Don't Tax Development, It Hurts The Poor

Guest Post by Willis Eschenbach

I was reading an interesting article, paywalled sadly, called “Detecting Novel Associations in Large Data Sets“, by David N. Reshef et al. It describes a subtle method for detecting relationships in datasets. Their method is called “MIC” for maximal information coefficient. The MIC coefficient measures the strength of the association of the two datasets. A value of 1 indicates a very close association, while a value of 0 means random noise. Their MIC coefficient outperforms traditional indicators for a range of complex non-linear types of relationships, including sinusoidal, circular, and multiple additive relationships. This is because it makes no assumptions about the shape or form of the association. It’s a fascinating method, one I want to learn more about.

One of their test cases involved looking for a relationship between a range of global indicators. Here is a list of their results, sorted by MIC.

Figure 1. Significant associations as indicated by the maximal information coefficient. Traditionally, the association would be measured by the Pearson coefficient. 

The odd one out in this list  is MIC rank 3, the association between oil consumption per person and income per person. The Pearson rank of this one was 207, while the MIC rank was 3. So I was motivated to take another look at the question of energy and development.

To do so, I used “Gapminder World”, an amazing online tool for visualizing data. Figure 2 shows an example. This is a comparison of average energy use and income, both on a per capita basis. Each country is represented by a “bubble” in the diagram.

Figure 2. Bubble plot, by country, of per capita energy use (vertical scale) versus income per person (horizontal scale). Note that both scales are logarithmic. Size of the individual bubbles shows total energy production by that country. Color of bubbles shows total oil production by that country. Units of energy use are tonnes of oil equivalent (TOE) per person per year. SOURCE

As you can see, there is a clear and quite tight linear relationship between energy use and income. This leads to an inexorable conclusion. You can’t get out of poverty without having access to affordable energy. Figure 3 below shows the same data, with larger energy producing nations identified.

Figure 3. Bubble plot, by country, of per capita energy use (vertical scale) versus income per person (horizontal scale). Note that both scales are logarithmic. Size of the individual bubbles shows total energy production by that country. Color of bubbles shows total oil production by that country. Units of energy use are tonnes of oil equivalent (TOE) per person per year. SOURCE

The bubble size shows that the US and China are about tied for top country regarding total energy production. Russia is third, the Saudis fourth, and surprising to me, India fifth. The colors show that for Russia and the Saudis most of the energy is produced from oil (red) while for China and the US coal is also a major source. India’s energy is mostly coal.

Figure 4 below shows the same basic energy vs. income chart, but in a different way. In Figure 4 the bubble size is energy production per capita, rather than total energy production. All of the bubbles are in the same location, but are changed in size.

Figure 4. Bubble plot by country of per capita energy use (vertical scale) versus income per person (horizontal scale). Note that both scales are logarithmic. Size of the individual bubbles shows total energy production per capita. Color of bubbles shows total oil production. Units of energy use are tonnes of oil equivalent (TOE) per person per year. SOURCE

We can draw some fresh conclusions from Figures 3 and 4. One is that you don’t have to produce a lot of energy, either per capita or in total, to have a modern industrial developed economy (lots of small bubbles at upper right). The Netherlands and Japan are examples. The second is that if you have high energy production per capita, it is easier to have high per capita income (preponderance of large bubbles at upper right).

The Gapminder website also allows us to look at the history of the various countries. Here is how some countries have evolved over time. Label lines show the start of each record.

Figures 5 and 6. Same as Figure 3, but showing the evolution of some countries 1971-2007. Size of the individual bubbles shows per capita energy production by that country. Color of bubbles shows total oil production by that country. “Trails” show the year by year values. Note that both scales are logarithmic. Fig. 4 SOURCE1 Fig. 5 SOURCE2:

Some comments on the historical figures. First, the direction you’d love for your country to be moving over time would be down and to the right. This would mean using less energy while making more money. Generally, almost nobody is moving in that direction overall.

The bad direction would be up and to the left. That would be using more energy to make less money. Ugly. The Saudis have moved that way in recent years.

Some countries took the worst quadrant, down and to the left. This is where you are using less energy, and you’re also making less money. Zimbabwe and the “Democratic” Republic of Congo did that. Bad sign. It’s de-development, and it generally involves suffering for both humans and the environment.

That leaves the fourth quadrant, moving up and to the right. Using more energy and making more money. Commonly called “development”, AKA getting out of poverty. Making enough money to be able to afford to protect the environment.

The game is to move to the right as much as you can (increased money) and upwards as little as you can (increased energy). So Bangladesh is not doing as well as India in that regard, since it is moving upwards more steeply.  China was doing as well as India in the 70s and 80s, but has sloped upwards in the last decade of the record. Note that India is producing the majority of its energy from coal.

Russia went down and to the left in the early nineties, but has since recovered and nearly doubled its income without much increase in energy. Curiously, the income is now back to the 1990 level, but the energy use is less. The same is true of Uzbekistan and many other former members of the Soviet Empire. To their credit, they have fought back from the breakup of the Empire and returned in a more efficient form. Indeed, the Uzbeks have gone down and to the right in the last decade, and that’s the holy grail of development, doing more with less energy.

The poor Saudis, on the other hand, ended up going almost straight up (more energy used to provide the same income), and even lost a little ground. And Senegal has gone nowhere at all.

Japan, China, Mexico, and Australia have increased their per capita energy production over the period (bubble size), while the US and Russia have stayed about the same. The total oil production for the US has fallen (bubble color) while for China it has increased. Russian oil production fell and then has come back up.

The US and the UK have done a curious thing. Per capita energy use for each country in 2007 was about the same as in 1979. But income went up. Both countries nearly doubled their per capita income, with basically no increase in per capita energy use. Not sure what they are doing right, but we should figure it out and clone it …

Conclusions and final notes:

1. Development is energy, and energy is development. Although efficiency and conservation can help you, in general you must increase energy use in order to increase personal income enough to get out of poverty. If you make energy expensive, it is hugely regressive, as the poor countries and the poor people will simply not be able to afford it. Carbon taxes, “cap-and-trade”, or other energy taxes are a crime against the less favored inhabitants of our planet.

2. Large countries with higher transportation costs will use more energy per dollar of income than do small countries.

3. Within the limits of the “cloud” of countries shown in Figure 3,  it is possible to increase energy efficiency, and to make more money using the same amount of energy.

4. Countries that produce lots of energy tend to waste it more than countries that produce little.

5. The preferable place for any given income level to be is on the lower edge of the “cloud” of countries with that income. This is where you get the most bucks for your bang. Many European countries are in this position. The US and Canada are about in the middle of the cloud. However, as noted they are much larger than the European countries.

6. China, India, and Bangladesh had about the same per capita income in 1971, ~ $700 per year. The differences in their current positions are large, with Bangladesh at $1,400, India at $2,600, and China at $6,000 per year.

7. Sadly, the datasets only go up to 2007 … it would be interesting to see the reduction in both energy use and income due to the global financial meltdown.

8. Finally, when someone says the word “technology”, many environmentalists think “bulldozers”. Instead, they should think “energy efficiency”. At the end of the day, technology is about doing more with less. Technology is what allows us to use less gasoline to go a mile. Through some combination of conservation and technological advances, the US and the  UK were able to double their income on the same expenditure of energy. This technological advance is to the benefit of everyone including the environment.

Regards to all,

w.

PS—The source links below each chart goes to the corresponding live chart on the Gapminder website, where you can play with the variables or investigate the histories of countries other than the ones at which I looked.