U.S. Economy Consuming Less Energy Than Pre-Recession

The US economy is consuming 2.00% less energy than its five yearaverage seen prior to the 2008 financial crisis. Some will be cheered by this data, and indeed there are small nuggets of good news here. First, US consumption of oil—which turned flattish after the 2004 repricing—is down significantly, by over 10% since 2007. Also, as America turnsincreasingly to the power grid, consuming more natural gas and coal, the addition of renewable power from solar and wind is growing strongly.Eventually, these nascent trends will convert to larger structuralchanges. So let there be no doubt that energy transition is underway inthe United States.

The problem remains, however, that in order to carry debt loads bothpublic and private the US is still very dependent on strong industrialgrowth to generate revenues, and support wages. Accordingly, in the near term less energy inputs into the US economy more immediately alignswith less output. In other words, a more efficient economy is slowlybeing born. But until then, we will struggle with the transition. | see:US Average Annual Total Energy Consumption 1975-2010.

energy consumption us U.S. Economy Consuming Less Energy Than Pre Recession

Now, there is a popular myth that has grown up in the past two decades the the US economy already transformed itself. This received wisdom holds that GDP rose while energy consumption per unit of GDP fell. That is certainly true in the narrow sense. But, not true in the broadersense. Here’s why: US domestic energy consumption which at one time wasdevoted to industrial production here in the US, is now simply offshored to Asia. The US economy still demands large units of energy which wesimply import through manufactured goods. Worse, US GDP accounting still overweights consumption. This makes for a perverse, energy-accountingoutcome: the more we offshore energy-consuming manufacturing to othercountries, the more distorted our energy efficiency claims become,against GDP.

The notion that the US economy therefore is much less sensitive toenergy shocks is also, therefore, a myth. We simply take the shockglobally now, instead of acutely through our domestic manufacturing base (or what’s left of it.). Now that China has certainly passed throughits first Lewis Turning Point, the Asian giant’s ability to combine cheap labor with cheap energy toproduce its beloved and ruthlessly competitive manufacturing arbitrageis going to dissipate. Energy analyst Jeff Rubin has been discussing the inevitability of this turning point for several years.

Some words from Climate Scientist Timothy Garrett at the University of Utah are useful here, writing as he often does about the Thermodynamics of Civilization Growth:

From a physics perspective it seems natural tosuppose that economic wealth is an abstract representation of a capacity to do something. If so, then economic value, adjusted for things likeinflation, should be directly proportional to the rate ( in Watts) atwhich civilization consumes energy (e.g. coal, oil, uranium, etc.).Nothing in the universe happens without energy being transformed fromone form to another. The global economy should be no exception.

Just as optimists who claim that global poverty is on the declinerepeatedly make the mistake of using the USDollar as their unit ofaccount, sustainability and green energy advocates make the same errorwhen using US GDP to measure energy efficiency gains. Wake up: it’s allone world. And while some economies like Sweden and California do indeed have the right to champion their own efficiency victories, theseeconomies—just as post-war South Korea which performed a miracle without any domestic oil—are still deeply interlocked to a global economythat’s running on fossil fuels.

While I’m heartened that US consumption of oil has fallen quite alotsince 2007, and that we are building solar and wind power, do not befalsely cheered: all that “extra” oil we freed up simply went to thedeveloping world, along with “extra” coal supplies as well. There, it is transformed into the manufactured goods that steam into US ports eachday, which the US economy is still consuming. Again, the US economy hasderived phantom “efficiencies” by plugging into cheap global labor–not cheap global energy.

As of 2010, the US economy was consuming 98.002 quadrillion btu ofenergy. This is a rebound from the dramatic low of 2009, which sawconsumption fall to 94.578 million btu. But this is contraction, notefficiency. We will have our super-cool efficient economy eventually.Until then, the US economic motor is running slow.

-Gregor

Original Article on Gregor.us