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Government focus on cheap energy risks locking economies into costly energy projects warns LSE academic

Pic by Colin Payne via inhabitat.comGovernments investing in large energy projects and subsidy policies to encourage cheap energy risk locking their economies onto energy-intensive pathways that could be detrimental to their long-term prosperity an academic from the London School of Economics and Political Science (LSE) has argued.

In a paper published in Nature Energy today [11 July 2016], Roger Fouquet of the Grantham Research Institute on Climate Change and the Environment at LSE cautions that while investment in large energy projects might provide accessible cheap energy in the short-term, it also risks locking those economies into pathways that may prove detrimental to the country’s longer term prosperity. 

Economic development, the paper states, needs access to cheap energy services, just as it needs cheap capital and labour. But while large energy projects and subsidies can initially provide a low-priced energy service, cheap energy also tends to lock economies into energy-intensive patterns related to technologies, infrastructures, institutions, and behaviour that are likely to be detrimental to the economy in the long run, increasing the economy’s vulnerability to energy price shocks, inflation, trade balance deficits, political pressures from energy companies and environmental pollution.

Care should therefore be taken before embarking on large scale projects and policies that leave an economy heavily in debt and offer little growth and development, the paper cautions.

A better understanding of path dependence in energy systems is critical and urgent for two reasons, Dr Fouquet argues. First, current efforts to stabilise the climate require unlocking industrialised economies from their existing fossil fuel energy systems. Second, developing countries are still in the process of industrialisation, which is typically a time of heavy investment that creates lock-ins and ultimately dependence on one set pathway. It is therefore critical that the risks are better understood, their implications identified and strategies developed to deal with this issue before these economies find themselves locked into costly energy schemes.

Roger Fouquet, Associate Professorial Research Fellow at the Grantham Research Institute on Climate Change and the Environment, said: “Once an economy is locked-into an energy system, the government rarely has opportunities to redirect it, so it is crucial for long-term prosperity that an economy gets on the ‘right’ path before it is fully locked-in. Not only will this have economic benefits, but it’s likely to reduce the costs of meeting global environmental regulation that will, no doubt, eventually be pressed on even the least developed economies. So industrialising economies may want to avoid locking themselves into this antiquated energy system altogether.”

“This paper should not discourage governments from seeking to use energy policies to assist objectives of economic development and poverty alleviation. But it offers a reminder to policy-makers that cheap energy is not a ‘silver bullet’ and can instead have a hidden price tag, especially in the long run.”

‘Path Dependence in Energy Systems and Economic Development’ by Roger Fouquet is published in Nature Energy.  

For more information:

Contact Jess Winterstein, LSE Press Office, 020 7107 5025, j.winterstein@lse.ac.uk 

Picture: Colin Payne via inhabitat.com  

11 July 2016