Enerconomy

A healthy economy is commonly viewed as a pivotal factor when it comes to alleviating poverty and building a prosperous country. In that respect, the Gross Domestic Product (GDP) of a country is an insightful indicator of the amount of wealth possessed by its population. Generally speaking, we consider that the bigger the GDP (and the GDP per capita), the better.

Classic economic theory assumes that production (of which GDP is an indicator) is only a function of labour and capital [1] and the energy sector is simply considered as a category that contributes to the GDP just as mining and construction. It is estimated that the energy sector weights about 8% of the global GDP (most of the energy expenditure coming from hydrocarbons) [2]. The energy cost-share of 8% is sufficient to reflect its relative importance to the economy according to the cost-share theorem. Hence, compared to the service sector that weights 63% of the global GDP [3], energy should not be that important to the world economy.

Economy is transformation, transformation is energy

Unfortunately, this rationale is highly simplistic and it conceals the cross-cutting role that energy has in our economy. Saying that energy is not very important in the economy because it represents only 8% of the GDP is similar to saying that our brain is not very important because it represents only a few percents of our body weight. Since resource scarcity and sustainability has become a growing concern (partly after the oil shocks and the release of the 1972 “Limits to Growth”), we pay closer attention to the role of energy and resources in the economy [1, 4-6].

All business transactions that contribute to building up the world GDP come as a result of energy use and the work of machines. The steak that we order at the restaurant has been cut, wrapped and transported by machines. We directly or indirectly pay to communicate with devices powered by electricity. Nowadays, our jobs consist in giving orders to machines that consume energy: truck drivers give orders to a vehicle, office employees use computers, consultants use laptops to write their reports and transport systems to visit clients, and worker press buttons in factories to produce material goods. Some may argue that our activities are becoming increasingly dematerialised because of the Internet and the digital revolution. Still, this revolution relies heavily on energy: world data centres which are the physical reality of the “cloud” consume about 416 TWh of electricity per year (60% more than the Australian electricity consumption) [7, 8]. The manufacture of a 21-inch laptop emits about 500 kgCO2e which is equivalent to driving about 2,000 km with a standard-size car [9].

The global economy is an enormous machine that transforms natural resources into things that have more value to us. Since the economy is about transformation and transformation is a matter of energy, the size of the global economy should be measurable in kWh or mtoe (million tonnes of oil equivalent). Indeed, the relation between world GDP and energy consumption between 1965 and 2017 is very close to a straight line as per the figure below [8, 10]:

More specifically, oil is the first form of energy we consume (representing one-third of our primary energy consumption) [8]. It is also the form of energy almost exclusively used for transportation which is at the root of all the physical flows in the economy (94% of the energy demand for transports is oil) [11]. As a result, the correlation between the world GDP and the global oil consumption before and after the oil shocks is very strong as per the graph below [8, 10].

The effect of the two oil shocks of the 1970s on the global economy was to use oil more efficiently to create a dollar of GDP as per the graph below:

And without fossil fuels?

To power our economy, we consume on average about 20,000 kWh of primary energy per person and per year of which 85% come from fossil fuels (see the article “Energy and us”). In comparison, it takes only 0.0002725 kWh of mechanical energy to elevate a mass of 100 kg over 1 m. If we had to squat this mass with our legs (the most powerful muscle of our body) to restore as much as 20,000 kWh of energy per year, we would have to do about 200,000 squats with 100 kg per day!

Ellio Mari

Energy Researcher at Sustainable Energy Network Solutions