Monthly Archives: March 2012

Carving Up The OECD, Part 3

In yesterday’s post we divided the 34 OECD countries into three tiers based on projected growth in GDP through 2030. Let’s now consider some of the implications for energy consumption.

Energy consumption in the OECD grew from 178 quads in 1980 to 243 quads in 2008, a CAGR of 1.12%. (The figures include earlier numbers from countries that joined during the interim and countries that combined forces, like East and West Germany or split, such as the Czech Republic and Slovakia. So it is apples to apples.)

The U.S. Department of Energy’s Energy Administration projects that the growth in energy consumption will fall by almost 50% between now and 2030, from the 1.12% CAGR listed above to 0.6%, reaching a total of 279 quads by then. (Their projections go to 2035, but I use 2030 because another table I intend to use stops at 2030. For the curious, the EIA projects OECD energy consumption to continue rising to 288 quads by 2035.)

In the three Tiers of OECD countries that I created by fiat yesterday, here is how  energy consumption broke out in 1980 and 2008:

Tier 1 (8 countries predicted to have high growth in GDP, ranging from 2.8% to 4.35%). In 2010, these countries (the Czech Republic, Chile, Slovakia, Poland, Hungary, South Korea, Turkey and Mexico) accounted for 12% of the OECD’s energy consumption.

1980: 15.8 quads

2008: 30 quads

The real growth in energy consumption for Tier 1 countries from 1980 through 2010 was 2.32% CAGR.

The EIA estimates by region going forward, so I cannot offer breakouts of their projection through 2030. However, their projection for Mexico/Chile is 2.1%, OECD Europe is 0.5% and OECD Asia is 0.7%.

Given that the energy consumption of this tier of countries grew at double the rate of the rest of the OECD and that their GDP is projected to grow at double the rate of the rest of the OECD through 2050, I think it is safe to say that the energy consumption of this group will grow at a more robust rate than 0.6%

Perhaps this will be compensated for by slower than average performance in the other two tiers. But what it means for me is I will have to go back to the same methodology that I used for estimating growth in energy consumption for the developing world. This will take time and effort.

I must say that it is surprising that this is so hard to find for OECD countries. I anticipated some difficulty with getting good statistics for the developing world, but the OECD?

Don’t forget about me while I’m buried in Excel spreadsheets, but don’t expect another post really quickly.

Carving Up the OECD, Part 2

Back in 2010, a gentleman by the name of Dr. Mathew Shane, working at the U.S. Department of Agriculture’s Economic Research Service calculated GDP per capita by country through 2030. His sources were: World Bank World Development Indicators, International Financial Statistics of the IMF, HIS Global Insight, and Oxford Economic Forecasting, as well as estimated and projected values developed by the Economic Research Service all converted to a 2005 base year. The Excel spread sheet he published can be downloaded here: projectedrealpercapitaincomevalues

Thank you, Dr. Mathew Shane.

I have grouped member countries of the OECD below, based on the CAGR percentage of GDP per capita growth.

It didn’t break out the way I expected. Where I thought it would be a 5%, 3%, 1% split, according to Dr. Shane’s work the  real breaks are 3% and up, 1.5% to 3% and below 1.5%. So at this point, accepting his figures (remember they’ll look low because they are all in 2005 U.S. dollars, and ain’t inflation an amazing thing…) here’s how it splits out. Analysis and implications are for Part 3.

Tier 1

Energy Quads GDP per capita (2005 USD)
1980 2008 2010 2030 CAGR %
Czech Republic 1.8222 1.61454 $14,398 $33,743 4.35
Chile 0.42668 1.2154 $8,548 $19,559 4.23
Slovakia 0.7222 0.8022 $11,194 $25,335 4.17
Poland 5.06796 3.88691 $10,059 $20,658 3.66
Hungary 1.20988 1.1062 $10,351 $19,582 3.24
Korea, South 1.75836 9.88495 $20,855 $38,675 3.14
Turkey 1.04087 4.30511 $5,082 $9,262 3.05
Mexico 3.72819 7.30898 $7,373 $12,815 2.8

Tier 2

Energy Quads GDP per capita (2005 USD)
1980 2008 2010 2030 CAGR %
Iceland 0.05705 0.24983 $48,756 $77,089 2.32
Finland 0.97218 1.29176 $39,100 $60,535 2.21
Sweden 2.0745 2.21851 $42,044 $61,571 1.93
Austria 1.09577 1.51893 $39,766 $57,762 1.88
Australia 2.74246 5.75187 $37,188 $53,728 1.86
Belgium 2.06423 2.91264 $37,320 $53,513 1.82
Germany 14.86407 14.35692 $35,742 $50,834 1.78
United Kingdom 8.84074 9.34847 $36,888 $52,365 1.77
United States 78.12376 100.5784 $42,517 $60,390 1.77
Greece 0.75171 1.46983 $21,194 $29,879 1.73
New Zealand 0.51056 0.88213 $24,985 $34,948 1.69
Canada 9.6947 14.02923 $38,043 $52,749 1.65
Denmark 0.86306 0.83638 $48,193 $66,604 1.63
Norway 1.34103 1.94311 $66,952 $92,114 1.61
Portugal 0.4315 1.06052 $16,463 $22,472 1.57
France 8.38909 11.29033 $34,529 $46,732 1.52

Tier 3

Energy Quads GDP per capita (2005 USD)
1980 2008 2010 2030 CAGR %
Netherlands 3.20474 4.13723 $38,206 $51,120 1.47
Italy 6.14607 7.89699 $29,559 $38,881 1.38
Japan 15.20992 21.87365 $34,589 $45,081 1.33
Ireland 0.32304 0.68967 $43,184 $56,137 1.32
Luxembourg 0.14196 0.19533 $78,150 $100,281 1.25
Switzerland 1.13892 1.31872 $52,534 $66,588 1.19
Spain 3.04408 6.50467 $25,510 $31,084 0.99

Carving up the OECD, Part 1

We are now going to put countries into one of three buckets–the 5% bucket, 3% bucket or 1% bucket. Those percentages are the mid-range of growth in energy consumption that I will project for them between now and 2050. Unlike other, more sophisticated models, I will use cruder metrics–projected growth in population and GDP per capita. And, although I think these cruder metrics will be closer to the final outcome than the more sophisticated models being used today, for now I think it’s best to characterize this effort as an effort to provide an alternative set of numbers for comparison’s sake.

We’ll start with the OECD. It is common practice to treat the OECD as a monolithic bloc, for analysis of energy and GDP and much else besides. This may have been acceptable when the OECD had its original membership of 20 countries, but now that membership has grown to 34, the differences between members are getting too large to ignore. As the OECD has now offered enhanced engagement to Brazil, China, India, Indonesia and South Africa, the differences in development paths that members take will only grow.

Energy consumption in the OECD grew from 178.9 quads in 1980 (the DOE EIA’s figures do include where possible figures for countries that later joined, so it’s almost apples to apples–three countries didn’t have figures for 1980) to 243.3 quads in 2008, a CAGR of 1.1%. (That’s very low, obviously–but remember that the EIA actually projects growth going forward at less than half that rate, having adjusted their projection downwards from 0.6% to 0.4% through 2035.)

However, reporting at group level does hide significant variation. Australia, for example, grew at 2.68% annually and Turkey nearly matched that with growth of 2.65%. But their respectable growth is masked by slow growth in larger countries like Germany, which saw its energy consumption decrease since 1980, as East Germany abandoned loss-making inefficient manufacturing.

So, before I present the results, it’s time for another expression of frustration at the thinking that goes into this type of analysis. Follow the bouncing ball, here.

The OECD expects the population of its member states to grow at 0.2% per year through 2050, reaching a total of 1.33 billion souls, up from 1.22 billion in 2009, a total increase of 111 million people. Ooookayyy, but their population growth rate for the past 12 years was three times that rate… and they also project that 15 of their member states have been growing faster than that 0.2% annual average. Those 15 states have 56% of the OECD’s population.

So I’ll stop part one of this extravaganza with the observation that I am not confident of their population projections–the U.S. is an OECD member. Even using the Middle Series population projections of the U.S. Census Bureau provides a growth rate of 1.07% through 2050. The U.S. constitutes 25% of the population in OECD countries. The growth in population in the U.S. alone is expected to be 92 million people.

Nor am I confident that a population that is growing at any rate at all can be counted on to reduce their energy consumption growth rate by half.

Well, let’s move on to Part 2.

The 5-3-1 Analysis Frame

If you’ve read much of this weblog, it should be clear that the traditional way of looking at energy consumption hasn’t been extremely useful.

It doesn’t break out simply, such as OECD vs. non-OECD nations. There are huge differences within those groupings that have led those who do meta-analysis into some strange territory.

So I’m going to offer something different. Let’s imagine a new way of looking at the world–hopefully a way that better corresponds to reality.

I intend to group nations into buckets based on estimated future growth of energy consumption. For the moment, I will label those buckets 5%, 3% and 1%, although I may refine them later.

The 1% bucket will consist of those European  nations that are reclining, if not declining, in population and other criteria that drive consumption. They will be joined by some countries, mostly in Africa, that would otherwise be called Failure to Launch. This may be the African Century yet, but this subset of countries haven’t heard the news.

The second group is important, mostly because it includes the U.S., the largest economy and second-largest energy consumer in the world. It will be joined by a number of countries that might be called the Balanced Set–those that will grow, but moderately. They will be the 3% club.

And then there will be the 5% group of hard chargers–the Chinas, Indias and Indonesias of the world, in a hurry to develop and fight their way to the top.

I’m hoping that analyzing future energy consumption will be not only easier this way–I’m hoping that it will have a very natural flow to it, as if we’re swimming with the current when we look at the numbers, as opposed to fighting upstream to make sense of it all.

I hope you stick around for the ride.

The Importance of Choice

Having a viable substitute for something you want to change is important. I didn’t quit smoking until I found nicotine gum. That was despite a very clear understanding of what smoking was doing to me and those around me.

Ten coal plants are being retired from service, it was recently announced, bringing the number of such retirements to 106–coal plants in the U.S. that have shut up shop or are planning to do so.

A variety of reasons are given for these closures–rising costs of coal, new and stiffer regulations by the EPA–but the fact is that these closures are possible because of the availability of low cost natural gas. When a substitute becomes available, it changes the way decisions are made.

Roger Pielke Jr. has a post up over at his eponymous weblog about the cost of gas at the pump expressed as a proportion of GDP. He  notes that a 70% rise in the cost of gas at the pump has only pushed spending on gasoline from 2.8% to 3.8% of our GDP. Pielke speculates that the calculus on gasoline changed when China began consuming a lot of it, and he’s probably right.

But I would submit that rising gas prices (and I think they will probably continue to rise–the developing world will bid up the price) will not have as much of an effect on richer countries as it has in the past. This is because substitutes are more easily available and more societally acceptable. By that I mean that some dude in a nice suit trying to show his status can now do so with a Prius or a Tesla–he doesn’t have to show up in a Hummer. Soccer moms can send similar signals about awareness, status and preparedness without a 4 x 4. At the less rarified atmospheric levels of the middle class, we now can buy good cars with conventional engines that get good mileage–and they look cool, or at least a lot of them do.

Gasoline prices will continue to rise–but they won’t have the same effect. That’s a good thing. Fewer dirty coal plants and more natural gas–also a good thing. But note that the key part of making good things possible is having the money, time and technology to make choices available and to send the signals about which choices advance a (greener) way of looking at the world. We are slowly beginning a move towards a European view of energy. That’s fine, especially when it’s a matter of choice, right? But we can’t kid ourselves–this is really happening because we’re the richest country on Earth. If we want this migration to go viral, we’re going to have to help the developing world get richer first.

Part 2–American Energy Use in the 21st Century

For decades economists have tried to link energy use and GDP. However, this has grown more tortured over time, as GDP gets increasingly divorced from the material inputs that consume large quantities of energy. As developed countries shift more of their efforts into services and out of industrial production, our GDP grows quickly, as services ultimately give more bang for the buck, and this flatters our figures regarding energy intensity.

This leads to tortured projections that are increasingly less useful.

Other analysis focuses on supply constraints and costs. The Department of Energy’s Energy Information Administration is really keen on showing how much fossil fuels are going to cost and make that a key part of their models of future consumption. But in country after country we see that, once a certain level of per capita income (and not GDP) is reached, energy is not truly constrained by supply–people will pay whatever it costs. Modelling costs and availability is really a good idea for countries like India. It’s not nearly as useful for countries like the U.S. This is one of the reasons why the DOE’s EIA has to keep adjusting figures.

However, energy consumption is far more tightly linked to population. And every analysis pays lip service to that fact. The EIA Annual Energy Outlook 2012  says, “Population is a key determinant of energy consumption through its influence on demand for travel, housing, consumer goods and services.” And then they promptly move on to other topics.

The fact is that we consume one quad of energy for every 3 million inhabitants in this country. If we get 3 million more immigrants or children born tomorrow, we will consume one more quad than we otherwise would have.

Population is the principal component of energy consumption.

Our population is growing.

You will have to make a very good case to convince me that the easiest way to estimate future energy consumption in America is anything other than to add one quad to our total for every cohort of 3 million new humans in the U.S. of A.  By way of checking, our energy consumption was more than 1 quad per 3 million people in 1990, and also in 1980–so I don’t think I’m exaggerating for effect here.

The U.S. Census Bureau has published estimated populations through 2100. They took four guesses–the series was published in 2000 and their highest growth series is bang on accurate. Most estimates use what they called their Middle Series, but their Middle Series predicted a 2010 population of less than 300 million. If it’s that far out after just a decade, I don’t really want to use it for a century. What they called their High Series was much better, so I’m going with it. (But I’ll show a couple of figures later with the Middle Series.)

Our current population is 311 million. We consumed 98 quads in 2010. So here are the Census Bureau’s High Series projections at 10 year intervals, with my highly sophisticated algorhythm for calculating additional energy consumption (add 1 quad for every 3 million people):

2020          354,642,000 people          113 quads

2030          409,604,000 people          130 quads

2035          441,648,000               141 quads

2040           475,949,000 people         153 quads

2050       552,757,000 people    179 quads

2060           642,752,000 people            209 quads

2070          749,257,000 people             244 quads

2075       809,243,000 people      264 quads

2080           873,794,000 people              286 quads

2090           1,017,344,000 people            333 quads

2100       1,182,390,000 people      388 quads

Sobering totals. Obviously, the DOE used the Census Bureau’s Middle Series for their projections, so let’s show a couple of years using that list. But for the moment, let’s hang on to my little conceit that calculating future energy consumption can be simple arithmetic, rather than convoluted conjecturing.

2035            353,749,000 people                    112 quads

2050           403,687,000 people                      129 quads

2075            480,504,000 people                     155 quads

2100            570,904,000 people                     185 quads

Now remember that the EIA only projects energy consumption through 2035. Their projection for that year was 108 quads, revised down from 114 quads because they felt that energy efficiency and (???) an improving economy (???) would lower energy consumption. My back of the envelope calculations show 112 quads for 2035 using their choice of the population estimates, and 141 quads if the High Series continues to be more accurate.

My totals amount to 0.61% CAGR using the Middle Series and 1.47% using the High Series. Remember also that last year’s growth in energy consumption was 3.9%.

Population growth using the High Series from the Census Bureau is 1.49% CAGR. Using the Middle Series shows population growth at 0.68%.

So I would say we have a range of possible energy consumption figures that vary between 112 and 141 quads at 2035, between 129 and 179 quads at 2050 and between 185 and 388 quads at 2100.

This would seem to put into question the EIA’s projections of future energy consumption for the U.S. If the High Series is accurate, and if my crude metric is closer to reality than the EIA’s supply-dominated but sophisticated model, energy growth in the U.S. will be 1.54% per year, rather than the 0.39% the EIA forecasts.

Sadly, given what we have seen regarding Mexico and Turkey, this would almost force us to conclude that the EIA was as overly optimistic about energy consumption in the OECD as it was for developing countries.

Now, honestly, it is my hope that the light-hearted tone of this post is enough to convince readers that I don’t really intend to suggest that a mere calculation of population growth is an adequate substitution for serious thought about energy consumption. There is more to it than just simple arithmetic. But serious thinking is more than just additional calculations.

Population growth generates momentum towards a certain level of energy consumption. Efforts to lower than consumption through energy efficiency and innovation will fight strong headwinds created by this population growth. But just as my argument is not totally serious, neither are arguments that energy efficiency alone will dramatically lower consumption. The difference is that I acknowledge the incompleteness of my arguments…

American Energy Use in the 21st Century

The U.S. Department of Energy’s Energy Information Administration projects energy consumption only through 2035. This is probably intelligent–crystal balls start to get a little hazy once you get past 25 years out.

However, for someone like me, who is trying to show that these good and hard-working people (whom I respect enormously) are in fact wrong, the brevity of their forecasts makes it a bit difficult to show the large consequences of differences in CAGR percentages that don’t really look dramatically different.

But let’s try.

Let’s start by noting that the EIA is in a bit of a quandary regarding their projections. They have lowered their estimates of current consumption both for the world and the U.S. two years in a row, and in their most recent release they lower projected energy consumption for the U.S. for 2035, from 114 quads to 108 quads. (Their revised estimate of 2010 was 98 quads.) That’s a CAGR of 0.39%–a really slow rate of growth.

Their explanation for this is straightforward. They project that energy use per capita will decline by 0.5% per year over the 25 years covered by the forecast. So, despite an increase in the number of capitas (the EIA reckons that the U.S.population will increase by 25% between 2010 and 2035), total consumption only rises 10% over the period.

This would mean that per capita energy consumption, which declined from 332 mbtus in 1980 to 310 mbtus in 2009, would continue to decline, reaching 295 mbtus by 2035.

So let’s check their figures. The first, that population will rise 25% from 308,745,538 in 2010 to a total of 385,931,923. That’s just a tad higher than medium projections from other organizations, but certainly within the realm of reasonable possibility, so let’s use it.

But their math is off right out of the gate–if per capita energy use declines by 5% per year and if population grows to their total, U.S. energy consumption in 2035 will be 114 quads, which matches their original estimate, but not their revision to 108 quads. Oops. Let’s move on.

And we find just one other, teensy-weensy little problem here. Overall U.S. energy consumption increased 3.9% between 2009 and 2010 (from 94.7 quads to 98.16). It’s just one year, but that is ten times the growth the EIA is anticipating going forward…

And here we see in their explanation of their assumptions for the reference case for consumption a phrase that may actually explain a lot: “In the AEO2012 Reference case, energy use per capita continues to decline due to the impact of an extended economic recovery and improving energy efficiency.” Well, umm, I can see that improving energy efficiency will help keep a lid on per capita energy use, okay. But an extended economic recovery should actually boost energy consumption, cetera paribus. Shouldn’t it?

As for improving energy efficiency, well, between 1981 and 2009, American per capita energy consumption did decrease, from 332 mbtus to 310 mbtus. But that’s a decline of 0.25%, half the rate that the EIA expects us to achieve in the next 25 years.

Part 2 will show my figures for comparison.