Energy Efficiency Continues to be a Major Force in the Economy

An Economist Takes a Look...
Energy Efficiency Continues to be a Major Force in the Economy

According to an economist from the Environmental Protection Agency, hidden within the June 2005 Short Term Energy Outlook from the Energy Information Administration are data suggesting that gains in energy efficiency continue to power much of the nation's economy over the past decade or so ⁽¹⁾.

Source: John A. Laitner, Senior Economist for Technology Policy, EPA Office of Atmospheric Programs Sustainability Symposium, 2005 AAAS Annual Meeting, Washington, DC, February 21, 2005

The combination of capital-deepening and the influence of the Internet or information economy — with their impacts generally converging about 1996 — has accelerated the rate of decline in energy intensity well beyond historical trends, and well beyond the influence of energy prices alone.

In the period 1996 through mid-year 2005, the annual rate of decline in the nation’s energy intensity averaged 2.1 percent. This is significantly above the historical average of 1.3 percent over the period 1949-2005 and well above the lackluster 0.8 percent rate of decline in the low energy price years of 1986 through 1996. Indeed, over the period 1996 through mid-2005, the data suggest that efficiency improvements have provided about 78 percent of new demands for energy services since 1996 while new energy supplies have provided only 22 percent ⁽²⁾.

In other words, energy efficiency – broadly speaking – has provided more than three times the level of new energy services than has new energy supply. The good news is that new innovations and new technologies are continually entering the market which can maintain that trend. Moreover, the evidence suggests that new innovations are capable of sustaining this rate of energy efficiency improvements for the foreseeable future ⁽³⁾. The bad news is the uncertainty of current policy signals and whether they will catalyze or hinder the flow of goods and services toward continued or even accelerated efficiency gains.

Notes:

For purposes of this review, efficiency means the changes in the nation's energy intensity (measured as the number of Btus per constant dollar of economic activity -- measured here as Gross Domestic Product in 2000 dollars). Some of the reduction in energy intensity is the result of structural change (i.e., moving away from a manufacturing to a service-based economy) while some of the reduction is due to actual efficiency improvements (or the reduction in the specific energy use per unit of comparable economic activity).
This estimate is based on a simplified worksheet using data from the June 2005 Short Term Energy Outlook.
Laitner, John A. and Marilyn Brown, 2005. “Emerging Industrial Innovations to Create New Energy Efficient Technologies.” Proceedings of the 2005 ACEEE Summer Studies on Energy Efficiency in Industry, American Council for an Energy-Efficient Economy, Washington, DC (forthcoming).