Energy and the Global Economy

This article describes the contribution economists can make in uncovering energy choices capable of reducing carbon emissions on a global scale. All production and consumption activities involve the use of energy, and economists possess theoretical and analytic frameworks relating production and consumption in individual economies with international trade among them. Current challenges include deepening collaboration with physical scientists and engineers by according primacy to the formulation of scenarios and to the representation of physical stocks and flows of resources as factor inputs. Energy scenarios are discussed in terms of technological options, distinguishing those options that are already known but not yet widely applied from ones that still require research breakthroughs. Scenarios about household lifestyles and consumption in the areas of diet, housing and mobility are also discussed, distinguishing those that could already be initiated by households from those that would require changes in the built environment. Models and databases of the global economy have existed since the 1970s, and one was first used to analyze energy scenarios in the early 1990s based on the recommendations of the Brundtland Report of 1987. Relevant areas of progress since that time are described both in modeling the global economy and in compiling a global economic and environmental database. The paper concludes with a few examples of recent applications of a particular global economic model to analyzing energy scenarios to demonstrate both the progress that has been made and the nature of some of the challenges still to be faced. _______________________________________________________________________ Forthcoming in: Aloys Prinz, Albert E. Steenge and Jörg Schmidt (Eds.), The Rules of the Game: Institutions, Law and Economics, Lit Verlag, Münster. Based on the Keynote Address at The Rules of the Game: Institutions, Law and Economics, Seminar in Economics, University of Twente and University of Muenster, Wettringen-Rothenberge, Germany, December 7, 2006.