How much does the world spend on energy?
How can we compare global flows of energy and money?
As 2015 comes to an end, I present to you a holiday gift in the form of a 3-part series of journal papers entitled “Comparing world economic and net energy metrics.” These papers are a culmination of three years of effort by myself and two (now graduated) students: John Maxwell and Alyssa Donovan. Thank you John and Alyssa!
The papers focus on relating economic and net energy metrics at the scale of countries and the world overall. In these papers John, Alyssa, and I use data from the International Energy Agency to show how much the world spends on energy in two ways: spending money and spending energy. These papers have much data and analysis embedded within them, and over the course of the next year, I will continue to describe more of the details and nuances of the data in these papers. For now, I provide you with some highlights from the papers (the papers are freely available online with links and summaries below for those that want to read the details for themselves):
- The world economy has likely passed the time of cheapest energy (and food) in history.
- The cheapest energy in the history of the world was likely around the year 2000. Will we ever spend a smaller amount on energy, measured as a fraction of gross world product? I think the answer is “not very likely”. Part 3 of the paper series discusses some of the implications.
- How much money does the world spend on energy, and is there an amount of spending on energy that is too much for the economy to grow?
- World energy expenditures are usually less than 7% as compared to gross world product, and the only times we spent 8% or more (since World War II) there was a major recession.
- How much energy (or specifically power) does the worldwide energy industry spend to produce energy (power) for the rest of us?
- Over the last 20 years the world energy system produced 15 units of energy for every 1 unit that it has consumed itself. In other words, about 6-7% of all energy consumption is consumed by the energy industry itself to produce more energy. See Part 2 for details.
- What do the above mean for internalizing the cost of greenhouse gas emissions? It is important to understand the implications of internalizing emissions into energy expenditures, and this is relevant for interpreting the outcomes of the Paris 21st Conference of Parties (climate change) meetings this December.
- Read Part 3 (Section 4.2 “Relevance for Internalizing CO2 emissions”) for my perspective that we might have to make a tradeoff between economic growth and reducing greenhouse gas emissions.
For a broader synthesis of how the long-term cost of energy relates to other macro-scale trends, see my recent article in American Scientist: The Rising Cost of Resources and Global Indicators of Change.
Summary and links to 3-Part paper series: Comparing world economic and net energy metrics
Part 1: Single Technology and Commodity Perspective focuses on some net energy analysis terminology, distinguishing between energy and power-based metrics, and uses energy commodity (oil, coal, natural gas, and electricity) prices scaled as the Energy Intensity Ratio as a proxy metric for a “power return ratio” at the commodity level per country. Also within this paper is a long-term net energy comparison of the Energy Intensity Ratio for England and the United Kingdom from 1300 to 2008!
Part 2: Total Economy Expenditure Perspective focuses on estimating total energy expenditures for a country rather than calculating net energy metrics for individual commodities or technologies. Given that we have several options for purchasing energy commodities, how much of each do we choose to purchase? Also, this paper compares how much power (or energy/year) it has taken to produce all world power output (or energy/yr). I compare this metric to the monetary equivalent: how much money has been spent by the energy sector to produce all economic output.
Part 3: Macroeconomic Historical and Future Perspectives discusses that how much we spend on energy (the energy cost share) is a significant factor in describing economic growth and what economists term “total factor productivity” or the contribution to economic growth of factors other than capital and labor inputs. While this correlation does not show up for each individual country, it does show up for the world average overall. Further, this Part 3 shows my justification for stating the world has passed the point of cheapest energy in the history of mankind.
- King, Carey W., Maxwell, John P., and Donovan, Alyssa. Comparing world economic and net energy metrics, Part 1: Single Technology and Commodity Perspective, Energies, 2015, 8, 12949-12974 (online link).
- King, Carey W., Maxwell, John P., and Donovan, Alyssa. Comparing world economic and net energy metrics, Part 2: Total Economy Expenditure Perspective, Energies, 2015,8, 12975-12996 (online link).
- King, Carey W. Comparing world economic and net energy metrics, Part 3: Macroeconomic Historical and Future Perspectives, Energies, 2015, 8, 12997-13020 (online link).
- SUPPLEMENTAL INFORMATION: Excel file with calculations, and PDF with explanation of methods.
Happy Summer everyone. Thank you for reading my second newsletter. Please forward this to individuals that you think might be interested in energy, resource, and economic research by sharing this link to join the newsletter.
In this newsletter I have some brief thoughts on the current energy situation (click here for more discussionand links to relevant and informative new stories), and I summarize three new journal publications and one poster (listed at end of this e-mail) that I’ve authored or co-authored:
1. Energy (net energy) systems life cycle analysis modeling of shifting from fossil to renewable electricity
How to perform a net energy analysis shifting from fossil to renewable.
2. The water implications of climate mitigation methods
How much water is needed for each climate mitigation strategy?
3. How electricity dispatch changes if you charge for water consumption or withdrawal at Texas power plants
Water fees have to be high to change the economics of the Texas electricity market.
4. Using International Energy Agency data to calculate “energy return on energy invested” (direct energy input only)
What is the EROI of the world? How much (direct) energy does the worldwide energy industry use itself?
Recent energy news
Two major energy-related news stories are (1) the U.S. Environmental Protection Agency’s (EPA) proposed rules on regulating greenhouse gas emissions from existing and future power plants and (2) the continued increases in U.S. oil and gas production from tight formations and shales due to horizontal drilling and hydraulic fracturing. Opinions abound describing different long-term economic implications of both of these topics. Click here to see a short discussion with links to relevant articles.
My take on current energy and macroeconomic coupling:
The world resides at a balance of supply and demand for energy, particularly crude oil – where crude oil is defined as petroleum of sufficient density to be transformed into liquid transportation fuels (e.g. natural gas liquids do not qualify). Here in the U.S. if the West Texas Intermediate (WTI: North American benchmark) oil price drops below $90/BBL, it puts North American oil and gas production at risk of becoming economically insolvent. If the price stays much above $110/BBL, consumers have a hard time affording more consumption without increasing debt. Consumers need solutions that don’t cause them to accumulate debt (e.g., a car loan for any type of car) or pay more than $4/gallon of gasoline equivalent. Natural gas and plug-in hybrid cars can work for some (industry is starting to shift to natural gas for trucking, shipping, and mobile power), but might not work for most general consumers due to the car loan aspect.
However, debt-laden consumers are not waiting for government or car industry solutions. Small companies and young consumers are embracing the sharing economy as a response to the suite of macroeconomic headwinds that are long-term and fundamental: aging and slower-growing populations, debt at historically high levels (public and private), and “food + energy” expenditures having passed their lowest point in history 5-10 years ago. Consider that all of driving age can’t afford a car, and car owners don’t use their cars 100% of the time. Thus our “app” friends have created ways to use our cars as taxis (Ridejoy, Lyft, Carma Carpooling, Uber, and SideCar) as well as temporarily borrow cars (Car2Go, Zipcar) for town errands of hours, not days. These are all responses of efficiency to constraints on energy resources and will be as significant a solution to our mobility challenges as will new car fuel efficiency and improvements in fuel production technologies (both petroleum extraction and alternative fuels).
I hope the rest of the summer is joyful.
If you agree with me that we need high quality research that critically assesses our future energy options and you want to support students looking at multidisciplinary issues that affect our energy future, then send me an e-mail or give me a call to discuss how you can get involved.
Thank you very much for your time.
My research seeks a systems approach to describe the role of energy and energy technologies in our past and future. This approach provides the best way to both address questions about our future economy and environment as well as understand how individual technologies can and cannot affect the macro-scale and long-run trends that will frame our future options. I seek understanding of the relationships among:
- energy resources and technologies,
- population demographics,
- water and food,
- macroeconomic factors, and
- implications of internalizing environmental externalities.
To learn more about Carey’s research, visit his website or contact him using this information:
e: email@example.com | web: careyking.com | ph: +1 512-471-5468
The University of Texas at Austin, 2304 Whitis Ave, C2400, Austin, TX 78712-1718
- Net Energy Mathematics for modeling a Transition from Fossil to Renewable Electricity — (click to view publication – FREE ONLINE until August 30, 2014)
King, C. W. 2014. Matrix method for comparing system and individual energy return ratios when considering an energy transition. Energy, 72, 254-265.
- The Water Impacts of Climate Change Mitigation — (click to see publication)
Wallis, P., Ward, M., Pittock, J., Hussey, K., Bamsey, H., Denis, A., Kenway, S., King, C., Mushtaq, S., Retamal, M. & Spies, B. 2014. The water impacts of climate change mitigation measures. Climatic Change, 125, 209-220.
- How electricity dispatch changes if you charge for water — (click to see publication)
I am pleased to be a part of this paper by Dr. Kelly Sanders (now professor at USC) that was part of her dissertation research at University of Texas at Austin. This is a good example of four co-authors coming together on a paper with multiple perspectives on the energy-water nexus.
Here we applied different fees (e.g., $100/ac-ft) of either water consumption or water withdrawal to see how the added cost of operation would affect the overall dispatch of electricity in Texas (specifically the Electric Reliability Council of Texas, ERCOT). The answer is that by the time you charge power plants enough money per unit of water consumption in Texas, this water fee is larger than the estimated cost of supply and conservation options that are listed in the Texas State Water Plan.
Sanders, K. T., Blackhurst, M. F., King, C. W. and Webber, M. E. 2014. The Impact of Water Use Fees on Dispatching and Water Requirements for Water-Cooled Power Plants in Texas. Environmental Science & Technology.
- Trends in Country and Global Energy Industry Own Use and Production between 1960-2010 — (click to see publication)
For this poster, Alyssa Donovan uses data from the IEA to calculate country-specific, and then a world average, “energy return on energy invested” (EROI) while considering direct energy input only. Surprisingly, this ‘direct energy input’ EROI for the world seems to have stayed near 20 for the last 20 years. Can this be the case as energy production technology has changed and become more capital intensive? We need to learn more about the underlying data quality. Alyssa presented the poster at the 37th International Association for Energy Economics conference (June 2014 in New York).
As would be expected, analyses differ on how dramatic will be the economic implications of regulating emissions from coal-fired power plants and other CO2 sources. The U.S. Chamber of Commerce press release of their recent funded report claims the EPA’s proposed rules will be economically devastating and job-killing. Others claim the EPA proposed rules are beneficial to the world overall and that the costs are less than the long term benefits. While China talks of implementing measures for CO2 reductions and the EPA is moving toward regulation, Australia’s government just voted to get rid of their previously-established CO2 tax (see Australian government and DailyCaller). While economic models continue to predict that the cost of future climate change impacts are higher than the benefits of starting mitigation measures today, politicians and voters seem to be making decisions based on the size of their pocket books today. Because the discretionary income in those pocketbooks is less than the past, voters don’t seem to want to pay for CO2.
Oil is booming in North America, but is there an oil price drop looming? This is a big question. “Cheap oil” is over. Today it takes over $80 per BBL for an oil and gas company to be economically viable in drilling for oil from U.S. shales. Some single projects might cost less (even with profits), but it is important to consider the entire cost of running the business and paying interest on debt. Many of the oil companies have been spending more on capital than they are making in revenues. However, as the years progress, companies are becoming more efficient and their initial land lease costs are becoming less of a factor over time.Will drilling and operational efficiency increase so quickly as to overcome costs of debt payments and the challenges of continuous movement to lower quality reservoirs? This is another major question of our present era. But it is important to remember the high rate of drilling into shales using hydraulic fracturing is a U.S. phenomenon (some in Canada, and perhaps in 5-10 years in Mexico). Because the U.S. is unique in private ownership of mineral rights and drilling rig count and expertise, most areas of the world might never replicate the ‘shale revolution’. Thus, the state of conventional oil reservoirs outside of North America is still a driving concern.Overall macroeconomic outlook and implications
Christine Lagarde warns against stockmarket optimism: This short article is indicative of typical statements regarding the world economy (two quotes):“There is a danger of a vicious cycle – persistently high unemployment and high debt-to-GDP ratios jeopardize investment and lower future growth,” – Christine Lagarde.[The Bank for International Settlements] “The Basel-based organisation – usually dubbed the “central banks’ central bank” – talked of a “puzzling disconnect between the markets’ buoyancy and underlying economic developments globally”.My take on current energy and macroeconomic coupling:
I believe the quotes above miss long-term cause and effect. “… persistently high unemployment and high debt-to-GDP ratios …” are not jeopardizing future growth. It is lower capacity for future economic growth,due to feedbacks from increasingly costly and constrained basic resources (food, energy, and water), that is causing the high unemployment, high debt-to-GDP ratios, and reduced population growth. All of these factors, in combination with most western central bank interest rates near < 1%/yr, are unprecedented in history. The “…disconnect between the markets’ buoyancy and underlying economic developments globally …” is not “puzzling” when you consider that those in the bottom of the income distribution can afford to buy less and less of what those in the top are selling because the bottom are spending more and more of their income on food, energy, shelter, and debt.The world resides at a balance of supply and demand for energy, particularly crude oil – where crude oil is defined as petroleum of sufficient density to be transformed into liquid transportation fuels (e.g. natural gas liquids do not qualify). Here in the U.S. if the West Texas Intermediate (WTI: North American benchmark) oil price drops below $90/BBL, it puts North American oil and gas production at risk of becoming economically insolvent. If the price stays much above $110/BBL, consumers can’t afford more consumption without increasing debt. I highly recommend watching and downloading Steven Kopits’ presentation (here) and his discussion of oil “carrying capacity” as that maximum fraction of gross world product that can be spent on oil before demand shrinks. Consumers need solutions that don’t cause them to accumulate debt (e.g., a car loan for any type of car) or pay more than $4/gallon equivalent. Natural gas and plug-in hybrid cars can work for some, but don’t work for most due to the car loan aspect.
However, debt-laden consumers are not waiting for government or car industry solutions. Small companies and young consumers are embracing the sharing economy as a response to the suite of macroeconomic headwinds that are long-term and fundamental: aging and slower-growing populations, debt at historically high levels (public and private), and “food + energy” expenditures having passed their lowest point in history 5-10 years ago. Consider that all of driving age can’t afford a car, and car owners don’t use their cars 100% of the time. Thus our “app” friends have created ways to use our cars as taxis (Ridejoy, Lyft, Carma Carpooling, Uber, and SideCar) as well as temporarily borrow cars (Car2Go, Zipcar) for town errands of hours, not days. These are all responses of efficiency to constraints on energy resources and will be as significant a solution to our mobility challenges as will new car fuel efficiency and improvements fuel production technologies (both petroleum extraction and alternative fuels).