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Globalization and Economic Growth: Energy and Environmental Constraints. Sten Nilsson Deputy Director and Leader, Forestry Program IIASA, Laxenburg, Austria Seminar on the Globalization Challenges for Europe, 17 August 2006 Helsinki, Finland.

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globalization and economic growth energy and environmental constraints

Globalization and Economic Growth: Energy and Environmental Constraints

Sten Nilsson

Deputy Director and Leader, Forestry Program

IIASA, Laxenburg, Austria

Seminar on the Globalization Challenges for Europe, 17 August 2006 Helsinki, Finland

globalization
Globalization
  • Integration of economic activities via markets
  • Economic globalization
  • Economic growth through transmission of new technologies and policy changes
problem
Problem
  • High energy costs will hamper overall economic growth
  • Globalization will drive environmental constraints, which in turn will hamper economic growth
economic growth
Economic Growth
  • Sheer Growth → prerequisite for economic growth to be reconcilable with sustainable development
environmental development
Environmental Development
  • Globalization will cause gaps between ecosystem service supply and demand
  • This will cause increased environmental constraints
  • Assumed to slow down economic growth
energy development crude oil price history from 1861 2006
Energy DevelopmentCrude Oil Price History from 1861–2006

Source: M. Ströck, 2006, Released under the GFDL

energy development world primary energy demand iea 2005
Energy DevelopmentWorld 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
energy development global oil consumption conventional and unconventional reserves and resources
Energy DevelopmentGlobal Oil Consumption(conventional and unconventional reserves and resources)

Source: Riahi and Keppo (2006)

slide10
Energy DevelopmentGlobal Natural Gas Consumption(conventional and unconventional reserves and resources)

Source: Riahi and Keppo (2006)

high energy prices
High Energy Prices
  • Why ?
  • Rent seeking by oil companies and energy providers
  • Liberalization inefficient
  • In 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
  • Taxes
  • Lack of long-term energy policies
empirical relations between environment and economic growth
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
slide14
Empirical Relations Energy and Economic GrowthSummary of Causality Studies Between Consumption Energy and Long-term Economic Development
slide15

Empirical Relations Energy and Economic GrowthSummary of Analysis of Impact of Energy Prices on Economic Growth by Endogenous Economic Models and Econometrics

conclusions
Conclusions
  • Developing 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
climate and economies
Climate and Economies
  • The 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
what can governments do
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
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