Economis for Sustainability - Thermodynamics and Economics Resources - Essay Example

Economins for sustainability Thermodynamics refers to the branch of science which studies the maximum utility of energy so as to convert it into work. Over the years many economic theories have developed that attempts to apply the principles of thermodynamics to economics and this theory has been named thermoeconomics. These theories focus on ensuring that energy is utilitized to the maximum in the process of production. These theories have found support in practical usage and have gotten support in various policies of numerous governments especially considering the new era where natural resources are depleting and there is a growing demand for more eco-friendly and sustainable methods for production. In this paper we shall discuss the close relation between environment and economy and also look at the changing policies and approaches which are being adopted to contain the challenge of depleting resources. Australia holds an important position in the developing world and global society that is in dire need to deal with various growing problems such as poverty, resource depletion, environmental damage and population explosion. These are interrelated problems and one need to find solutions to these for economic stability, growth and development. There have been over the years many theories formulated to deal with these problems. Optimists like Stiglitz believe the problem of depleting resources can be met simply by increasing the input of capital. The paper written by Stiglitz suggests that with the population growing and with depleting resources an economy can grow so long as there is a steady input of capital. He says that with technical progress and a Cobb-Douglas production function the competitive path would be characterized by growing per capita income. Solow has also written a similar paper, and these two have been criticized by the pessimist especially by Geogescu-Roegen. The two main arguments put forth against the optimist by the pessimist are that econometric methods are inadequate for determining the value of elasticity, and materials balance which help overcome this problem shows that the elasticity would be less than one, therefore there cannot be any continual growth of per capita income. If one follows the model provided by Stiglitz then the overall picture that emerges is that, depending on the initial conditions, one can expect an elasticity of either zero or one to emerge. (Petith 1999 pg 5, 6) Increasing resource scarcity may slow the rate of growth of output, but it will have no effect on the elasticity. In the never-ending debate as to whether economies are threatened by depleting pool of resources, there are two view points present, as already mentioned earlier, the optimist whose view point has been illustrated by Stiglitz and Solow. They have been criticized and bitterly opposed by the pessimist prominent among who is Geogescu-Roegen. The pessimists have opposed the theory of Stiglitz based on the property of Cobb-Douglas function on the basis of the fact that it violates the laws of physics, emphasizing that in the production process output is physical quantity which cannot be increased with depleting resources simply by increasing the capital input. These arguments were initiated by Geogescu-Roegen as early as 1975 and 1979 and later carried forward by Daly in the forum that he organized in 1997. At the forum both sides were present, the pessimists by Daly and the optimists by Stiglitz and Solow. The arguments presented by the pessimists are more easily acceptable as the laws of physics imply that there is no possibility of continuous growth. There have been two approaches presented by Geogescu-Roegen; the materials balance approach and the thermodynamics approach. The materials balance approach concentrates on the maximization of the resources still available so as to ensure greater derivation of utility from the resources used, so as to reduce the quantity of resources required in the production process, while the thermodynamics approach is based on the fact that ‘lesser energy is required in a closed process of production’ (Daly 1997). The materials balance approach found an official model only in the Gross and Veendorp model (1990). This model adopts the Stiglitz model and assumes that output cannot be greater than input and shows that even with technical advancement there cannot be continuous growth with limited inputs. There have been two models that have enunciated the thermodynamics, the first showing that the elasticity of substitution must be less than one between the output and the inputs. This has been presented by Islam (1984), who added the concept of limited resources to Houthakker’s demonstrations. The second model was created by Ayers and Miller in 1980, in which they adder to the concept of equivalency of matter and energy and they measured all inputs and outputs in negentropy (unit of energy). In this model they show that as both input and output are measured in the same units, the quantity produced has an upper limit and it cannot extend beyond it, as produce cannot contain more negentropy than the input. Thus, its concluded that once the resources are exhausted, production cannot exceed the amount of energy received from renewable resources. Technical progress can increase efficiency in the production process and make it more stable but the continuous growth in production and consumption is proved impossible. Solow over the years gradually shifted his position from the one he had in 1974 that capital could be substituted for resource as long as the elasticity was greater than one. In 1997 he noted that the possibility of substitution was still there as long as there was technological advancement. Here he focuses on two kinds of technical progress- increase in output of renewable resources like fisheries and technology which allows the use of non-renewable resources such as nuclear fission. He later wrote another paper along with Dasgupta and others, where they believed that technologies could be created which would bring forth the substitutes for exhaustible resources or they could find alternative resources for example instead of steam engines electric run engines. Later Dasgupta along with Heal in 1974 and 1997, wrote that elasticity was at the moment greater than one, and they identified that elasticity of substitution was the important variable, and concluded that progress could be made if it was greater than one, and if it was lower than one then production could always fall back on backdrop technology, “perpetual technical progress, while unlikely is not an absurd notion” (Dasgupta, 1997). They caution against extrapolation, and they say that in the Cobb-Douglas function capital also includes energy in the shapes of isoquants, which is not considered by the thermodynamic approach. As the pool of exhaustible resources is depleting, there is an increasing trend all over the world for the governments to have liberalized their markets especially energy markets, as with liberalization competition would increase which would lead to higher demand of the renewable resources, but renewable energy remains at an disadvantage without political support as the electricity markets are marginalized due to the old set-up which had massive financial, political and structural support for conventional technologies. Renewable energy thus requires strong political and economic support such as stable tariffs over the next 20 years. (Greenpeace) The renewable resources require support from the governments, national and international communities to over come the existing set-up. For example a solar radiator needs to be promoted by the governments to ensure its development against nuclear radiators. This would lead to sustainable development as well as increase in environmental conservation. There are certain policies that already are in existence such as the continuous reforms in electricity and gas markets, the liberalization of cross-border energy trade and recent policies designed to combat greenhouse gas emissions such as the Montreal Protocol. Australia faces the danger of disruption of transportation system due to a falling global oil supply and a rising demand. Australia, due to her geographic structure faces a tough transitional phase from oil dependency to electrification as that would require her to deal the fact that not only is she isolated from the rest of the world geographically but also that her regions are divided by distance, nationally also. A four policy thrust has been suggested by many as derogative for the country to help reduce the risk of disruptions from oil shortages. The four policy thrust is: 1. Future infrastructural investments need to be made in certain areas such as low emission transportation like rail freight and public passenger transport. Quick action in this field is required as construction and development of infrastructural facilities take years and requires huge investments. These will favor a more suitable travel system to develop. 2. The government also needs to formulate policies that ensure that the cost impacts of emissions trading and global oil price rises flow directly through to end users to reshape consumer markets as this would help encourage transport usage efficiencies, modal changes and positive technology choices without interfering from perverse subsidies or other mechanisms that may delay end-user moves to a future lower-emissions transport model. 3. The government also needs to develop policies that fund social equity which will help to compensate and reimburse those living in poverty especially in the rural and suburban areas as well as those who live in the remote regions of the country, so as to ensure that they are able to decrease their dependence on oil fuels and can make use of the new technology. 4. Lastly, the governments need to formulate policies which help provide strong incentives for people to reduce emissions and also on electricity generation through renewable resources so that electricity could be provided in the transport industry. (indicative scale could be a currently unforeseen 20 – 50% addition to national electricity demand by 2030) Australia has conventionally low elasticity in demand for transport fuels( Morgan, Emoto 2007) but through community awareness, involvement and incentive programs the demand can be reduced by almost 13-30% as suggested by a study conducted by Ashton and Graham in 2008. The implications of reduced supply of oil calls for less oil dependent transport alternatives such as electric railways, hybrid cars which also have lower emission levels. The first step for freight rail in Australia does not require electrification – it just requires reshaping the track work around Sydney which would be extensive and expensive but would help to change the rail capacity and be able to connect Brisbane, Sydney and Melbourne. Diesel hauled rail on these heavily trafficked corridors can make a big contribution to reducing road freight haulage and transport emissions. With the decreasing dependency on oil emissions would automatically reduce. Also the threat of depleting resources would be solved as electricity generation can be done through renewable resources and this has been proven. The expansion would be rapid with the Federal Government's commitment to a 20% Mandatory Renewable Energy Target (MRET). Competitive new electricity generation technologies are developing to industrial scale at a faster rate than likely demand growth from the transport sector. Some attention will be needed to align the time of day of transport electricity use with supply from renewable sources such as large-scale solar. It is likely that people will find it convenient to charge electric cars overnight creating some unexpected additional demand for base load coal generation plant that is otherwise losing its night-time load as we shift from electric off peak hot water to gas and solar water heating. Thus, we see that in the present time there is presence of both view points and both find their applicability in practicality. Pezzey has described the state of debate as “being between the two models”, where there is sustained growth and the other where sustainable growth is not permissible. According to the first, resources are a constant flow of services while according to the second; they are a finite quantity of services. When there is no technical progress and no population growth the two groups differ in an important way. For the first, it is obvious that a constant per capita consumption may be maintained, while for the second it may be maintained only if the elasticity of substitution is at least one. Thus, while one might claim that the present model has implications for the size of the elasticity in exhaustible resource models as well, in the context of no technical progress or population growth one can not use the present model to discuss directly whether constant consumption is possible in the context of exhaustible resources. However the situation changes radically in the context of technical progress and population growth: the exhaustible resource model can be made to approximate the fixed flow of services model. Today there is a growing need all over the world to reduce oil dependence and to achieve sustainability. Economic sustainability has become more pressing a matter than economic development and there have been many theories as to how this can be achieved. There are different view points as to which system one needs to adopt, but one can safely conclude that political, social and economic support is required to bring about the change that the times call for. Political action is the catalyst that can bring about the change and promote the new technology which would help revolutionalize the economic structure and functioning of not only the national but also the global market. Australia needs to take rapid action to help it avoid a transport crisis, and the global community as a whole needs to act to sustain and survive these challenging times. References: Daly, H.E. (1997). Forum, Georgescu-Roegen versus Solow/Stiglitz. Ecological Economics, vol. 22, pp. 261-66. Dasgupta, P., G. Heal and M. Majumdar, (1977). Resource Depletion and Research Development. In M.D. Intriligator (Ed), Frontiers of Quantitative Economics, Vol III, Amsterdam: North-Holland, pp.483-505 Greenpeace-Energy revolution: A sustainable revolution accessed on Sunday, June 28, 2009 at http://www.energyblueprint.info/australia.0.html Morgan.T and Emoto.H, 2007 The impact of high energy prices on demand, accessed on Sunday, June 28, 2009 at http://www.sciencedirect.com/science?_ob=ArticleURL&_udi=B6V2W-4S9R8BM-1&_user=10&_rdoc=1&_fmt=&_orig=search&_sort=d&_docanchor=&view=c&_acct=C000050221&_version=1&_urlVersion=0&_userid=10&md5=3d2012a2f6ebd2b3e8c0733f7bc770d9 Petith H 1999 Georgescu-Roegen versus Solow/Stiglitz and the Convergence to the Cobb-Douglas, January 1999 accessed on Sunday, June 28, 2009 at http://www.recercat.net/bitstream/2072/1959/1/48901.pdf Read More