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Path dependence in energy systems and economic development

Nature Energy volume 1, Article number: 16098 (2016) Cite this article

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Abstract

Energy systems are subject to strong and long-lived path dependence, owing to technological, infrastructural, institutional and behavioural lock-ins. Yet, with the prospect of providing accessible cheap energy to stimulate economic development and reduce poverty, governments often invest in large engineering projects and subsidy policies. Here, I argue that while these may achieve their objectives, they risk locking their economies onto energy-intensive pathways. Thus, particularly when economies are industrializing, and their energy systems are being transformed and are not yet fully locked-in, policymakers should take care before directing their economies onto energy-intensive pathways that are likely to be detrimental to their long-run prosperity.

In the late 1980s, economists were offered a theoretical explanation for why markets can fail to move towards the socially optimal outcome, even in the long run1. Building on the classic example of the QWERTY keyboard and other case studies2, such as the dominance of inferior VHS videotapes, an explanation was given for how increasing economies of scale, as well as learning and network effects, could lead an economy (or system, more generally) to be faced with multiple potential outcomes, and how the eventual outcome depended on circumstances in the early history of particular technologies. In other words, history mattered, and, if the ‘wrong’ path was followed, the economy could be stuck in a socially sub-optimal outcome.

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Figure 1: Subsidies and consumption of fossil fuels in energy-producing economies.

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Acknowledgements

I thank F. Green, A. Kopp and N. Stern for discussions. Financial support from the ESRC is gratefully acknowledged.

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  1. Grantham Research Institute on Climate Change and the Environment, London School of Economics and Political Science (LSE), Tower 3, Clements Inn Passage, London, WC2A 2AZ, UK

    Roger Fouquet

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Correspondence to Roger Fouquet.

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Fouquet, R. Path dependence in energy systems and economic development. Nat Energy 1, 16098 (2016). https://doi.org/10.1038/nenergy.2016.98

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