Energy, Innovation and Economy Cycles

There is no doubt about the importance of energy in our lives: absolutely everything we do is basically one of the several types of energy conversion from one form to another.

Energy allows comfort in our buildings (heating, cooling, cooking, microwaving, freezing, lighting…), traveling long distance in short period of time and is also the essential element that drives different sort of industries conversion - from feedstock to our daily products.

Needless to say that oil is the most important commodity in the world, with a trading value exceeding a trillion dollars every year. From the 20 biggest company′s revenues (2018, published on July 22), oil companies corresponds to 7 (Sinopec, Shell, CNPC, Saudi Aramco, BP, Exxon and Total), electricity adding another one (State Grid) and automotive 3 (VW, Toyota and Daimler). There are also studies mentioning that one of the reasons for early high succeed countries (Germany, US, UK) is attached to the early extraction of energy with high net return (low energy input for a high total output).

There are no exactly big surprises on those statements. But one thing that is not usually known is the correlation between Energy, Innovation and Economy along history, three topics that have been matching with an astonishing accuracy along last centuries.

There are four big “waves” that clearly illustrates that interesting correlation, and before proceed to further explanation let′s align the concept of energy that was used for the study: 1) primary fuel that moves society (principally industries, houses, transportation) and 2) the primary movers (engine, turbine, etc).

Let′s describe these waves in more details:

First Economic Upswing (1787-1814): This first economic boom well documented in history matches perfectly with the beginning of a shift from wood/ charcoal prime movers to coal, that assumed the spotlight with extensive extraction, spread throughout different countries.

From there on, hydrocarbons assumed the stage as the main energy source in the world, leading to a deep impact in several civilization aspects, such as geopolitics, economy and environment ever since.

As for the primary movers, stationary steam engine (using Watt′s improvements - that lead civilization to a revolution on the energy transformation) started to be adopted on many factories (principally in England). It was the first time that human being noticed that energy could be used on a controlled and massive scale.

This phase of history is well known and nowadays called as first industrial revolution.

Second Economic Upswing (1843-1869): Taking advantage of the massive amount of available coal in the world, mobile steam engines were presented to humanity (used principally on locomotives and ships), leading to a revolution on how society used to transport people and products. In this case, no changes on primary fuel (coal), but only on the primary movers.

Again, a perfect correlation can be found between this second economic boom and the shift on energy matrix as it used to be.

Third Economic Upswing (1898-1924): Using the inventions discovered along the golden decade (1880), such as induction motor, steam turbine and thermo power plant, electrical energy begun to be commercialized, having as consequence the change of mechanical to electrical drivers on factories.

This phase of history is also well known and nowadays called as second industrial revolution.

The advantages of electrical energy when compared to any other are significative.

Electrical energy is clean and noiseless at the consumption point. It is precise, highly controlled/ manageable and can be transformed in several other energy kinds (heat, sound, chemical, motion...) almost effortless to the user.

That is the reason why it is the preferable energy carrier for all human beings ever since.

Forth Economic Upswing (post 2nd war until 70s): this is the last period of time where humanity faced not only the beginning of a shift on the primary fuel (from oil to natural gas), but also on the primary movers (gas turbine replacing steam turbine and engines). This energy matrix is still the dominant nowadays.

Again, a correlation can be found here. In parallel to this energy shifts world faced an upswing, that started post second war economic and finished on the 70s due to (guess?) the first oil prices crises.

On that period of time humanity also witnessed a massive increase on car sales, leading to a new way of energy utilization (personal transportation) and consequently drove energy subject as a national security matter in many countries (high oil prices from there on could lead to social dissatisfaction and potential insurrections).

Another relevant change occurred inside factories all over the world: massive utilization of automation on factories, taking advantage of microprocessing and telecomunication. This was the era of the third industrial revolution.

Innovation

But what does innovation have to do with this overall energy and economy story?

Economy downswing matches (again) perfectly with innovative clusters. Note that now is the opposite: depression eras, and that is the most interesting fact. Actually, they are not synchronized with energy and economic cycles.

In other words, energy, innovation and economy history of the last 3 centuries can be summarized with sequence bellow:

1) Downswing period of times has always lead humanity to pursue creativity and innovative solutions. It happened in 1828, 1880, 1937 and 1994 innovative clusters;

2) Outcomes of these clusters, materialized in technologies and disruptive solutions, propelled humanity for new energy matrix (new primary fuels and movers);

3) Due to the massive investment needed to change the energy system, these shifts have led to upswings moments along history.

Conclusion

If you look carefully the central year of all of these economic cycles, you will notice that they are all shifted in approximately 55 years apart. This is really another astonishing finding.

Figure below (from Smil, 2017) perfectly illustrates that cycles:

Can We Predict What is Next?

Before predict what is next, we first need to ask what are we living now, or even more: what have we been living recent years.

Considering that we faced another world upswing along 90s and 2000s, and also taking into consideration that in this century we are facing the beggining of a big shift on the energy matrix (renewables assuming higher and higher importancy), we are already living an historical moment.

Note that the cycle is repeating again: innovative cluster (1994), economi upswing (2000s) and start of a new energy era. Guess how long after the last energy matrix cycle? Yes, approximately 50 years again.

One think that (so far) is not clear is whether the innovative cluster of 1994 has influenced in somehow the energy system shift we started to live nowadays. This link was clear for 1880 innovations (principally in regards electrical discipline) and also for the 1937 (for the gas turbines).

Although the innovative cluster of 1994 (optic fibers, microchips capacity, internet, spread of personal computers, robotization, etc), is the foundation of the so called forth industrial revolution that we are living right now, there was no disruptive innovation for energy matrix (although some good progress in photovoltaics).

Our descendents will analyse and judge this slot of time we are living, but I have my guess that we are witnessing the beginning of a new energy era. This is not an eureka moment (importance of renewables is known for some time), but when you look backward and plot the lines interconnecting what have happened along centuries and see that the overall story is accurately repeating again, then there is something to get surprised.

References:

Smil (2017), Mensch (1979), Yergin (2011).