We have seen that energy is basic for life and activities in nature and society. Energy is a measure of value in physical terms. However, the more complex a system or a process becomes, the less can be said by physics. Even the term ‘‘complexity’’ is problematic. There are several definitions of complexity as a quantitative concept in information theory. These definitions capture important aspects, but there is no mature theory of complexity. For the understanding of complex systems and processes, one needs the life sciences, social sciences, and humanities. What about economics, in particular, energy economics?
Some years ago, in a draft of the economics chapter for a report from the Intergovernmental Panel on Climate Change (IPCC), in an estimate of the costs of climate change, a statistical life in a poor country was valued as 1/15 of a statistical life in a rich country. Willingness to pay for life insurance was part of the basis for this finding.
This led to very strong criticism by many scientists and finally the discussion convinced the authors that a change was necessary in the principles for making cost estimates in a global perspective. Willingness (or rather ability) to pay for life insurance could no longer be considered a reasonable basis for value. The presently dominant ideology that attributes a fundamental significance to market and money was shaken, at least temporarily. If the IPCC draft had taken into account that the marginal value of money is greater for a poor person than for a rich person, then a factor of approximately 15 would have appeared and canceled the factor 1/15.
All this shows that moral values can be deeply involved in dealing with economic evaluations of energy systems.
If the idea that economic value is tied to human welfare is taken seriously, then this has very strong implications. The global welfare deficit can be computed for the current very unequal income distribution with a conventional welfare function. The deficit can then be expressed as a cost in money terms, using money value at the average income level. The cost turns out to be on the same order of magnitude as the total global income or larger. Thus, if inequality were included in measures of economic performance, economic descriptions would change drastically.
This discussion shows that it is important to test the validity limits of reasoning and concepts. It is especially so with economics, considering the dominant position of economic rationality for decision making on almost all levels.
An important study in this context attempted to arrive at an economic value of nature. This work showed that large modifications are needed in economics in order to include the value of natural systems. It also showed that the uncertainties are large. Economics also has difficulties in handling not only natural capital, but also human capital and social and cultural capital and the value flows associated with these.
Either such value aspects should be included in economic considerations or those value aspects should define the boundaries within which economic considerations are to be made. As the above example from the IPCC draft shows, pure economic considerations, not governed by human value, can become immoral. The conclusion is that physical and economic aspects are both very important, but one should be well aware of their limitations.
Efficiency is a topic where physics and economics meet. Carnot’s efficiency problem opened a new branch of physics: thermodynamics; at the same time, it was an economic problem. Thermodynamic efficiency can be economically visible through an energy price.
There are also other links. Distributional inefficiency is related to technical (and thermodynamic) inefficiency: poor people may not afford investments to improve efficiency and rich people may not feel the fees introduced to discourage them from waste. Organizational efficiency and social efficiency are also relevant aspects to be included in an efficiency analysis.
Justice between generations can be seen as an intertemporal efficiency. If the time anomalies in production described above are to be taken seriously, then, for consistency, there should be no discounting of the future; the a priori discount must be zero.
