The Impact of 'Energy Leapfrogging' on Future Consumption

Location: New York

Date: 2014-01-31

Developing nations these days have access to energy-saving technologies that did not exist when wealthy, industrialized countries were at a similar stage of their own growth. As these developing nations evolve in the future, will they wind up consuming less energy per capita than today’s rich countries consumed during their parallel stages of development? Can today’s developing countries “leapfrog” their way into a lower-carbon economy without passing through a pattern of high energy use, as North America, Europe and Japan did in the past?

In a recent research project, Arthur van Benthem, Wharton professor of business economics and public policy, analyzes data on energy consumption, prices and GDP for 76 countries in an effort to answer these and other questions about patterns of energy use worldwide.

A Challenge for Forecasters

Energy experts and policy advisors face a fundamental challenge: What is the best approach for projecting future patterns of energy consumption and carbon emissions in today’s developing nations? How accurately can we predict those countries’ future energy usage based on our knowledge about the way that today’s industrialized countries performed decades ago, when they were struggling to industrialize? Or would it make more sense to assume that today’s emerging nations will benefit from a significant pattern of “energy leapfrogging”?

In recent years, the World Bank and other non-governmental organizations, such as the World Resources Institute, have been actively trying to push new, energy-saving technologies as key mechanisms for “leapfrogging” – to a new, cleaner age, without passing through a lengthy period of using the dirtier technologies that provided the backbone for industrial growth in North America, Europe and Japan. The idea behind leapfrogging, writes van Benthem, is that “today’s developing countries have access to a set of efficient technologies that were not available to rich countries in the past when they had similar per capita income levels.” The phenomenon of leapfrogging, adds van Benthem, “implies jumping to a new set of efficient technologies and skipping the old dirty ones as you get richer.”

Energy experts face a fundamental challenge: What is the best approach for projecting future patterns of energy consumption and carbon emissions in today’s developing nations?

Evidence for such optimism, says van Benthem, can be found in the experiences of some developing countries. China and India have cars on the road that are substantially more fuel-efficient than the average car in America in the early 20^th century, when income levels there were about the same as they are in China today. Like their contemporary counterparts in America and Europe, many upwardly mobile Chinese are taking advantage of today’s low-energy light bulbs and energy-efficient kitchen appliances.

But is energy leapfrogging really the dominant pattern worldwide and across all sectors of the economy? Or is it more likely that this phenomenon occurs only in isolated cases and circumstances?

If energy leapfrogging has really been prevalent worldwide, notes van Benthem, one might expect that today’s developing countries would either be consuming less energy per capita than today’s rich countries did at similar income levels, and/or that economic growth in today’s developing nations would be less energy-intensive than growth in the industrialized countries of the past. So are today’s emerging nations experiencing the same 1% economic growth with a lower associated growth in energy consumption than rich countries did in the past? Van Benthem’s research project tested these hypotheses with data from 76 countries, and analyzed the significant implications of its findings for future energy and carbon projections, “which are highly sensitive to assumptions about leapfrogging.”

A key finding was that despite dramatic improvements in energy efficiency, economic growth in today’s developing countries is not less energy-intensive than past growth in industrialized countries, notes van Benthem. “Energy savings from access to more efficient technologies have been offset by other trends, such as a shift towards more energy-intensive consumption bundles” – specific combinations of goods and services that individuals buy during a given period – “and industrial outsourcing,” he writes. Growth in today’s emerging economies is “certainly not less energy intensive than that in industrialized countries 40 years ago,” states van Benthem, adding that this finding “appears to be at odds with leapfrogging.”

What do these findings suggest for energy forecasts? Some studies have predicted that developing nations would significantly improve their energy efficiency by leapfrogging to advanced energy-saving technologies developed in industrial countries. “I am not saying that the energy projections of the International Energy Agency (IEA) or Royal Dutch Shell are wrong or are too optimistic,” van Benthem says. “But I am saying that we should be cautious” about assumptions that leapfrogging will be the predominant pattern in the future. “My study doesn’t prove that there won’t be some leapfrogging, but that we need to use caution” about saying it will be the predominant factor.

Why do such findings have significant implications for prominent forecasts of future energy consumption and carbon emissions? Van Benthem notes that such forecasts typically assume a substantial amount of leapfrogging. Even the highest energy-use projection in the IEA’s latest World Energy Outlook implicitly assumes that future economic growth in developing countries will be 50% less energy-intensive than today’s industrialized nations experienced in the past. Unfortunately, “the results in this paper show that there is no empirical support for that hypothesis during the last half century,” says van Benthem.

Despite dramatic improvements in energy efficiency, economic growth in today’s developing countries is not less energy-intensive than past growth in industrialized countries.

Thus, in the absence of what van Benthem calls the “empirically unfounded assumption” of dominant leapfrogging, “growth in energy consumption in today’s developing nations would be approximately twice as high” as in current projections. “This has enormous consequences for energy projections: Without leapfrogging, the growth in energy use from 2010–2035 will be 123% vs. 72% in the most aggressive IEA scenario.”

Leapfrogging’s Limited Successes

At first glance, van Benthem says, “it seems like a no brainer that all this less energy-intensive technology should lead to a less energy-intensive economy, but it does not seem to be the case on a macro level.” Yet there are many circumstances under which leapfrogging has an impact on a micro or limited level. “There are all kinds of specific cases – such as solar panels in Indian villages,” he says, where leapfrogging has a major impact on a particular location or sector.

Indeed, van Benthem notes that many individual technologies have become dramatically more energy-efficient. “It is well-documented that the energy efficiency of, for instance, electric appliances, lighting, passenger vehicles and industrial processes has improved considerably in the last several decades.” According to one study, refrigerators in the U.S. used only one-quarter as much energy in 2008 as they did in 1970, even as prices of refrigerators fell over the same time period. Other energy-saving improvements have been documented for freezers, washing machines, dishwashers and air conditioners, according to van Benthem.

In the automotive sector, improvements have been slow, but steady. Between 1970 and 2008, the average fuel economy of vehicles in industrialized countries improved by 22%. Using data for the United States, one study estimates that the fuel-efficiency improvements from 1980 to 2006 would have been four times larger if the vehicles had maintained the same weight and horsepower as those in a typical 1980 model-year.

Other studies show that heavy industrial processes have become more energy-efficient in today’s developing economies than those used by today’s industrialized nations in their past. “Although there is considerable variance depending on the energy sources, equipment efficiency and the output quality of steel produced, today’s [developing nations] generally produce a ton of steel using less energy,” writes van Benthem. Today’s developing countries also use more energy-efficient technology to manufacture vehicles than industrialized nations did in the past.

Given such evidence of ‘leapfrogging’ on a micro, technology-specific scale, how can we reconcile these developments with the absence of leapfrogging at the macro scale? Two important, offsetting trends can explain the lack of macro-scale leapfrogging.

The first trend is industrial outsourcing. Nowadays, many energy-intensive goods that are consumed in industrialized nations are manufactured in less-developed nations. “This is a relatively recent phenomenon, which was certainly not present in the 1960s, not in the least because there was no comparable group of ‘even richer’ countries [in Asia or elsewhere] that could outsource their industrial activities to Europe, the United States and Japan,” van Benthem says.

Second, there has been a noticeable shift towards more energy-intensive consumption bundles. “This phenomenon can explain the absence of leapfrogging across non-industrial economic sectors.”

For example, as energy-saving cars like the Toyota Prius become more affordable, their users are encouraged by transportation infrastructure improvements to use them for broader bundles of activities. “You start doing other things with your cars,” says van Benthem, which you could not do in the past. Thus, in large parts of the United States, a wide range of ancillary vehicle-focused activities has emerged that were unimaginable when the U.S. auto industry was in its infancy – including drive-through fast-food restaurants, banks and even [drive-through] dry cleaning establishments. The proliferation of such location-specific secondary services is a main reason why “you don’t see much leapfrogging in transportation,” he adds.

Although van Benthem’s research does not directly address public policy issues, he argues that one of the implications of his findings is that, all by itself, “energy efficiency – while desirable for many reasons – is highly unlikely to do the trick in getting carbon emissions down. It should be paired with ‘cap and trade’ [initiatives] and/or an emissions tax.”

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