CAREY W. KING, PH.D. JUNE 14, 2018 A LONG-TERM GROWTH MODEL WITH ENDOGENOUS BIOPHYSICAL AND ECONOMIC STATES

Transcription

1 JUNE 14, 2018 A LONG-TERM GROWTH MODEL WITH ENDOGENOUS BIOPHYSICAL AND ECONOMIC STATES International Society for Biophysical Economics, 2018 Conference Wells College, NY CAREY W. KING, PH.D. Research Scientist & Assistant Director, Energy Institute, The University of Texas at Austin with Eric Kemp-Benedict (Stockholm Environment Institute) & Balagopal Menon (post-doctoral fellow at UT-Austin)

2 Goals for this model Explain if/how the finite Earth is affecting economic trends (investment, wages, debt) energy flow trends Mimic broad historical trend agrarian fossil/industrial economy.. to then have basis to inform fossil renewable (or low-carbon) economy 2

3 Goals for this model Explain if/how the finite Earth is affecting economic trends (investment, wages, debt) energy flow trends Mimic broad historical trend agrarian fossil/industrial economy.. to then have basis to inform fossil renewable (or low-carbon) economy A very broad validity check 3

4 Declining energy & & food costs are the characteristic trend of the industrial era Preindustrial: mechanical power from humans and animals Energy Expenditures: Fouquet, R. (2014) REEP 8(2). Figure: King, C. W. (2015) Energies 4

5 Biophysical Models Population Natural Resources Capital (physical) Economic Models Population Capital (money) Wages Employment Debt (sometimes) Research Approach Combine models: Link resource consumption to debt, employment, and output 5

6 BIOPHYSICAL MODEL 6

7 HANDY model Motesharrei, S., Rivas, J. & Kalnay, E Human and nature dynamics (HANDY): Modeling inequality and use of resources in the collapse or sustainability of societies. Ecological Economics, 101, Equation State xሶ c = births deaths xሶ e = births deaths y ሶ = nature regeneration extraction w ሶ = extraction consumption Population (workers) Population (elites, non-workers) Nature Wealth (nature extracted but not yet consumed) 7

8 HANDY model Motesharrei, S., Rivas, J. & Kalnay, E Human and nature dynamics (HANDY): Modeling inequality and use of resources in the collapse or sustainability of societies. Ecological Economics, 101, Equation xሶ c = β c x c α c (w)x c xሶ e = β e x e α e (w)x e y ሶ = γy λ y δx c y w ሶ = δx c y C c w C e w State Population (workers) Population (elites, non-workers) Nature Wealth (nature extracted but not yet consumed) 8

9 Finite-world feedbacks λ = maximum resource size Equation xሶ c = β c x c α c (w)x c xሶ e = β e x e α e (w)x e y ሶ = γy λ y δx c y w ሶ = δx c y C c w C e w State Population (workers) Population (elites, non-workers) Nature Wealth (nature extracted but not yet consumed) 9

10 Finite-world feedbacks λ = maximum resource size I change death rate (α) to function of nature consumption Equation xሶ c = β c x c α c (w)x c xሶ e = β e x e α e (w)x e y ሶ = γy λ y δx c y w ሶ = δx c y C c w C e w State Population (workers) Population (elites, non-workers) Nature Wealth (nature extracted but not yet consumed) 10

11 Finite-world feedbacks γ = regeneration rate λ = maximum resource size I change death rate (α) to function of nature consumption Equation xሶ c = β c x c α c (w)x c xሶ e = β e x e α e (w)x e y ሶ = γy λ y δx c y w ሶ = δx c y C c w C e w State Population (workers) Population (elites, non-workers) Nature Wealth (nature extracted but not yet consumed) 11

12 Finite-world feedbacks γ = regeneration rate λ = maximum resource size I change death rate (α) to function of nature consumption Equation xሶ c = β c x c α c (w)x c xሶ e = β e x e α e (w)x e y ሶ = γy λ y δx c y w ሶ = δx c y C c w C e w State I change to function of Population extraction (workers) capital, K e Population (elites, non-workers) δ: extraction rate Nature parameter Wealth (nature extracted but not yet consumed) 12

13 HANDY: A moderate extraction parameter leads to sustainable steady state (Motesharrei, et al., 2014) 13

14 HANDY: A high extraction parameter leads to nature depletion and collapse of the population (Motesharrei, et al., 2014) 14

15 WHAT IS THE MODEL DOING? 15

16 Nature Consumption Nature to operate K extract Extraction capital (K extract ) Net Output ($) (Y = C + I) Investment for K extract Total Nature Extraction Depreciation Nature to operate K goods Goods capital (K goods ) goods Price ($/ good) Investment for K goods Consumption of Goods Nature Depreciation Nature embodied in capital Nature for human consumption goods Price ($/ nature) Investment goods (capital is made of nature) Consumption of Nature 16

17 ECONOMIC (GROWTH) MODEL 17

18 Capital & Debt Each sector has its own capital (K), investment (I), and debt (D) K ሶ = I P g γk = investment depreciation ሶ D = I Π = investment profit 18

19 Investment Investment (for each sector) is a (linear) function of profit share, κ(π) I = κ 0 + κ 1 π π i = П i /VA i = profit / value added П i = VA i wages i interest payments i depreciation i 19

20 First, consider of debt accumulation as investment minus profit U.S. BEA Tables and invest = profit

21 Wages per person Wage (ω) is a function of employment (L/x) (i.e., Phillips curve) ω ሶ = f Τ L x ω f L x L/x 21

22 Value Added Net Output Goods Extraction Consumption Investment Total output Goods P g A gg X g P g A ge X e C g I e + I g P g X g Extraction P e A eg X g P e A ee X e C e --- P e X e Profit Π g Π e Wages wl g wl e Interest rd g rd e Depreciation P g γk g P g γk e Total output P g X g P e X e 22

23 Value Added Net Output Goods Extraction Consumption Investment Total output Goods P g A gg X g P g A ge X e C g I e + I g P g X g Extraction P e A eg X g P e A ee X e C e --- P e X e Profit Π g Π e Wages wl g wl e Interest rd g rd e Depreciation P g γk g P g γk e Total output P g X g P e X e A ee = nature to operate K e total extraction output 23

24 Value Added Net Output Goods Extraction Consumption Investment Total output Goods P g A gg X g P g A ge X e C g I e + I g P g X g Extraction P e A eg X g P e A ee X e C e --- P e X e Profit Π g Π e Wages wl g wl e Interest rd g rd e A ee = nature to operate K e total extraction output Depreciation P g γk g P g γk e Total output P g X g P e X e A ee = η ek e CU e δyk e CU e = η e δy = [nature] [nature] 24

25 Value Added Net Output Goods Extraction Consumption Investment Total output Goods P g A gg X g P g A ge X e C g I e + I g P g X g Extraction P e A eg X g P e A ee X e C e --- P e X e Profit Π g Π e A eg = A o eg + AI eg Wages wl g wl e Interest rd g rd e Depreciation P g γk g P g γk e Total output P g X g P e X e 25

26 Value Added Net Output Goods Extraction Consumption Investment Total output Goods P g A gg X g P g A ge X e C g I e + I g P g X g Extraction P e A eg X g P e A ee X e C e --- P e X e Profit Π g Π e Wages wl g wl e Interest rd g rd e Depreciation P g γk g P g γk e Total output P g X g P e X e A eg = A o eg A o eg A o eg + AI eg = nature to operate K g total goods output = η gk g CU g = η K g CU g /v g v g = [nature] g [goods] 26

27 Value Added Net Output Goods Extraction Consumption Investment Total output Goods P g A gg X g P g A ge X e C g I e + I g P g X g Extraction P e A eg X g P e A ee X e C e --- P e X e Profit Π g Π e Wages wl g wl e Interest rd g rd e Depreciation P g γk g P g γk e Total output P g X g P e X e A eg = A o eg A o eg A o eg AI eg I A eg + AI eg = nature to operate K g total goods output = η gk g CU g = η K g CU g /v g v g = [nature] g [goods] nature embodied in capital = total goods output = [nature] K g CU g /v g [goods] = (I g+i e )/P e 27

28 SIMULATION RESULTS CAUTION: MODEL IS NOT CALIBRATED (CONSIDER GENERAL TRENDS) 28

29 Mimicking the industrial (fossil) transition and considering influence of debt 29

30 The idea is to understand two things: Parameters that can broadly replicate this industrialization trend Influence of private debt (investing more than profit) Energy Expenditures: Fouquet, R. (2014) REEP 8(2). Figure: King, C. W. (2015) Energies 30

31 31

32 Max resources increase to 300 t = 400) More resources 32

33 More resources; debt-based investment Max resources increase to 300 t = 400) More resources 33

34 More resources; debt-based investment Max resources increase to 300 t = 400) More resources More resources; debt-based investment; increased efficien. 34

35 Decline in energy (nature) cost due to energy transition 35

36 Price ($/nature) More resources; debt-based investment More resources; debt-based investment; increased efficien. More resources 36

37 Price ($/nature) 37

38 Price ($/nature) 38

39 Price ($/nature) 39

40 Change in energy (nature) intensity due to energy transition 40

41 Nature Extraction Intensity (nature/$) More resources More resources; with debt More resources; with debt; with efficiency 41

42 Nature Extraction Intensity (nature/$) 42

43 Nature Extraction Intensity (nature/$) 43

44 Change in wage share during and after energy transition 44

45 More resources More resources; debt-based investment; increased efficien. More resources; debt-based investment 45

46 Employee Compensation (% of GNI) U.S. Energy Consumption (MMBtu/yr/person) 68% 66% 64% 62% 60% 58% 56% Compensation Share U.S. Data %

47 Employee Compensation (% of GNI) U.S. Energy Consumption (MMBtu/yr/person) 68% 66% 64% 62% 60% 58% 56% Compensation Share U.S. Data %

48 Employee Compensation (% of GNI) U.S. Energy Consumption (MMBtu/yr/person) 68% 66% 64% 62% 60% 58% 56% Compensation Share U.S. Data Energy Consumption per person %

49 More resources More resources; with debt More resources; with debt; with efficiency 49

50 MMBtu/person More resources More resources; with debt More resources; with debt; with efficiency Energy/yr/person

51 Other simulation results of interest 51

52 More resources More resources; with debt More resources; with debt; with efficiency 52

53 More resources More resources; with debt More resources; with debt; with efficiency Tradeoff of higher interest payments is lower wage share Interest payments from debt-based investment raise Value Added (and net output) 53

54 More resources More resources; with debt More resources; with debt; with efficiency NEPR ( EROI ) Net External Power Ratio NEPR = P extract P invest - P operate P invest - P operate 54

55 More resources More resources; with debt More resources; with debt; with efficiency 55

56 Takeaways The 2-sector (post-keynesian biophysical) model replicates the broad trend of the agrarianfossil energy transition helps explain the post-1970s wage share decline in U.S. (OECD countries) No exogenous growth assumption needed 56

57 Carey W. King, Ph.D. Research Scientist & Assistant Director, Energy Institute Jackson School of Geosciences Lecturer, McCombs School of Business & LBJ School of Public Affairs energy.utexas.edu

58 Extra

59 Population Pressure = Population Pressure Population maximum population that can be fed Energy Expenditures: Fouquet, R. (2014) REEP 8(2). Population Pressure: Turchin and Nefedov (2009) Secular Cycles. Figure: King, C. W. (2015) Energies 59

60 Prices V X P X ሚA T P X Γ P P = X 1 ሚA T Γ 1 V 60

61 Wages as % of GDP U.S. Energy Consumption (MMBtu/yr/person) 52% 50% U.S. Data % 46% 44% 42% Wage Share %

62 Wages as % of GDP U.S. Energy Consumption (MMBtu/yr/person) 52% 50% U.S. Data % 46% 44% 42% Wage Share %

63 Wages as % of GDP U.S. Energy Consumption (MMBtu/yr/person) 52% 50% U.S. Data % 46% 44% 42% Wage Share %