Methods Directory UMM :Data Elmu:jurnal:E:Ecological Economics:Vol36.Issue3.Mar2001:

how it relates to public welfare, and its ramifica- tions are rarely discussed. One biophysical measure of economic systems, energy flow diversity, provides one means of viewing the effects of market failure and the misallocation of resources. In an earlier paper Templet, 1996, the author presented an empiri- cal means of estimating diversity in economic systems using the broad economic sectors as en- ergy nodes analogous to species in the Shan- non and Weaver 1949 diversity equation. The relationship of diversity H to GNP per capita, a measure of development, was found to be pos- itive, logarithmic and significant in a cross-sec- tional analysis across countries. As a country’s economy evolves it appears to become more di- verse, rapidly at first relative to GNP per capita, and then more slowly as GNP per capita in- creases. As one might expect, those countries with the highest diversity are the most highly developed and have the highest GNP per capita. More recently, the author related increased di- versity to increased energy efficiency and a low- ered energy intensity and to increases in the capacity of economic systems to produce goods and services Templet, 1999. Darwin 1859 first suggested that an increase in productivity was related to diversity in ecological systems. Tilman et al. 1996 investigated Darwin’s suggestion for grassland ecosystems and found the relationship of diversity to productivity to be positive and significant. Ulanowicz 1986 finds that diversity and the capacity to produce are related in eco- logical systems, and provides a mathematical formulation. Misleading price signals and poor allocation also affect the sustainability of a system by in- creasing throughput per unit of output. Sustain- ability requires that economic throughput be within the source and sink capacities of the en- vironment Daly, 1990. The environment is the source of the natural resources that are used in the economic system to produce goods and ser- vices and is where wastes go. These are the ‘source’ and ‘sink’ functions that constitute nat- ural capital, which is essential to the develop- ment of economic capital. All production processes require inputs of materials and energy and create outputs of goods and services along with waste. In addition, all products must either be recycled at the end of their useful life or become waste. For these reasons, the economy is dependent on the environment although con- ventional economic wisdom generally discounts the value of natural capital because the market captures its value only partially. If disparity in energy prices increases throughput in an econ- omy then system throughput is higher and is less sustainable. Misallocation of resources also negatively affects natural capital by consuming more of it and by imposing higher waste loads. Our life support system, which provides essential goods and services such as clean air and water and numerous other services, is dependent on maintaining natural capital. One measure of nat- ural capital puts its value considerably above that of man made capital Costanza et al., 1997. It is apparent that most developed coun- tries have exceeded their source and sink capac- ities Templet, 1995a; Wackernagel and Rees, 1996; global climate change is only one of the many manifestations of excessive consumption and waste creation, i.e. of economic throughput exceeding sink capacities. The question this paper seeks to answer is whether energy price disparities affect public welfare and how. Investigating the linkages be- tween energy price disparities, public welfare, sustainability, diversity and other system mea- sures should provide some answers.

2. Methods

Energy data come from the US Energy Infor- mation Administration USEIA, US Energy In- formation Administration, 1998 and are for 1995. The energy prices used in this analysis are the prices each end use sector paid for all en- ergy sources, i.e. primary energy plus electricity ‘total energy’ in the USEIA report. To obtain prices, the total sector expenditures for all forms of energy are divided by the total energy con- tent, in Btu’s, of the energy source Btu’s are converted to the SI system of Joules for this analysis. The author chose total energy for analysis because it was useful for a comparison across states when comparing with variables like energy intensity or partitioning between product and waste because the portion of gross state product GSP attributable to each energy type is unknown. In addition, I believe it is total energy used to generate output that is ultimately more important to an economy than the energy mix. However, because all economies use mixes of energy sources, e.g. some use mostly coal while others use oil and gas, there is concern that the differing mixes of energy sources might affect this analysis. The different energy types have different prices but the prices generally reflect the ‘useful- ness’ quality of the source. For example, the generation of electricity requires about 3 U of fossil fuel energy to obtain 1 U of electrical energy, assuming a 33 conversion rate. For that reason the price of electricity, the highest quality energy, is at least three times that of fossil fuels. In fact, the US average price of electricity is three times that of oil, five times that of natural gas and 14 times that of coal. The price ratio is high for coal because it is less useful, even on a Btu basis, due to its polluting and handling characteristics, so its price is lower. Prices also reflect the ease or difficulty of delivering energy, the losses incurred in doing so and the energy volume delivered. To check for the possibility that the mix of fuels would affect the outcome of this analysis, I developed a price disparity ratio for natural gas alone for states Table 1. It was found to be significantly related to the total energy price dis- parity r = 0.70, the total energy intensity r = 0.24 and energy flow diversity r = − 0.35 across states. In this context, i.e. a comparison across states, the use of total energy, regardless of the mix of energies, appears to be appropriate. For a more detailed explanation of the method used to determine energy price, see Appendix A of the US Energy Information Administration 1998 report. Cross-sectional simple linear regressions using the 50 states are used to illustrate relationships because there is no comprehensive model yet available on which to carry out more detailed analyses. Socioeconomic data are taken from the US Bureau of the Census 1997, 1998.

3. Results