Policy Papers


Facing the challenge of climate change: energy efficiency and energy consumption

Paul Warde |

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Executive Summary

  • New work on energy history can set the policy ambitions of governments in tackling climate change in a wider context, by examining previous trends in energy efficiency and energy consumption.
  • The gains in energy efficiency targeted by governments as a key strategy have been quite normal for many periods since the 1880s, yet in absolute terms energy consumption has continued to expand.
  • Indeed expansion in energy consumption has accompanied all periods of economic growth since the 16th century.
  • A key long-term trend is that energy has become relatively cheaper compared to labour, increasing the incentive to consume energy. There is no indication that this trend will alter.
  • Energy prices would have to be raised very significantly to alter the trend towards ever-higher consumption, especially as forms of energy consumption are increasingly structural aspects of our built environment.
  • Substituting renewable sources of energy for fossil fuels would entail a growth in their use of quite unprecedented proportions and require major policy initiatives.
  • The historical evidence therefore suggests that targets for mitigating climate change are unlikely to be met without direct restrictions on the use of energy.

Introduction

Until very recently, concerns about sustainability focused on the potential for the population to outstrip the resources available. The threat of global warming has inverted this problem: our focus is now on the plenitude of resources and the danger that the emission of waste products from their consumption will cause environmental change on a global scale. Population growth remains part of the story of course: the UN projects that in 2050 there will be half again as many people on the planet as there are now. Moreover, sufficient amounts of fossil fuels exist for them to be supplied with energy at a far higher per capita rate than today.

Early in 2007 the Intergovernmental Panel on Climate Change (IPCC) stated that global average surface warming following the expected minimum doubling of carbon-dioxide concentrations since pre-industrial times 'is likely to be in the range 2 to 4.5°C with a best estimate of about 3°C, and is very unlikely to be less than 1.5°C. Values substantially higher than 4.5°C cannot be excluded'. However, the IPCC conclusions, as might be expected from consensus-building among a large number of people, are quite conservative. This warming is primarily caused by human action and the rate of change caused by humans has been fastest in the last decade. The estimates are based on the expectation of carbon-dioxide concentrations in the atmosphere rising to 500 ppm, but stocks of hydrocarbons currently profitable to exploit would be sufficient to raise concentrations to 750 ppm, and future price rises and prospecting could be expected to raise this total further. As a result, these kinds of figures are prompting both national and international bodies into some action, the main aim of which is to stabilize CO2 concentrations at roughly the level that would lead to the most likely scenario of a 3°C warming by around 2100.

Although there are other causes of global warming, the main forcing agent is our energy consumption and the subsequent waste emissions. This is unfortunate, because increases in energy consumption have been a central - and perhaps the primary - driver of economic growth in the past two centuries. Thus the central question for contemporary sustainability is whether economic growth can be decoupled from greenhouse gas emissions. The crucial variable in relation to this question is the carbon-intensity of economic activity. Carbon-intensity is in turn a function of the 'energy intensity', that is, how much energy we require to produce each unit of economic value - whether measured in pounds, dollars or euros. A small amount of energy consumption is derived from renewable sources such as wind and biofuels. Equally, the combustion of different fossil fuels such as coal (the energy source whose use is most rapidly rising) and gas emits different amounts of greenhouse gases, the latter being considerably cleaner. Gas combustion nevertheless adds to greenhouse gases, and fossil fuels account for the great majority of the world's energy consumption.

Currently, world energy demand is predicted to rise by 60% by 2030. Yet to limit global warming to, say, 2°C above the pre-industrial level, we would have to cut off the peak of emissions around 2025, and in the subsequent 25 years reduce emissions to between 15% and 50% of their 1990 levels. At the moment, we have two basic policy goals that would help to limit the extent of global warming: either to reduce our energy consumption, or to shift the basis of our energy supply away from fossil fuels and towards renewables, or both.

Energy history and the dynamic of economic growth

The level of energy consumption is basically a function of the structure of the economy. Structural economic change is usually a very long-term phenomenon. This means we may have much to learn from energy history about the prospects for our own sustainability. Indeed, previous centuries have witnessed major changes in the energy basis of the economy, some of which have been related to the kinds of efficiency and behavioural changes that government is promoting today. A historical perspective can therefore bring some insight into the likelihood of success and the probable feedback effects of particular changes in energy use.

The biggest change in energy history came with the Industrial Revolution. Previously, the world depended upon what Tony Wrigley has called the 'organic economy': that is, virtually its only energy source was solar radiation converted into energy useful to humans by the process of photosynthesis in plants. Thus human society was subject to a 'photosynthetic constraint', based on the efficiency by which plants undertook this process, and in turn the efficiency with which we used plants. Examination of western European economies suggests that none could really get by with under 10 gigajoules per person per year from this process, and on an organic basis it was pretty well impossible to breach a consumption level of 20 gigajoules per person per year. It was possible to intensify energy production a little bit, but basically to expand the economy, you needed to expand the territory exploited, and economic growth was spatially very diffuse.

The use of fossil fuels changed all this. Of course, fossil fuels are also the products of photosynthesis, but instead of tapping into the annual flow of solar radiation via plant matter, we can instead rapidly use the product of millions of years of previous solar input to the planet. Because the connection between territory and energy consumption is broken, much greater levels of urbanisation and concentration of economic activity can occur: we have the modern world. Per capita energy consumption in most countries in Europe is about ten times higher than it was under the 'organic economy', that is, around 200 gigajoules per person per year. As the European population is around three times larger than it was two hundred years ago, this gives us an idea of what would be required to return to an 'organic economy', or rather more realistically, if Europe was to produce a considerable amount of its energy supply by biofuels. Supplying the total energy required today from this source would mean that each European hectare of land would have to be thirty times more productive than it was two hundred years ago. Even a much smaller share of energy supply from biofuels would put very considerable pressure on land and supplies of fertiliser and water.

Early coal-using technology was extremely inefficient in energy terms. In other words, the 'energy intensity' of the economy - the amount of energy required to produce each unit of value - went up very quickly in the coal-using sectors of the economy. Thus in Britain as early as the late-eighteenth century, energy intensity rose sharply on the back of innovation centred on the installation of steam power in stationary engines and later railways, and the widespread use of coal as domestic fuel. Among other things, the Industrial Revolution was a revolution in inefficiency, but thanks to the very great stock of coal reserves on which Britain could draw, this was not generally a matter of great concern.

Traditional energy economies based on wood, peat and food had frequently been concerned about their sustainability. Thus the fear of wood shortage was expressed in the years around 1600 in England. The most prolific pamphleteer, Arthur Standish, sneered at those who thought that coal could replace wood: everyone knew, he pointed out, that fuel supplies had to be sustainable, like a coppice-wood; yet coal mines were quickly worked out and could not replace themselves. How could this be a solution to long-term energy needs? Standish's argument might seem vaguely comic now, but its logic remains sound. Wood shortage was a matter of fierce debate and policy intervention on the continent of Europe between about 1750 and 1850, largely in regard to fuel. A much less significant argument continued in Britain about shipbuilding timber at the same time, although the demands of shipbuilding were in fact fairly small and had a very marginal impact on the continent's forests.

By the time Standish wrote, however, coal was replacing wood. It probably outstripped wood as a source of thermal energy no later than 1620. By 1700 it provided a majority of England and Wales's energy. This led to periodic fears about coal exhaustion, the most famous of which was penned by economist Stanley Jevons in 1865, leading to a Royal Commission on the matter that reported there were centuries of coal stocks remaining - a considerable under-estimate at the time - in the early 1870s. The British energy story is very clear: between the 1560s and the 1960s it was largely the story of increasing coal use, and thus British economic growth, in the period which we can measure it, has never had sustainable foundations, at least on the assumption that coal reserves are finite.

A second phase of the industrial age of energy consumption, conventionally dated to the 1890s, was driven by new forms of power generation, notably electricity. Electricity appears a more efficient form of energy to the end user, because there are relatively few losses in the way it is delivered to the home or workplace. However, it was still largely produced by the combustion of fossil fuels, primarily coal. Oil only began to take up a significant share of national energy consumption in the 1960s, and the new infrastructure associated with the national grid and the motor car led to more spatially diffuse, but networked and integrated forms of development. Electricity generation has the advantage that the source of the power can be altered without changing the form of delivery to the end user. However, the use of motor vehicles has led to residential and distribution networks that are spatially extensive and where the mileage travelled by people and goods is high. Given the property market and patterns of workplace and residential zoning this structural characteristic of the economy would not be easy to alter. In the long term the trend in energy consumption has been upwards, though with periods of high variability and lack of growth between the World Wars, and again between 1973 and 1984.

The effects of improving energy efficiency

Currently, the EU aims to cut energy use by 20% by raising energy efficiency by 2020. In the past, improvements in energy efficiency have been frequent. We have seen that Britain's energy intensity rose dramatically during the Industrial Revolution with the use of new but inefficient coal-based technology. But improved steam engines and technical change meant that this trend peaked in 1883, and since has shown a consistent long-term downward trend. The energy intensity of the British economy is a lot less today than it was before the Industrial Revolution! In other words, we are now rather more energy efficient than we were in Shakespeare's time. Energy intensity falls of the magnitude the EU requires were achieved several times: in the 1920s, the 1950s, again between 1960 and 1980, and quite easily in the 1980s.

Unfortunately, the overall story of energy consumption is still quite dismal. Despite big efficiency gains, in the 1920s total energy use was roughly static; in the 1950s it rose by 27%; between 1960 and 1980 by 22%; and in the 1980s by 3%. Why did this happen? It is partly because of what economists call 'take-back effects': we simply used the energy saved by efficiency improvements elsewhere, and as we got rich at a faster rate than our energy use got more efficient, per capita consumption of energy went up. We are over 3 times more energy efficient than we were in the 1880s, but we each consume about a third more energy. Although we need a lot less energy to produce each unit of income, we are all very much richer than we were over a century ago.

This pattern of increasing consumption is becoming harder to break because while most historic efficiency gains have been in industry, well over half of final energy consumption is now in homes and transport, where there have not really been any recent efficiency gains. In the case of homes, this is despite the fact that we do employ much more efficient technology: insulation and better heating systems have improved considerably since 1970, offsetting to some degree the fact that we have raised average room temperatures from 13 to 18 degrees! However, new patterns of family life and demographic change mean we are much more likely to live alone and as a consequence have greatly expanded the total number of households. This in turn has offset the effects of improvements in home energy efficiency. Our ageing population will tend to expand the number of single-person households further, and so the likely trend in use is still up. As the global population ages, this will also tend to raise our energy consumption.

Have we just exported carbon intensity? It has been postulated that the apparently better environmental standards, and higher levels of energy efficiency (meaning lower emissions per unit of output) found in the rich nations of the world are simply the result of them 'exporting' polluting heavy industry to countries with lower environmental standards. We might expect that de-industrialisation in Europe has led to 'dirty' industries moving elsewhere, allowing us to purchase their products without paying the local environmental penalties of production. While this has doubtless occurred to some degree, the long-term trends do not suggest that this is a significant process. Despite the shift of heavy industrial and manufacturing processes away from North America and Europe to Asia since the late 1960s, this has not halted the overall tendency towards a decline in carbon-intensity on a global scale, in part because developing world industry has been able to take advantage of rapidly disseminated technological improvement and has not followed the same path of energy intensity as early heavy users of coal such as Britain.

We should hardly be surprised that during the unprecedented economic growth since the 1880s it was possible to achieve economies in the use of energy. The 'dematerialization' of economic growth, in the sense that we are able to produce each unit of output or income for less, has thus been a consistent long-term trend, and it is not something that we have to suddenly discover due to current threats. Yet even as our energy economy becomes dramatically more efficient, we use ever more energy. In absolute terms, our 'carbon footprint' has become much larger and our consumption of material resources is larger than ever.

The key factor is that we, not energy, are the beneficiaries of economic growth. If technological change allows us to use energy more efficiently, so that each energy input generates a lot more income, then the beneficiary of this is people, because each individual using the technology can produce a lot more. This can clearly be observed in a long-run perspective. Up until about 1830, most of the price of energy - basically in England meaning coal - came from the human labour of mining and transporting it. Hence labour and energy costs moved closely together. After 1830, mechanisation and steam power kept energy cheap while labour became progressively more expensive. Their prices rapidly diverged. It thus made perfect sense to invest in an energy-intensive rather than a labour-intensive form of development. At the same time, per capita energy consumption suddenly soared.

This process - a key aspect of the modern world - continues. If we compare unit labour costs and energy costs in the UK since 1980, we find that labour costs continue to gallop ahead of energy prices. If we hope to continue our personal enrichment, labour will continue to become relatively more expensive than energy, and thus it will be economically more viable to invest in energy-intensive rather than people-intensive forms of economic activity. This explains, of course, why the transport sector continues to grow in relative importance: it brings us goods at high energy, but low labour costs. Modern economic growth has thus become decoupled from the use of labour rather faster than from the use of energy, as high labour costs make improvements in labour productivity a bigger imperative than cutting back on energy.

Conclusions

Thus the fundamental conclusion for policy from historical experience is that improving energy efficiency is a normal process at least since the 1880s and a realistic prospect, with or without government intervention. However, improvements in energy efficiency are nowhere near large enough to offset the overall dynamic of economic growth, and thus carbon emissions are still likely to rise. This is likely to be compounded by price developments continuing to favour energy-intensive over labour-intensive forms of development, with producers putting a premium on increasing labour productivity, which often requires greater energy inputs. Altering this pattern would require a punitive regime of energy pricing, or indeed wage restraint. Energy costs were little different at the beginning of the 21st century to their level in the early 1980s, while the level of wages was around 150% higher. Hence even doubling retail energy costs with immediate effect would not even return us to the relative price of energy and labour that prevailed around twenty years ago. Such a policy would also have highly inequitable effects, and would be likely to have only a minimal impact on the long-term trend towards higher energy use.

While alternative sources of energy may become more available, their use would have to grow at a quite extraordinary and unprecedented rate to keep up with continual expansion of total energy use. Under conditions of continual expansion in use it took over forty years for oil to shift from providing around 2% of total energy supply in 1920 to 50% at its peak in 1972. This required a year-on-year growth of around 7.25% in oil consumption. The rise in oil consumption of course was primarily driven by the desire to expand the employment of petroleum-based technologies. No other transition has been achieved with an equivalent rapidity and scale. If energy use were to continue to expand at 1% per annum, approximately the long-term average since energy efficiency began to rise from the early 1880s, it would increase by around 50% in 40 years. For renewables to provide some 75% of this in forty years' time (thus equivalent to around 110% of current consumption), continual annual growth of 9-10% would be required. While this may not be impossible, it would certainly take a very large amount of political will to create incentives to use sources of power not clearly linked to particular technologies. The process would also have a considerable environmental impact itself.

The lesson for policymakers is thus that reduction of carbon emissions is only likely where the use of renewable energy is combined with direct measures to restrict energy use. As argued by Mark Roodhouse in a recent policy paper, rationing may therefore be a more plausible route to success than taxation.


Further Reading


National Statistics, Energy Trends, Monthly publication.

National Statistics, Energy consumption in the United Kingdom (Department of Trade and Industry, London, 2006).

Stern, N., The Economics of Climate Change. The Stern Report (CUP, Cambridge, 2006).

Tooze, A., and Warde, P., 'A Long-run historical perspective on the prospects for uncoupling economic growth and CO2 emissions', Submission to the Stern Review, December 2005. http://webarchive.nationalarchives.gov.uk/+/http://www.hm-treasury.gov.uk/media/2/1/climatechange_drjatooze_1.pdf

Warde, P., Energy consumption in England & Wales, 1560-2000 (CNR-ISS, Naples, 2007).

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