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Forestry Program
Globalization and Economic Growth: Energy and Environmental Constraints
Sten NilssonDeputy Director and Leader, Forestry Program
IIASA, Laxenburg, Austria
Seminar on the Globalization Challenges for Europe, 17 August 2006 Helsinki, Finland
Forestry Program
S. Nilsson, 1980
Energy Development ―
Strategic Economic Choices, IEA
Forestry Program
Globalization
Integration of economic activities via
markets
Economic globalization
Economic growth through transmission
of new technologies and policy changes
Forestry Program
Problem
High energy costs will hamper overall
economic growth
Globalization will drive environmental
constraints, which in turn will hamper
economic growth
Forestry Program
Economic Growth
Sheer Growth → prerequisite for
economic growth to be reconcilable
with sustainable development
Forestry Program
Environmental Development
Globalization will cause gaps between
ecosystem service supply and demand
This will cause increased environmental
constraints
Assumed to slow down economic
growth
Forestry Program
Energy Development Crude Oil Price History from 1861–2006
Source: M. Ströck, 2006, Released under the GFDL
Forestry Program
Energy Development World Primary Energy Demand (IEA, 2005)
Total 16.3 billion toe
50% more than today
81% of supply as fossil fuels
73% of the increase in developing countries
Forestry Program
Energy Development Global Oil Consumption
(conventional and unconventional reserves and resources)
Source: Riahi and Keppo (2006)
Forestry Program
Energy Development Global Natural Gas Consumption
(conventional and unconventional reserves and resources)
Source: Riahi and Keppo (2006)
Forestry Program
Energy Development
Forestry Program
High Energy PricesWhy ?Rent seeking by oil companies and energy providersLiberalization inefficientIn Europe: Power system bound to fall short due to aging
generation and transmission equipment Physical constraints not removed No institutional redesign International trade driven by tariffs and taxes and
not economic efficiency
TaxesLack of long-term energy policies
Forestry Program
Empirical Relations Between Environment and Economic Growth
Mixed bag Increased economic growth goes along with
improved environmental qualities Improved environment causes decreased economic
growth Environmental Kuznets Curve
Yes and No
Neoclassic growth models Environmental constraints reduce economic growth
Adaptive economic endogenous growth models Environmental constraints improve environmental
quality and increase economic growth
Forestry Program
Empirical Relations Energy and Economic Growth Summary of Causality Studies Between
Consumption Energy and Long-term Economic DevelopmentRegion Result Reference
Pakistan Total energy use does not affect economic growth; but electricity and petroleum use impact economic growth substantially.
Siddique (2004)
South Korea Energy conservation feasible without compromising with long-term economic growth. Oh & Lee (2004)
19 African Countries
Only 4 countries demonstrated a positive relation between energy consumption and economic growth. For 4 countries there was a negative impact on economic growth by increased energy consumption; for the other 11 countries no relation could be identified.
Wolde-Rufael (2005)
Australia No adverse impact on economic growth by introducing electricity conservation. Narayan & Smyth (2005)
11 Industrialized Countries
Energy conservation would reduce economic growth in USA, Canada, Belgium, Netherlands, and Switzerland; but not in the UK, Germany, Sweden, France, Italy and Japan.
Lee (2006)
17 African Countries
For 6 countries conservation of electricity can be made without jeopardizing economic growth; for 6 countries electricity conservation would harm economic growth.
Wolde-Rufael (2006)
4 Asian Developing Countries
Energy conservation would have limited adverse effect on economic growth in Indonesia and India but would impact the economic growth in Thailand and the Philippines.
Asafu-Adjaye (2000)
China Insufficient energy supply will substantially curb economic growth. Han et al. (2004)
New Zealand and Australia
Energy conservation will not have significant impact on economic growth in these 2 countries. The same is the case for Indonesia and India but there would be impacts in Thailand and the Philippines.
Fatai et al. (2004)
Turkey Electricity consumption substantially impacts the rate of economic growth. Attinay & Karagol (2005)
India Different models tested and conflicting results; but energy seems to act as an engine for economic growth in the short-run but in the long-run the causality goes from economic growth to energy consumption.
Paul & Bhattacharya (2004)
Taiwan Energy acts as an engine for economic growth. Lee & Chang (2005)
Singapore Oil-price shocks had only marginal impact on economic growth. Chang & Weng (2003)
Forestry Program
Empirical Relations Energy and Economic Growth Summary of Analysis of Impact of Energy Prices on
Economic Growth by Endogenous Economic Models and Econometrics
Region Result Reference
USA Oil-price stocks contribute to duration and depth of economic recessions but do not cause recessions
Hamilton (1983)
Industrialized Countries
No impacts on the aggregate economic performance Bohi (1989)
7 OECD Countries
Relatively large negative impact on economic output but insignificant response to price declines
Mork (1994)
USA Energy price shocks no significant impact on economic growth Gardner & Joutz (1996)
OECD/partly world
Oil price stocks caused some economic disruptions but the overall economic growth over past 30 years has been sustained
Birol & Keppler (2000)
Industrialized Countries
Continuously rising real energy prices tend to slow down economic growth Van Zon & Yetkiner (2003)
USA Energy conservation greater negative economic impact than earlier anticipated Kaufmann (2004)
World Recent energy price increases have slowed down the world GDP by 0.5% in the short term
IEA (2004)
USA (individual states)
Increased oil prices have small impact on state economies and reduction of oil taxes would have negative effect on a state’s overall economy
Decker & Wohar (2005)
44 Developed Countries
Rising energy prices having no long-term negative economic impact. In some cases they have a positive impact on economic growth.
Bretschger (2006)
World Oil price stocks have a marked but relatively short-lived economic negative impact (Huge error bands)
IMF (2006)
US/Canada/Japan
Economies have thresholds for increased energy prices. Below threshold no economic impact. Above threshold negative economic impact.
Huang et al. (2005)
Forestry Program
ConclusionsDeveloping economies more sensitive to increased energy prices than developed economies
Threshold value for sensitivity to energy prices which varies depending on development stage of economy
Increased energy prices will cause short-term economic disruptions but hardly any long-term negative impacts on economic growth
Forestry Program
Climate and EconomiesThe cost of abatement of emissions is substantially lower than the cost of future climate change
Studies on the relation between CO2 emissions
and economy
Depending on the structure and development of the economy countries have different abilities to absorb the impacts on the economy of reduced CO2 emissions. Some countries can do
it without negative economic impacts and others will suffer substantially
Forestry Program
What Can Governments Do?Environment R&D for environmentally friendly
technologies and products
Energy Most of the adjustments to take place in the
private sector Establish competitive energy markets Develop long-term energy strategies Stimulate new energy technologies Let world energy prices pass through
completely to domestic energy prices Keep energy taxes and inflation under control