A Conceptual Framework to Model Long-Run Qualitative Change in the Energy System

This paper deals with a conceptual framework allowing the analysis of long-run qualitative change in the energy system. The energy sector seems to be particularly appropriate for the analysis of qualitative change due to the following reasons: The energy sector is relevant for the development of the whole economy. When looking on the development of primary energy resources it becomes obvious that different energy sources are of different importance over time and that new energy sources enter the scene from time to time. E.g. the importance of wood is decreasing over last 200 years, whereas coal has reached its peak around the turn of the last century, natural gas entered the scene not before that time. Nuclear energy technologies emerge in the energy supply only after 1960s. Furthermore, compared to other sectors qualitative change in the energy sector proceeds in relative long time periods. Accordingly, different mechanisms and effects are comparatively easier to separate as not too many overlapping developments are considered to appear simultaneously, which makes the discrimination of causes and effects more difficult. Related to this, it is not invention that plays a particular important role but it is both innovation as the first commercial application and diffusion as the spreading out of the new technologies. This means that in the analysis strong technological uncertainty does play a minor role, most often the relevant technologies do already exist as blue-prints and the transformation process basically deals with the application and improvement of these technologies. In this respect, the political system exerts crucial influence on the transformation process in filtering, accelerating and inhibiting different development paths. Finally, the transformation of the economic system very likely leads to qualitative changes in the energy demand take for example the most recent decoupling of economic growth and energy demand. Here, on the one hand, again political efforts as e.g. the Kyoto-protocol shape this development. On the other hand, however, it is very likely that with the rise of the knowledge-based economies the goods and services demanded show an increasing degree of knowledge-intensity and a decreasing degree of energy-intensity. Whereas the creation of knowledge is accompanied by positive external effects, due to thermodynamic principles the use of energy goes hand in hand with negative externalities. In this respect, an increasing knowledge intensity in production and demand is very likely to lead to a changing energy intensity of economic growth. Our paper tries to challenge the above mentioned approaches by application of Neo-Schumpeterian ideas. It develops a multi-agent framework by explicitly considering different heterogeneous populations of actors relevant within the energy sector. Those can be thought of comprising households, energy producers and distributors, producers of consumption good and regulatory authorities for example. We expect the framework to include qualitative dimensions into the analysis of long run development of the energy sector and therefore to face the challenge that economics has to explain the role, nature and causes of/for the transformation of industries observed in reality. This also means that innovation will play a crucial role in such an analysis in a twofold way: Innovation is considered as the decisive cause and the most visible consequence of economic development. The comprehensive framework should foster a better understanding of historical transitions in the energy sector by identifying key factors and sensitive environments that increase the probability of innovation and subsequently change.