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Carey King Research Newsletter - December 2015
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 abstracts 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.
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Thank you very much for your time. As always, please contact me for more information about how you can be involved in and contribute to my research program and student researchers (they need food!).
Sincerely,
Carey W. King, Ph.D.
Assistant Director, Energy Institute, The University of Texas at Austin
careyking@mail.utexas.edu, 512.471.5468, careyking.com, @CareyWKing
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My research takes 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.
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SUPPLEMENTAL INFORMATION: Excel file with calculations, and  PDF with explanation of methods.
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.
1. 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).
Abstract: We translate between biophysical and economic metrics that characterize the role of energy in the economy. Specifically, using data from the International Energy Agency, we estimate the energy intensity ratio (EIR), a price-based proxy for a power return ratio (PRR ~ P_out/P_invested). The EIR is a useful metric, because for most countries and energy commodities, it can indicate the biophysical trends of net energy when data are too scarce to perform an original net energy analysis. We calculate EIR for natural gas, coal, petroleum and electricity for forty-four countries from 1978 to 2010. Global EIR values generally rise from 1978 to 1998, decline from 1998 to 2008 and then slightly rebound. These trends indicate one interpretation of the net energy of the world economy. To add perspective to our recent, but short, time series, we perform the same calculations for historical England and United Kingdom energy prices to demonstrate that a given energy price translates to different PRRs (EIR in this case) depending on the structure of the economy and technology. We review the formulation of PRRs and energy return ratios (ERR ~ E_out/E_invested) to indicate why PRRs translate to (the inverse of) energy prices and ERRs translate to (the inverse of) energy costs. We show why for any given value of an ERR or PRR, there is not a single corresponding energy cost or price, and vice versa. These principles in turn provide the basis to perform better modeling of future energy scenarios (e.g., low-carbon transition) by considering the relationship between economic metrics (cost and price) and biophysical metrics (energy and power return ratios) based on energy, material and power flows.
2. 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).
Abstract: We translate between energetic and economic metrics that characterize the role of energy in the economy. Specifically, we estimate monetary expenditures for primary energy and net external power ratio (NEPR "direct"), a power return ratio of annual energy production divided by annual direct energy inputs within the energy industry. We estimate these on an annualized basis for forty-four countries from 1978 to 2010. Expressed as a fraction of gross domestic product (GDP), the forty-four country aggregate (composing >90% world GDP) worldwide expenditures on energy decreased from a maximum of 10.3% in 1979 to a minimum of 3.0% in 1998 before increasing to a second peak of 8.1% in 2008. While the global energy expenditures divided by GDP fluctuates significantly, global NEPR "direct" declined from a value of 34 in 1980 to 17 in 1986 before staying in a range between 14 and 16 from 1991 to 2010. In comparing both of these metrics as ratios of power output over power input, one economic (inverse of energy expenditures divided by GDP) and one biophysical (NEPR "direct"), we see that when the former divided by the latter is below unity, the world was in a low-growth or recessionary state.
Abstract: I use energy cost share to characterize the role of energy in the economy. Specifically, I use an estimate of monetary expenditures for primary energy on an annualized basis for forty-four countries from 1978 to 2010 for natural gas, coal, petroleum, and electricity. I show that global energy cost share is significantly correlated to a one-year lag in the change in gross domestic product as well as measures of total factor productivity. Given the historical reduction in the relative cost of energy (including food and fodder for animate power) since the start of the Industrial Revolution, combined with a global energy cost share estimate, I conclude that the turn of the 21st Century represents the time period with the cheapest energy in the history of human civilization (to date). This potential historical nadir for energy expenditures around 2000 has important ramifications for strategies to solve future social, economic, and environmental problems such as reducing annual emissions of greenhouse gases (GHGs). Rapidly decreasing annual GHG emissions while internalizing their costs into the economy might feedback to increase energy expenditures to such a degree as to prevent economic growth during that transition.
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