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In 2019, the 331 million people living within the United States spent an estimated $1.2 trillion to meet their combined needs for an array of energy services (EIA 2020). That is equivalent to an economy-wide per capita energy bill of about $3,600 per person per year (using 2019 constant dollars).
The many payments that were made each day, or each month, for energy services enabled U.S. residents to cool and light their homes, drive to work, listen to music, or watch television. For some, the payments simply provided the means to maintain a comfortable home. For others, the disbursements powered their many business enterprises.
Purchases of electricity enabled access to the Internet, as well as filtering and purifying the water that was delivered to local homes, schools, and businesses each and every day. In short, the variety of energy services impacted almost every element of our social and economic well-being.
Yes, But…
Although, yes, the U.S. economy derives important benefits from the use of the many different forms of energy resources, the inefficient use of all forms of energy also creates an array of costs and constraints that burden our economy. As one critical example, the incomplete combustion of fossil fuels releases massive amounts of pollutants into the air.
The current mix of energy resources used to support worldwide economic activity will also result in more $100 billion of health and environmental damages annually within the United States (Harvey 2016). According to the Energy Information Administration the nation’s energy consumption also dumped 5.1 billion tons energy-related carbon dioxide into the atmosphere last year alone (EIA 2020). This contributes to an acceleration of global climate change.
In addition, a 2014 report, published by the International Energy Agency (IEA), noted that the inefficient use of energy imposes an array of costs which can weaken or constrain job creation and the development of a more robust economy (Campbell, Ryan et al. 2014).
The U.S. Economy Not Especially Energy Efficient
As detailed in a variety of other recent studies, it turns out that both the U.S. and the global economy may only be 16 percent energy-efficient (Laitner 2019, based on Ayres and Warr 2009, Laitner 2015, and Voudouris and Ayres et al. 2015; see also, Blok et al. 2015). Said differently, of all the high-quality energy resources consumed within both the U.S. and international markets, an estimated 84 percent of that energy is wasted as it is consumed.
Research by economist Robert Ayres and his colleague Benjamin Warr (2009) documented that improvements in both the quality and efficiency of delivered energy services may be the critical factor in the well-being of an economy. They further suggest that a greater level of what we might call energy productivity, aggregate energy efficiency, or simply “aggregate efficiency,” may be one of the primary drivers that supports meaningful social and technological progress.
Understanding the Critical Links
Figure 1, that follows, highlights the central and critical role of energy productivity or aggregate efficiency as it supports or drives greater per capita incomes within the United States. Long-story short? There is a critical link between higher levels of aggregate efficiency as it enables a reasonable improvement in real per capita income over time. As we look at the data in the Figure below, we can see the straightforward positive connection between aggregate efficiency (i.e., energy productivity as it is further defined).
In 1950 the consumption of one million Btus of total energy supported only $63 of economic activity (or GDP expressed in constant 2012 dollars).1 That scale of productivity enabled an average income of about $10,700 in 1950 (also expressed in 2012 dollars). While the economic transition that followed World War II displayed an uneven improvement (though still a relatively tight pattern in those years); in the 1980s a lock-step relationship emerged.
By 2019 one million Btus of energy buttressed an economic activity so that it supported both $190 of GDP, together with an average income of nearly $46,000 per year. While the improvement is a highly positive outcome, the bad news—as we have already hinted about—is that the rate of improvement for both income and energy productivity appears to be declining.
As measured here, aggregate efficiency (i.e., again “energy productivity”) is a function of three key elements. The first is the familiar energy efficiency improvements at the end-use level. By this we mean more efficient household or business lighting, more efficient heating and air-conditioning systems as well as the more energy-efficient appliances and equipment within our homes and businesses. It also includes the more efficient use of heat and electricity within our industrial processes. And it means greater fuel economies in our vehicle stock. The latter include not only cars and trucks but also buses, trains, airplanes and shipping.
A second category of aggregate efficiency is greatly improving the efficiency of electricity generation. The current generation of electric power plants as well as the transmission and distribution system within the U.S. is only about 35 percent efficient. That is, for every single kilowatt-hour (kWh) of electricity delivered to our homes and businesses, the electric utility industry requires the energy of about 2.9 kWh (of heat equivalent) to generate and deliver that electricity to end-users. What our nation wastes just in the production and distribution of electricity is more than Japan uses to power its entire economy (EIA 2020).
The solution in this second case? We can move toward the much greater deployment of renewable energy systems. The reason? Renewable energies can transform the ratio of primary energy needs from a needlessly high level of 2.9 to a much lower and much more productive index closer to 1.0. That move alone could eliminate the need for more than 23 quadrillion Btus of energy (or Quad),2 or on average, about 23 percent of both current and future energy requirements through the year 2040. In effect, the transition to renewable energy systems opens up a critical energy productive pathway.
The last element of these three variables is the more productive use of capital, materials, chemicals and water. By reducing the aggregate of wastes in all of those categories, we can further reduce the energy necessary to transform such resources into the desired goods and services and distribute them in ways that support our social and economic well-being.
Adding up all of these three elements—(i) greater end-use energy efficiency, (ii) the bigger deployment of renewables; and finally, (iii) the full reduction of waste in the use of all other resources—can greatly lower total energy needs even as the nation’s economy can become a more robust and more sustainable social enterprise in the decades ahead. In other words, the elimination of waste of all kinds would amplify our aggregate efficiency that, in turn, can drive up the potential for an even greater levels of job opportunities and average personal income. The question is whether we have the will and the resolve to get it done!
References
Ayres, Robert U. and Benjamin Warr. 2009. The Economic Growth Engine: How Energy and Work Drive Material Prosperity. Northampton, MA, Edward Elgar Publishing, Inc. https://www.e-elgar.com/shop/the-economic-growth-engine?
Blok, Kornelis, Paul Hofheinz, John Kerkhoven et al. 2015. The 2015 Energy Productivity and Economic Prosperity Index: How Efficiency Will Drive Growth, Create Jobs and Spread Wellbeing Throughout Society. Utrecht, Netherlands: Ecofys Group, also The Lisbon Council, and Quintel Intelligence B.V. https://www.ecofys.com/files/files/the-2015-energy-productivity-and-economic-prosperity-index.pdf
Bureau of Economic Analysis (BEA). 2019. BEA Data. A variety of tables. Washington, DC: U.S. Department of Commerce. https://www.bea.gov/data/
Campbell, Nancy, Lisa Ryan, et al. 2014. Capturing the Multiple Benefits of Energy Efficiency. Paris, France, International Energy Agency. https://webstore.iea.org/download/direct/375
There is neither a law of physics nor economics that prevents us from quadrupling the productive use of energy and other resources. Rather, it is much more an issue of imagination and our political will to get it done.
– John A. “Skip” Laitner