Economic and energy indicators

This session presents the main indicators that are commonly used to assess the energy situation in a country.

As the concepts that are introduced here are then used consistently throughout the rest of the course, it is essential to understand their definitions and limitations.

Course reference:

• Chapter 3

To follow the presentation, go to the next step

Basic concepts

• microeconomics
• study of the economics of individual “economic agents” considered as autonomous centers of decision
• seek to reduce their costs and maximize their profits
• macroeconomics
• understanding the overall result of the behavior of all actors, at the national level
• guide the choice of national decision-makers

Links between energy and the economy

• factors of production
• capital
• labor
• natural resources
• energy
• highly controversial issues

Gross Domestic Product GDP

• measures the output of goods and services
• sum of the added value of each economy branch, increased by the VAT (value-added tax) on products and tariffs

Two basic drawbacks

• measures all the activities giving rise to monetary exchange, be they useful or not
• measures only what is paid and accounted for

Gross National Product GNP

• better reflects the national wealth, rather than the national production
• sum of GDP and money transfers
• GDP and GNP are representative of the activity during a given year, but not of all the property or wealth accumulated and available

Imperfect indicators

• very imperfectly take into account the social aspects
• most often it is impossible to get anything better

International comparisons

• take into account the effects of inflation
• one has to “deflate” GDP
• values expressed in volume or in constant currency
• conversion national currency → dollars
• depends highly on the average exchange rate chosen
• GDP in purchasing power parity (PPP)

International comparisons

• take into account the differences in population
• GDP values are divided by the number of inhabitants
• gross domestic product per capita (GDP / capita)
• considerable differences between countries
• less than 300 euros per year for the poorest (Eritrea)
• more than 30,000 euros per year for the United States
• two large groups of countries
• industrialized countries (ICs, the North)
• developing countries (DCs, the South)

Economic growth

• economic growth occurs when a country’s GDP increases from one year to another. If it decreases, there is a recession
• p: GDP growth rate

$p=\frac{\mathrm{\Delta \; GDP}}{\mathrm{GDP}}$ $\mathrm{or}\frac{\mathrm{d\; GDP}}{\mathrm{GDP}}$

Development

• for development to occur, GDP must grow faster than the population
• d: population growth rate

$d=\frac{\mathrm{d\; pop}}{\mathrm{pop}}$

$r=\frac{\mathrm{d(GDP/pop)}}{\mathrm{GDP/pop}}=\frac{\mathrm{d(GDP)}}{\mathrm{GDP}}-\frac{\mathrm{d(pop)}}{\mathrm{pop}}$

r = d - p

Human development index HDI

• composite index, dimensionless, between 0 and 1
• life expectancy at birth
• rate of adult literacy
• income per capita
• developed countries: HDI > 0.8

HDI 2007

GDP structure

• primary sector
• commodity production, especially agriculture and mining
• secondary sector
• transformation of raw materials into productive assets or consumer goods
• tertiary sector
• services (commerce, banking, insurance, hotels, healthcare)

French GDP structure

Energy chain

Energy accounting

• possible to make it in physical terms
• some problems
• impossible to measure the useful energy
• commercial energy
• transformation along the energy chain

Energy accounting

• possible to make it in physical terms
• some problems
• impossible to measure the useful energy
• commercial energy
• transformation along the energy chain
• figures may be quite different depending on the estimation methods used
• rule: stick to the same accounting system

Final energy conversion efficiency

Energy intensity

• ratio energy consumption / GDP
• $\mathrm{EI}=\frac{\mathrm{energy\; consumption}}{\mathrm{GDP}}$
• measures the energy content of a unit of production
• in general, relative to primary energy, but also final energy consumption of oil, gas or coal

Two main factors

• GDP structure
• efficiency of the existing energy system

Value of energy intensity

• evolution reflects the structural changes
• technological progress in all sectors
• be wary of international comparisons

World energy intensities

Links between growth rates

• growth rate:
• p (GDP) $p=\frac{\mathrm{d\; GDP}}{\mathrm{GDP}}$
• c (energy consumption) $c=\frac{\mathrm{d\; Cener}}{\mathrm{Cener}}$
• i (energy intensity)
$\mathrm{EI}=\frac{\mathrm{Cener}}{\mathrm{GDP}}$

$i=\frac{\mathrm{d(Cener/GDP)}}{\mathrm{Cener/GDP}}=\; c\; -\; p$

$c=\mathrm{p\; +\; i}$

GDP per capita function of C_ENER per capita

Development factors

• factors of production
• capital
• labor
• natural resources
• energy

Substitutions energy - labor

Energy-labor substitution in the agricultural sector in the U.S.

CO₂ emissions

Economic and energy indicators

In this session indicators to measure economic activity and energy consumption at the national level were introduced.

You now have at your disposal the concepts necessary to study, in any order you like, the sessions GEI3 to GEI8:

GEI3 World energy situation

GEI4 Energy in the developing countries

GEI5 Reserves and resources

GEI6 Energy markets

GEI7 Environmental issues

GEI8 Changing technology

The sessions GEI8 and GEI9 Objectives and impact of energy policies show that in many countries, despite the rigidity of the energy system, the evolution of the GDP structure and demand management policies have reduced energy needs, as shown by the long-term trends in energy intensities.