Power Efficiency Guide

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a. Production is represented by GDP.

b. AY/Y = AC/C - A(E/Y)/(E/Y) - A(C/E)/(C/E)[email protected]@ where AY = dY/dt.


a. Production is represented by GDP.

b. AY/Y = AC/C - A(E/Y)/(E/Y) - A(C/E)/(C/E)[email protected]@ where AY = dY/dt.

Sources: Y. Ogawa (1991) using IEA's statistics, energy balances of OECD countries and energy statistics and balances of non-OECD countries.

Western Europe, GDP growth measured 2.01 per cent per annum as energy efficiency improved by 1.78 per cent, fuel switching increased by 1.33 per cent and carbon emissions decreased by 1.10 per cent. Average annual GDP growth in the countries of the former USSR and Eastern Europe was 1.72 per cent. Energy efficiency declined by 0.45 per cent while fuel switching rose 0.83 per cent. Carbon emissions increased by 1.34 per cent annually.

The relative advantages and disadvantages of energy efficiency improvement and fuel switching are generally governed by economic, industrial, geographical, social and cultural conditions. Japan's improvement in energy efficiency was initiated by industry as part of its survival strategy, to cut the cost of energy and, especially, imported petroleum. However, owing to lack of access to natural gas, Japan's fuel switching ability was limited. This was not the case in Western Europe, where nations were able to rely on natural gas from the North Sea. However, in contrast to Japan's example, the efforts of industry in Western Europe to increase energy efficiency were not strong.

Thus Japan's success in overcoming energy and environmental constraints while maintaining economic growth can largely be attributed to intensive efforts to improve energy efficiency. Technology played a key role through a combination of industry efforts and government policy, coordinated by the Ministry of International Trade and Industry (MITI) (Watanabe and Honda 1991). However, since the relaxation of energy constraints (starting in 1983), the sharp appreciation of the yen triggered by the Plaza Agreement (in 1985), the era of the 'bubble economy' (1987-90) and its collapse (1991), Japan's progress in substituting technology for energy has weakened significantly, leading to concerns about the future.

To date, a number of studies have identified the sources supporting Japanese industry's technological advancement (for example, the US Department of Commerce 1990; Mowery and Rosenberg 1989, pp.219-37). Mansfield (1983) noted that federally supported R&D expenditures substituted for private expenditures. He concluded that, while the direct returns from federally financed R&D projects might be lower, the projects seemed to expand the opportunities faced by firms and induced additional R&D investments by them. Scott (1983) demonstrated Mansfield's postulate by providing supportive results such as the fact that government-supported R&D encourages company-financed R&D. The author identified similar functions in MITI's industrial technology policy (for example, Watanabe and Clark 1991; Watanabe and Honda 1991, 1992; Watanabe 1999).

A number of studies have attempted to quantify the substitutability of energy with other production factors (for example, Christensen et al. 1973; National Institute for Research Advancement of Japan 1983). However, most of these works deal with labor and capital (and energy); a few also deal with materials as a production factor. None has taken the technology factor explicitly into account. Although some pioneering work attempted to use a time trend or dummy variable as a proxy for technological change, such methodologies are hardly satisfactory for analyzing the non-linear effects of R&D investment. Watanabe (1992a, 1995a, 1995c) measured the stock of technological knowledge and incorporated it into a trans-log cost function. He was able to explain Japan's success in overcoming the effects of the two energy crises in the 1970s by investing in energy efficiency. Attempts have also been made to apply this mechanism to the global environment (Watanabe 1993,1995b). This work suggests that the current stagnation in industry R&D might weaken the existing substitution, leading to the rise of energy (and environmental) constraints (Watanabe 1992b, 1995d). Given the comprehensive and systematic nature of the global warming and policy relevance to this issue, a comprehensive systems approach is essential.

The next section reviews MITI's efforts to induce energy efficiency R&D in industry. The following section introduces a quantified model to explain Japan's success in substituting technology for energy after the energy crises of 1974-9; it also discusses some limits of technology policy. The final section summarizes implications for sustainable long-term economic development.

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