Why Oil Intensity Changed in the US Economy
Posted by Stuart Staniford on October 21, 2005 - 4:09am
Source: EIA
The first thing we want to understand is exactly what constant dollar GDP has done. For those of us willing to grant at least some credence to federal statistics, the Bureau of Economic Statistics has the story:
I'm going to operate from 1970 to 2003, as that's the period covered by all the series I need. Over those 33 years, real GDP increased by a factor of 2.74. In the same period, US oil consumption has gone from 5.36 billion barrels to 7.31 billion barrels (according to the EIA). That's an increase by a factor of 1.36. So oil intensity has decreased with a multiplier of 1.36/2.74 = 0.50.
So we have a 50% reduction to explain. Now let us look at the changing mix of usages to see where that's coming from (the graph shown above, but repeated here for convenience).
The first grouping is usage by sector in 1970. Transport includes aviation, railroad, and highway, but highway is the great bulk, aviation is only 1/10 as big, and railroad is, well, let's blush and hope our European readers don't notice. Industrial is a whole big variety of things. A material amount of oil used to be used for generation of electricity. Then we have residential and commercial use of oil. These last two are overwhelmingly heating of buildings.
The second group is what 2003 oil usage would be if it had simply been scaled by the 2.74 multiplier increase in GDP from 1970 to 2003. Then the third grouping is actual 2003 usage.
Now the breakdown of our 50% reduction in oil intensity is as follows. (The following numbers are all percentage points, not fractions of the 50%).
- 20% is due to increased transportation efficiency - 2003 transportion oil usage is only 0.63 of what we would have expected just GDP scaling from 1970. That is mainly due to the 0.7 multipler applied to gallons/mile in highway vehicles since 1970 (as discussed last night), but a little is due to improved aviation efficiency also.
- 13% is due to reduced use in residential and commercial buildings, almost all of it heating. These sectors got 0.09 and 0.19 multipliers respectively (ie they got mostly eliminated as the graph makes clear). This represents a mixture of improved building efficiency (insulation and draft-proofing) and fuel switching away from oil (primarily to natural gas).
- 5% is due to reduced use in electricity generation - a 0.20 multiplier (again, not much left). This is fuel switching to uranium, coal, and natural gas.
- 13% is due to reduced oil intensity of industry (a 0.49 multiplier). This presumably represents a mixture of
- Improved efficiency in industrial processes.
- Fuel switching by industry
- Dematerialization of the industrial sector (industry producing smaller, higher-tech, higher value products).
- Improved insulation and draft-proofing of industrial facilities to reduce heating needs
- Offshoring the nasty dirty oil-intensive parts of industry.
A final observation. Our esteemed economic patriach quoth:
Moreover, since oil use, as I noted, is only two-thirds as important an input into world GDP as it was three decades ago, the effect of the current surge in oil prices, though noticeable, is likely to prove significantly less consequential to economic growth and inflation than the surge in the 1970s.
So to me this would imply that if we were to have another series of oil shocks like we did in the 1970s, and thus we desired to get another 50% reduction in oil intensity out of the economy, Dr Greenspan is saying that would be easier now that it was then. He's got to be wrong. Last time 18% came from reducing building heating and electricity generation. We cannot do that again - those uses are almost gone. So the next time it would have to come almost entirely from transportation and industrial gains; those groups would need to step up to the plate in a bigger way than before. Since transportation is now 2/3 of usage, that would have to be a big factor. This was where we did the least reduction last time (0.69 - we only dropped it 31%), presumably because we were less willing to do that than other things. And since we seem to have been remarkably resistant to behavioral changes, presumably we'd pretty much have to find the transportation part in increased vehicle fuel efficiency, or else economic contraction if we can't get efficient fast enough. I don't think that's going to be easier at all.
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i'm guessing Greenspam is trying to say that we wouldn't need to have another 50% decrease in oil intensity if prices spiked similarly again. because, he would argue, we can produce more GDP with less oil, so the economy would intrisically be more resistant to oil input cost increases.
from the article, oil went from $1.80 (1970) to $39 (1981). though this is not inflation adjusted, this would be a 20X increase in real dollar price. This equates to about a 5X spike in constant dollars. (using rough numbers from http://www.inflationdata.com)
if we again had this increase in oil prices the effect on the US economy would be 0.50 times as much as before: the price spike is effectively halved. Thus to respond to the shock similarly (we're calling those 30yrs "the response"), the economy would only need to reduce its oil intensity by 25% (i am assuming the economy behaves linearly: half the price spike = half the reduction in oil intensity required). as oil intensity continues to drop, the required reduction in oil intensity, given future spikes, falls proportionally. this would seem to be the argument greenspam is making.
still seems like a monumental task, given the efficiency increases and fuel switching that has already taken out much slack in the system.
Illustration:
Your economy requires 10% of your GDP to buy oil. If oil doubles, then you need an additional 10% of your economy to get the same amount of oil.
If, over time, your economy has diversified its energy sources, and also is more energy efficient, then your economy requires only 6% for energy, of which 4% (two-thirds) are oil. Now if oil doubles in price, you only need to spend 4% of your GDP to cover the increase.
I likewise agree that offshoring of energy-intensive industries has been a major factor in the domestic energy intensity decline. Look at aluminum and other electrochemical industries for example.
We can't look at oil alone. As I've preached here and elsewhere, an even bigger risk is North American peak gas. Before, if oil increased in price or decreased in availability, we could shift some demand to surplus natural gas, at least for non-transportation uses. We've seen a lot of that with Northeast home heating, switching from heating oil to natural gas. Fortunately, we could restore some gas production by opening off-limits areas to exploration and extraction - especially the Rockies.
Today, we have no idle production capacity for gas in reserve and we've max'ed out LNG importation facilities.
Hence our short-run exposure is increased over yesteryear by having NO energy fallback. Our back is to the wall.
"Living without oil, if we don't start to prepare for it, will not be like returning to the late 1700s, because we have now lost the infrastructure that made 18th-century life possible. We have also lost our basic survival skills. Dr Richard Duncan, of the Institute on Energy and Man, believes that we will return to living in essentially Stone Age conditions." http://fromthewilderness.com/free/ww3/102005_world_stories.shtml#0
I am going to repost from Monday:
Bigelow: http://www.theoildrum.com/story/2005/10/14/132219/27#30
"I personally want a Prius plug-in but...
""What About Super Fuel Efficient Cars?"
Hybrids or so called "hyper-cars" aren't the answer either because the construction of an average car consumes approximately 27-54 barrels (1,110-2,200 gallons) of oil. Thus, a crash program to replace the 700 million internal combustion vehicles currently on the road with super fuel-efficient or alternative fuel-powered vehicles would consume approximately 18-36 billion barrels of oil, which is the amount of oil the world currently consumes in six-to-twelve months. Consequently, such a program (while well-intentioned) would actually bring the collapse upon us even sooner." --Matt Savinar, http://www.lifeaftertheoilcrash.net/SecondPage.html
"Automobiles: Manufacture Versus Use" http://www.ilea.org/lcas/macleanlave1998.html"
From Engineer/Poet: http://www.theoildrum.com/story/2005/10/14/132219/27#40
"Nobody said whether Savinar's figures were to convert the USA or the world, so I figured the latter and that the ratio would be about the same for the USA alone. Since no cite was given I can't check specifics.
If we muck with the ILEA numbers, a car needs about 19 barrels of oil equivalent (BOE) to build and uses another 144 BOE in fuel, plus another 17 BOE in the fuel cycle (total 161 BOE); if the life of the car is 14 years, the car and the fuel cycle burn the equivalent of its manufacturing energy in about 20 months.
A large part of the energy of construction is drawn from non-petroleum sources like coal for smelting steel, so the actual petroleum portion for manufacture is considerably smaller. If hypercars required 50% more energy to build and half of the total was from petroleum (for e.g. FRP to replace metal) each hypercar would consume ~14 barrels of oil to build. It would then save 10.3 barrels of oil every year (90% of 161 barrels over 14 years). It looks like a complete switch to hypercars would result in a brief bump in oil consumption followed by a slide to pre-switch levels in about a year, and a continuous decrease until conversion was complete."
From Rick: http://www.theoildrum.com/story/2005/10/14/132219/27#35
"We need ultra-efficiency, but it won't and can't cause a sudden drop in gasoline demand. The US has about 130 million cars, plus 80 million light trucks on the road. Production in the US is about 5 million cars and 7 million trucks annually. Do the math any way you want. Hirsch estimates that it will take 10-15 years and $1.3 trillion to replace half the fleet.
And let's be realistic on the mpg figures. I understand a plug-in Prius, using predominantly the electric motor, can get about 120mpg for a short distance. Real world, the winner of the 2004 EnergyWise rally in New Zealand was a carefully driven Prius which achieved 70.3mpg. Every other production car entered used more fuel. We've got a long way to go before we can practically get to 100mpg, let alone 250."
We must find the where with all to do transportation changes --like yesterday--we will suffer greatly from the "demand destruction" euphemism.
That's unfortunately an radically and overly pessimistic view of things.
-For one, we don't run out of energy for at least another 100 years. We have plenty of coal and lignite for at least current energy consumption for that long. Nuclear fuel is also fossil but isn't even remotely as abundant as this.
-Duncan's view misses advances in technology completely. In the 1700's people didn't even know they had to boil their water to keep it from contamination. The same thing goes for residential isolation or even something as simple as a bicycle. In the 1700's people didn't ride 5 miles to work. Now they can just by using a bicycle as a human force-multiplier. Duncan acts as if all these advances in effiency, that are just common sense nowadays, don't mean anything and would vaporize instantly. A totally insane assumption.
Society as a whole doesn't 'forget' simple survival skills easily. Just go ask your local green radical to get plenty of details on living more sustainable.
Let's take a look at the food situation for example:
-An incredible amount of food that doesn't even get to the human food chain is already being produced. Up to 25% of all food in the world is being destroyed by a variety of pests (grasshoppers, rats, cockroaches etc) while in storage. This doesn't mean they eat it all, just spoil or contaminate it. Just think of rat droppings in a wheat silo and you get the idea.
Reducing this is quite feasible, even when pesticides become more expensive. It just isn't done because food is cheap enough as it is for most producers, so in order to protect the price, they don't protect the overproduction as zealously as you would think.
Once food becomes more expensive producers will become more motivated to actually protect overproduction.
-Then there is the production of non-food items, like tobacco and cotton, unessential foods, like tea and coffee, and the production of second-stage food, meat. Some of these are totally superfluous to human existence and fall in the category of luxuries. Others can be scaled down enormously or replaced. This alone creates vast stretches of land available for the growing of food. A higher price for food is all that is needed for farmers to switch from tobacco or tea to wheat or corn.
-Then, there is an incredible amount of waste at the consuming end. A 2005 study in Britain exposed that about 1/3 of all the food UK consumers buy goes unused, spoils, or is otherwise wasted. Thats ONE THIRD of all the food bought in the UK. Elimination of all waste is impossible but again, people waste more when the item they waste is cheap.
And this is just talking about the food issue. Food is not an issue. It's the way we waste resources that is.
--
And let's look at transport. The idea of travelling around the world on a jet plane is a total and complete luxury. Over 95% of humanity hasn't ever seen the inside of an aircraft let alone fly in one. Airplanes can be totally skipped and are absolutely unessential for both everyday life and for food production. The industrial revolution cruised along for a 100 years before the Wright brothers came along and empires stretched accros the globe long before that. Powered flight just for research, defense and emergencies is just fine and quite possible for indefinite periods, by using bio-jet-fuel or fuel derived from coal.
The same goes for personal vehicles. The idea that everybody should be driving 3-ton heavy semi-armoured trucks with 6 times as many seats than required, at high speeds, just for fun, is again, a luxury. Not just that, with the knowledge that we've known oil to be a finite resource for decades, it is also totally, utterly, and completely insane. It is so selfish and arrogant as to bewilder the senses.
You can easily create a small, one-seater vehicle for people driving to work and back that does 100 Miles per gallon or more. That's actually easy. The fact that's it's not being done is because driving big trucks is an emotion, an irrational behaviour. And if there's one sound item that's come out of 100+ years of psychology it's that irrational behaviour is incredibly difficult to change. Not just from outside, but also from within. Perhaps gasoline at 10$ a gallon might put a brake on that behaviour.
Take that figure of 100 mpg and apply it to the current world population on one side and the current number of cars on the other. If you take 700 million cars that run on average about 20 mpg and convert that same fuel use to 100mpg, you see that at the current consumption can easily power 700mx5= 3.500.000.000 cars. So more than half the current world population can drive around in their own personal vehicle to work and back everyday. (not that that is either necessary or desirable of course)
Again, it's not in how much we use. It's in how much we waste.
I think that Mr Duncan's issue with reality has more to do with the fact that he doesn't like the idea of altering his personal habits, which is of course very normal because it's irrational behaviour, and that's perfectly human. It is also perfectly human to blow perceived threats up to immense proportions. There's no science in it though, just emotion.
"Every other production car entered used more fuel. We've got a long way to go before we can practically get to 100mpg, let alone 250."
A four seater that runs 100mpg has been demonstrated. Besides, electrically driven cars achieve that milage everyday.
And making a 100mpg one-seater is incredibly easy.
I'm not scared of 100$ or even 200$ oil. I welcome it, sooner rather than later. It will pull the plug on our over-inflated, self-indulgent, arrogant, polluting, and utterly irresponsible way of life in a way that not even the most stalinistically inclined government could do.
Yes, we have to make big adjustments. No, it will not destroy our civilization.
Your point about wastefulness is well taken. However just because we have a good idea what 19th century life was like doesn't mean we can recreate it.
Consider that there was a tremendous increase in house fires back in the 1970's when all those oil shocked Americans got the idea to return to wood heat, because for most of them the skill set to heat with wood was unknown. Or coal, personally using it is not impossible but few remember how to do it.
As for local manufacturing, ask a business owner about competing with China and you will find among other things what makes it difficult to remain in the States is that many of the ancillary and supporting businesses have folded or gone overseas themselves.
I think those are the sort of things Duncan was getting at.
Indeed. Here in Lithuania, most people outside of major cities (even in towns with 20,000 people) don't have access to piped-in natural gas. So firewood and coal are pretty traditional -- many generations have used this stuff for heating.
And yet they still can't get it right. In 2003, there were over 18,000 fires, destroying over a thousand buildings, and killing over 250 people. Okay, a lot of that comes from not having a really good grasp of electrical safety, or smoking at home, or whatever. But at least 20 casualties came from poorly-maintained wood-burning stoves or chimneys.
(Hats off to the geeky Statistics Department of Lithuania for these numbers.)
So even if you have a tradition of using firewood and coal, you can still end up getting burned...so to speak.
At one time, durable goods were large ticket items meant to be purchased once or perhaps twice in a lifetime. Refrigerators were designed to last for 50 years. I know, as I am currently using a 1958 model to keep our family beer keg cool. Similarly, automobiles were designed to last for decades. It was not uncommon for people to see a 1955 Buick or Chevy still motoring contentedly in 1970, especially in the generation prior to mine. My grandfather actually drove a 1960 Lincoln until the gas crisis in 1973, and even then, it was handed down to my uncle. He sold it in 1990. That's 30 years of use out of that car. I cannot find a 1980 Honda on the road today, can you guys?
Today, it is difficult to find truly durable goods. For example, try to buy a can opener that will last 30 years. It is a very simple item, yet the only place I could find one that actually measures up is through commercial kitchen sales. Retail has nothing comparable.
Try to find a blender that has a strong and durable blending container and unbreakable drive teeth. Again, you have to resort to commercial designs - even the high-end retail models only use plastic drive teeth, and usually have a plastic blending container.
I buy a lawnmower every 3 or 4 years. Why? Because the basic simple mower, with no frills, only lasts that long. Either the motor seizes, the carbeurator craps out, or the blade-stop mechanism glitches up. Repairing any of those costs the equivalent of buying a new basic mower. My Dad still uses an old Tecumseh 3-1/2HP 4-stroke mower he bought in 1978...
Planned obsolence has become an integral part of the consumer economy, and this has figured into the automotive industry in a big way. 40 years ago, you could buy a simple car, like the Plymouth Valiant with their slant-6 engine. It would easily run for 250,000 miles. At that point, an engine rebuild would be done, and another 150,000 miles or so could be had from the car. This is a great return on the original oil invested in the construction of the car.
I see, as part of the problem, that the EROEI we get from our durable goods has declined substantially. When one considers all the items used in the standard family existence, then multiply by the population, this is probably a decline in EROEI of signifigance. If we then add in business hardware with the same planned obsolence, this may well be a large source of increased consumption that is essentially hidden in the statistics.
Data from:
http://cta.ornl.gov/data/tedb24/Spreadsheets/Table3_08.xls
P.S. We don't have a 1980 Honda, but we do take our a 1981 Toyota out now and then!
This might be fact, but the cause might be open to interpretation. For one thing, it might be that cars were simply more often replaced in the past than now, even though they still functioned properly. As you may or may not know, real purchasing power has declined over the years for lots of people, at least in the US.
It might just be that in the years before the first and second oil shock, it was normal to replace your car with a newer model more often than it is today. And indeed, nowadays both cars and so-called durable appliances are both explicitly designed NOT to last indefinitely. Light-bulbs are one notourious example, cd-rom drive lasers are another.
Other items simply have intrinsically short lifetimes,like cpu's and such which last logaritmically longer when run at lower power.
IMO, that's also not what Greenspan was saying. He didn't say anything about using energy more efficiently; he was narrowly addressing the impact on growth and inflation. That's a far simpler point that is the issue of how hard it would be to further reduce the economy's ovetrall oil intensity.
"And since we seem to have been remarkably resistant to behavioral changes, presumably we'd pretty much have to find the transportation part in increased vehicle fuel efficiency, or else economic contraction if we can't get efficient fast enough. I don't think that's going to be easier at all."
If our choices are reduced miles (via contraction) or reduced miles per gallon, then yes, it will definitely be hard to get an additional significant improvement. But we're not limited to those two choices, as we have non-petroleum fuel sources: Ethanol, biodiesel, and electricity generated 95% by coal, hydro, nuclear, etc. Those are very small contributors to our transportation needs today, but that will very likely change in just a few years.
The jump to electric vehicles will be especially notable, since they completely shift marginal (meaning per-mile) transportation energy demand from oil to non-oil sources. I think that with Mitsubishi selling a Colt EV in 2010, as they claim, we'll see people jump very quickly from gasoline vehicles to electric cars, at least for their commuting and around-town vehicle(s) in >1 car households.
In general, I think we're headed for a much more diversified energy infrastructure, right down to the consumer level, with a mix of gasoline, diesel, ethanol, biodiesel, conventional, hybrid, plug-in hybrid, and all-electric vehicles in the field for a long time.
Please don't think I'm arguing with you, Stuart. I think you're doing a great job with these analyses, and you're providing a much needed service to the readers of this site. Even though I think it's VERY important that we use statistics to understand our past and present situation, I think we also have to be careful about how we use that information to extrapolate into the future. The real world has a very nasty habit of not following even the most logically and meticulously constructed, and best researched plans. (And I have the scars, both metaphorical and literal, to prove it!)
You're allowed to argue with me Lou ;-)
I generally agree with EP about the plugin hybrid being the path of least resistance. I think the only limitation is the fleet turnover rate is not that high, new model turnover rate is not that high, and I think they'll get lower, not higher, in a serious oil shock or post-peak type scenario (when the economy goes is to hell is exactly the time people do not choose to buy a new car. Instead they lose their job and stay home more). So I don't think we can do much better than about 4% annual reduction in oil usage that way. We managed an average 3.2% annual improvement in car fuel economy from 1979 to 1991.
My preliminary analysis shows that it's possible to build a small electric vehicle (tandem two-seater, Cd=0.3) with a range of 100 miles or more. Cost should be relatively low; the batteries would cost less than $1000. If government offered low-interest loans for the purchase of such vehicles and allowed insurance and licensing to be free if combined with an existing non-electric vehicle that would never be used at the same time, people would not have to spend a great deal of money or use any fuel to get to work. People would be able to afford to take such jobs, and the reduction in oil expenditures might pay for the subsidy.
Something to think about.
We may not want to wait. Encouraging these things now might make a huge amount of sense.
At the risk of conflating correlation with causation, I would further venture that when we fall off the far side of the Hubbert peak, GDP will fall right along with energy supply.
Again, great stuff!
Two big things first, not new but always need to be considered. One, the de-industrialization of the American economy and basically just the transference of that energy usage overseas. Second, in the building sector, the great migration of population and/or growth away from the more extreme Northern climate to the more temperate South and West Coast. I'd love to see some numbers of how much a factor both these things have played in our more efficient energy usage.
Secondly, much of our GDP in the last 30 years has been "service" sector growth and simple gross GDP numbers underestimate the value and importance of energy. We need to look at energy as foundational component to modern life and if through price increases or shortages, that foundation begins to crumble, everything on top of it is impacted. Or simply stating the obvious, we, with things like GDP, undervalue energy.
There are tremendous real energy efficiency numbers to be gained still, many without great lifestyle changes, much more if we begin to actually change how we live, but many interests and even greater social inertia in the way. There are ways to immediately cut oil demand, for example a real countrywide carpool effort, putting four people in every car for commutes, could cut gas consumption quite significantly. Are we so pathetic at this point, that we can't do that because it's not what we're use to, or its "inconvenient?"
The greatest untapped world reserves remains US demand and beginning to move away from the cult of GDP.
Are the South and West truly temperate? I guess you'd have to look up heating degree-days vs. cooling degree-days for various cities, but my impression is that Southern cities didn't blossom for business until it became affordable to cool their buildings. Before that, we had the technology to keep the Bostonians warm, but nothing to keep Atlantans cool and dry. Even DC used to shut down in the summers due to the humid heat.
Therefore, I'd say that San Diego might be great, but most Southern businesses have a built-in inefficiency of cooling loads just as Northern businesses have substantial heating loads.
This is a myth, the South become good for "business," when it became the first stop in the corporate migration away from Northern union wages, air conditioning certainly made it more comfortable.
Long ago, I saw a couple studies showing less energy usage in South than North. I'm afraid haven't seen anything in long time, but would sure like to. I know the statistics about the whole West Coast are true, not just San Diego. Just ask the NRDC, one of their main energy people has made a career talking about energy efficiency of California, you know it's the born on third base and think you've hit a triple.
"... Perhaps most significant of all, as a result of air conditioning, people started moving south, reversing a northward demographic trend that had continued through the first half of the century. Since 1940 the nation's fastest-growing states have been in the Southeast and the Southwest, regions that could not have supported large metropolitan communities before air conditioning made the summers tolerable."
http://www.greatachievements.org/?id=3856
Pre-WWII, the South remained primarily agrarian and the great migration North in the first half of the century was for jobs. I don't think it was to escape the heat.
Anyway, I've heard this theory before, I'm just pretty skeptical it was much of a cause as much as a helpful convenience.
Any chance we could put your oil usage chart for 1970 to 2003 next to another chart of total energy use by all sources for these different sectors? I would find that very useful.