Saturday, September 21, 2013

Decoupling: where's the cake?

This is an expanded version of a short talk that I gave on Sep 21 2013 at the meeting of the Club of Rome in Ottawa. I added some figures and links, as well as the citation from Herman Daly.

If we want a bigger cake, the cook simply stirs faster in a bigger bowl and cooks the empty bowl into a larger oven that, somehow, heats itself - Herman Daly

Ladies and gentlemen, we are discussing now the question of "decoupling. So, first of all, what do we mean with this term? Well, decoupling is a concept based on the definition of "energy intensity" or "efficiency;" the ratio of the total energy consumption of a country to its gross domestic product, GDP.  It has often been observed that this ratio tends to go down for many countries. In this case, more GDP is generated for a unit of energy consumed and this is supposed to mean that people are learning to be smarter and more efficient in doing their jobs. In other words, it appears that we can "decouple "our ability of producing wealth from the need of consuming energy.

This idea reminds me a lot of something that Herman Daly, the economist, said some time ago. He compared the economy to making a cake. Your efficiency as a cook is how much flour (the energy) you need to make the cake divided by the size of the cake (the GDP). Some economists, Daly said, seem to think that you can make a cake without flour, just by stirring faster - that's "decoupling". Without needing to arrive to this rather extreme interpretation, the idea of "energy intensity" is that you are a good cook if you can keep making bigger and bigger cakes without the need of a proportional increase in the amount of flour.

It might work that way, although I have some doubts about this definition of efficiency. But let me tell you some data about Italy that may help you understand how these concepts may be applied to a practical case. Here are the latest data for energy intensity for Italy (from knoema):

So, it seems that Italy has shown a trend of improving efficiency; we could say it has been "decoupling". The trend seems to be slowing down, but it is still there today. So, this should be a good thing, but there is a problem. Let me show you Italy's GDP (again from Knoema)

And you see that Italy's GDP never recovered from the crisis of 2008. I could show you data for energy consumption in Italy but let me skip that: let me just say that it peaked in 2004 and it has been going down ever since. So, the energy intensity has been decreasing not because the GDP was growing, but because energy consumption was declining faster.

So, you see, maybe in Italy we should be happy because we are becoming more efficient but, as you surely understand, living in a country with a declining GDP is nothing to be happy about. Industries are closing, people are losing their jobs, there is no more money for things that once were taken for granted: social security, public health, public transportation and all that.

I was mentioning yesterday that the problem with Italy's economy is linked to the increasing costs of mineral commodities. I can cite from memory that in 2012 Italy imported 66 billion euros of fossil fuels and the net balance of imports or mineral commodities was negative for around 110 billion euros. That's surely not negligible in comparison to Italy's GDP which is around 1500 billion euros, especially if we consider that, not many years ago, the cost for imports was much smaller. We have today an additional burden on the economy that I estimate as around 70 billion euros in comparison with 10 years ago. It is money that must come from somewhere and it can only come from the pockets of Italian citizens. We are simply becoming poorer.

There is no evidence that the increasing prices of energy have caused the Italian economy to become more efficient. I can tell you that from my personal experience. You see, as university researchers, we are supposed to help companies to become more efficient, and we try to do our best. There are many ways of doing that: renewable energy, leaner manufacturing methods, better technologies, and more. I have been working on that for a long time; at least 20 years.

The problem is that, nowadays, when I tell to the managers of a company that they should be more efficient, they ask when they'll recover their investment. In the best cases, I can tell them that it could be  - say - in 3-4 years. Then they answer me that they can't say for sure if they'll still be open and producing next month; so they can't even dream of asking money to a bank (and paying a stiff interest on it) for becoming more efficient. They won't do anything unless the government pays, but the government doesn't have any more that kind of money.

So, you see, this is the situation in Italy - but I think it is a very general problem for many countries that have stopped growing. We are not becoming more efficient, we are not "decoupling." To do that, we would need resources - energy and minerals - but those resources are becoming more and more expensive. So, investing in efficiency is becoming expensive and we can't afford it.

In the end, we are back to Herman Daly's metaphor of the cake.  If you are a good cook you can make a big cake even with small amounts of flour. The problem is when the lack of flour forces you to make a smaller and smaller cake. Then, it is little consolation to note that you are an efficient cook; the problem is that people are asking "where's my cake?" and they are not happy at not having it. But there is no way out: in order to make a cake you need flour and in order to keep an economy functioning you need energy. In my view,  renewable energy is a prerequisite for decoupling - if we have clean energy, we can truly decouple and we'll even be forced to do it because not even cheap energy can re-create the minerals ores that we have destroyed. But, without energy, there will be just less and less cake for everybody.


Ugo Bardi is a member of the Club of Rome, faculty member of the University of Florence, and the author of "Extracted" (Chelsea Green 2014), "The Seneca Effect" (Springer 2017), and Before the Collapse (Springer 2019)