Aggregation and the role of energy in the economy

Methods for investigating the role of energy in the economy involve aggregating different energy flows. A variety of methods have been proposed, but none has received universal acceptance. This paper shows that the method of aggregation has crucial effects on the results of the analysis. We review the principal assumptions and methods for aggregating energy flows: the basic heat equivalents approach. economic approaches using prices or marginal product for aggregation, emergy analysis, and thermodynamic approaches such as exergy. We argue that economic approaches such as the index or marginal product method are superior because they account for differences in;quality among fuels. We apply various economic approaches in three case studies in the US economy. In the first, we account for energy quality to assess changes in the energy surplus delivered by the extraction of fossil fuels from 1954 to 1992. The second and third case studies examine the importance of energy quality in evaluating the relation between energy use and GDP. First, a quality-adjusted index of energy consumption is used in an econometric analysis of the causal relation between energy use and GDP from 1947 to 1996. Second, we account for energy quality in an econometric analysis of the factors that determine changes in the energy/GDP ratio from 1947 to 1996. Without adjusting for energy quality, the results imply that the energy surplus from petroleum extraction is increasing, that changes in GDP drive changes in energy use, and that GDP has been decoupled from between aggregate energy use. All of these conclusions are reversed when we account for changes in energy quality. (C) 2000 Elsevier Science B.V. All rights reserved.