Research highlights from the GGKP’s Sixth Annual Conference – Q&A with Nicholas Howarth
On 27-28 November 2018, the GGKP's Sixth Annual Conference was held in conjunction with the OECD's 2018 Green Growth and Sustainable Development Forum (GGSD) on the theme of "Inclusive solutions for the green transition: Competitiveness, jobs/skills and social dimensions" in Paris, France.
Nicholas Howarth presented his paper 'Growth Through Diversification and Energy Efficiency: Energy Productivity in Saudi Arabia' at the conference on 28 November in session K: 'Country case studies of Green Transition Strategies'. Nicholas Howarth is an applied economist specializing in economic growth, energy and natural resource and environmental economics. He is currently leading King Abdullah Petroleum Studies and Research Center (KAPSARC) research on energy productivity.
1) Briefly describe the topic and conclusion of your research.
Energy productivity – a new policy paradigm aligned with green growth – is increasingly used in the G20. It incorporates specific targets: by 2030 the United States aims to double its energy productivity; Australia aims to increase its energy productivity by 40 per cent, and Germany has a target to increase energy productivity by 2.1 per cent per annum.
Saudi Arabia’s energy productivity is around US$8,000 of GDP for each tonne of oil equivalent consumed and is improving at a rate of around 1 per cent per year. This is roughly equivalent to the G20 average, based on 2015 purchasing power parity values.
In our research, the policy narrative around energy productivity focuses on how to maximize the economic, social and environmental value created from energy consumption while minimizing the costs of energy supply. As an indicator, it is driven by energy efficiency and the balance of energy-intensive and low-energy service and knowledge-based sectors.
Achieving increased energy productivity spans a range of policy areas, including industrial competitiveness, renewable energy and energy market reform. Setting energy productivity targets and using them as planning tools can help promote a more integrated policy approach focused on a common objective – maximizing the societal value created from energy consumption.
2) What are the key policy messages/implications?
Over the course of history shifts in energy productivity have radically reduced the costs that consumers have to pay for energy as a proportion of their incomes.
For example, in the Economics of New Goods, 2018 Nobel Laureate William Nordhaus calculated that the equivalent of one hour of light from a single 75-watt incandescent bulb would have cost a person in ancient Babylon around 40 hours of work, based on average wages and the sesame oil lamps that were used at the time. Today, this amount of light costs a fraction of a second of average wages. What was once too costly to use, is now almost too cheap to notice.
Across sectors and technologies, such transitions have created new energy sources and freed up resources, creating new goods and services that have helped drive progress and economic growth. But while energy use can drive progress, economic growth also drives more energy demand. This creates an energy productivity paradox, similar to Jevon’s paradox or rebound effect. This is where energy efficiency delivers energy savings and thereby lifts disposable income, part of which is spent on more energy consumption, which counterbalances the original energy savings. Addressing this paradox is critical to the question of which policy and technological innovations can solve the climate problem without stunting economic growth.
We need to broaden our thinking about energy productivity to consider the whole supply chain, including trade policy and the issue of embodied greenhouse gas emissions. Countries need to work together to most effectively address these issues.
3) Which session are you interested in attending at the conference/forum and why?
I am particularly interested in Session 3: Social impacts of the green transition, particularly discussions around how to mitigate the impact of quick-rising energy prices by providing affordable and reliable access to energy services.
This is a fine balance. Consumers do not like high energy prices, but at the same time, low energy prices can encourage wasteful behavior and discourage energy efficiency. At the economic level, low energy prices can also lead to a misallocation of resources towards low-value rather than higher value uses of energy. Achieving energy prices that support energy efficiency but do not impact the international competitiveness of national industries is a key issue.
Another key issue is how to communicate the many ways that energy price reform benefits society and helps fund other social programs. It will be good to share experiences and lessons learned about what has worked and what has not worked in other countries that have gone down a similar reform path.
4) What are the next steps for your research?
We will study options to support the financing of energy efficiency investment. On the behavioral side, my colleague Thamir Alshehri is working on establishing a ‘Living Lab’ for energy demand analysis in buildings in Saudi Arabia. With air conditioning (AC) accounting for up to 70 per cent of electricity consumption for many households, AC and thermal performance are always going to be important issues for energy efficiency.
The idea of AC integrated with solar photovoltaic (PV) or solar thermal technologies is also an understudied topic which holds a lot of promise for hot and humid countries with a lot of sunlight. We are discussing these topics with the King Abdullah University of Science and Technology (KAUST) as part of their Future of Air Conditioning work.
The link between green growth and national development strategies in Gulf countries is a topic we are looking to hold a workshop on in 2019. The United Arab Emirate’s (U.A.E.) Green Growth program has led the way here and it will be good to explore the lessons learned from this and other experiences.
5) What are the opportunities for collaboration around this issue?
At the Sixth GGKP Annual Conference / 2018 OECD Green Growth and Sustainable Development Forum (GGSD), we will be highlighting two collaborative reports recently published by KAPSARC:
- Growth through diversification and energy efficiency: Energy Productivity in Saudi Arabia, released in partnership with the United Nations Economic and Social Commission for West Asia (UN ESCWA), which focuses on pathways to improve energy productivity across the entire economy; and
- Toward economic prosperity through industrial energy productivity improvement, which is a deep dive into industrial energy productivity with the Energy Research Institute (ERI) in China.
KAPSARC is open to partnering with institutions around the world working in areas of parallel interest. We also have very active workshop and visiting fellow programs.
More information on our research and opportunities for cooperation can be found at www.kapsarc.org.
The opinions expressed herein are solely those of the authors and do not necessarily reflect the official views of the GGKP or its Partners.