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This week, a guest post of sorts. Over on the Oil Drum or OurFiniteWorld.com, Gail Tverberg, an actual actuary, has compiled a terrific overview of the question of energy use and GDP growth, all in service of debunking the idea popular with some environmentalists that economic growth can be decoupled from energy use, or at least from cheap energy (which means fossil fuel energy). Gail writes:

In recent years, we have heard statements indicating that it is possible to decouple GDP growth from energy growth. I have been looking at the relationship between world GDP and world energy use and am becoming increasingly skeptical that such a decoupling is really possible.

She offers several charts of the energy-GDP trends in different countries and regions, but I include here only her global chart:

Her conclusion tracks closely with mine:

If GDP growth and energy use are closely tied, it will be even more difficult to meet CO2 emission goals than most have expected. Without huge efficiency savings, a reduction in emissions (say, 80 percent by 2050) is likely to require a similar percentage reduction in world GDP. Because of the huge disparity in real GDP between the developed nations and the developing nations, the majority of this GDP reduction would likely need to come from developed nations. It is difficult to see this happening without economic collapse.

Only an actuary could make the droll understatement of the last sentence here. Her entire post on this is well worth reading.

I have no idea if the data in Figure 1, purporting to display the correlation between the quality of rock and roll music and domestic oil production, is accurate or not. I didn’t even sleep in a Holiday Inn last night to get this chart; I merely found it on Facebook. Therefore, it must be true.

Figure 1: A Typically Spurious Correlation
Source: Journal of Irreproducible Results Facebook

But Figure 1 is no more misleading than a superficial reading of the famous “Rosenfeld Curve,” shown in Figure 2, which displays the long-term trend of per capita electricity consumption in California and the United States. Energy conservation advocates have long pointed to flatness of the California curve (named for Arthur Rosenfeld, a long-time member of the California Energy Commission) as proof of the success and enlightenment of California’s energy policies set in motion the last time Jerry Brown was in the governor’s mansion (oh, wait—he sold the governor’s mansion and slept on the floor of an apartment—never mind). Today, Californians consume 40 percent less electricity than the national average. Therefore, energy conservationists insist that California’s approach will produce similar results if adopted elsewhere.

Figure 2: California v. U.S. Per Capita Electricity Consumption, 1960 – 2004
Source: California Energy Commission

However, a 2008 study by Anant Sudarshan and James Sweeney of Stanford University, Deconstructing the Rosenfeld Curve, carefully dissects California’s energy consumption and concludes that only about 23 percent of the difference between California and national per capital electricity consumption can be attributed to California’s energy conservation measures. Differences in climate (such as less winter heating and summer air conditioning in California because of its mild climate) and changes in its industrial structure (that is, a significant decline in energy intensive industry) account for most of the difference.

In other words, it is doubtful that California’s specific conservation policies would deliver similar results in other states without either raising prices to suppress consumption, or lowering economic activity by suppressing energy intensive industries.

The Los Angeles Times yesterday reported that American motorists may spend a record $491 billion for gasoline this year, reflecting the high price of gasoline. Meanwhile, the Department of Energy reported the dog-bites-man story that sales of refrigerators are down on account of the poor economy—something they might have grasped if they’d read last week’s Energy Fact of the Week. Since new refrigerators are generally more energy efficient than the fridges they replace, this implies a slowdown in the long-term trend of improving household energy efficiency.

The gasoline sales projection is an estimate from proprietary sources by an analyst with the Oil Price Information Service. And one relevant question is: what does that $491 billion figure mean in terms of its share of household income, and what has the long-term trend been over time? The Department of Energy’s data series on gasoline expenditures is surprisingly out of date; the most recent data release is from 2001. However, it is possible to see the long-term trends from data reported in the Census Bureau’s Consumer Expenditure Survey, which reports annual data from 1984 through 2009.

Figure 1 below shows that consumer expenditures for gasoline and motor oil as a percentage of average after-tax income fell steadily from about 5 percent at the beginning of the survey in 1984 to a low of 2.6 percent in 1999 (when gasoline prices dipped below $1 a gallon in many places in the United States). However, the slow rise in oil prices has pushed the figure back up to 4.4 percent in 2008—its highest level since 1985. After dipping in 2009, the 2010 and 2011 figure is likely to spike back up again when the full year’s data is reported.

The Department of Energy released its greenhouse gas emissions data in July, and it shows that energy-related carbon dioxide (CO2) emissions rose by 213 million tons in 2010, after falling by nearly 500 million tons (or almost 9 percent) in the steep recession year of 2009. (See Figure 1.) The rise in CO2 emissions in 2010 represents a 3.9 percent increase. But hold on a moment: the economy didn’t grow by 3.9 percent in 2010—it only grew by 3 percent in real terms—which means that we lost ground on carbon-intensity last year. For most of the last decade, the economy grew faster than energy use, which meant that we were steadily improving our carbon intensity.

There’s a broader lesson here, shown in Figure 2 below, which shows the amount of energy generated from burning wood in the United States from 1900 to 1970, when the government discontinued the data series because the only people still getting energy from wood were the wood stoves in Vermont and such. (Amazingly, at the turn of the last century, the United States got nearly one-third of its energy from burning wood—over 5 billion cubic feet of wood a year in 1900. Who knew that moving to oil, gas, and coal actually saved forests.) What is especially notable about Figure 2 is the upward kink in the long-term trend, which coincides with the Great Depression. There’s no trick to understanding this: investment in technology and efficiency upgrades slow way down when the economy is bad. Economic growth turns out to be the precondition of energy efficiency improvements.

Germany was known for decades after World War II as the home of Europe’s “economic miracle,” which was largely the result of economic minister Ludwig Erhard’s decision to move rapidly to decontrolled markets in the late 1940s. Germany could use Erhard again as its energy minister just now, as Germany’s heavy-handed intervention into its energy market is playing havoc.

When I visited Germany in the fall of 2008 on an energy junket as a guest of the German government, just about everyone I met said that the Merkel government was going to have to reverse the commitment of the previous left-leaning coalition government to phase out Germany’s nuclear power by the year 2020 if it was to have any chance of meeting the European Union’s greenhouse gas emission reduction targets. (The nuke phase-out had been the main condition of the coalition partner Green Party in the previous government—another object lesson in why proportional representation is a bad idea. But that’s a seminar for another day.)

But in the aftermath of Japan’s Fukushima nuclear power plant meltdown, the Merkel government has caved on nuclear power, even though no German nuclear plants are vulnerable to tsunamis, and announced that Germany will go through with the phase out of its nuclear plants by 2022. As of 2010, nuclear power contributed 10 percent of Germany’s total energy consumption, and over 22 percent of its electricity. (See Figure 1 below.)

Figure 1: Primary Energy Supply in Germany, 2010

In May the International Energy Agency estimated that the phase out decision would add at least 25 million tons of CO2 to Germany’s greenhouse gas emissions, though this may prove an underestimate if Germany prolongs or expands the use of coal-fired power plants to fill the gap, as is likely. Last week Germany’s economics ministry released a study that estimated that the cost of the nuclear phase out in lost jobs and higher energy prices and carbon emissions permit fees (since Germany is part of the European carbon trading scheme) will be about $46 billion.

But wait—Germany has been a smashing success at renewable energy hasn’t it? They are the world’s leading producer of solar power, accounting for 43 percent of the world’s total installed base. The growth numbers are astounding: between 2000 and 2010, according to the latest BP Statistical Review of World Energy, Germany’s wind power capacity grew 516 percent, and its solar power capacity by 22,689 percent! Figure 2 below displays the growth of solar power in Germany during this time period. Wow!

Figure 2: Growth of Solar Photovoltaics in Germany, 2000 – 2010

Of course, solar power, which Germany has heavily subsidized, started from almost nothing in 2000, so this is a misleading numbers game. After all of this effort, solar power accounts for only 1.1 percent of Germany’s total electricity supply, and supplied only 5 percent as much electricity as its nuclear power plants. Figure 3 shows that for all of the effort and subsidies Germany has put behind wind and solar power, they still both account for a fraction of the power output of nuclear power in 2010.

Figure 3: Wind, Solar, and Nuclear Capacity in Germany, 2010

To make up for the lost nuclear power, solar capacity would have to grow more than 20-fold from its current level, but Germany is already cutting back on solar subsidies because it cannot afford it. This is the main reason the Institute of Energy Economics at Cologne University estimates that most of the lost nuclear electricity will be made up gas-fired power, and supply from other countries (ironically, some of it nuclear if it is purchased from France, Switzerland, or Belgium).

Source: BP Statistical Review of World Energy 2011

Everyone likes to talk about “energy security,” or its even more poll-pleasing but less sensible cousin, “energy independence,” but few ever bother to define energy security with any tolerable degree of exactness, let alone measure it in a meaningful way. The U.S. Chamber of Commerce’s Institute for 21st Century Energy has stepped up, and just released the second iteration of its Index of U.S. Energy Security Risk.

The Index comprises 37 different metrics grouped into four primary areas: geopolitical, economic, reliability, and environmental. The Index also has the virtue of backtesting is metrics all the way back to 1970, which could be said to be the beginning of the modern era of serial energy “crises” with the first Persian Gulf oil disruption starting in 1973. There’s also a neat interactive tool under development that you will be able to use to examine how changes in market conditions or policy might affect the different measures.

But the overall composite Index chose 1980 as the benchmark year to peg at 100; 1980 was shortly after the Iranian revolution, soaring oil prices, and the Soviet invasion of Afghanistan had the United States and its allies at the point of maximum anxiety about the global energy scene. The Index also tries to forecast out to 2035, but this kind of forecasting can’t really be done very well because it is impossible to predict this many variables, and as such the forecasts are typically flatlines of the present level.

The composite index number for overall energy security in 2010 was 98.0, up from 91.5 in 2009 (see Figure 1).  The 2009 figure reflected chiefly the drop in energy demand on account of the global economic slowdown.

Any index with this many variables is susceptible to a variety of methodological criticisms, especially that even big changes in one or two key variables will not move the overall index by a large amount. But the various sub-indexes in this package deal with this problem elegantly. While most people think that the largest component of energy security concerns the uncertainty of oil imports from the Persian Gulf (and the Index has some good metrics for this), one important factor that emerges from the data is that the status of our electricity supply—a wholly domestic factor—is showing greater signs of vulnerability than our oil numbers, resulting in an energy reliability sub-index score of 111, an all-time high (see Figure 4 on page 17 of the report, reproduced below). We’re not paying enough attention to the electricity gird, or to electricity reserve supply margins.

Source: U.S. Chamber of Commerce, Institute for 21st Century Energy Index of Energy Security, 2011 Edition.