Energy, natural capital and economic growth

This work utilizes the universal concepts of energy and Carnot Heat Engine to explain the formation of natural capital types as products of evolutionary processes, activated and driven by planetary heat engines. On this foundation, it further argues on the need for a fundamental redesign of the global economic and financial architecture with consistency to thermodynamic principles. The Laws of Thermodynamics dictate that the generation of physical work in a system with well-defined boundaries requires the existence of a heat gradient. Beginning from a typology of planetary natural capital species -ranging from fossil and nuclear fuels to minerals, biomass and genetic information- it is argued that the global stock of natural capital essentially constitutes and accumulated surplus of useful work or exergy, as the fundamental potential of economic growth. The exergy embodied in each natural capital type establishes three major economic functions: (1) for inorganic natural capital (such as fossil fuels, nuclear materials and minerals) it sets a reference state above thermodynamic equilibrium that contains intrinsic economic value and (2) for organic natural capital (such as chemically structured biomass, ecosystem functions and genetic information) it sets an optimal ecological state, sustained by daily planetary exergy flows. These two functions derive the third, (3) on the global economy’s ecological constraints to generate heat and material wastes -from the thermodynamic transformation of natural capital into economic goods- that distort the optimal ecological state. On these grounds, this work develops a quantitative economic framework with consistency to the laws of thermodynamics, introducing innovative key metrics on humanity’s evolutionary course by its energy paradigm, the thermodynamic conditions for a steady-state economy, the Jevons’ Effect as an inevitable evolutionary pressure towards energy paradigm shifts, the re-postulation of the Hartwick’s Rule of intergenerational equity on thermodynamic foundations, as well as the Scarcity Rent as a financial investment instrument for energy technology transitions.

Keywords: energy, Carnot Heat Engine, natural capital, Laws of Thermodynamics, useful work, exergy, economic growth, energy paradigm, Jevons’ Effect, Hartwick’s Rule, intergenerational equity, Scarcity Rent

References

• Kümmel Reiner. The Second Law of Economics. New York: Springer-Verlag; 2011
• Ayres Robert U, Warr Benjamin. The Economic Growth Engine. Cheltenham: Edward Elgar Publishing Ltd; 2009.
• Roegen Nicolas Georgescu. The Entropy Law and the Economic Process. Cambridge MA: Harvard University Press; 1971.