Aggregation of Energy
CUTLER J. CLEVELAND and ROBERT K. KAUFMANN
Boston, Massachusetts, United States
DAVID I. STERN
Rensselaer Polytechnic Institute Troy, New York, United States
1. Energy Aggregation and Energy Quality
2. Economic Approaches to Energy Quality
3. Alternative Approaches to Energy Aggregation
4. Case Study 1: Net Energy from Fossil Fuel Extraction in the United States
5. Case Study 2: Causality in the Energy/GDP Relationship
6. Case Study 3: The Determinants of the Energy/GDP Relationship
7. Conclusions and Implications
Divisia index A method of aggregation used in economics that permits variable substitution among material types without imposing a priori restrictions on the degree of substitution.
emergy The quantity of solar energy used directly and indirectly to produce a natural resource, good, or service.
energy quality The relative economic usefulness per heat equivalent unit of different fuels and electricity.
energy/real gross domestic product (GDP) ratio (E/GDP ratio) The ratio of total energy use to total economic activity; a common measure of macroeconomic energy efficiency.
energy return on investment (EROI) The ratio of energy delivered to energy costs.
exergy The useful work obtainable from an energy source or material is based on the chemical energy embodied in the material or energy based on its physical organization relative to a reference state. Exergy measures the degree to which a material is organized relative to a random assemblage of material found at an average concentration in the crust, ocean, or atmosphere.
Granger causality A statistical procedure that tests whether (i) one variable in a relation can be meaningfully described as a dependent variable and the other
variable as an independent variable, (ii) the relation is bidirectional, or (ii) no meaningful relation exists. This is usually done by testing whether lagged values of one of the variables add significant explanatory power to a model that already includes lagged values of the dependent variable and perhaps also lagged values of other variables.
marginal product of energy The value marginal product of a fuel in production is the marginal increase in the quantity of a good or service produced by the use of one additional heat unit of fuel multiplied by the price of that good or service.
net energy analysis Technique that compares the quantity of energy delivered to society by an energy system to the energy used directly and indirectly in the delivery process.
Investigating the role of energy in the economy involves aggregating different energy flows. A variety of methods have been proposed, but none is accepted universally. This article shows that the method of aggregation affects analytical results. We review the principal assumptions and methods for aggregating energy flows: the basic heat equivalents approach, economic approaches using prices or marginal product for aggregation, emergy analysis, and thermodynamic approaches such as exergy analysis. We argue that economic approaches such as the index or marginal product method are superior because they account for differences in quality among different fuels. We apply economic approaches to three case studies of the U. S. economy. In the first, we account for energy quality to assess changes in the energy surplus delivered by the extraction of fossil fuels from 1954 to 1992. The second and third case studies examine the effect of energy quality on statistical analyses of the relation between energy use and gross domestic product
(GDP). First, a quality-adjusted index of energy consumption is used in an econometric analysis of the causal relation between energy use and GDP from 1947 to 1996. Second, we account for energy quality in an econometric analysis of the factors that determined changes in the energy/GDP ratio from 1947 to 1996. Without adjusting for energy quality, the results imply that the energy surplus from petroleum extraction is increasing, that changes in GDP drive changes in energy use, and that GDP has been decoupled from aggregate energy. These conclusions are reversed when we account for changes in energy quality.