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
The results presented here are for g1995 unless otherwise stated.
3
.
1
. Energy price disparity across state sectors The difference in energy prices across economic
sectors within a state is growing over time in many states. Fig. 1 shows the residential and
industrial energy prices for the US and Louisiana over time. Louisiana is of interest because its
industrial sector uses 67 of all energy used in the state, the highest percentage of all states, and for
other reasons that will become apparent. The divergence in prices is evident and has been in-
creasing rapidly since 1980. The greatest change occurred in the 1980s. The divergence can be
expressed as price disparity, i.e. the ratio of the residential price to the industrial price. It is shown
in Fig. 2 for the period 1970 – 1995 for selected states; Table 1 contains data for all 50 states. The
divergence declined between 1970 and 1975, per- haps in response to the OPEC oil embargo of
1974, but increased rapidly thereafter. For a brief time around 1980, citizens and industry paid
nearly the same price for energy price disparity
1 in Massachusetts. As one might expect, a higher price disparity also leads to a significantly
higher percentage of total energy being consumed by the industrial sector r = 0.43. Using a simple
linear regression energy price disparity across the 50 states can be shown to relate significantly and
positively
to unemployment
r = 0.34 and
poverty r = 0.43 and negatively to income per capita r = − 0.28.
In 1995, the US energy price disparity is 2.4, which means that, on average, US residents pay
2.4 times as much for an equal amount of energy as does industry. In Louisiana, the price disparity
is 4.4 which means that the residents pay 4.4 times as much as industry for an equal amount of
energy. Louisiana citizens pay 17 above the US average for residential energy while industry pays
35 below the US average industrial energy price. Louisiana industry pays the lowest industrial en-
ergy price of all states except Alaska. Other en- ergy consuming sectors also show disparities, e.g.
Fig. 2. Energy price disparity for selected states over time.
the commercial sector in Louisiana is paying 20 above the US average for commercial energy and
high price disparities may be penalizing smaller businesses. Low prices for industry and high
prices for residents are subsidies for the industrial sector, which amount to many millions of dollars
annually. For example, if Louisiana industry paid the US average industrial price for their energy,
their annual energy expenditures would rise 1.8 billion. A higher price would promote energy
efficiency, something sorely needed in Louisiana whose energy flow diversity is the lowest and
declining, and whose energy intensity is the highest of all states.
3
.
2
. Di6ersity in economic systems Economic development is an evolutionary pro-
cess that results in changes over time as economic systems self-organize in response to information
feedback Norgaard, 1992; Gowdy, 1994. The greater the evolved structure within a system, the
greater the number and types of energy uses and the smaller the energy flow gradients between
compartments, sectors or nodes before energy in- puts are finally dissipated to waste heat back-
ground levels Templet, 1999. This organizational strategy is used by ecosystems during succession
and evolution and results in more system diver-
sity, i.e. structure Odum, 1969, and less waste, thus reducing marginal entropy Binswanger,
1993. Ulanowicz 1986 notes that for ecological systems ‘… a drop in diversity relates to a dimin-
ished capacity of the system to grow and develop’. Assuming
isomorphism across
system types
Bertalanffy, 1968, Bertalanffy, 1975 economic system diversity and productivity is also expected
to generally increase during development Tem- plet, 1999.
The diversity H was calculated for states with the Shannon and Weaver 1949 formula using
the fraction of annual energy flow through the principal sectors as the importance factors pi,
where i is the number of sectors. H = − SUMipi ln pi
1 Due to lack of disaggregated, data we are lim-
ited to four sectors — industrial, commercial, residential and transportation — so we can only
sum over four terms, and diversity within these four sectors is invisible. More specific energy data
for smaller sectors would allow the number of nodes to increase thus expanding and improving
the H term calculated here. The diversity over time for the US and selected states is shown over
time in Fig. 3 and in Table 1 for all states. In examining economic diversity for a number of
states over time, it is apparent that while many states are improving, some are not and at least
Fig. 3. Diversity of selected states and the US over time.
one, Louisiana, is declining in diversity. New Jersey has the highest diversity shown and close to
the theoretical maximum of 1.39 at which the energy flows would be evenly distributed across
the four sectors. The US increased its diversity rapidly just prior to 1970 but has not changed
much since. Texas increased until 1985 and has been stable or slightly declining since. Louisiana
has been declining since t1980 and is the lowest of all states, principally because 67 of state annual
energy consumption is industrial, the highest of such figures for any state. By that measure Louisi-
ana is the most heavily industrialized state in the US. Louisiana also has the highest energy intensity
of all states. Diversity is significantly and posi- tively related to employment and income per cap-
ita using simple linear regressions. Table 1 shows the b1995 diversities calculated for the 50 states.
3
.
3
. Energy intensity The energy intensity is the amount of energy
used to create a dollar of GSP see Fig. 4 and Table 1 for state energy intensities and is an
inverse measure of energy efficiency. There is a significant and positive relationship between the
energy price disparity and energy intensity r = 0.49 across the 50 states, which indicates that
disparity in prices leads to inefficiency in the use of energy. There is a significant and negative relation-
ship r = − 0.80 or − 0.88 with Hawaii removed between diversity and energy intensity Fig. 5. As
diversity increases energy intensity declines, both over time and in cross-section analyses. This same
relationship has been observed for countries. In addition, a declining energy intensity has been
shown to result in the improvement of many environmental, development and socioeconomic
indicators Templet, 1996. Hawaii appears to be an outlier; although its diversity is close to the
median, its energy intensity is much lower than predicted by the linear fit in Fig. 5. This may be
due to Hawaii’s isolation, which promotes high energy prices and greater efficiency than in main-
land states. The low energy intensity may also be due to Hawaii’s tropical climate, which reduces
energy consumption, and its heavy reliance on low energy intensive tourism.
Most socioeconomic measures worsen as energy intensity rises Templet, 1996, e.g. personal in-
comecapita significantly declines with rising en- ergy intensity r = − 0.77 across the states. The
reason for higher incomes in more energy efficient states seems to lie in a better partitioning of energy
to useful products higher GSP and less to waste Templet, 1996, less leakage of wealth from the
state and a better environment which tends to attract higher growth-rate economic development.
The high growth sectors in the US economy, i.e. the knowledge or information sectors, tend to be
less energy intensive and more information inten- sive per unit of output, which suggests that infor-
mation is a partial substitute for energy.
3
.
4
. Energy use, partitioning and pollution As price disparity increases across states, the
amount of energy being consumed by a state’s industrial sector significantly increases. Because
there is a significantly positive relationship be- tween industrial energy use and toxic releases
TRI across states, an increase in price disparity leads to higher industrial energy consumption and
higher toxic pollution levels r = 0.83, 1997 EPA Toxic Release Inventory. There is complementar-
ity between industrial energy use and toxic pollu- tion toxic releases are a subset of total releases
and a useful surrogate for total pollution because they are available annually in contrast to total
releases. High industrial energy use also translates into a larger contribution to global warming; for
example, the US has the lowest energy prices in the developed world and contributes twice the
amount of CO
2
per capita as Europe and five times the world average Engleman, 1994. In
addition, there are other costs associated with pollution and inefficiency, e.g. family health
spending as a share of family income is signifi- cantly higher when toxic intensity i.e. toxic re-
leasesGSP is higher r = 0.48. This suggests that there are negative health effects and a loss of
productivity Meyer, 1992 from high industrial energy use. The states with the highest energy
price disparities, Louisiana, Texas and Montana, generally rank among the highest in the US in
toxic discharges see Table 1 for toxic releases
Fig. 4.
1995 Energy
intensity by
state.
Fig. 5.
Diversity vs.
energy intensity
by state.
from manufacturers normalized by manufacturing jobs by state to adjust for industry size Templet,
1993a,b. From a system perspective this is not a surpris-
ing result. As the input of energy into the eco- nomic system increases, it can either generate
more goods and services GSP, the desired out- come, or more waste, or both. A multiple regres-
sion across the states using 1995 GSP to represent the production of goods and services and toxic
releases TRI to represent waste US Environ- mental Protection Agency, 1997 for 1995 gives:
Energy input PJ =
8.11 × GSP 92 billion + 18.45
4.09E − 5 × TRI kg14.20
2 where r
2
= 0.97 with zero intercept 0.95 with
− 99.05 intercept, PJ is Petajoules 10E15 J,
TRI is in kilograms, dollars are 1992 dollars and t statistics are shown below the two independent
terms. Fig. 6 shows state energy consumption calcu-
lated from Eq. 2, plotted against actual energy consumption, and verifies that the equation is a
useful predictor of state energy use. Using Eq. 2, we can calculate the relative amount of energy
being used to produce GSP partitioning by state by multiplying out the first term on the right side
of Eq. 2 and dividing by the calculated total energy. The result Table 1 is useful in a compar-
ative sense, but is probably too optimistic because the waste term TRI does not represent all waste
created within a state but only toxic waste. Those states with low TRI releases, e.g. Vermont and
Hawaii, appear to be more efficient than they are because their toxic waste is low. If more complete
waste data were available, the calculation might be more useful in an absolute sense.
In high disparity states, a larger fraction of the total energy input goes to waste heat and pollu-
tion, which makes them less efficient than low disparity states. This effect can be seen in the
partition coefficients developed previously for countries and states Templet, 1996 where effi-
cient states partition more energy into goods and services than high energy intensity states. Because
GSP is related to income those states which parti- tion more energy into goods and services and less
into waste can be expected to have higher per capita incomes Fig. 7, all else being equal. Effi-
ciency in the use of energy, and presumably other resources, results in higher incomes and greater
public welfare.
3
.
5
. Leakage Leakage, as defined here, is that part of a
state’s GSP that is in excess of income within the state and thus contributes to income elsewhere. It
ranges from 40 of GSP in Alaska and Wyoming to 3 in Florida and Maryland Table 1. Extrac-
tive states tend to export more of their wealth, e.g. Louisiana, which exports energy and also exports
29 of its GSP wealth annually, while Texas exports 24 of its GSP. States like Florida and
Maryland are retaining more of their wealth and may be importing income in the form of payments
to shareholders, transfer payments and salaries earned outside of the state, e.g. Maryland resi-
dents include many wage earners who commute to Washington, DC, to work. States having higher
diversity export less of their wealth r = − 0.56 in analogy with mature ecosystems Tilman et al.,
1996, which export fewer nutrients than early successional ecosystems. Leakage is a major
source of lost income and subsequent poverty for high resource use and high pollution states Tem-
plet, 2001, i.e. those whose industries, e.g. min- ing, manufacturing, and logging, rely heavily on
extractive natural capital.
For the US as a whole, leakage seems to be increasing. The deficit in the balance of trade is at
historically high levels, about 360 billion per year July, 2000 rate annualized and growing, and
nearly half of that is due to the cost of imported energy. The US is inefficient in its use of energy
compared with Japan and most European coun- tries; we require two to four times as much energy
to create a dollar of GDP as those countries. The US dollars spent on imported fuels go to coun-
tries that then use some of it to purchase shares of US assets. As a consequence, foreign assets in the
US exceeded US assets abroad by the late 1980s
P .H
. Templet
Ecological Economics
36 2001
443 –
460
455 Fig. 6. Calculated energy consumption vs. actual by state.
P .H
. Templet
Ecological Economics
36 2001
443 –
460
Fig. 7. State income per capita vs. the relative fraction of total energy used to produce GSP.
and by 1995 the gap was nearly three-quarters of a trillion dollars and climbing US Bureau of the
Census, 1997. A proportionate share of the earn- ings of those assets leave the US each year as
payments to foreign shareholders, and thus an ever increasing share of GDP leaks away. Since
GDP supports income, the more GDP leaked out of the US, the lower our incomes will be. US
payments of income to the rest of the world exceeded US income receipts from abroad in 1995
and are climbing US Bureau of the Census, 1997.
The energy price disparity results in low energy efficiency that leads to a higher than necessary
total energy use, much supplied by imports. The deficit in our balance of trade increases and facili-
tates foreign purchase of US assets. Returns to those assets then leaks out of the US to other
countries. In effect we are trading income produc- ing assets for oil. The tragedy is that imported oil
would be unnecessary if we became as energy efficient as our European trading partners by
conservation and by raising or equalizing prices for energy. Our wasteful energy practices appear
to be resulting in a loss of potential income in the US, along with global climate change and other
negative impacts.
3
.
6
. Price disparity and energy subsidies A price disparity above the US average results
in a subsidy above the US average for the indus- trial sector because that state sector is, in all
likelihood, getting energy cheaper than the US industrial average, and the states’ residential sec-
tor is paying a price higher than expected. For example, see Fig. 1 where Louisiana residents pay
higher prices than the US average for energy and industry pays less. The subsidy can be calculated
relative to the US average energy price disparity using:
Energy subsidy = residential expenditures ×
1 − US price disparity
state disparity 3
The US sector average energy price is set as the zero point for ease in calculation so the subsidy
calculated by Eq. 3 is positive only if a state’s energy price disparity is higher than the US aver-
age price disparity. Dividing the energy subsidy calculated with Eq. 3 by the state population
then gives the energy subsidy per capita paid by a state’s residential sector, which is shown in Table
1. Positive numbers mean that a subsidy above the US average is being paid, negative numbers
states’ residents are paying a subsidy below the US average, although all states’ residents pay
some subsidy for a derivation of the formula, see Templet, 1995b. It is possible, of course, that a
portion of the subsidy may be justified due to delivery costs or other extenuating factors, but
these state-wide costs would have to be substan- tially above the US average for the subsidy figure
calculated here to be invalid.
Providing the subsidy to the industrial sector has negative public welfare consequences. Poverty
and unemployment rise significantly while income per capita declines with an increase in the energy
subsidy Templet, 1995b. In addition, energy flow diversity declines significantly with a rise in sub-
sidy across states, thus higher subsidies lead to a higher energy intensity, lower economic diversity
and lower energy efficiency.
4. Discussion
