Book reviews
pictured a world of rivalry, protection-
ism and 'increasing international ten-
sions'.
Despite all these efforts, the study
contains few surprises for anyone
familiar with global energy forecasts,
and many grounds for scepticsm. At
the global level, the demand forecasts
are lower than before. Comparing the
three W E C forecasts for 2000, in
chronological order, primary energy
demand/supply is 12.8, 12.9 and 11.8
billion toe for the optimistic scenarios,
11.7, 11.8 and 10.1 for the gloomier
view. By 2020 the downturn is even
more marked: 22.7, 20.1 and 18.0
(optimistic), 19.0, 17.9 and 13.8 (pes-
simistic). Comparing Munich and New
Delhi, some 25% of this difference for
2000 and 45% for 2020 derives from
lower population and GDP/capita
forecasts, the remainder being due to
lower energy/GDP intensities.
On the supply side, there is a
resurgence of coal in the North (up
from a 28% share in 1978 to 38% in
2020) but the share in the South
remains roughly static. A similar mis-
match affects nuclear power: in the
South its share hardly grows while in
the North it booms from 3% in 1978 to
17-18% by 2020. These and lesser
movements in natural gas, hydropow-
er and 'new energies' produce a sharp
decline of the oil share in the North
(43%, 26% and 13% in 1978, 2000 and
Global energy problems
OPEC AND THE WORLD OIL
MARKET: 1973-1983
by A. M. EI-Mokadem, D. Hawdon, C.
Robinson and P.J. Stevens
Eastlords, London, 1984, 93 pp, £5.50
LA CRISE DE L'ENERGIE: LE MAL,
LE REMI~DIE
by Pierre Desprairies
Editions Technip, Paris, 1982, 154 pp
There are two ways to approach the
study by E I - M o k a d e m , H a w d o n ,
Robinson and Stevens. The first,
which is the wrong way, is to sit in a
straight wooden chair, with a pad, pen
ENERGY POLICY December 1984
2020, respectively). This is offset by
the South, where the oil share rises
from 28% in 1978 to 30-36% in 2000,
falling to 26-30% in 2020. By this
latter date the Third World is sup-
posed to be using over a half of global
oil production, with consumption
levels some three to five times higher
than now. One reason for this upsurge
is substitution on a massive scale for
firewood and other bio-energy sources
which now sustain two billion people
with little ability to pay for substitutes:
Third World firewood consumption in
2020 is no higher than today's despite
a near doubling of population. Never-
theless, thanks to heroic oil substitu-
tion and conservation in the North,
global oil production in 2020 is held to
3.0-4.2 billion toe under Scenarios 2
and 1 respectively, compared to 3.0
billion toe in 1978.
Statistics
The bulk of the book contains a forest
of such statistics for each of the 10
regions, as well as global aggregates.
Yet it takes little native scepticsm to
question sharply the value of all this
effort. One set of doubts concerns the
book's main conclusion, presented
under the heading 'The essential re-
gional questions', that in every impor-
tant respect the future is uncertain.
Asked to list the issues that were both
and an intention to examine the more
sophisticated propositions in the book
for 'slips', 'oversights' and misconcep-
tions. There are too many of these for
only 80 pages of text, which is the joint
effort of four authors, all of whom are
well known to serious energy econom-
ists. The other way, which is more
rewarding, is to sit in an easy chair or a
train seat, with a distinguished lack of
concern for mathematical or theoretic-
al niceties. Then the book is an
interesting and important contribution
to the great debate on what is going to
happen to the oil price.
L e t us s t a r t with the w r o n g
approach. Just why Dale Osborn's
treatment of cartel problems attracted
the attention of these authors is a
m y s t e r y to me, b e c a u s e clearly
most important and least certain in
their forecasts, the regional groups
came up with the following order of
frequency: coal supply and demand,
trade deficits for energy importers,
energy demand levels, nuclear supply,
non-commercial energy supply, level
of oil exports . . . The book gives no
indication of how these issues were
treated in the forecasts themselves.
There are surely simpler routes to
such obvious conclusions.
The other set of doubts concerns the
basic forecasting methodology. De-
spite the variety of methods, the
approach used for commercial energy
was to define primary consumption
only in terms of G D P per capita and
an income elasticity. The latter was
established on only two years of data -
1960 and 1978 - even though it is well
known that there were sharp changes
both within this period and since. No
allowance was made for energy prices,
except indirectly through effects on
G D P growth. Non-commercial fuels
were handled 'on an exogenous basis'
- a polite phrase for 'guessed'. Energy
forecasting may be a difficult game but
surely the rules have advanced a little
beyond this in the past decade.
Gerald Leach
International Institute
for Environment and Development
London, UK
Osborn does not have the slightest
idea of what is going on in the real
world oil market - or at least he did
not at the time he published his paper
'Cartel problems'. ~ Furthermore, the
authors have also made a curious
mistake in their interpretation of this
model. What they call 'cheat-cheat'
does not belong to the 'Pareto Set' of
this game. In fact, this non-Pareto
efficient outcome is a unique Nash
Equilibrium. The reader will find a
detailed explanation of why this is so
in my book, The Political Economy of
Coal. 2 In addition, there is no proof
that the emergence of futures mar-
kets, together with reduced stock-
building will tend to result in more
market instabilities, although I would
like to congratulate the authors for
bringing up this issue. Ceteris paribus,
as the average inventory level is de-
creased, the market will become more
467
Book reviews
stable. This follows directly from the
seminal work of Lloyd Metzler. 3
But it is correct to suggest, ceteris
paribus, that the introduction of fu-
tures markets could mean more insta-
bility: if the demand for inventories is
influenced by expectations about fu-
ture prices, then any institution that
encourages frequent revisions of ex-
pectations can be identified as a
potential source of increased price
variability.4
The most extensive mistake in the
book involves the unduly long treat-
ment of a model developed by Rifai. 5
What I would like to do is simply to
say that the authors have made some
unfortunate algebraic errors and pro-
ceed to something else. But doing so
might invite unfavourable comment,
and so I will take this opportunity to
introduce a little algebra into the
discussion. For instance, on p 65 it
should be made clear that if:
1 = Zeti = Z(aiG + bi) = ZaiG +
y b,
then it is not necessary to have:
Za i ~ 0
~bi = 1
Proof:
Take: ~ a l =~0 ~ b , =~ 1 ~ a ,
=kZb ` k~O
Then: Zo~i= G Z a i + Z b i = Gk Z b i +
Y, bi
or: ~]bl - 1 only some simple s u p p l y - d e m a n d
Gk+ 1
Since k is arbitrary, we see right away
that it is not n e c e s s a r y - algebraically-
for the above two conditions to hold. I
would also like to emphasize that
within the context of the refining
problem that is being treated, these
conditions do not make economic
sense - nor do they make econometric
sense. Even more serious, i f they are
taken to be true, then the next part of
the analysis is trivial in the sense that it
leads to an identity from which no
meaningful economic deductions are
possible. I will not go into this in
detail, but let me say that Equation
468
(2), on p 66, does not make algebraic
sense as it is written, although the
concept is correct. In my opinion
superscripts should have been used on
one side of this identity instead of
subscripts, although inevitably it
would have been necessary to intro-
duce double subscripts. Then we
would have had:
Z Qi = Z Z Qi/ = Z Z o:iiQj
j i j ij
In the last relationship, '? is the
product and 'j' is the oil, and so 'ij'
represents the product '? obtained
from oil 'j'. In the event of no losses,
this is an identity. Equation (3) is
formally correct, although I certainly
would have introduced superscripts,
and for pedagogical reasons written
out the following:
01 = Y. 0 1 / = Y, (aljG/ + bl/)Q/
J J
0. 2 = E Q2j = Y, (a2~Cj + b2i)Qi
J J
And so on. It is at this point we see
that if we introduce the two conditions
mentioned above, we get the original
identity. What we basically have here
is one of the great fallacies of modern
economic thought, that simple ideas
require complicated mathematical ela-
boration if they are to be judged
respectable. I think that the authors
would have done a much better job
with this exposition had they em-
ployed more words and less music,
since in my own courses in energy
economics I discuss this topic using
curves. For the reader who reads
Norwegian, however, let me recom-
mend an article in Sosial Okonomen,
1984, by Kristen Knudsen, for an
interesting extension of this matter. 6
Oil market
Finally, something should be said ab-
out the 50 or so pages of text that
attempt to put today's oil market, and
the position of OPEC in that market,
into perspective. The discussions are
good, but obviously too short. Even
with the best of intentions, the con-
tents of a gallon jug will not fit into a
thimble. I also disagree with a great
deal of what these economists have
written about the future development
of the oil market, and I am not so sure
that they are correctly interpreting the
present. This, however, is strictly a
matter of opinion, because I have
made enough mistakes myself to know
that in this field none of us is infallible.
The book by Pierre Desprairies,
which I think can be read by almost
anyone who remembers his or her
school French, is an examination of
global energy policy by one of
France's leading oil personalities. I
have known of, and read, Desprairies'
work for years, and have always
agreed with most of it. As usual, the
idea being stressed here is that oil is
expensive, and coal and electricity
(generated by nuclear power plants)
are cheap. Therefore, the royal road
to salvation is a quantum increase in
investment in these latter two energy
media. As much as I want to say yes, I
have to say 'maybe'. Coal strikes me
as being environmentally offensive -
unless of course adequate pollution
suppressing equipment is available.
Pollution control
The availability of this equipment
depends on the business cycle and on
governments: it has been shown in the
U S A and elsewhere that pollution
control devices will not be bought in
times of recession, nor will its produc-
ers move fast enough with perfecting it
so that it can be used on large installa-
tions. The only way we are going to
acquire a socially optimal amount of
this equipment is for governments to
subsidize its use. As for nuclear ener-
gy, this seems to be moving ahead
q u i t e r a p i d l y in some countries
(France, the USSR and Japan), while
lagging in others. To me this says
something about the strength of the
central governments in these three
countries, rather than the desirability
of major increase in nuclear based
power.
If I have any objection to this book,
it is that it is somewhat behind the
times, although written in 1982. In
that particular sense, high marks must
be given to EI-Mokadem, Hawdon,
Robinson, and Stevens. Unlike Des-
ENERGY POLICY December 1984

prairies, they are dealing with strictly
c o n t e m p o r a r y problems, although
their exposition could hardly be called
optimal.
The underlying theme of the book is
the need for O E C D countries to
obtain energy independence. Mon-
sieur Desprairies understands perfect-
ly the social consequences of a de-
creasing energy intensity. He also
agrees that the LDCs will be in-
strumental in bringing about a strong
upward pressure on the price of oil in
the next decade. His book contains
the right ideas about the widely adver-
tised W O C O L study, which complete-
ly misinterpreted the supply-demand
situation for coal. Desprairies' treat-
ment of natural gas is too brief, and he
mostly ignores the meaning of Soviet
gas for the European gas market. 7
Economic growth and energy use
Some interesting facts and scenarios
are presented on the relation between
economic growth and energy use, and
I would like to see more work in this
field. Personally, I think this is the
Global energy modelling
ENERGY AND AGRICULTURE:
Their Interacting Futures, Policy
Implications of Global Models
edited by Maurice Levy and John L.
Robinson
Harwood Academic Publishers, Chur,
Switzerland, 1984, 371 pp, $78.00
This book is the first volume of a new
series of monographs and tracts on
'Global modelling and applications',
and is the proceedings of a symposium
sponsored by the United Nations Uni-
versity in Paris in February 1982.
Since no editor of this new series of
m o n o g r a p h s is m e n t i o n e d , one
assumes the publisher wrote the 'Pre-
face to the series'. Objectively, one
cannot but disagree with two of the
main points made in this short 3-
paragraph series. It says 'global mod-
elling has become an important activ-
ity throughout the world'. The fact is
that the number of global models now
ENERGY POUCY December 1984
most interesting part of an interesting
book. Desprairies is also looking for-
ward to the further development of
coal gasification.
This is an easily read and valuable
book that could be made even more
valuable if it were rewritten in a year
or two.
Ferdinand E. Banks
University of Uppsala, and
(IES) University of Stockholm
1D. K. Osborn, 'Cartel problems', Amer-
ican Economic Review, December 1979.
2Ferdinand E. Banks, The Pofitical Eco-
nomy of Coal, D. C. Heath, Lexington, MA,
1985.
3L. A. Metzler, 'The nature and stability of
inventory cycles', Review of Economic
Studies, August 1941.
4See Chapter 1 of The Political Economy
of Coal, op cit, Ref 2, for a discussion of
stocks, spot prices, and futures markets in
the context of the world petroleum market.
ST. Rifai, The Pricing of Crude Oil,
Praegar, New York, 1974.
6Kristan Knudsen, 'Den glemte &rsak til
oljeprisens mulige kollaps', Sosial Okono-
men, Oslo, 1984.
7See Chapter 6, The Political Economy of
Coal, op cit, Ref 2, for a survey of the world
natural gas market.
being built or which are in active
phase can be counted on the fingers of
one person - and one will not even use
all the fingers! None of them are being
used for policy-making purposes. The
preface further states that global mod-
elling 'has become a very active sec-
tor, both within the academic com-
munity and in i n t e r n a t i o n a l and
national agencies'. The real fact is
while there is some interest in global
modelling in the academic commun-
ity, primarily among those who built
the models earlier, interest in national
and international agencies is minimal,
except for a very few isolated pockets
here and there.
Papers and addresses
The book contains 15 papers pre-
sented at the symposium, as well as an
opening address, printed in both En-
glish and French, by J. P. Chevene-
ment, French Minister of State of
Research and Technology, a keynote
Book reviews
address by Soedjatmoko, Rector of
the United Nations University, and a
p e r s o n a l s y n t h e s i s by J a c q u e s
Lesourne.
The papers, as to be expected in any
symposium of this kind, are of varying
quality - ranging from some truly
excellent ones like that by Lesourne to
a few which are marginal or have
basically been published earlier else-
where.
Interest in global models started to
develop with the publication of For-
rester's W o r l d D y n a m i c s model in
1971, and the Limits to G r o w t h by
Meadows et al in 1972. The Limits to
G r o w t h model was published at the
right time - at the crest of the environ-
mental movement in the West. It was
well received by the environmental
groups, who were mostly convinced
that the world was already heading for
a disaster due to exponential popula-
tion growth, resource depletion and
environmental degradation. The en-
vironmentalists jumped at the Limits
to G r o w t h model with its doomsday
scenarios, since it was supposed to
have provided 'rigorous' analysis to
what they already believed. However,
any person having a modicum of
mathematical training and an abacus
(a computer is n o t necessary) could
easily have predicted that exponential
or even linear growth within a finite
space cannot continue indefinitely.
From the Limits to G r o w t h model,
each succeeding global model evinced
less interest than the preceding one.
Rosier picture
The book generally gives a rosier
picture of the achievements of the
global models than has been the case.
The French Minister Chevenement
correctly pointed out in his opening
address that the use of 'global models
can only be relatively limited because
they are by definition essentially eco-
nomic, and in particular no model can
effectively take into account the ulti-
mately decisive political factors'. In
his brilliant synthesis, Lesourne points
out that 'reflexion of the future cannot
be reduced to a set of calculations on a
model'.
As a policy adviser to the highest
decision-making levels in 14 countries
469