, such as air travel, then much less (or no) energy is saved in the overall economy. Sometimes the savings are even spent buying more energy directly, a phenomenon now recognized widely in the energy literature as “the rebound effect.”

In the view of Hannon and his colleagues, these dilemmas stood as underappreciated barriers to progress. Their work suggested that many good policies that saved energy and created jobs might be resisted by well-paid workers who feared a loss of jobs to lower-paid workers. Similarly, objections were likely from wealthy families who saw their standard of living decline when everything they purchased became more expensive as energy prices rose, especially when price increases were caused by energy taxes and other policies expressly designed to lower energy use.

A single core concern lay at the heart of these dilemmas. The market democracies formed during the industrial revolution seemed to depend entirely on growth in energy use—almost all from fossil fuels—to increase wages and living standards. Neoclassical economics set wages equal to a worker’s marginal product, and energy increased that product dramatically. 

It was hard to see any policymaker courageous enough to adopt policies that reduced economic growth (i.e., broad-based increases in average living standards) to preserve the environment and national security.  Moreover, if Americans continued to measure their standard of living by the size of their house and the number of cars and other goods they owned, any transition to a sustainable energy economy looked fraught with political peril. 

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Dr. Peter Fox-Penner is a professor of the practice at the Boston University Questrom School of Business where he is leading the creation of a university-wide Institute for Sustainable Energy. He is a frequent speaker and the author of numerous published articles and books, including the highly acclaimed Smart Power: Climate Change, the Smart Grid, and the Future of Electric Utilities (Island Press, 2010). He is also an academic advisor to The Brattle Group and chief strategy officer of Energy Impact Partners, a private equity firm. His background includes service as a senior official in the U.S. Department of Energy and the White House Office of Science and Technology Policy. He holds a B.S. in Electrical Engineering and M.S. in Mechanical Engineering from the University of Illinois at Urbana-Champaign and a Ph.D. in Economics from the University of Chicago Booth School of Business.  

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The views expressed by contributors to the Cynthia and George Mitchell Foundation's blogging initiative, "The Economic Argument for Environmental Protection," are those of the author and do not necessarily represent the views of the foundation.



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