Hey, Energy, We’re Kind Of Over You
(Bloomberg Opinion) -- People around the world used less energy in 2020 than in 2019 — maybe 5% less. This decline was of course due mainly to a deadly pandemic that had billions of us hiding out at home in late winter and early spring, and continues to restrict mobility and economic activity even now. Let’s hope that doesn’t become a regular occurrence!
But in a lot of affluent nations, the 2020 drop, while anomalously large, was not exactly a change in direction. In the U.S., for example, energy consumption appears to have more or less stopped rising 20 years ago.
This measure as calculated by the Energy Information Administration represents all energy used in the U.S., whether delivered as electricity, gasoline in the tank, natural gas in the furnace or otherwise; eliminates double-counting; and includes losses from conversion and transmission. If the EIA’s recent forecast of 92.5 quadrillion British thermal units of energy used in 2020 is close to correct (the data will be available in a couple of months), that would be the lowest total since 1995. Divide by population, and it’s the lowest since 1965.
Again, 2020 was super-weird. But per-capita energy consumption in less-weird 2017 was the lowest since 1967. There was an uptick in 2018 that seemed like it might be a harbinger of a return to growth in energy use (and greenhouse-gas emissions), but then consumption fell again in 2019. The U.S. is simply able to get by on significantly less energy per person than it used to — 22% less if you compare the 2020 estimate to the 1978-1979 peak, 10% less if you compare the 2010s to the 1990s.
This fact is little-enough known among otherwise well-informed people that pointing it out seems worthwhile in itself. But it does of course also raise questions about why it happened and whether this plateau in U.S. energy use and decline in per-capita consumption can be expected to continue.
One interesting place to start with attempting to answer these questions is the EIA’s 1979 Annual Report to Congress, in which the agency forecast in its mid-range scenario that U.S. primary energy consumption would add up to 133.6 quadrillion BTUs in 2020, 44% more than the likely actual amount.
The biggest contributor to the gap between the energy consumption forecast in 1979 and eventual reality was industrial use, which was expected to double from the forecast’s base year of 1978 but instead ended up in almost exactly the same place (23.1 quadrillion BTUs versus 23.2) in 2019.
Residential energy use, which was expected to stay about the same, instead fell 15% from the forecast’s base year of 1978 through 2019. Commercial use, expected to rise 26%, rose 11%. Transportation use surprised in the other direction, with a 16% increase in the forecast and a 38% increase in reality. More on those in a moment, but first let’s examine the unexpected stagnation in industrial energy use.
Real U.S. industrial production as measured by the Federal Reserve has doubled since the late 1970s, so one driver is that U.S. industry has become much more energy-efficient. For example, more-efficient electric-arc furnaces accounted for 68% of U.S. steel production in 2019, according to the World Steel Assocation, up from 24% in 1978. Before the 1973 oil crisis, energy was cheap in the U.S. and efficiency a low priority. Since then, manufacturers have paid a lot more attention to it.
That’s clearly not the only thing that’s been going on, though. The U.S. produced 29% fewer tons of steel overall in 2019 than in 1978, and the doubling in real industrial production is in part the statistical side effect of huge quality improvements in computers and semiconductors (the same number of chips is counted as an increase in real output because each can do so much more). A positive spin is that economic value is shifting into less-energy-intense high-tech goods, but the U.S. also just makes less and imports more of a lot of things than it used to, in the process exporting some of its industrial energy use to other countries. Industrial energy use did rise some during the modest U.S. manufacturing revival of the past decade, though, and my guess is that it will continue to do so for the near future at least.
The decline in residential energy use and slow rise in commercial use, on the other hand, really are mostly about efficiency. The U.S. population is about 50% higher than in was in 1978, and services employment is up 113%. But households and businesses now use much less energy per individual or per worker because appliances are more efficient, houses and office buildings are constructed with energy conservation in mind, and LED lightbulbs use far less electricity than the incandescent ones they have been replacing.
The big shift in U.S. population from the cold climes of the Midwest and Northeast to the mostly warmer ones of the South and West has reduced energy use as well because air conditioners and heat pumps are more energy-efficient than furnaces; plus, the reduction in temperature needed to make a house or workplace in Phoenix comfortable when it’s 100 degrees out is a lot less than the increase needed in Minneapolis when it’s 20 below. For similar reasons, climate change may be reducing residential and commercial energy use in the U.S. even as it probably leads to greater consumption worldwide.
All these trends seem likely to continue, meaning that commercial and residential energy consumption likely won’t change all that much in the near future, with slowing population growth possibly putting additional downward pressure on both.
Then there’s transportation. Back in 1979, the forecasters at the EIA didn’t think its energy needs would rise much because cars would get so much more efficient. “The efficiency for the fleet average increases from 13.8 miles per gallon in 1975 to 25 mpg in 2000 and 37.0 mpg in 2020,” they wrote.
The actual average fuel efficiency of U.S. cars and light trucks turned out to be 20 mpg in 2000 and 22.2 as of 2019. Even brand-new model-year 2020 cars only have an average “real world” fuel efficiency of 31.4 mpg, according to the Environmental Protection Agency. Factor in the growing market share — more than two-thirds in 2019 — of less-fuel-efficient light trucks (pickups and larger sport-utility vehicles) and the longer lifespan of vehicles, and it’s easy to see why average fuel efficiency hasn’t budged much.
A potential huge shift on the horizon is the rise of electric vehicles, which convert more than 77% of the electrical energy they get from the grid into power at the wheels, while internal-combustion engines convert only 12% to 30% of the energy stored in gasoline. The EIA’s most recent Annual Energy Outlook, which predates the pandemic-induced downturn in energy use (a new one is due Feb. 3), forecasts an 11% market share for fully electric cars and light trucks in 2050, up from 2% in 2019. As a result, it foresees a modest decline in transportation energy use over the next 30 years and a 0.3% annualized increase in U.S. energy consumption overall, driven mainly by industry, with per-capita energy use continuing to decline.
That’s far from the only plausible scenario. BloombergNEF forecasts a tipping point in the coming decade after which electric vehicles become much cheaper to own and operate than those powered by gasoline or diesel, with electrics accounting for more than 60% of new U.S. passenger vehicle sales by 2040. If that happens, U.S. energy use would surely drop.
The U.S. is not alone in the world, and global energy demand and the trajectory of climate change are increasingly being determined by countries such as China and India, where per-capita energy use is still very much on the upswing. But after two centuries during which increased energy consumption enabled by fossil fuels drove economic growth, the fact that in the 21st century the U.S. and other rich countries seem to have unlinked the two does seem important. “Modernity is two things: individualism and oil,” then-California Governor Jerry Brown quipped at the Paris climate summit in 2015. “That’s who we are.” Maybe not for all that much longer.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Justin Fox is a Bloomberg Opinion columnist covering business. He was the editorial director of Harvard Business Review and wrote for Time, Fortune and American Banker. He is the author of “The Myth of the Rational Market.”
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