I am not an expert on climate change. I simply provide background material useful in analysing the historical pattern and prospects of energy consumption, which may be of some use to your committee.

  My submission has four main components:

(a)  analysis of driving forces of economic growth 1820-2001 in the two successive lead countries, the UK and USA, and those in Japan, the most successfuly catch-up country. It includes an estimate of the movement of their energy consumption in this period;

(b)  my projections of growth of population and GDP for 2001-30 for different parts of the world economy;

(c)  analysis of the relation between the growth of world GDP and energy consumption (fossil fuels and biomass) between 1820 and 2001;

(d)  an explanation of the importance of using PPP converters rather than exchange rates in comparing levels of performance between countries and in establishing measures of aggregate world output, with an illustration of the implausibility of using exchange rate converters in historical analysis or futurology (as in the IPCC, Special Report on Emissions Scenarios, Cambridge University Press, 2000).

WORLD DEVELOPMENT AND OUTLOOK 1820-2030: ITS IMPLICATIONS FOR ENERGY USE

Historical Growth Accounts for Two Successive Lead Countries and the Most Successful Follower Country, 1820-2001

  1.  Table 1 presents growth accounts for the UK, USA, and Japan for 1820-2001. The first two were the successive lead countries in terms of per capita income in this period, the UK to the end of the 1880s, the USA thereafter. Japan was the most successfull of the follower countries, with a per capita level slightly above the average for Western Europe in 2001, and a huge deceleration in growth since 1990. There are now growth accounts of this type for about 40 countries, but none of the others go back to 1820.

  Table 1 quantifies the strategic factors determining the growth experiences of the three countries over the whole period of their "modern" economic growth. The first striking feature is the hugh increase in the stock of physical capital, which was significant for non-residential structures, but sensational for machinery and equipment. The ratio of the latter to GDP rose 16-fold in the UK and USA between 1820 and 2001, and in Japan from 1890 to 2001. This increase was linked to the acceleration of technical progress, much of which had to be embodied in machinery. The increase in human capital, measured by years of formal educational experience of those in employment (weighted by the earnings differential associated with years of primary, secondary and tertiary) was also linked to technical progress. The increasing complexity of production processes required better educated people to make it operational, and the involvement of educated people in R&D helped institutionalise the process of innovation. Here again, there was spectacular change. The educational level rose eight-fold in the UK, 11-fold in the USA and Japan. International specialisation increased very significantly. The ratio of foreign trade to GDP rose from 3 to 27 per cent in the UK, and from 2 to 10 per cent in the USA. Japan was an almost completely closed economy until the 1850s; between 1870 and 2001, the export ratio rose from 0.2 to 13 per cent. Natural resources scarcities were not a constraint; the land area per capita fell 14-fold in the USA, about four-fold in Japan and the UK. The increase in energy inputs was relatively modest in the USA (which made lavish use of its timber resources in the 19th century. Its per capita energy consumption rose only three-fold from 1850 to 2001. The UK was able to make extensive use of coal in the 19th century, and its per capita consumption rose only six-fold from 1820 to 2001. In Japan, energy use was much more frugal in the 19th century, and per capita consumption rose 20-fold from 1820 to 2001. The composition of world energy consumption has changed drastically since 1820 when 94 per cent came from organic matter. In 2001, mineral fuels accounted for 89 per cent. The input of human energy was very significantly reduced. Hours worked per head of population dropped by 45 per cent in Japan, 40 per cent in the UK and 20 per cent in the USA.

Growth Projections for Leading countries, Regions and the World Economy to 2030

  2.  Table 2 shows absolute levels of GDP, GDP per capita and population for different regions of the world for 1900-2001, with a quantitative assessment of the outlook to 2030. Table 3 shows the rates of growth of population and per capital GDP. The derivation of these estimates is indicated in the notes to the tables. My GDP per capita projections for 2001-30 assume that the pace of development in the "West" will be similar to that in 1990-2001. For China, I assumed a significant slowdown in the per capita growth rate. For the rest of the world, I assumed that performance will be better than in 1990-2001. It is a fairly optimistic set of assumptions, with a per capita growth about twice as fast in the rest of the world than in the West.

Past Relation between World Economic Growth and Energy Consumption

  3.  Tables 4a and 4b compare the growth of world population and GDP with energy use (in terms of both fossil fuels and biomass) from 1820 to 2001. The energy intensity of GDP rose until 1900 (to 0.42 tons of oil equivalent per $1,000) and fell in the course of 20th century (0.27 tons per $1,000 in 2001). Per capita energy use at the world level rose about eight-fold from 1820 to 2001. The US Department of Energy estimated CO2 emissions from fossil fuels from 1820, but did not take account of those from use of biomass, consequently it exaggerates the rate of growth of total emissions since 1820, but understates their level.

The Need to Use PPP rather than Exchange Rate Converters in Assessing GDP Levels and making World Aggregates

  4.  Within most countries, government statisticians provide regular estimates of growth of aggregate output and expenditure in real terms, after correction for price change over time. Virtually all economists, journalists, and politicians regard those constant price measures as key indicators of economic growth and fluctuations.

  The purpose of PPP (purchasing power parity) measures is precisely analogous: to correct for inter-country price differences to permit meaningful comparisons of levels of real output and expenditure. However, many journalists, politicians and some economists don't seem to realise this, and use exchange rates instead to compare levels of real GDP. Thus Japan is frequently cited as having the world's second biggest economy, and China is sometimes considered to have a smaller economy than the UK.

  Table 5 compares levels of GDP and per capita GDP for the world's 10 largest countries. It demonstrates the magnitude of the error which arises in comparisons using exchange rate conversion.

  The exchange rate conversions on the right hand side show much lower levels for the poorer countries (China, India, Russia and Brazil) and somewhat higher levels for the West European countries and Japan relative to the USA than the PPP converters. In the case of China the exchange rate/PPP deviation was very large—purchasing power was more than five times higher than the exchange rate. In India the ratio was more than three times higher, in Russia twice as high and in Brazil more than 50 per cent higher. The big differential for poorer countries is a fairly systematic outcome in such comparisons. For the West European countries and Japan the differential is smaller and has varied above and below parity in the past two decades. The implausibility of exchange rate conversion is clear in historical analysis. The results for 1950 with exchange rate conversion imply a per capita GDP of $85 in China and $172 in India (both in 1990 prices). These levels are much too far below subsistence to be credible.

  The same implausibility arises when exchange rate converters are used in the long-term projections such as those of the International Panel on Climate Change (IPCC), Special Report on Emissions Scenarios, Cambridge University Press, 2000. On p 196, their A1 scenario for per capita GDP growth, 1990-2100, for OECD and Asian countries projected a rise at an annual compound rate of 1.6 and 4.4 per cent respectively. They took the initial 1990 average per capita GDP in OECD countries to be $19,200, and $500 in Asia (p 195, Table 4-6), using exchange rate conversion. Applying the growth rates for their A1 scenario, they projected levels of per capita GDP (in 1990 prices) in the year 2100 of $109,200 in OECD countries, and $71,900 in Asia, a very substantial degree of convergence, where the income gap falls from 38:1 to 1.5:1. However, the outcome would have looked very different if they had started with PPP conversion in their benchmark year 1990. The 1990 per capita level for OECD countries would have been $19,263, and $2,117 for Asia (ex Japan). Applying the same growth rates for 1990-2100, we would then have a per capita level in 2100 of $107,750 for OECD countries and $241,421 for Asia (ex Japan). Thus the Asian countries would have achieved an average income level more than twice that in OECD countries.

1820	92	87	na	1,074	1,094	na
1870	334	489	94a	2,509	3,686	593a
1913	878	2,749	329	3,215	14,696	852
1950	2,122	6,110	1,381	3,412	17,211	1,929
1973	6,203	10,762	6,431	9,585	24,366	12,778
2001	16,082	30,600	32,929	22,176	36,330	57,415
	UK	USA	Japan	UK	USA	Japan
	Primary Energy Consumption Per Capita   (tons of oil equivalent)				Average Years of Education*   Per Person Employed
1820	0.61	2.45b	0.20	2.00	1.75	1.50
1870	2.21	2.45	0.20	4.44	3.92	1.50
1913	3.24	4.47	0.42	8.82	7.86	5.36
1950	3.14	5.68	0.54	10.60	11.2	9.11
1973	3.93	8.19	2.98	11.66	14.58	12.09
2001	3.94	8.00	4.10	15.45	20.21	16.61
	UK	USA	Japan	UK	USA	Japan
	Land Area Per Capita (hectares)				Exports Per Capita (1990 $)
1820	1.48	48.1	1.23	53	25	na
1870	1.00	23.4	1.11	390	62	1.5
1913	0.69	9.6	0.74	862	197	33
1950	0.48	6.2	0.44	781	283	42
1973	0.43	4.4	0.35	1,684	824	875
2001	0.41	3.3	0.30	5,447	2,843	2,696
	UK	USA	Japan	UK	USA	Japan
	Hours Worked Per Head of Population				GDP Per Man Hour (1990 $)
1820	1,153	968	1,598	1.49	1.30	0.42
1870	1,251	1,084	1,598	2.55	2.25	0.46
1913	1,181	1,036	1,290	4.31	5.12	1.08
1950	904	756	925	7.93	12.65	2.08
1973	750	704	988	15.97	23.72	11.57
2001	704	770	883	28.59	36.29	23.42
	UK	USA	Japan	UK	USA	Japan
	Capital-Output Ratio Machinery and Equipment/GDP				Capital-Output Ratio Non-Residential Structures/GDP
1820	0.05	0.07	na	0.63	0.87	na
1870	0.11	0.20	0.10a	0.79	1.51	0.59a
1913	0.18	0.52	0.24	0.65	2.77	0.61
1950	0.31	0.64	0.72	0.49	1.80	1.00
1973	0.52	0.64	0.93	0.80	1.46	1.12
2001	0.80	1.09	1.59	1.10	1.30	2.77
	UK	USA	Japan	UK	USA	Japan
	Labour Productivity				Total Factor Productivity
	(annual average compound growth rates)
1820-70 1.10		1.10	0.18	0.15	-0.15	na
1870-1913 1.22		1.93	2.00	0.31	0.36	-0.05c
1913-50 1.66		2.47	1.79	0.81	1.62	0.20
1950-73 3.09		2.77	7.75	1.48	1.75	5.12
1973-2001 2.10		1.53	2.55	0.69	0.54	0.49

(a) 1890; (b) 1850; (c) 1890-1913; *) in equivalent years of primary education.

Source:   Appendix K of Maddison, Monitoring the World Economy (1995, pp 252-55), amended and updated.

*  Other WO refers to Australia, Canada and N Zealand.

**  1950 population including Bangladesh and Pakistan would have been 444 million, and growth rate 0.89.

Source:   1900-2001 from Maddison (2003), The World Economy: Historical Statistics, OECD, Paris. Population projections 2001-30 derived from the medium variant of UN Population Division, World Population Prospects, 2000 Revision, New York, 2001 and their World Population in 2300, 9 December 2003. The projections of rates of change in per capita GDP are not the result of an econometric exercise, but are based on an analysis of changes in the momentum of growth in different parts of the world economy and the likelihood of their continuation or change, see Maddison (2002) "The West and the Rest in the International Economic Order" in Development is Back, OECD, Paris; this paper is also available on my website www.eco.rug.nl/Maddison/

Sources for Tables 4a and 4b: Modern sources are coal, oil, natural gas, water and atomic power; biomass is derived from wood, peat, dung, straw and other crop residues. Conversion co-efficients, one metric ton of wood = 0.323 of oil; one metric ton of coal = 0.6458 tons of oil. 1973 and 2001 modern sources and biomass from International Energy Agency, Energy Balances of OECD Countries 2000-01, Paris, 2003; and Energy Balances of Non-OECD Countries 2000-01, Paris, 2003. Modern sources 1870-1950 derived from W S Woytinsky and E S Woytinsky (1953), World Population and Production, Twentieth Century Fund, New York, 1953, p 930, 1820 from B R Mitchell, European Historical Statistics, 1750-1970, Macmillan, London (1975). Biomass 1820-50 assumed to be 0.20 tons per head of population, see V Smil, Energy in World History, Boulder-Oxford (1994), pp 185-7 for rough estimates of biomass back to 1700. My estimate of biomass 1820-1950 is somewhat lower than Smil suggests. In 1973 world per capita supply of biomass was 0.17 and in 1998 0.18 of a ton. World population, GDP and per capita GDP from Maddison, World Economy: Historical Statistics, OECD, Paris 1993 (see also <au0,2>www.eco.rug.nl/<fy10>g<rsMaddison/<xu). CO2 emissions from US Department of Energy, Oak Ridge (cdiac.esd.ornl.gov/trends/emis/); their figures exclude emissions from use of biomass. For further detail on the figures for individual countries, see Maddison, "Growth Accounts, Technological Change, and the Role of Energy in Western Growth", Economia e Energia, Istituto Datini, Prato, 2002 (see also Maddison website).