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ENERGY |
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by Valentino Piana (2004) |
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Energy is a key input for the production of goods and services. Physical capital, accumulated by successive investments, uses energy to provide its contribution to production. The energy sector is a heavy investor in R&D and it's particularly particularly open to innovation. In production and distribution of energy, the cost structure exhibits usually strong economies of scale. Large firms cover most of the market, which turns out to be quite a concentrated oligopoly. In certain geographical areas and segments, there is even monopoly. For instance the electrical grid of a country is usually a monopoly. In certain countries, only one firm is allowed to import or to export energetic sources (oil, natural gas,...). Energy is traded on a globalized market, declined with national regulations and taxation. The global price is unique, whereas taxation and geographical constrains can add to it for the final user. The demand for energy is more or less proportional to GDP. Whether it is "more" or "less" depends on GDP sectorial distribution and their distinctive dynamics: 1. Agriculture is not energy-intensive, althogh the so-called "modernization through mechanization" increases the energy coefficient. 2. In traditional manufacturing ("plants"), energy is necessary for machines to work; thus, energy consumption follows production, although technical innovations tend to reduce the burden; 3.
In the tertiary sector ("offices"), energy is hardly
an important input: computer use electricity but in pretty small quantities. 4. Transport is largely based on energy consumption, up to the situation of certain countries in which transport is a heavier consumer of energy than manufacturing. To the extent GDP growth is generated by non-transport services, the energy demand will rise less than proportionally to GDP. Energy productivity (i.e. the coefficient of energy for unit of output in a given sector) depends on the technology used. For instance, the energy needed for civil buildings is very high in skyscrapers and much lower in ecological architecture. All this makes energy demand quite inelastic in the short and medium term, thus fluctuations in energy supply results in violent movements in prices. Governments
try to control domestic energy price (through price cap, subsidies and
tax changes) but their attempts are usually ineffective. The energy price is a major determinants of variable costs in production. Its rise boosts the price level, generating inflation through at least four channels: 1. the growth in energy-intensive manufacture production costs; 2. the rise of transport costs; 3. the rise in prices of B2B purchased goods; 4. the direct increase in the energy bought by final consumer (es. petrol for cars). If
a country is not rich in energetic raw materials, the latter often represent
a large share of imports. Accordingly, the rise
in their price boost the value of imports, which are in this case particularly
inelastic. For the few oil producers, a strong rise in export
values correspondingly appears. Trade balance
drastically change all over the world. Profits in the oil industry usually goes with the price, as well as the tax revenue collected on oil products, since they are heavily taxed. By contrast, in all other industries, profits usually vanish and the recession hurts the tax revenue coming from corporate taxation and other sources. Central banks may react to energy price rise with a policy of a strong currency (revaluation of exchange rate), possibly by keeping the interest rates high. This can even deepen the recession through a fall in exports. The
dominant nowadays production of energy is associated with a heavy pollution
impact on the environment. Some major ecological disasters have been linked
to object connected with the energy value chain, as nuclear plants or
oil-tankers. Only
few alternative
sources solve this problem in satisfactory way. On
the other side, most of energy sources are not renewable, forcing a limited
time horizont to the sustainability of present logics. Large concentrated interests with a strong geographical bias result in some companies exerting a substantial external pressure on foreign governments directly of through the foreign ministry of their own country. The
uneven international distribution of oil and other key sources of energy,
together with insane political management of relationships amongst nations,
make them roots for wars in the world. Demand for energy is growing all the time, except during recessions and particularly deep manufacture contraction. Its rate of growth in Europe and North America has been less than was expected in the '60s and '70s, when the "Club of Rome" forecasted the exhaustion of energy non-renewable supply. At the same time, Asia, due to its exceptional rate of growth, is taking a growing share of global demand of energy. Behaviour during the business cycle Energy use is moderatedly pro-cyclical. Energy supply follows price and inventory dynamics. Energy
consumption and production by country (1980-2002) World energy statistics: a link World Oil Market and Oil Price Chronologies: 1970 - 2003 2004 report on Arab Petroleum Exporting Countries by OAPEC Elasticity of energy use to price and supply disruptions Promoting
renewable energy in China and the world Investment
in electricity generation and its determinants Energy for the future: renewable sources of energy - EU White Paper Towards a European strategy for the security of energy supply - A White paper and the debate that follows. The fuel cells case of cooperation reasons between firms and States within an emerging radical innovation Barrier Removal to Malawi Renewable Energy Diffusion New
energy strategy for South Africa Energy
technologies for the 21st century
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