information technology and the use of energy

Information technology and the use of energy

William Walker

This paper assesses the potential impact of information technology on energy use in advanced economies . Irrespective of energy price movements, information technology is expected to raise the energy efficiency of economic activity through its direct application to reducing energy consumption in products and processes, and through the productivity improvements and structural changes it initiates which will not involve substantial increases in energy use. Economic growth will thus be less tied dynamical- ly to the expansion of energy supply and demand than in previous phases of industrialization. While overall energy demand may not rise strongly, information technology will however tend to increase electricity's importance in the economy.

Keywords: Information technology; Econo- mic growth; Energy demand

William Walker is Senior Fellow at the Science Policy Research Unit, University of Sussex, Mantell Building, Falmer, Brighton BN1 9RF, UK.

This paper has been prepared under the auspices of the Economic and Social Research Council's Designated Research Centre for Science, Technology and Ener- gy Policy at the Science Policy Research Unit, University of Sussex. Among the many people who have helped me during its preparation, I owe a special debt to Paul Gardiner.

1The term 'information technology' has no precise boundaries but is taken here as encompassing electronic technologies associated with data collection, storage, processing and communication. New computer-based technologies such as computer-aided design, office automation and robotics are included in this definition.

It is now part of the conventional wisdom that information technology will transform social and economic structures and may in time provide the springboard for another period of sustained economic growth.~ In view of how much has been written on its implications for such issues as employment, lifestyles and the international division of labour, it is surprising that so little attention has been given to its possible consequences for the energy system. This pair of articles (the second on information technology and energy supply will appear in Energy Policy in 1986) is intended to demonstrate how substantial those consequences seem likely to be. In particular:

• In advanced countries, the growth of economic output and productivity will be less tied to the expansion of energy supply and consumption than hitherto, in part because the new technologies driving economic growth will require so little energy.

• Information technology provides a powerful set of tools for raising the efficiency with which energy is used in many parts of the economy.

• Information technology will strengthen the preference for high- quality forms of energy, and for electricity in particular.

• Information technology creates possibilities for establishing a more interactive relationship between the producers and users of energy, and for allowing users to react to prices which more closely reflect the changing costs of supply.

• On the supply side, information technology provides opportunities for reducing the costs and leadtimes of plant construction, raising the productivity of installed capital, improving the techniques used for finding and exploiting fossil fuel reserves, altering the relationship between centralized and decentralized energy systems, and generally enhancing the performance and variety of energy supply technology.

With regard to energy demand, forecasters have traditionally taken either a 'top-down' approach, whereby demand is related via prices and other variables to the future macroeconomic environment; or a 'bottom-up' approach in which demand trends are analysed by sector and aggregated. Neither seems adequate when a revolutionary new technology is invading the economy and fundamentally altering its structure. In these circumstances, forecasting and scenario building will

4 5 8 0301-4215/85/050458-19503.00 © 1985 Butterworth & Co (Publishers) Ltd

2Christopher Freeman, ed, Long Waves in the World Economy, Butterworths, Lon- don, 1983; Carlota Perez, 'Structural change and assimilation of new technologies in the economic and social system', Futures, Vol 15, No 5, October 1983. 3See, for example, D. Landes, The Un- bound Prometheus, Cambridge University Press, Cambridge, UK, 1969.


be prone to more than the usual margin of error if they do not rest upon an understanding of the principal trajectories of change and their general effects on energy consumption. Such an understanding is of course not easily achieved, particularly when many developments are in their infancy, timescales are uncertain and evidence is largely circum- stantial; nor can it ever be complete. The object of this paper is not to forecast information technology's precise consequences for future energy demand but to examine the dynamic impacts it may have across the economy, and thereby to help energy planners bring greater realism and accuracy to their own assessments.

There are two additional qualifications. The distinction made in these articles between energy supply and consumption is one of convenience only. Energy suppliers are substantial energy consumers; important developments are in prospect at the interface between the supply and demand sides of the energy equation (an issue which will be covered in the second article); and the transformations in industrial production covered in these pages will also affect the supply and organization of energy capital goods. Boundaries are therefore not easily drawn. It should also be noted at the outset that the discussions will be limited to the industrialized nations in North America, Europe and the Pacific region. They nevertheless remain much the largest users of commercial energy and the primary locations of technological development.

Historic role of energy in economic development

Following so closely upon a period of unprecedented economic advance, the upsets of the past decade have revived interest in what appear to be long cycles of economic growth and recession. In the traditions of Marx, Kondratiev and Schumpeter, a school of thought has emerged which attaches particular importance to the rate, character and universality of technical change as determinants of economic performance in given periods. 2 In good times, clusters of technologies with the power to transform social and economic relations develop and reach maturity, leading to a higher efficiency and creativity of capital in its broadest sense. In bad times, the technological foundations of production and consumption built up over previous decades, and the institutional structures with which they are associateed, become increasingly rigid and infertile, and the new technologies which could bring fresh vigour to the economic system still lack the momentum to propel an upswing.

This is the view of a minority of economists. It is more usual for economic shortcomings to be attributed to contemporary 'imperfec- tions' in macroeconomic management and market relations, not least of which in the 1970s was the cartelization of oil supplies. The occurrence of long waves of economic activity and the 50-year periodicity they have sometimes been ascribed therefore remains controversial. There is, however, another more widely accepted perspective, emanating from the study of economic history, which has economic development occurring in phases of even longer duration, with technology and the material forces of production again occupying centre stage. 3 According to this tradition, the development of new energy supplies and the technologies for converting, transporting and applying them has been a key agent of economic transformation. Thus the first industrial revolution spanned the 18th and 19th centuries and rested upon the

ENERGY P O U C Y October 1985 459


4They were interdependent in that deep coal mining required the steam engine for pumping and hoisting; the steam engine was needed to provide a blast strong enough to use coke in iron smelting; and the steam engine required both coal as a fuel and higher grade iron as a structural material. Clusters of innovations have greater impetus when they are mutually reinforcing. 5The Otto silent engine, the predecessor of today's internal combustion engine, was commercialized in 1876; alternating current was demonstrated by Westinghouse and Stanley in 1886; and synthetic indigo was first marketed in 1897. SBetween 1960 and 1970, for instance, world GNP and energy consumption grew by 65% and 60% respectively.

interdependent triad of coal mining, iron smelting and the steam engine. 4 Together they provided the materials, heat and motive power upon which the factory system, railways and other new ways of organizing economic activity were based.

From this viewpoint, the rapid economic growth experienced in the third quarter of this century marked the culmination of a second industrial revolution whose seeds were sown in the last decades of the 19th century. 5 It derived much of its momentum from the exploitation of two novel energy sources - - electricity and hydrocarbons (notably oil). Without petrochemicals, the turbine generator and electric motor, the internal combustion and jet engines, few of the developments which led to the industrial society we now inhabit could have occurred: the great expansion of road and air transport, with its impact on patterns of human settlement, the location of production and international commerce; the application of techniques of mass production and marketing, and accompanying changes in factory organization; the mechanization of household tasks; the growth of the mass media; the adoption of new materials such as plastics, aluminium and special steels; the displacement of coal and wood as the principal urban space heating fuels; the mechanization of farming and application of fertilizers and crop controls; the refrigeration of food in storage and distribution, and so on.

Economic advance in the post-war period was therefore heavily bound up with the development and diffusion of electricity- and petroleum-based products and processes, and with the parallel expansion and declining real price of electricity and hydrocarbon supplies. It could be observed statistically in the close matching of the rates of growth of energy consumption and economic activity. 6 In addition to setting the agenda for investment throughout the economy, the governance of industrial democracies seemed to rest upon the delivery of higher living standards which were attainable only if economies could be kept moving along established tracks. The oil disruptions and price rises of 1973-74 were therefore perceived as profound challenges to the future stability and growth of industrial societies. Beyond their immediate consequences for inflation and supply security, they seemed to warn of an impending 'energy gap' between the amounts of energy which could be provided at reasonable cost and the voracious demands of an expanding world economy.

How to avoid the coming systemic crisis became the subject of intense controversy in the 1970s, not least because the energy crisis coincided with and exacerbated anxieties over the hazards of nuclear energy and the general state of the biological environment. The solutions proposed rested with few exceptions upon three assumptions:

1) The dynamic relationship between energy and economic growth in industrialized countries (ie the high income elasticity of energy demand) would remain unbroken, with energy conservation being only capable of a slight reduction in the rate of growth of energy demand. If the expansion of energy supply could not be achieved, nor could the expansion of economic activity: the alternative was poverty or a return to pre-industrial forms of social organization.

2) Energy prices would rise inexorably as hydrocarbon and uranium reserves were depleted. Those reserves could not be expanded adequately to meet demand through technological advance and higher rates of investment in field exploration.

3) Only by radically altering the technological underpinnings of energy

460 E N E R G Y P O L I C Y O c t o b e r 1985

Vln his f ine recent article, Schurr suggests (in Table 1) that there was little apparent relationship between trends in energy prices and in the energy- intensi ty of the US domestic business economy between 1920 and 1981. Sam H. Schurr, 'Energy conservation and productivity growth', Energy Policy, Vol 13, No 2, April 1985.


supply could crippling energy scarcities be averted within the next few decades. Depending on political viewpoint, this could come about through the commercialization of 'hard technologies' such as fast breeder reactors and coal liquefaction; or of 'soft technologies' such as solar energy, wind power and biomass.

The government-sponsored energy technology programmes launched in the 1970s, and in particular the massive R&D expenditures on advanced nuclear reactors and synfuels, rested upon these assumptions. A decade later they appear either wrong or in need of strong qualification: economic growth can proceed in advanced countries without an equivalent growth of energy consumption; it is not inevitable that real energy prices will rise in the longer term; large additional reserves of fossil fuels and uranium have been discovered; and technical change is indeed intervening to change the outlook, although not in ways envisaged by energy planners in the 1970s. The problems of keeping the international energy system on an even keel have not been entirely overcome, but the deep pessimism which pervaded the years following the first oil shock now seems out of place.

A break with the past?

The greatest surprise since 1973 has been the stubborn refusal of energy demand to imitate the course of economic growth. The recession may have depressed demand and encouraged the scrapping of obsolete plant, but it cannot explain the substantial reduction in energy use per unit of economic output apparent in Table 1. Will this trend towards higher energy efficiency continue, or has it been a 'once-and-for-all' adjustment to higher energy prices induced by the 1973 and 1979 oil shocks?

If relative prices alone were responsible for the rise in energy efficiency, the latter might hold true.: Investment in conservation has been substantial over the past decade. A broad range of energy-saving techniques, many of them simple and by no means novel (for example roof insulation), have been adopted in response to higher energy costs. And considerable effort has been expended on adjusting installed capital stocks to use less energy, and on designing and marketing more fuel efficient products and processes, as today's automobiles bear witness.

To a degree, the quest for higher energy efficiency will be perpetuated by fears of future oil shocks, and by the institutionalization of energy conservation that has occurred since 1973. Energy saving is

Table 1. Energy and economic growth in lEA member countries, 1968-83.

Annual average change (percentage)

1968 1973 1978 1983 1968-73 1973-78 1978-83

Gross domestic product (GDP) a 3177 3713 4227 4595 3.2 2.6 1.7 Total primary energy requirements (TPER) b t586 3324 3592 3359 4.1 1.6 -1 .3 Total final consumption (TFC) b 1929 2491 2609 2398 4.2 0.9 -1 .7 TPER/GDP c 0.81 0.90 0.85 0.73 2.1 1.1 3.0 TFC/GDP c 0.61 0.67 0.62 0.52 1.9 1.5 -3 .5

a billion US$, 1975 prices and exchange rates; b million tonnes of oil equivalent; total final consumption equals total primary energy requirement less transformation and distribution losses; c tonnes of oil equivalent per thousand US$.

Sources: Energy Policies and Programmes of lEA Countries, 1983 Review, International Energy Agency, Paris, 1984; Energy Balances of OECD Countries, 1960-74, OECD, Paris, 1970; Main Economic Indicators, OECD, Paris, various issues.

ENERGY POLICY October 1985 461

Information technology and the use o f energy

firmly on most governments' policy agendas, large industrial concerns now routinely appoint energy managers, building standards have been tightened. The search for ways of economizing on energy will therefore remain embedded in economic activity to a greater extent than in the years prior to 1973. Fiscal policies and the high value of the dollar are also keeping energy prices high to the final consumer in most countries. This said, the exceptional priority given to energy conservation in recent years is unlikely to be maintained if international energy prices weaken further and fears of disruption recede. Already in the USA, for instance, falling real energy prices appear to have halted the move to smaller automobiles and diesel engines. While the gas guzzlers of the earlier era may only reappear on the fringes of the market, fuel economy seems to be becoming a less important consideration in the choice of model.

There are, however, two good reasons for believing that advanced Western economies will become still more energy efficient even if prices to final consumers slacken in real terms. The first is that the phase of economic advance outlined above, when output and productivity growth were tied to the application of energy-driven products and processes, appears to be approaching exhaustion. Although poorer sections of the community may still underconsume energy, most households now possess their motor cars, washing machines and central heating, road networks are largely established, farms are mechanized, and so on. As a result, many of the capital stocks and infrastructures built up over past decades will expand only slowly, if at all, and supplying industries will be faced largely with replacement demand in domestic markets. Moreover, the gradual diffusion of more energy efficient vintages of technology developed since 1973 will ensure that net increases in energy demand will be less than in the past. To give just one example, the anticipated introduction of condensing boilers/ furnaces in markets where natural gas is an important heating fuel may offset the modest growth forecast in space heating requirements.

While this view seems broadly correct, it needs qualifying. We should not underestimate the extent to which the recession in energy-intensive industries such as steel and cement has been the consequence of deflationary monetarist policies rather than a permanent structural shift. The decline in housebuilding has, for instance, depressed demand for bricks and other building materials which require considerable amounts of energy in their manufacture. Some heavy engineering industries also provide long-life capital goods (tankers and power stations) in which there was over ordering in the 1960s and early 1970s, causing a slump in demand which will not persist indefinitely.

In addition, the large anticipated improvements in manufacturing productivity which we discuss below will reduce production costs and thereby cheapen goods available to final consumers. With incomes rising, caution is thus advisable when assessing the levels - measured in terms of quantity or value - at which markets will saturate. Where basic needs have been satisfied there is always room for a greater duplication and specialization of capital, as in the tendencies towards multiple car ownership and for householders to use a wider variety of equipment for cooking. The capital stock will therefore continue to broaden. But this tendency has been paralleled historically by the development of multi-purpose capital goods which can perform several functions at less cost than a range of specialized goods (such as the four-wheel drive

462 ENERGY POLICY October 1985

81bid, Schurr makes a similar observation, p 131. 9For instance, machines could be switched on when needed (steam powered drive shafts ran continuously), and friction losses in shafts, belts and pulleys, and clutches were avoided. See Warren De- vine, 'From shafts to wires: historical perspective on electrification', Journal of Eco- nomic History, Vol 43, No 2, 1983. 1°The apparent rise in energy intensity evident in Figure 1 in the period up to 1920 was substantially due to the substitution of coal and oil for non-commercial energy (notably fuelwood) for which there was no accountancy. 1~ ' . . . although unit drive used less energy and sometimes cost less than other methods of driving machinery, manufacturers came to find these savings to be far less important than their gains from increased production. In essence, electric unit drive offered opportunity - - through innovation in processes and procedures - - to obtain greater output of goods per unit of capital, labour, energy and materials em- ployed. Electricity had come to be viewed as a factor in improving overall productive efficiency'. Devine, op cit, Ref 9, p 368. ~2The word processor, disc drive and monitor with which I am preparing this paper consume little more energy than the light bulb illuminating my desk.


automobile which can handle rough terrains while maintaining satisfac- tory road performance), although usually without matching their performance in individual tasks. On balance, consumers in 'mature markets' will allocate additional income to raising the performance and quality rather than the quantity of durable goods they purchase. Automobile manufacturers expect the OECD automobile stock to grow by only 1-2% annually to the end of the century despite falling production costs and higher real incomes, but the market will also see a substantial rise in technological performance as products become more sophisticated and suppliers try to raise unit values.

The second reason for anticipating higher energy efficiencies seems the most fundamental: the primary 'engine of growth' now lies outside the energy sector, and the technologies which are expected to dominate economic development in coming decades have unusually strong energy-saving and -avoiding biases. In some respects, information technology may have an effect on the energy efficiency of advanced economies similar to that of the electric motor and the internal combustion engine in the first half of this century, s As Devine has shown, the attachment of electric motors to individual machines in factories (the unit electric drive) brought substantial energy savings over the steam-driven systems they displaced. 9 But the fall in energy consumption per unit of output in the USA in the period between 1920 and 1945 (see Figure 1) came more significantly through liberation from the physical constraints on factory lay-out and machine performance which steam drives imposed. 1° The outcome was a new approach to factory organization and a higher rate of growth of total factor productivity in the inter-war period.l~ The introduction of motorized transport had similar consequences for distribution and retailing.

As will become apparent, information technology provides opportunities for raising the efficiency with which energy is used in a broad range of products and processes. More important, it brings new possibilities for social and economic organization - - for recasting relationships between factors of production and thereby achieving higher levels of output and productivity. But there the parallel with the earlier part of the century ends. The electric motor ousted the steam engine in parts of the economy where power was already applied, but it and the internal combustion engine also greatly extended the domain of 'energized capital': for instance the household, road transport, agricul- ture and even coal mining, areas where the steam engine had limited utility, could now take advantage of powered machinery. Electronic equipment is also 'energized capital', with applications which are expanding equally rapidly. But its energy intensity is a tiny fraction of that of the capital deployed in earlier phases of mechanization. The remarkable abstemiousness of information technology is obvious to everyone, yet its significance cannot be overemphasized. In comparison with the 'macro energy' required to drive chemical and mechanical processes, information technology thrives on 'micro energy'. ~2 The small proportion of energy converted in the human body which is consumed by the brain and nervous systems provides an apt analogy: in both contexts, information is being stored, processed and transported at atomic and molecular levels, requiring little work done in the physicist's sense of the term. Multiplied up, the energy consumption of today's profusion of electronic equipment is not insignificant, but even at its greatest extent it is unlikely to consume more than a small fraction of

E N E R G Y P O L I C Y O c t o b e r 1 9 8 5 4 6 3


Figure 1. US primary energy consumption and gross national product, 1890-1984.

Source: Devine, op cit, Ref 9 and Table 1, figures for 1984 supplied by US Energy Information Administration.

131n its most recent survey of world electronics markets, Electronics Week, (1 Janu- ary 1985) predicted that output would rise from $424 billion in 1984 to $782 billion in 1988. At this rate of expansion, electronics would become the world's largest industry in the early 1990s. In 1984, electronic and electrical goods accounted for 792 000 metric tons of plastics in the USA, or 7% of total US plastics consumption by weight (building and packaging were much the largest consumers, accounting for 74% of consumption). See Modern Plastics Inter- national, January 1985, pp 34-35.

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the electrical energy delivered to future industrial economies. Information technology is also abstemious in its use of materials, so

that the great new industries developing around it will not be heavy materials consumers. 13 Ferrous metals are little in evidence: organic polymers of various kinds are the most common structural materials; materials found in componentry include silicon (the integrated circuits), ceramics (substrates) and a variety of non-ferrous metals (such as for connectors, transformers and beam deflectors); and a variety of plastics and paper-based materials are used for packaging. Data has yet to be assembled on the energy intensity of these materials, but it should be noted in passing that they are mostly high performance materials which


14While energy prices rose substantially in real terms in the decade after 1973, the price per performance of electronic goods fell by an order of magnitude. With regard to computer memory, the cost of storing a digital unit has fallen from approximately a tenth to a thousandth of a cent over the past decade, a rate of cost reduction that many expect to continue. l SSee 'Superchips: the new frontier', Busi- ness Week, 10 June 1985, pp 40-43.


require high quality energy in processing and fabrication, and that structural elements will be largely derived from hydrocarbon feed- stocks.

The predominant new technology of the next industrial era therefore seems inherently energy efficient, although we shall see below that its diffusion may not be energy saving in all sectors (it may, for instance, encourage the growth of air transport). It therefore seems probable that the trend towards lesser energy intensities apparent in Table 1 and Figure 1 will continue, and could indeed become more pronounced as the new technologies take hold. To add substance to this claim, it is necessary to look in more detail at how information technology may affect energy consumption in the manufacturing and service sectors.

Information technology and energy consumption

Information technology is by no means the only technology which will influence the manner in which energy is used in tomorrow's international economy. Biotechnology may bring major changes in the 21st century, particularly if it finds wide application in the chemical industry; and the development of new materials such as composites, high- performance plastics and ceramics will have important consequences since materials processing forms so large a part of the energy economy. But information technology seems unique in its pervasiveness and ability to transform the ways in which society conducts its affairs, and hence has the greatest bearing on energy's role in the advanced industrial economy.

Information technology can affect energy consumption both directly and indirectly. The rapid cheapening of electronic technologies relative to energy, which a softening of international energy prices is most unlikely to halt, will encourage wider investment in electronic capital to lessen energy consumption, even in activities which are not especially energy intensive. 14 Information technology will therefore be directly applied on an increasing scale to the task of reducing energy costs in the economy. But its capacities to raise simultaneously the productivity of all inputs to production will tend to increase energy efficiencies across the board; and the structural changes it initiates may have significant but largely unintended consequences for patterns and efficiencies of energy use. Particular attention will be given to these indirect effects in the following paragraphs.

Since the invention of the thermionic valve in the early years of this century, each decade has brought dramatic technological advances in electronics and widening fields of application. They have been spurred in particular by the remarkable improvements in performance and reductions in cost of the basic active electronic component: the transistor in the 1950s, the integrated circuit in the mid-1960s, large-scale integration in the mid-1970s and the microprocessor today. In the discussion of the application of electronics that follows, it should be borne in mind that the technological momentum towards cheaper, more compact and powerful circuitry looks like being maintained in the foreseeable future. Much effort is now, for instance, being directed towards 'ultra large scale integration', which would allow a mainframe computer to be placed on a single chip, opening up possibilities for economic advance that could be as dramatic as those emerging from the development of the microprocessor.~S

E N E R G Y P O U C Y O c t o b e r 1 9 8 5 4 6 5


161t needs stressing, however, that these technologies form only part of the revolution in organizational practices. Japanese innovations in the organization of production have arguably emanated more from new managerial approaches than from the adoption of new technology.

Process control and systems optimization

Information technology comprises an array of techniques applied singly or more usually in combination. Where industrial production is concerned, information technology's primary significance lies in its ability to perform two related functions which could be carried out very imperfectly, if at all, with previous technology: process control and systems optimization (of which automation is one aspect). The advances in performance and productivity offered by these techniques are at an early state of realization, yet they are accepted by industrialists worldwide as being central to competitiveness and profitability in the

16 future manufacturing economy. Figures 2 and 3 depict, in highly simplified form, the transition that is

now under way from local process control to systems integration. There are four technological ingredients to this change.

1) Controltechnology. Mechanical and electromechanical technologies are being replaced by electronic controls which are more sophisticated in performance, cheaper, lighter and less bulky. Their operation can also be changed easily and quickly, and from a distance (for example from other electronic control centres) through programming.

2) Information gathering. A wider range of information can be collected, with greater reliability, frequency and automaticity on aspects of product and process performance (including energy use).

3) Data storage and processing. Data in large quantities can be economically and effectively stored, analysed and displayed. The rise in computing power allows more complicated systems problems to be handled rigorously, quickly and economically.

4) Data communication. Information, programmes and instructions can be rapidly transmitted to, and called up by, any location with appropriate terminals and interfaces allowing centralization and

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decentralization (or both) of decision making and control according to need.

Process control has a long history (Watt's governor from the 1790s is a favourite example in the textbooks). However its application was limited and often crude before the development of microelectronics. Only since the late 1960s has it been possible to apply controls to multiple processes of any complexity, whether they be the processes combined in machines or manufacturing systems.

Following the precipitous fall in costs and rise in performance of computers over the past decade, the range of what may be termed 'controllable systems' has been greatly extended, encompassing systems that are both larger and smaller in their dimensions and complexities. At one end of the spectrum, it has become feasible and economic to apply sophisticated control techniques to such relatively small-scale technologies as electric lighting, portable power tools and washing machines. At the other end, electronic controls are increasingly being used to manage whole factories and production systems. The boundaries that can be drawn around controllable systems are therefore being both imploded and exploded by technological advance. Moreover, modern computer and communications technologies are increasing the scope for integrating the small with the large, and the near with the distant, allowing greater coordination within and between systems and production entities. This is why the term process control now seems



17For a discussion of these techniques, see Peter Senker, 'Some problems in implementing computer-aided engineering - - a general review', Computer-Aided En- gineering Journal, November 1983, pp 25-31. ~aBetween 1973 and 1983, electricity's share of the OECD energy market rose from 11.6% to 15.6%, representing a 1.1 % annual growth of electricity demand against the background of a 2.9% annual decline in total final energy consumption. Energy Policies and Programmes of lEA Countries: 1984 Review, International Energy Agency, Paris, 1985, Table 6. 19The overall cost advantages of electricity over other energy forms are discussed by N. Rosenberg, Inside the Black Box: Tech- nology and Economics, Cambridge Uni- versity Press, Cambridge, UK, 1982, pp 93-101. In a current advertisement, the Hughes Aircraft Company, in whose labor- atories the laser was invented in 1960, identifies 100 different applications of lasers from welding metals to enhancing chemical reactions, from perforating computer paper to counting blood cells.

inadequate. The key departure lies in the ability to handle systems of technologies through centralized or distributed programmable controls (Figure 3).

The power of this new approach is being enhanced by the parallel development of computer-based techniques for aiding R&D, design and production engineering. Information technology provides the means of integrating physical processes; it also, rather magically, provides the means of discovering how best to achieve that integration. Hence information technology is both optimizing, in a creative sense, and integrating. Moreover the development of CAD/CAM and Computer Integrated Manufacture are beginning to dissolve the traditional boundaries between design and production, giving new meaning to the term 'design for production'. 17 As we shall see below, the greatly increased scope for adjusting the production system and its outputs is at least as important as traditional factor substitution in the quest for higher productivity and performance.

Before looking at some examples, a further implication of information technology should be noted that has particular importance for the energy system: its bias towards electricity. 18 This stems from the obvious point that electronic equipment is uniquely powered by electricity, so that the increment in energy demand coming from the diffusion of electronic equipment will accrue entirely to the electricity suppliers. But their shared foundations in electromagnetism also means that products and processes that are driven by electricity are those that are most amenable to electronic control, giving them an advantage over technologies driven by other energy forms in terms of both cost and performance. This is not to deny that electronic controls will also be usefully applied to other energy forms. The preference for electricity in manufacturing will be reinforced by certain unique qualities such as its convenience and cleanliness; by the fact that some additional technologies with growing applications (eg lasers and induction heating) can be driven by electricity alone; 19 and by the premium that is increasingly placed on process performance and reliability in advanced manufacturing systems. While amenability to control also creates significant opportunities for raising the efficiency with which electricity is used so that it does not necessarily follow that electricity demand will grow strongly, information technology confers a non-price advantage upon electricity in many activities (from which it should not however be concluded that we are headed for an 'all-electric' future).

Individual products and processes

Across the gamut of industrial products and processes information technology is injecting new life into old bones. A decade ago the automobile and its methods of assembly were regarded as mature, settled technologies subject only to incremental improvement. Today the automobile industry is one of the most dynamic areas of technological advance.

New materials are also playing a vital part in quickening the pace of change. A new generation of strong, lightweight, durable materials - - fibre-reinforced plastics, polymers of various kinds, ceramics - - is gradually taking shape and challenging the historic supremacy of metals in engineering industries (and intensifying the search for better alloys as a consequence). The rate of technical change in materials is itself being accelerated by information technology: the electronics industry is an


2°1 have not found a good overview of developments in materials and their implications. Numerous articles on specific materials are, however, to be found in such journals as the Joumal of Metals, Plastics World, Business Week and New Scientist. On filament winding, see 'The filament- wound car frame and other practical mira- cles', Modem Plastics International, July 1984, pp 38-41. 2~This breaks down into an 18% decline for North America, 23% for the Pacific Region, and 19% for Europe. It is therefore a fallacy that the greatest reduction in litres consumed per car has occurred in North America. See Fuel Efficiency of Passenger Cars, International Energy Agency, Paris, 1984. However this measure cannot be taken as a reliable measure of the fuel efficiency of the automobile stock since there is no correction for the possible reduction in average car mileage. Another indicator is the fuel efficiency of equivalent standard models in the early 1970s and 1980s. Thus the 1298cc Ford Cortina mklll (1972) and Sierra (1983) had fuel perform- ances of 24.8 and 30.7 mpg respectively; and the 1599 cc models had fuel perform- ances of 24.6 and 27.9 mpg respectively (an economy version of the 1599cc Sierra offering 31.7 mpg has since become the standard model). See J.P. Gardiner. 'Robust and lean design with state-of-the- art automotive and aircraft examples', in C. Freeman, ed, Design, Innovation and Long Cycles in Economic Development, Design Research Publications, Royal College of Art, London, 1983, pp 215-248. 22See A. Althuser et al, The Future of the Automobile, George Allen and Unwin, Lon- don, 1984, pp 89-96. 23The technologies Boeing plans to deploy in achieving their target include advanced aerodynamics, involving computer aided wind tunnel analysis, improved laminar flow, a smooth flow skin, riblets on wings and fuselage, and a high aspect ratio wing; new materials including thermoplastics, composites and aluminium-lithium alloys (a typical wingrib in today's aircraft re- quires 10 pieces and 200 fasteners - - a thermoplastic rib will be in one piece, with no fasteners, delivering equal strength at less weight); ultra bypass engines; data busses which will replace traditional pulleys, cables and wires; computer-aided flight management; electrohydrostatic actuators instead of mechanical and hyd- raulic methods of operating wing flaps. In parallel Boeing is aiming to reduce production costs by 20%. 'The next 2500 days: 21st century thinking for this century's airplane', Boeing advertising material.


increasingly important market for high performance polymers and ceramics; the quest for higher reliability and performance, and for reducing the number of production tasks, that goes hand in hand with automation encourages greater selectivity in the choice of materials; modern instrumentation and computers are proving powerful tools for analysing and testing materials structures; process control is central to the production and fabrication of the new materials; and computer- managed fabrication techniques such as filament winding are beginning to appear on the horizon, z°

Information technology and materials are therefore together opening up many possibilities for advancing the state of the art. Taking the example of automobiles, the fuel efficiency of the automobile fleet has already been raised significantly since 1973. Although the effects of recession on the propensity to travel must be taken into account, advances in vehicle design and the trend towards smaller cars have been responsible for much of the 21% decline in litres consumed per automobile among IEA member countries. 2t The advances have not been limited to fuel efficiency: engine performance, service intervals, safety, comfort, and carrying capacity to name but a few elements of vehicle design have also been substantially improved, without increase in vehicle costs. Contrary to earlier expectations, fuel efficiency has not been achieved at the expense of other aspects of machine performance.

If anything, the rate of advance seems likely to accelerate between now and the end of the century. In this and other fields, an analogy can be drawn with the early days of motorized transport when the internal combustion engine was mounted on the chassis of horsedrawn carriages. As experience accumulated and technologies evolved, it was realized that the whole design needed to be rethought. Similarly, engineers are only beginning in many areas to move beyond the stage of attaching electronic controls to inherited designs.

In automobiles, for instance, the ability to integrate and control subsystems which previously were regarded as almost independent entities is leading to the rethinking of both the individual subsystems and the totality into which they fit. Thus, engines and transmissions (the power train) are no longer regarded as connected only by mechanical and electromechanical linkages: the arrival of electronic controls and computer-aided design is allowing engineers to treat the power train as a whole (with built-in energy management systems), and to explore new ways of improving its constituent parts. And the next stage under investigation is the integration of the power train with the suspension, braking and other subsystems, z2

There is a longer history of systems engineering in the aircraft industry. Even there, however, there is a perception of widening technological horizons. Boeing has publicly committed itself to intro- ducing a new vintage of passenger aircraft in the early 1990s, which it is claiming will result in a 60% improvement over the best of today's aircraft in seat miles per gallon of fuel consumed. 23

A final example is the electric motor, which is responsible for around 60% of industrial electricity consumption in advanced countries. The retrofitting of inverters and other control circuitry to the installed stock is gaining momentum, bringing a more precise matching of motive power to process requirements and some gain in energy efficiency (a 5-10% improvement is typically quoted). But designers are now going beyond the attachment of black boxes and are conceiving ways of using



2"In the switched reluctance motor developed recently by Lawrenson and col- leagues at Leeds and Nottingham Univer- sities, the management of fluxes through the sophisticated control of armature cur- rents is claimed to give greater versatility and efficiency in a design that is simpler and often cheaper to manufacture than the conventional induction motor. Position sensors feed rotor position and speed signals to the electronic controller which energizes the stator coils sequentially, giving optimum torque and speed control. Moreover, the motor can be programmed to meet specific performance requirements (General Electric has also recently introduced a 'programmable motor', although to a different design). See P. Lawrenson, 'Switched reluctance motor drives', Elec- tronics and Power, February 1983, pp 144-147. 25This is implicit in Schonberger's analysis of the factors leading to Japan's mastery of mass production. See Richard Schonber- ger, Japanese Manufacturing Techniques: Nine Lessons in Simplicity, Free Press, New York, NY, 1982. 26A UK automobile manufacturer has in- formed me that expenditure on energy consumed per car produced fell from £153 in 1980 to £82 in 1984. While my source could not unscramble the causes, he maintained that a significant part of the reduction had come from improvements in manufacturing techniques and production organization. The following examples typify the reduction in production tasks, and hence usually in energy required per unit of output. In moving from the Fiat 127 to the Fiat Uno, the number of major body parts fell from 267 to 172 (ie 64% of the previous number of stampings) and the number of welds from 4280 to 2700. See D. Jones, 'Future perspectives on the automobile industry', in Information Tech- nology and Economic Perspectives, OECD, Paris, forthcoming in 1985. And the new Fiat/Peugeot 'Fire' engine is assembled in 107.5 minutes compared to the 231.5 minutes for its predecessor. See Automotive News, 17 June 1985, p 38.

electronic switching and controls to engineer altogether smarter motors. 24

Mult iple processes

The greatest impact of information technology on energy efficiency may come not from improvements in individual products and processes, but from the transformation of production systems involving multiple processes.

The term automation often conjures up images of greater mechanization, with robots replacing human operators on assembly lines. It might be deduced that higher energy consumption per unit of output will follow as capital and energy are substituted for labour. However the essence of automation lies in improving the organization and control of productive capital, not in factor substitution: it appears to be capital saving as well as labour saving. 25 Moreover, robotization involves a relatively small increment in energy consumption (mainly motive power) over the traditional hand-guided techniques. On balance, automation should therefore raise rather than lower energy efficiency. What little evidence exists of its consequences for energy demand bez~:s this out. 26

Earlier we noted how the introduction of unit electric drives brought greater flexibility in the use of factory space and improved the performance of specific manufacturing processes. The machine shop was rid of the tyranny of drive shafts, belts and pulleys which distributed motive power from steam engines. But the gain in flexibility only went so far. Coordination within the factory is still largely achieved through instructions and procedures passed through layers of bureaucracy to the machine operator - - the Taylorist approach to 'scientific management'. Greater spatial flexibility may have been achieved, but bureaucratic organization, product standardization and de-skilling were until now the only known routes to high capital utilization and economies of scale.

Paradoxically, greater machine and systems control is also bringing greater freedom of manoeuvre in production. By knitting together local processes through central or distributed programmable controls (Figure 3), and by dismantling of barriers between design, production and marketing, a degree of 'flexible integration' can be introduced within and between plants, and between component suppliers, final assemblers and distributors, which could not be dreamt of hitherto. The production system and its outputs lose rigidity, and scale economies are no longer incompatible with variety of product. Nor need the lead-times in adjusting designs and manufacturing operations to changed market conditions (for example a rise in energy prices) be so long as in the past. Altogether, a new awareness has developed among industrialists that 'economies of variety' can be combined with and even displace 'economies of scale', reinforcing the emphasis placed on product quality and performance (and hence on the 'form value' of energy used in production). The essential point is that variety can be achieved with much less capital, and hence less energy, than with earlier vintages of technology and approaches to the organization of production.

Higher labour and capital productivity in engineering industries therefore seems likely to go hand in hand with higher efficiency in the use of energy. The propensity of information technology to save traditional types of 'energized capital' through the more efficient design and operation of production machinery and the elimination of produc-


271t iS ironic that just-in-time methods originated in Japan, the industrial nation most vulnerable to breakdowns in international energy supplies. 28A fascinating exposition of modern approaches to systems engineering is contained in case-studies of four new US pulp and paper mills in Pulp and Paper, September 1984, pp 58-171. Each case study outlines the economics of the project and the technology being used; the approach to engineering design; the organization of construction; and how the mill is intended to fit into the owner's corporate strategy. The Leaf River pulp mill will, for instance, 'include a high degree of process automation and energy efficiency, 95% energy self-sufficiency, highest standard environmental protection system, rigid quality control, treelength wood processing, and overall operations designed for minimum staffing and lowest cost per ton of product . . . All pulp specifications are programmed into the elaborate process automation system, which is operated from five control rooms. The system is not computer based as such but uses micro- processors operating on distributed control. Electrically, the entire process is con- trolled using programmable logic controllers'. 291 have benefitted from discussions on the chemical industry with Geoff Ellis, Brian Job, Derek Seddon and Charles Suckling. 3°Bodo Linnhoff, 'Thermodynamic analysis in the design of process networks', PhD Thesis, University of Leeds, Leeds, UK, 1979. A useful elaboration of his technique is contained in the 'User guide on process integration for the efficient use of energy', Institution of Chemical Engineers, London, 1982. For a discussion of its applicability to distillation, see N. Franklin and M. William- son, 'Reversibility in the separation of multi-component mixtures', Transactions of the Institution of Chemical Engineers, Vol 60, 1982, pp 276-282. 31in a dozen projects to which Linnhoff's technique had been applied, energy- savings ranged from 6% to 60% and capital savings were as high as 30% (ibid). 32At ICI Billingham, for instance, computer based techniques have recently been developed to help optimize the operation of 60 plants manufacturing 35 products taking into account the need to balance 20 internal flows of utilities between them. And at ICl's Wilton power station an optimization routine is being implemented with the following objectives: (1) to continuously provide the minimum cost strategy of operating the station for the given equipment on-line. (2) To monitor the actual performance against the minimum cost strategy. (3) To provide a calculating tool to evaluate the effect of possible changes in the equipment on-line, operational constraints, steam demand and fuel and imported electricity costs. (4) To monitor and explain the cost differ- ences between actual operation and budget costs. See ICl Energy News, Issue


tion tasks, will also reduce energy requirements; as will its propensity to save labour (people require energy for heating, cooling and services, although this is largely a displacement effect if there is alternative employment); as will its propensity to reduce materials requirements through better materials handling and production organization, and the adoption of new materials and materials processing technologies.

It has already been noted that higher productive efficiency is likely to be accompanied by a more pervasive use of electricity in production systems. Another aspect of the changing organization of production which has implications for the energy system is the just-in-time approach to stock control, whereby inventories are reduced to a minimum through the tighter scheduling and movement of materials, components and workpieces within the production chain. The reduction or even elimination of buffer stocks of intermediate and unfinished goods means that less energy will be stored in circulating capital. This raises important questions about the manufacturing system's future vulnerability to disruptions in energy supplies, and indeed to disruptions of any kindsf 7

Information technology will arguably have the greatest impact on energy consumption in materials industries (for example iron and steel, cement, pulp and paper, petrochemicals) where energy is used intensively in production processes. As is suggested in Figure 3, energy management may there become an integral part of controlling the production process. 2s The chemical industry provides ample evidence for its impact on energy efficiency. Although by no means the only source of energy savings in recent years, information technology is expected to play an increasingly important part in reducing future energy costs. For instance, it figures large in ICI's plans to maintain in future the 5% rate of reduction of energy requirements per unit of output achieved since 1978. Some of the ways in which information technology is being applied in the chemical industry are: 29

1) Process intensification. Computer based analytical and control systems are at the centre of efforts to raise the efficiency and performance of individual chemical processes. They include the simulation, monitoring and analysis of chemical reactions; assessment of material structures (eg electron scanning of metallic catalysts); and the precise formulation of chemical products to meet customer requirements (again lowering the cost of variety).

2) Design of complex processes and sites. In the late 1970s, Bodo Linnhoff established a powerful method for minimizing energy and capital requirements in production processes. 3° From an initial specification of chemical reactions, utilities and heat flows, the designer can identify in advance the system which gives optimum efficiency, providing a target for the real design. 31 It has already been found that substantial savings in both capital and energy can be achieved using this technique. In addition, computer-aided design and engineering techniques are increasingly being applied to the design and construction of chemical process plant.

3) Operation of complex processes and sites. Significant advances are being made in techniques for monitoring and controlling process performance, and determining optimum strategies for operating complex sites (often involving combined heat and power) in the face of varying input costs, output requirements and plant availabilities. 32 By applying 'what if?' routines, these strategies can



Nos 9 and 10, August 1983 and 1984. 3aThe disappointing growth of total factor productivity in OECD countries in recent years despite the rapid rate of technical change advises caution when estimating the rate at which general energy efficiency will be advanced by new technology. The main explanations offered by Freeman and others are that a period of learning is required to use the new technology effectively, and that structural rigidities and skill shortages still hinder its proper application. It is nevertheless anticipated that productivity growth will quicken as experience accumulates and barriers are progressive- ly removed. See C. Freeman and L. Soete, 'Information technology and employment: an assessment', Draft Report to IBM, SPRU 1985, pp 119-123. a4Writing in Vienna in the 1920s, Robert Musil provides a warning: 'For some time now such a social idee fixe has been a kind of super-American city where everyone rushes about, or stands still, with a stop watch in his hand. Air and earth form an ant-hill, veined by channels of traffic, rising storey upon storey. Overhead trains, over- ground trains, underground trains, pneumatic express mails carrying consign- ments of human beings, chains of motor- vehicles all racing along horizontally, express lifts vertically pumping crowds from one traffic level to another . . . I t is by no means certain that things must turn out this way, but such imaginings are among the travel fantasies that mirror our awareness of the unresting motion in which we are borne along. These fantasies are superfi- cial, uneasy and short. God only knows how things are really going to turn out.' Robert Musil, The Man Without Quafities, Picador, London, Vol 1, pp 30-31. 3SA useful survey of the literature is provided by J. Bessant, K. Guy, I. Miles and H. Rush, 'IT Futures: a literature review of long-term perspectives on the social implications of information technology', forthcoming in 1985 from the National Econo- mic Development Office, London.

be identified without disrupting process operation to carry out experiments. Simulation techniques are also being used to decide the optimum scheduling for batch production (such as paint).

It is important to keep in mind the great uncertainties attached to the J

above developments. We do no[ know how rapidly the new technologies will develop and diffuse; nor can we estimate with any precision their effects on economic performance and the use of energy. 33 There is always a danger of being dazzled by the variety and wizardry of new technology, and of forgetting how long it can take for society to absorb it or how much is rejected on the way (although the story of electronics also shows how seriously the rate of change can be underestimated). 34 Nevertheless, four broad conclusions emerge where manufacturing is concerned:

1) Information technology is extending the opportunities for directly reducing specific energy consumption in products and processes.

2) The new industries and their products consume relatively little energy. Insofar as electronic goods and software are expected to account for an increasing proportion of intermediate and final demand in the economy, structural shifts towards less energy- intensive consumption patterns will continue.

3) The industrial gains in energy efficiency made over the last decade are largely irreversible, ie they would not be undone by weakening energy prices. More significantly, the new 'trajectories' being followed by industrialists in their quests for higher productivity, which rest substantially on the exploitation of information technology, also seem irreversible where the next few decades are concerned. They will potentially raise the efficiency with which all inputs to production are used (including energy) and improve all aspects of product and process performance, so that they appear unequivocally better than their predecessors.

4) Electricity's share of industrial energy demand is likely to be increased by information technology.

Residential and commercial sector

A substantial literature has developed on information technology's potential impact outside manufacturing. All agree on its power to transform social and economic relations, but it remains exceedingly difficult to predict the nature, extent or timing of the changes that will occurY One reason is that many of the anticipated social innovations await the establishment of adequate telecommunications infrastructures. How long this will take, and what those infrastructures will comprise nationally and internationally, also remains uncertain, although most commentators regard the 1990s as the decade of transition. Without entering the debate about possible outcomes, it is worth touching briefly on three respects in which the energy economy may be affected.

'Electronification' o f services

Large parts of the service sector are labour intensive and have developed historically without extensive mechanization. In banking, retailing, education, public administration and elsewhere, heavy invest- ments in information technology are now leading to the 'electronifica-


3BSee J. Gershuny, Social Innovation and the Division of Labour, Oxford University Press, Oxford, UK, 1983, pp 169-175. Between 1972 and 1982, the proportion of UK Gross Domestic Fixed Capital Forma- tion going to commerce grew from 15% to 20% (net of leasing), reflecting its growing capital intensity. 371n 1983, the residential and commercial sector accounted for 35% of lEA final energy consumption (up from 33% in 1979). Of this, approximately two-thirds goes to space-heating and air- conditioning. 38See C.J. Fielden and T.J. Ede, Compu- ter Based Energy Management in Build- ings, Pitman Books, London, 1982; P.R. Gardener, 'Energy management systems', Energy Technology Series 1, Energy Effi- ciency Office, London, 1983; 'Automating building services', Electrical Review, Vol 216, No 9, March 1985, pp 24-25. 39An interesting example of the interaction between electronics and building design is provided in 'HVAC design delivers twin benefits', Building Design and Construc- tion, November 1984, pp 84-87. 4°The 'house of the future' is often envisaged as including additional space for computer work stations and recreational facilities; and the growing popularity of saunas, jacuzzis and other leisure artifacts in hotels and elsewhere indicates that the trend in energy efficiency is not all one Way.


tion' of many information handling activities which previously used little capital equipment, with the possibility that productivity gains can be achieved in an area of the economy where they have hitherto been hard to come by. 36 In contrast to manufacturing, the diffusion of information technology within the service sector (and the household 'self-service' sector) will therefore be capital extending rather than capital saving, involving some increase in electricity consumption. The amounts of additional energy required may nevertheless be relatively small, for the reasons discussed.

Again this raises questions about supply security: will it result in the service sector and the household becoming increasingly intolerant of breakdowns in electricity supplies? We shall see in the next article that the application of information technology at the interface between suppliers and consumers, and the greater flexibility it may bring to load management, has a significant bearing on this issue.

Space heating and air conditioning

The largest part of energy consumption in the residential and commercial sector is accounted for by space heating and air conditioning. 37 As pressures increase for better living and working conditions, and as buildings and their contents become technologically more sophisticated, so the application of process control techniques to managing 'building environments' is expected to increase. Already such management systems are being installed in a considerable range of commercial and industrial premises. 38 Energy saving is only one of the motivations. Increasingly, control systems are being installed which offer a package of benefits - - fire prevention, physical security, ventilation and equipment monitoring (particularly important for minimizing maintainance costs) in addition to energy management - - resulting in a faster rate of uptake than if energy costs had been the sole motivation.

Moreover, as was found in relation to industrial processes, the falling costs and improving performance of electronic control systems is causing them to be applied in both larger and small domains. Thus there is a trend among large organizations to bring the monitoring and control of multiple building environments under centralized supervision (for example in stores, banks and government offices); and the day is approaching when the primitive mechanical and electromechanical controllers installed in households will be replaced by more sophisticated computer-based systems.

While the increasing power of process control and the proliferation of electronic equipment are beginning to cause building designs to be rethought, the slow rotation of the building stock means that gains in energy efficiency in the next few decades will mainly come through retrofitting. 39 The amount of learning required to apply the new technology effectively should not be underestimated; and space heating 'needs' will expand with higher incomes. 4° But there seems little doubt that the diffusion of electronic control systems and other technological innovations (such as heat pumps and condensing boilers) will moderate the growth of energy requirements in this area.

Transport

Information technology has substantial if uncertain implications for the transport system, and hence for the consumption of transport fuels. It is

E N E R G Y P O L I C Y October 1985 473


41Computer based systems are already well established in the operational side of air traffic, railways and trucking, and are expected to profilerate as costs fall and performance rises. With regard to traffic control, arguably the most important development will be the increased ability of road users to communicate with the outside world while travelling, allowing interactive traffic control through, for instance, the provision of detailed information on local traffic conditions. See Transporta- tion Research, September-October 1984; Bessant et al, op cit, Ref 35. 42For discussions of prospective developments in distribution, retailing and purchasing, see Malcolm MacNair and Eleanor May, 'The next revolution of the retailing wheel', Harvard Business Review, Vol 56, No 5, September 1978; and 'Tech- nology: the issues for the distributive trades', Distributive Trades EDC, National Economic Development Office, London, 1982. 43For a general discussion, see 'Impacts of telecommunications on planning and transport', Research Report 24, Depart- ments of the Environment and Transport, London, 1978. 44See K. Custance, 'Home: where the heart is, but will it become the office of the future?', Communications Management, December 1983, pp 25-28. 45For information on recent advances on videoconferencing and international agreements to facilitate it, see 'Atlantic crossing with two way links', Communica- tions Systems Worldwide, September/ October 1984, pp 68-70.

expected to play an increasing part in the management of traffic f[OWS; 41 and its likely affect on the energy efficiency of transportation equipment has already been noted. But there are more fundamental respects in which information technology will influence both the demand for and structure of transport.

One broad area concerns the transport involved in distribution, retailing and purchasing. 42 Since the distribution chain between producers and consumers of goods and services involves substantial movements and manipulations of information, almost by definition, information technology will exert a strong influence over its future structure.

Amid considerable uncertainty, for instance over the future balance of advantage between the large and small retailer, there appears to be broad consensus on three issues. First, information technology will increase the ease and efficiency with which the consumer can search for and purchase goods and services, whether through 'teleshopping' or other means. The need for face-to-face contact with outlets like shops, banks and estate agents, and hence for travel, will in principle be reduced. Whether this will be the outcome in practice is less certain since higher incomes and greater variety will add to the task of identifying desired goods and services, and since shopping is in part a social activity.

Second, the number of intermediaries will be reduced by information technology. At the limit, the householder will be able to send instructions directly to the mass producer. For some classes of goods (such as white goods), distribution should be simplified, but again the outcome for transport is not easily assessed: will therefore, for instance, be less 'self collection' of goods as they are increasingly delivered directly to the household?

And third, the reduction of inventories and improved stock control will reduce wastage in the distribution system and place a premium on the speed and reliability of delivery. In addition, the volume and weight of goods being shipped will tend to fall in relation to their weight: the heavier goods will become lighter as a result of improved materials and designs, and the lighter goods (such as electronic equipment) will become more plentiful. Perhaps the most important consequence is that air freight will continue to grow strongly as a means of national and international transport.

Another broad area of change concerns the role of travel in work and play. The propensity to travel continued to grow strongly during the 1970s, almost irrespective of higher energy costs. Will information technology - - and telecommunications in particular - - reinforce or reverse this trend? We know too little to answer this question. While the expansion of telecommunications appears to carry at least the potential for reducing the amount of travel associated with work, it may well whet the appetite for leisure travel. 43

In the former case, the establishment of information-handling capabilities inside and outside the office is expected to bring greater freedom in the choice of working location, in particular by allowing a larger proportion of work to be conducted at home in certain occupations (and giving organizations an opportunity to reduce their office overheads). 44 Commuter traffic could be reduced as a consequence. There is also much discussion - - largely inconclusive - - of the future impact of teleconferencing on business travel. 45 Where leisure is



concerned, we should not forget that television has created appetites for engaging in new activities, and appears to have played a significant part in encouraging foreign travel, as has the introduction of computer-based booking systems. Advances in telecommunications may therefore lead to a further overall growth in travel, notwithstanding the greater scope it brings for substituting for travel.

Overall, the probable outcome is that transport demand will continue to grow, although not evenly across the economy. It is however debatable whether the transport system can be developed to keep pace with demand, not least because of societal concerns over the environment and living conditions. If expansion is constrained, the probable result will be more congestion and higher transport costs, and more delay when there is a growing premium on speed of movement. Information technology makes it more likely that we can find a way out of this dilemma: it can raise the efficiency of the existing transport system, and provide alternatives to travel in some contexts while encouraging its expansion in others. What this means for the consumption of transport fuels remains unpredictable. But taken together with the growing fuel efficiency of transport equipment, it would be unwise to anticipate more than modest growth.

46Among developing countries, economic and energy demand growth are bound to bear a closer relationship than in the advanced industrial nations since they have yet to pass through the energy- intensive phase of development. But it does not necessarily follow that they will make a significant impact on demand for internationally traded energy until well into the 21 st century, at least to the extent that they can sway the global supply/demand balance and thus strongly influence the course of energy prices. The Third World accounts today for only a fifth of commercial energy consumption; the energy intensity of development is likely to be less than that attained historically in Europe and North America due to higher energy prices and the adoption of modern energy efficient technology and practices (although this may be partly offset by the active promotion of energy-intensive manufacture in countries with abundant energy, as is now happening with petrochemicals in the Middle East); and the high costs of energy imports are encouraging the exploitation of indigenous reserves wherever practicable.

Conclusions

It is apparent that energy demand trends over the longer term are exceedingly hard to predict. Beyond the usual uncertainties about world economic conditions, too little is known about the nature, extent and timescales of the changes which lie ahead. Empirical study can help clarify some of the issues, but there are clear limits to our understanding of future developments. This said, the rate of growth of energy demand seems likely to remain below that of economic output, although how far below is again difficult to assess. Indeed, the possibility cannot be entirely ruled out that energy demand will fall with economic growth in advanced countries, especially if one accepts the Schumpeterian view that today's new technologies, with their strong energy-saving biases, will propel the next economic upswing.

While many factors will influence future energy prices, the developments discussed here suggest that great caution is required in assessing medium- and long-term trends. 46 Could prices be sustained at much higher levels than today in view of the immense technological potential for raising energy efficiencies? Particularly when technical progress on the supply side and the development of new energy supply capacities are taken into account, the assumption that energy prices will inevitably move upwards in response to the depletion of oil reserves can no longer be accepted uncritically.

Energy suppliers are therefore faced with an outlook in which there may be little growth of demand in advanced economies and no sustained trend in real energy prices. Two implications are worth noting in conclusion. The first is that in static or slowly growing markets, changes in market share will tend to bring larger increases or decreases in energy sales for individual fuel industries than changes in overall demand. Beyond the institutional questions this raises, energy industries will be increasingly drawn into trying to minimize the energy costs incurred by their customers, and to maximize the use value of energy-consuming technology, especially on account of the greater technological opportun-



47This is apparent, for instance, in the contest between electricity and natural gas suppliers for space heating markets; and in the emphasis now being given by the US Electric Power Research Institute to electricity using technology which reflects both concern to raise electricity's market share and realization of the magnitude of the technological opportunities on the demand side (see, for instance, the editorial in the May 1985 issue of the EPRI Journal).

ity for so doing. There are already signs of increasing technological competition between suppliers at the point of sale, a development which will reinforce the trend towards higher energy efficiency and selectivity in the choice of energy form. 47 Efficiency in end use is a worthwhile goal if it benefits suppliers' market shares.

Second, profit margins and investment rates in highly competitive markets where the consumer faces dynamic possibilities for reducing energy costs will depend crucially on lessening the costs and risks associated with current and future energy supplies. As will be seen in the second article it is in this context that information technology has particular importance on the supply side since it provides fresh opportunities for containing the costs and risks facing energy industries.

476 E N E R G Y POi ICY Oc tober 1985

information technology and the use of energy

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