**1. Introduction**

According to the International Energy Agency [1] the world energy consumption has increased by 45% since 1980 and will be 70% higher by 2030. Therefore, future energy policy is bound to remain focused on saving, efficiency, and renewable energy usage. European Union energy targets for 2030 have been set as follows: 40% reduction in greenhouse gas emissions (compared to 1990 levels), at least 32% share of renewable energy consumption, and 32.5% energy savings compared with the business-as-usual scenario [2] The EU is devoting significant efforts to reduce energy consumption in the main consumption areas such as residential, tertiary, transport and industry. However, both primary and final energy consumption are slightly above their 2020 targets because not all sectors have managed to decrease their consumption. One such sector was transport and the largest increase in energy consumption was noted in the tertiary sectors (20.2%) which overshadowed the progress made in industry (−14.6%) and the households (−4.5%) [2]. Despite the applied policies, it is not an easy task to harness energy consumption given the demands for economic growth, the increasing population, the heating energy demand, the household characteristics towards single person families, and the energy prices which have not fully incorporated the incurred environmental costs pertinent to their exploitation and consumption.

Despite the need for energy conservation (with energy conservation we refer to the reduction of energy consumption in all sections of economy), energy inputs are necessary in production and thus the configuration of the impact of energy cuttings on economic growth remains important. Energy efficiency is an ongoing process, it has gone through a major

**Citation:** Menegaki, A.N. Towards a Global Energy-Sustainable Economy Nexus; Summing up Evidence from Recent Empirical Work. *Energies* **2021**, *14*, 5074. https://doi.org/10.3390/ en14165074

Academic Editors: Periklis Gogas and Theophilos Papadimitriou

Received: 19 June 2021 Accepted: 2 August 2021 Published: 18 August 2021

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**Copyright:** © 2021 by the author. Licensee MDPI, Basel, Switzerland. This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license (https:// creativecommons.org/licenses/by/ 4.0/).

breakthrough, but there is still much structural distance to be covered until its full potential is exploited by all sectors. Thus, increases in efficiency of thermal power generation have been made, due to a shift from coal to gas, and a change in the power mix has also been achieved with a higher share of renewables [3]. The financial crisis has been acknowledged to having slowed down efficiency progress, a situation that will be prolonged with the health crisis caused by the COVID-19 pandemic. Overall, there is not a single and widely acknowledged indicator of energy efficiency and this can only be revealed through reduced energy consumption (conservation). On the other hand, we need to remember that there is not a single index to measure energy efficiency, and this can only be perceived through a combined overview of the energy intensity reduction, energy consumption reduction and energy savings [3]. Taking into account the fact that energy efficiency (through the aforementioned dimensions) is at the foreground of energy policy and the political and economic agenda worldwide, it is no doubt because the energy-growth nexus economics field remains timely despite the controversy in its results and the lack of consensus [4,5].

At the same time, the 17 sustainable development goals which were stipulated by United Nations in 2015 and have been included into the UN 2030 Agenda, do connect directly or indirectly to energy matters in at least four of the goals; the 7th goal is about affordable and clean energy, the 11th goal is about sustainable cities and communities, the 12th goal is about responsible consumption and production, and the 13th goal is about climate action. On top of that, the evolution of New Economics have introduced new perspectives in the real measurement of wellbeing which take into account all sustainability goals and many additional aspects in order to establish a measure of real wealth that could be juxtaposed to the conventional measure of the Gross Domestic Product (GDP). The usage of a sustainable GDP in place of the traditional GDP in the energy-growth nexus research field will enable comparisons between the effects of energy conservation on welfare. Societies need the knowledge of the trade-off between the reduction of energy consumption and the effect on their wellbeing.

Hypotheses encountered in the conventional energy-growth nexus are the following four:


New considerations encountered in the sustainability extended energy-growth nexus are suggested as follows:


This paper summarizes and compares results of different studies in the energysustainable growth nexus for various groups of countries around the world and compares the results with the respective conventional energy-growth nexus studies.

The rest of this paper is organized as follows: The current part (Section 1) is the introduction, Section 2 is the background material, Section 3 briefly refers to the employed methodologies in each paper, Section 4 summarizes and discusses the results of the different studies, while Section 5 offers the conclusion.

#### **2. Background Material on Sustainable Economic Growth**

The relationship between energy and sustainable economic development is studied with various indexes. For example Zhang and Su [6] study the rural household energy sustainable development in China with a composite indicator. Wang et al. [7] have also constructed a composite indicator for energy sustainable development in China. On the other hand, in the energy-growth nexus, Esseghir and Khouni [8] insert a focus on the discussion on sustainability, though without using a specific index in that aspect. The ISEW indicator for Europe has not been applied before within the energy-growth nexus.

The energy-growth nexus concerns the papers studying the relationship between energy consumption and economic growth and the direction of causation among the variables which best describe how an economy functions. Until recently, the literature until has not been unanimous but is rather controversial. A big picture of that situation has been provided in Kalimeris et al. [9]; Menegaki [10] and Ozturk [11]. Economic growth in most of these papers has typically been shown with GDP per capita. In different cases in which these papers performed a sector analysis rather than a country–economy as a whole, other proxies were employed for economic activity, such as industrial production which has been employed in the study by Marques et al. [12]. Overall, energy-growth studies mainly aim to discover the role of energy consumption as a factor of production in an economy. Therefore, they draw conclusions about the sensitivity of economic growth to various energy policy tools, which aim to make the economy rely less on energy consumption and consequently produce less greenhouse emissions, resulting in less fossil fuel resources depletion.

As aforementioned, these studies typically place the GDP per capita variable in the position of the dependent variable, while the independent variables are basic drivers of production, such as capital formation, labour, greenhouse gas emissions, energy consumption, electricity consumption, or production, trade etc. The elasticities of these magnitudes, with respect to GDP, constitute important information for policy making in each economy or groups of economies. However, given the principles of the so-called "New Economics" and their base of genuine progress and sustainable economic welfare and sustainable GDP, we agree that the energy-growth nexus research is rather short sighted, because it does not say anything about the genuine effect and the contribution of energy consumption on sustainable economic welfare.

In order to explain the aforementioned statement in a better way, we mean to sugges<sup>t</sup> that: The GDP of each country has a different base and is generated in ways that may have different effects on human welfare. Therefore, a high-income country may have generated excessive pollution and induced extreme urbanization, accompanied by a low quality of life or family breakdown caused by the extended working hours of the working force. The list of the negative effects is rather long in this respect. Conversely, a less developed economy, usually accompanied with a lower GDP per capita, may have a cleaner natural environment, more essential human bonds, less family disintegration, and generally consist of people who enjoy their wellbeing and existence more. Furthermore, an industrialized country generates more environmental degradation than a country that produces services. Petrochemical activities, construction, or agriculture are usually very polluting activities in an economy. Next, we provide the energy intensity of GDP for an indicative set of countries across the world (Table 1). The differences in intensity reflect the different structure of the GDP in each country with the participation of energy.


**Table 1.** Energy intensity of GDP across the world.

Source: Enerdata.net [13]. Note: koe stands for kilogram of oil equivalent.

GDP does not distinguish economic activity that improves welfare from the one that reduces welfare [14]. This and other drawbacks of the GDP as a measure of wellbeing and genuine comprehensive progress, had been acknowledged from the day it was established.For instance, GDP disregards transactions performed in the unofficial and unrecorded economy. Nevertheless, these transactions are consuming energy capital and labour. These transactions are not recorded in the official accounts of the economy thus, they do not appear to generate income, but they consume energy, capital and contribute to the generation of pollution.

The same applies with market failures from environmental and social externalities that are not reflected in the GDP but contribute to the depletion of resources and formal capital. Furthermore, these externalities may inflate the GDP with much defensive expenditure, which arise from disservices generated from the externalities [15]. For example, a poor road network (this is capital) may be one of the reasons for a high number of car accidents and fatalities. The expenditure incurred to have cars repaired or people hospitalized should not be measured as GDP. This rationale of New Economics [16] that has started permeating the modern economic world, brings forward the need to re-examine the relationship of the conventional energy-growth nexus by focusing on income indicators that are as inclusive as possible.

Until today, and from what we do know from the literature, very little research has been devoted on this new promising area. For example, You [17] has employed genuine savings instead of the GDP variable and concludes that renewable energy increases China's genuine savings, while fossil energy contributes to the increase of GDP growth. Genuine savings is a variable readily available by international statistical agencies. Conversely, the ISEW explained in this paper and applied in the energy-growth nexus (in all the reviewed papers) is a more comprehensive indicator because it included data from all the three sustainability fields: economic, environmental, and societal.

#### *The Construction of the Index for Sustainable Economy*

Welfare is a controversial and multi-aspect concept. Therefore, a comprehensive indicator is needed to reflect it. Some of the aspects of welfare are the following: living standards (housing conditions, housing area, size etc.), health, the feeling of neighbourhood, education, time use, democratic engagement, leisure, culture, environment, public infrastructure, natural resources, emissions, equal access to resources and their sustainable use; corruption and transparency, waste assimilation capacity, sustainable consumption and production, demographics, recycling rates, adult literacy, mean duration of schooling,

knowledge, social relations, climate change (extreme weather phenomena), urban sprawling, commuting, noise pollution, globalization, volunteerism, criminality, unemployment costs, loss of farmland and wetland, net foreign borrowing, happiness (happy life years), peace, and safety.

As we understand, some of the above aspects are tangible and some are not. From the tangible dimensions some of them have not ye<sup>t</sup> been measured. The immaterial ones are mainly psychological aspects that may lead to happiness and wellbeing. It is more difficult to calculate the value of the immaterial ones than the material or tangible ones. There are means to calculate intangibles, such as revealed or stated preference techniques. However, even if their value has been estimated for one economy, there is no institutional tool to impose or even encourage other economies to do the same. Therefore, cross country comparisons cannot be made if there is no cross-country agreemen<sup>t</sup> on the calculation of those values. This increases the difficulty of the calculation of a complete ISEW, which can host all possible parameters affecting human wellbeing within an economy. Countries that have made a lot of institutional progress have had more progress in advanced statistical data keeping while others with low institutional development have not managed to do this.

The convention held by the European Commission, entitled "2007 Beyond", has presented a series of 24 similar indicators. Each one of them deals with a different and specific aspect of human welfare. However, none of them is so comprehensive and inclusive, something which would make an ideal indicator. For instance, the adjusted net savings (ANS) or genuine savings, the capability index, (according to which, the quality of life is defined by what people achieve with their resources), the ecological footprint indicator (which evaluates the balance between the demand and supply for renewable resources in a certain population or economic activity and the capacity to assimilate waste), the environmentally sustainable national income-ESNI (defined by the number of years that a certain economy with its current production capacity is away from an ideal benchmark that is considered to be sustainable), the human development index-HDI (which measures life-span and years of healthiness, together with access to education and knowledge and a decent standard of living that does not deprive one of basic facilities and goods), the Happy Planet Index- HPI, (ratio of the product of the experienced welfare and life expectancy to the ecological footprint) as well as many others. Goosens et al. [18] distinguish these indicators and place them into three categories: those replacing GDP, those supplementing GDP, and those adjusting it. The ISEW belongs to the ones which are adjusting GDP to reflect the experienced welfare.

The first version of the ISEW was generated by Daly and Cobb [19] for the US and then was further improved in 1994. There are both numerous supporters and opponents of the ISEW. The index has received a lot of criticism for measuring welfare and sustainability together within one index [20] and for the way it treats stocks and flows methodologically [21]. Responses to the former criticism state that the ISEW indicator is an aggregate indicator for both current and future wellbeing. Future welfare is an aspect of utility for the current generation. The latter receives satisfaction from knowing they will not damage the utility of their descendants [22]. This was additionally supported by Lawn [23]. He drew principles from Irving Fisher's "net psychic income" and he explains why each component in the ISEW contributes to the psychic income. Despite the hesitations stated by the ISEW opposers, the existent ISEW is better than nothing (Lawn and Clarke, [24]). This is explained by the fact that the Index has covered a lot of distance to the measurement of sustainability but not all of that. Posed in a different way by Posner and Costanza [25], it is better to be approximately correct than completely wrong. Bleys and Whitby [26] report some of the most important obstacles and opportunities in the calculation of the ISEW.

From what it is known, the calculation of the ISEW has been sparsely implemented only for several European countries: regional Italy [27], Belgium [28], France [29] and Greece [16]. Therefore, the official expression of the proposed ISEW in the reviewed papers here, is described in Equation (1):

$$\text{ISEW} = \text{Cw} + \text{Geh} + \text{Kn} + \text{S-N-Cs} \tag{1}$$

where Cw denotes the weighted consumption, Geh denotes non defensive public expenditure, Kn stands for the net capital growth, S stands for the unpaid work benefit, N stands for the depletion of natural environment and Cs denotes the cost from social problems, which has not been taken into account in the calculations of the reviewed papers due to lack of proper data. Understandably, environmental, or ecological degradation is a wide concept which encompasses many more problems, for which, however, we had no data available to rely on. For instance, the cost of water pollution or the cost of the loss of land and wetlands is not readily published in the publicly available official databases that are usually employed, namely Eurostat, OECD, and World Bank. The same applies for the lack of reliable social data. Since we have not been able to include costs from social problems, Equation (1) is simplified to Equation (2), as demonstrated by Menegaki and Tugcu [30] and Menegaki and Tiwari [31] and the rest of the reviewed papers:

$$\text{ISEW} = \text{Cw} + \text{Geh} + \text{Kn} + \text{S-N} \tag{2}$$

The method approach in Equations (1) and (2) is also recommended in [18] Gigliarano et al. [27], Menegaki and Tsagarakis [32]. The first two papers concern regional Italy and have included a large variety of available environmental and social data. However, in the reviewed papers contained in this study, this has not been possible. Thus, in each of the reviewed papers first, we have calculated the ISEW for the sampled countries and then we have estimated the conventional energy-GDP growth and new energy-ISEW for those countries, where it was feasible upon data availability for the variables, setting up the energy-growth nexus for the countries the study was focusing on each time. Table 2 explains the details of the calculation and the origin of the data in the sampled papers. Please note that since the current paper is a review of past published papers, new methods of calculation of the involved ISEW components have been evolved. The future researcher must take that into consideration. For example, it would be interesting to recalculate the index with the cost of carbon being \$100 or \$200/ton [7,28]. The same applies with the cost of renewable energies, which is reduced over time as technology improves.

**Table 2.** The ISEW components, sign, calculation methods and data sources as it has been originally presented in the reviewed papers.



**Table 2.** *Cont.*

Note: This type of the ISEW calculation has been applied by Menegaki and Tsagarakis [27]. The notation following the definition of components in this table, is the one represented in Equation (2).
