A Successful New Zealand’s Zero Carbon Act will mean declining economic growth


If you google search the term “embodied energy” will find references to the embodied energy of buildings.

Yes, eco-architects are on to it. Buildings have life cycles and the energy involved in the extraction, transport, manufacture, assembly and end-of-life phases adds up. All this energy becomes “embodied” in a product.

So when we engage in discussions of our renewable energy future we can say much more about it than what energy source we will use. Mostly the discussion is about moving to renewable energy sources from fossil fuels.

In a previous post I argued that because the energy returned on energy invested (EROI) is gradually declining, there is less net energy available to the economy. This means economic growth will inexorably decline. 

I also explained why productivity is on a downward trend. There is a high correlation between energy consumption and GDP.

But what is the economy? It is the sum of all activities humans do to meet our complex needs.

For manufactured goods, we mine, we transport, we manufacture, we transport again, we assemble, we sell, we use and then we dispose. For our food needs, we acquire land, we plant, we grow, we fertilise, we harvest and then off it goes into the huge international chain.

Supply chains are so complex and tightly coupled these days. Take a car. Automotive supply chains are among the most complex in the world, with each vehicle containing more than 20,000 parts originating from thousands of different suppliers.

It is happening. Both the World Bank and the United Nations have published reports worrying about declining economic growth.  Yet neither have grasped the fundamental fact that declining net energy is the cause. They don’t explain that energy growth provides the fuel for economic growth.

The World Bank said Nearly all the economic forces that powered progress and prosperity over the last three decades are fading. As a result, between 2022 and 2030 average global potential GDP growth is expected to decline by roughly a third from the rate that prevailed in the first decade of this century—to 2.2% a year. For developing economies, the decline will be equally steep: from 6% a year between 2000 and 2010 to 4% a year over the remainder of this decade.”

Productivity and economic growth

The use of energy products allows businesses to leverage human labour, so that human labour can be more productive. A farmer with a stick as his only implement can’t produce much food.

But a farmer with a tractor, gasoline, modern implements, hybrid seeds, irrigation, and access to modern roads can be very productive. This productivity would not be available without fossil fuels.

Complexity now but simplicity in the future

But increasing complexity has a downside. If an increasing share of the output of the economy is funnelled into management pay, expenditures for capital goods, and other expenditures associated with an increasingly complex economy (including higher taxes, and more dividend and interest payments), less of the output of the economy is available for “ordinary” labourers–including those without advanced training or supervisory responsibilities.

As University lecturer Lisa Ellis once wrote to Wise Response,
“Thus we can confidently anticipate enormous political pushback from large sectors of the community as they become aware of the constraints on economic activity and the changes across the whole economy that achieving the 2050 target will mean.

While achieving net anthropogenic zero emissions will be a win for everyone, the transitions required to do so will create winners and losers along the way. The more rapidly society begins to experience the co-benefits of energy transition, for example, the quicker coalitions of clean energy winners will emerge.”