THE DEMAND FOR ENERGY

I now turn to the future, focusing first on the demand side. I start with various dimensions of energy consumption in 2021 and then I analyze the forces that drive energy consumption over the following 29 years.

Dimensions of Energy Consumption in 2021.

The percentage distribution of world energy consumption in 2021by selected country groupings is shown in table IV-1 and is compared to the shares of the population. In four of the seven regional groupings, the share of energy consumption exceeds that of the population.  The largest ratio of the shares is found for North America (Canada, the United States, and Mexico), a region that in 2021 consumed close to 19 percent of world primary energy although it accounted for only 6 percent of the world population. Compared to the entire continent of Africa, North America consumed 3 times the energy although it had roughly one-third of the population.  High ratios are also found for Eurasia and the Middle East. Among this group, the lowest ratio of shares is found in Europe where the share of energy consumption exceeds the share of the population by only 51 percent. Among the remaining regional groups of countries, the highest ratio is found for China where the share of energy consumption is approaching the share of the population. The lowest ratio is in Africa whose share of energy consumption is one-third of its population share.

The second part of table IV-1 contains the ratio of shares for five country groupings based on real GDP per person (GDP, PPP US $2017). Starting with a mean value of GDP of $17,760, I selected the following boundaries for the five groupings. Top group: GDP per capita in excess of twice the mean; upper middle: 50% above mean to twice the mean; middle: mean to 50% percent above mean; lower middle: mean to 50% below mean; low: less than half of mean. We notice that in 2021 the top income group of countries consumed 40 percent of the primary energy supply although it accounted for 14 percent of the population. At the other end, 21 percent of the population consumed only 6 percent of primary energy. Comparing the top two groups with the bottom two bottom ones shows that 19 percent of the world population (those living in the higher income countries) consumed more than twice the primary energy of 59 percent of the population (those living in the lower income countries.     

 

Table IV.1 Shares of Primary Energy Consumption and of Population by Selected Country Grouping, 2021

 

Region                Percent of                           Ratio

 

                     P.E.C.         Population

North America                                  18.26             6.41                           2.85              

  United States                                  14.98             4.28                           3.50

South and Central America                4.67              6.67                          0.70

Europe         13.49              8.93                          1.51

Eurasia          6.74               3.21                         2.10

Middle East   5.70              3.02                          1.89

Africa                                                 5.97             17.51                          0.34

Asia Pacific                                      45.17             54.25                          0.83

  China         25.70             18.16                          1.42

 India            6.47             17.78                           0.36

Japan           2.70               1.60                           1.69

                                

GDP per Capita                                

Top              39.93            14.41                           2.77

Upper Middle                                    8.37               4.32                          1.94

Middle        29.47             21.94                          1.34

Lower Middle                                 16.22              38.53                          0.42

Low                                                   6.01             20.80                          0.29

Source: Author’s calculations based on IEA (2022), World Energy Outlook 2022, Table A-5, p. 450 (Total Energy Supply, Stated Policies) and Table B-1, p. 464; The World Bank (2023), GDP: PPP (Constant 2017 International $), data.worldbank.org/indicator/ NY.GDP.MKTP.PP.KD

 

 

 

Table IV-2 shows the shares of primary energy consumption by major final demand sector. We notice that in 2020 the industrial sector used one-third of primary energy consumption, as defined in table IV-2. An additional 21 percent was used by transportation. This sector can be viewed as ancillary to all other sectors and includes the transportation of raw material to industry and finished products to wholesalers, the distribution of final goods to consumers, and the transportation of people. While in the first two functions transportation is a necessary input in the production and distribution of final goods and services, in the transportation of people it involves a high degree of discretion. Nearly one-quarter of primary energy was consumed by the residential sector (lighting, domestic equipment and appliances, and space heating and cooling).      

 

 

Table IV-2. Shares of Primary^a Energy Consumption by Final Consumption Sector, 2020

 

Sector                        Share (%)

 

Industry                      33.1

Transportation            20.6

Residential                 23.0

Commercial and Public Service                     10.8

Other^b                         12.5

Total

^aIt represents domestic demand and includes final energy demand plus electricity generation and transmission losses, and oil refinery transformations; oil refinery transformation was assigned to the industry sector while electricity losses were allocated according to a sector’s consumption of electricity ^bIncludes energy used in agriculture, fishing, forestry, and unspecified industries.

Source:  IEA (2022), World Energy Balances, XLSX Tables; IEA (2002), Key Energy Statistics: Final Consumption.

 

Table IV-3 presents some indicators of energy consumption by region. Over the 29 years from 2021, the IEA projects that under the Stated Policies Scenario global primary energy consumption will increase at an average annual rate lower than that of the population (0.59% versus 0.74%), but there are wide regional variations in this relationship. In North America, energy consumption is projected to decline. Still, by 2050 this region will account for a share of global energy consumption nearly three times its share of the population. A faster rate decline in energy consumption is projected for Europe. As a result, is share of energy consumption is converging to its share of the population. In Eurasia, energy consumption is projected to remain flat. Despite the moderate increase in its population, its ratio of energy-population shares will remain the second highest at a value in excess of 2. Inside the Asia Pacific region there were conflicting forces by sub-region. A large decline in population of Japan and a smaller one in China will be balanced by a large increase in the population of India. Correspondingly, flat energy consumption in China and a decline in Japan will be offset by a large increase in India, leading to an above-average increase in energy consumption.  By 2050, this region will have a share of energy consumption equal to that of the population. The largest changes are projected for Africa, where both population and energy consumption are projected to rise by about 2 percent per year, 3.4 times the global growth of energy and 2.8 times the growth of the world population. 

 

 

 

Table IV-3. Changes in Indicators of Energy Consumption: 2021 to 2050

 

Region                        Energy Consumption                                Population                        Ratio^b

    Change           Share               Change                   Share      

                                Percent^a     Share     in 2050         Percent^a   in Share      in 2050

 

North America               - 0.26       - 3.76     14.51          0.50       - 0.43         5.98             2.43

  United States               - 0.44       - 3.78     11.30          0.44       - 0.35          3.93            2.88

C./S. America                  1.27         1.10       5.77           0.48      - 0.47          6.20             0.93

Europe                           - 0.58       - 3.65      9.84         - 0.05      - 1.81          7.12             1.38   

Eurasia                             0.08       - 0.08      5.90           0.23       - 0.41          2.61             2.26         

Middle East                      1.59         2.03      7.73           1.12         0.38          3.59             2.15

Africa                               2.00         3.12      9.09           2.07         8.15         25.66            0.36 

Asia Pacific                      0.68         1.98    47.15           0.37       - 5.41        48.84            0.96  

  China                              0            - 3.71   21.99        - 0.10       - 3.89         14.27            1.54

  India                               2.003       3.39      9.86          0.70       - 0.87         16.91            0.58  

  Japan                            - 1.01       - 0.97     1.73       - 0.60        - 0.52          1.08            1.60

World                                0.59  0.74

 ^aAverage annual percentage change from 2021 to 2050; ^bRatio of energy consumption share to population share in 2050.

Source: Author’s calculations based on IEA (2022), World Energy Outlook 2022, Table A-5, p. 450 (Total Energy Supply, Stated Policies) and Table B-1, p. 464                   

 

 The level of energy consumption (EN) is identically equal to

 

(1) EN = EN/GDP x GDP/P x P

where GDP is real gross domestic product and P is population.

According to expression (1), the growth of energy consumption is determined by the combination of the growth of energy intensity (energy consumption per unit of GDP), labor productivity (if the employment-population ratio remains constant, the growth of GDP/P equals the growth of GDP per employed person), and population. The average annual growth rates of these variables over the period from 2021 to 2050 are shown in table IV-4. For the entire world, total energy consumption is projected by the IEA to increase at the average annual rate slightly higher than the growth of the population (0.59 versus 0.74 percent). The growth of GDP per person, which increases energy demand, is more than offset by the decline in energy intensity. As a result, energy consumption per person is projected to decline by about one tenth pf one percent per year. The interaction among the determinants of energy consumption differs among regions and countries. In China, energy consumption is projected to remain stable from 2021 to 2050 as the annual growth of GDP per person (3.5%) is totally offset by a large decline in energy intensity (- 3.5%) and a small population decline (- .10%). In Europe and Japan, even a below-average decline in energy intensity leads to a substantial decline in the growth of energy consumption because a below-average growth of GDP per person is associated with declining population. In North America, the fall in energy consumption is smaller than in Europe (- 0.26%) although its energy intensity falls at the average rate because its population is projected to increase by half a percentage point per year. By contrast, energy consumption in Africa is projected to grow at the rate of 2 percent per year in line with its population growth because the decline in energy efficiency simply offsets the increase in GDP per person. In India, an equal growth of energy consumption is determined primarily by a large increase in GDP per person (growing at more than double the average rate) which more than offsets a large decline in energy intensity (62 percent more than the average) and a moderate growth in population.

The interactions among these determinants of energy consumption lead to a wide differences in energy consumption per capita. In 2021, each person in North America on average consumed more than eight times the average person in Africa, four times in South and Central America, and more than three times in the Asia Pacific region. The average person in the United States consumed nearly ten times his/her counterpart in India. The projected change in energy consumption from 2021 to 2050 also differs by region. For the world as a whole, the consumption of energy per person is projected to decline at the average annual rate of slightly over one-tenth of one percent. A similar decline is projected for Africa and Eurasia. Much larger declines are projected for North America, Europe, and Japan. Substantial increases are projected for South and Central Americas, the Middle East, and the Asia Pacific region. For the latter, the positive change is caused largely by a large increase in India.        

 

Table IV-4. Components of the Growth of Energy Consumption: 2021-2050

Region                          Average Annual Percentage Change                       EN/P

                                    P           GDP/P         EN/GDP         EN            GJ, 2021            % Change^a

 

North America              0.50          1.50        - 2.26             - 0.26         221.9                 - 0.75

  United States              0.45          1.56        - 2.44             - 0.44         272.8                 - 0.88

C./S. America               0.48          1.92        - 1.13               1.27         54.49                    0.52

Europe                        - 0. 05         1.65        - 2.16             - 0.56        117.6                  - 0.51

Eurasia                          0.23          0.77        - 0.92             - 0.08        173.1                  - 0.14

Middle East                   1.12          2.08        - 1.61               1.59        138.1                    0.47

Africa                            2.07          2.03        - 2.08               2.00          26.5                  - 0.07       

Asia Pacific                   0.37          3.23        - 2.92               0.68         64.8                     0.31

  China                        - 0.10          3.50        - 3.40                 0           110.0                    0.10

  India                            0.70          4.50        - 3.19               2.00          28.4                    1.42

  Japan                         - 0.60          1.30        - 1.71             - 1.01        132.1                 - 0.41

World                             0.74          2.06        - 2.21               0.59          79.8                 - 0.14

^aAverage annual percentage change

Source: Author’s calculations based on IEA (2022), World Energy Outlook 2022, Table 2.1, p. 108, Table A-5, p. 450 (Total Energy Supply, Stated Policies) and Table B-1, p. 464.                    

 

 

Table IV-5 suggests that energy consumption per person is positively related to the material standard of living as measured by real GDP per person. As shown in this table, the ranking of regions by energy consumption per person is closely related to the ranking of real GDP per person. The only outliers are Eurasia and the Middle East, where the economic structure id dominated by the energy sector. When these two regions are excluded, the ranking association between the two variables is perfect. 

 

Table IV-5. Rank Comparison of GDP per Person and Energy Consumption per Person, 2021

 

Region                                GDP per Person            Energy Consumption

  $000s         Rank             GJ per Person     Rank

 

Africa                                 5.59       11 (9)                 26.53            11 (9)   

India                                   7.36       10 (8)                 28.36            10 (8)

C. and S. America            15.00         9 (7)                 54.49              9 (7)

Asia Pacific                      15.16        8 (6)                  64.84              8 (7)

China                                19.41        7 (5)                110.09              7 (5)

Eurasia                             23.98         6 (n/a)            173.15              3 (n/a)

Middle East                      23.99         5 (n/a)            138.10              4 (n/a)

Europe                              43.21         4 (4)              117.54               6 (4)

Japan                                45.22          3 (3)              132.10               5 (3)

North America                 56.02          2 (2)               221.91              2 (2)

United States                    70.16         1 (1)               272.84               1 (1)

Source: Author’s calculations based on IEA (2022), World Energy Outlook 2022,Table 2.1, p. 108, Table A-5, p. 450 (Total Energy Supply, Stated Policies) and Table B-1, p. 464.

 

Because countries differ with respect to climate, industrial structure, political organization, and traditions, a more detailed analysis of the above relationship is more meaningful when conducted for a single country. I have chosen the United States for this exercise because it is large industrialized country and it is a heavy energy consumer.                     

          

Table IV-6 shows the average annual percentage change in energy consumption per person (EN/P) and its two major components, energy intensity (EN/GDP) and real GDP per person for selected periods from 1950 to 2022. Over the entire period, energy consumption per person increased at the rate of 0.4 percent per year as the growth of the material living standard (measured by GDP per person) outpaced the decline in energy intensity.  The trends over the entire period were dominated by the changes during the three decades after 1950 when energy consumption per person rose by 1.4 percent per year and the growth in GDP per person exceeded the decline in energy intensity by a large margin. During the following two decades, the transformation of the industrial structure from goods-producing to services-producing industries accelerated the strength of the energy intensity decline leading to a minor increase in energy consumption per capita. The decline in energy intensity remained strong over then past twenty-two years, but the pace of GDP per capita fell drastically and led to a decline in the growth of energy consumption two-thirds of a percentage point. 

 Table IV-6. Average Annual Percentage Change in Selected Indicators: USA, 1950 to 2022

 

Period                      EN/P                   EN/GDP                GDP/P

 

1950-1980                 1.39                   - 0.59                       1.98            

1980-2000                 0.10                   - 2.64                       2.74

2000-2022               - 0.67                   - 1.83                       1.16

1950-2022                 0.40                   - 1.53                       1.93

Source: Author’s calculations based on EIA (2023), Monthly Energy Review, June 2023, table 1.7, p. 19, and appendix table C1, p. 246.

 

 

The transformation of the industrial structure also led to a shift in the relative shares of energy consumption among the major energy use sectors. In 1950, energy consumption in the United States was dominated by the industrial sector with a share close to half of the total. Over the seventy-two years from 1950 to 2022, the shares of energy consumption by the residential, transportation, and commercial sectors expanded at the expense of the industrial sector. The latter experienced a decline in its share nearly two percentage points every ten years, which accelerated to 3 percentage points over the next twenty years, and subsided to about 1 percentage points over the past 22 years. It seems that in the first three decades after 1950 the trend in energy consumption per capita was determined by the increase in output within an industrial structure dominated by heavy industry. As technical advances and changing consumer demands lead to a progressive shift in output from goods to services, energy intensity declined at a faster rate. As the pace of transformation of the industrial structure slowed down, so did the decline in energy intensity. The major effect of the industrial transformation was a shift in energy consumption shares between the industrial and commercial sectors. While the latter lost 14 percentage points from 1950 to 2022, the commercial sector gained 7 percentage points. Thus, the combination of industrial and commercial sectors lost only 7 percentage points over seventy-two years. 

 

Table IV-7. Changes in Energy Consumption by Major Sector: USA, 1950 to 2022

 

Sector                                      Shares of Primary Energy Consumption (%)

             1950            1980            2000            2022 

 

Residential                                 17.31          20.19           20.69           21.80

Industrial                                    46.89          41.00           35.05           32.77

Transportation                            24.54          25.24           26.86           27.43

Commercial                                11.26          13.57           17.40           18.09

 

                     Average Annual Percentage Change   

           1950-1980     1980-2000    2000-2022    1950-2022

 

Residential                                 3.28                  1.31               0.30                 1.81

Industrial                                    2.29                  0.39            - 0.23                 0.99

Transportation                            2.84                  0.89              0.17                 1.65

Commercial                                3.39                  2.45              0.25                 2.16

Total      2.75                  1.18              0.08                 1.49

Real GDP                                   3.67                  3.37              1.93                 3.06

Growth Rates: Real GDP

 minus Energy Consumption      0.92                  2.19              1.85                1.57              

Source: Author’s calculations based on EIA (2023), Monthly Energy Review, June 2023, table 2.1a, p. 40, and appendix table C1, p. 246.   

 

Transportation is ancillary to the other sectors. If we assign the transportation of people to the residential sector, we form a new sector that we may call “household” sector.  In an earlier paper¹ I show that with this adjustment the share of energy consumption by the household sector in the United States in 2019 increased from 21 percent to 37 percent, exceeding the share of any other sector. In that paper I analyze the two components of household energy consumption �" residences and transportation �" and suggest for each component it is useful to distinguish between standard and optional energy consumption. I define standard energy consumption as what is needed to satisfy household needs. For example, the household need in the residential sub-sector is shelter and household equipment that offer security from the elements and an adequate level of comfort. Similarly, motor vehicles serve the purpose of satisfying people’s basic transportation needs.

 

Two opposite trends are notable in the residential sub-sector from 1985 to 2019. First, there was a substantial decline in the size of the American household, which fell 6 percent from 2.7 in 1985 to 2.5 percent in 2019. This decline resulted from the high growth of non-family households which outstripped the growth of family households by a factor of 2.6. Second, during the same period the average size of residential units rose by 14 percent from 1,846 square feet in 1985 to 2,095 square feet in 2019. The increase in the average size was due to two main factors: the rising share of detached units, which increased by 1.3 percentage points, and the increasing share of larger homes. As a result, the gap between the mean and the median size expanded from 200 square feet in 1985 to 466 square feet in 2019.

 

In the case of passenger transportation, three major trends are notable. First,

light-duty motor vehicle registrations increased at 1.7 times the rate of the population 15+. In the United States in 2019 on average each person registered one light-duty vehicle. Registrations also increased faster than households by a factor of 1.43, and registrations per household rose from 1.72 to 1.96 between 1985 and 2019. Basically, in 2019 an average each US household registered two light-duty vehicles. Second, there was a change in the type of vehicle purchased. In 1980, more than eighty percent of light duty vehicles (LDV) produced in the United States was a sedan or a station-wagon. No car SUVs were produced, and truck SUVs accounted for less than 2 percent of LDV production. Forty-nine years later, the share of cars in annual LDV production dropped to one-third and that of truck SUVs rose to more than one-third. The combined production of car SUVs, pick-up trucks, and pick-up SUVs accounted for nearly two-thirds of total production, 4.5 times their combined share in 1980. Third, the change in the vehicle mix was associated with an increase in the weight of all LDVs. After declining from the mid-1970s to the early 1980s, vehicle weight began to rise steadily. From 1985 to 2019 the average LDV weight rose by nearly one-third (over 1,000 pounds).

 

Some of these changes in the residential sub-sector and passenger transportation represented optional demand. I estimated that 29 percent of energy consumption in the household sector in the US in 2019 was optional. Nearly two-thirds of the optional energy use originated in the residential sub-sector and one-third in passenger transportation. The above optional household energy consumption was equivalent to 11.2 EJ, an amount to satisfy the total combined energy consumption of France and Belgium in 2020.

 

All consumption of energy is related to human activity. People consume energy directly and indirectly. For example, lighting in a home is a direct use of energy by a household while consuming take-out food and purchasing a car are examples of indirect energy consumption. We can consider the household sector as the direct component of energy consumption and the combination of the other sectors as the indirect component. If we assume that ten percent of indirect energy consumption (one third of the percentage for the household sector) in the United States in 2019 was optional, we end up with a total optional consumption of nearly 18 TJ, which is equivalent to about half of the total energy use in the entire continent of Africa in 2021.

 

At this point one may ask: what gains in the quality of life are generated by optional energy consumption? This question was addressed by Jackson et alias (2022). These authors related national per capita energy use in 140 countries (IEA data) for 2018 to nine metrics of well-being: access to electricity, air quality, food supply, income inequality, happiness, infant mortality, life expectancy, prosperity, sanitation. Using “non-linear quantile regression” to determine the upper limit of the energy constraint on human well-being, they reached three important conclusions.  First, as one moves from countries with low per capita energy consumption to countries with high consumption, the “average normalized metric score” first increases rapidly and then it reaches a plateau. Second, the plateau is reached at an average per capita consumption of 74 GJ, slightly lower than the average world per capita energy consumption in 2021. Third, in countries with high per capita energy consumption, reducing this consumption would lead to “little or no loss in health, happiness, and other outcomes.”

 

According to the above results, in the countries with per capita energy consumption in excess of the plateau, a portion of this consumption is “wasted” because it does not generate any increase in human well-being. According to my estimates discussed above, in the United States this waste may exceed ten percent of total energy consumption. A wasteful approach to life is not confined to energy. It is also evident in the food distribution, preparation, and consumption.  One third of food production for human consumption is wasted each year and this waste is enough to feed 2 billion people. In developing countries, waste originates primarily in post-harvest and processing activities while in developed countries it is generated largely by consumers and the retail sector² In the United States food waste is equivalent to 30-40 percent of food production and id generated mostly by grocery stores and restaurants (40%) and at home (43%).³

 

When waste and excessive energy consumption are included in the evaluation of energy trends, an additional ethical dimension is introduced in the analysis. This issue will be discussed in more details in the final chapter.    

 

Notes

¹Giuseppe Ruggeri, 2022, “Household Energy Consumption in the United States, SSRN.4275933.

²World Food Programme, 2 June 2020, 5 facts about Food Waste and Hunger.

³Eco.Logic, “What Does Food Waste Have to Do with Climate Change?”.

Reference

Robert B. Jackson, Anders Ahlstrom, Gustaf Hugelius, Changao Wang, Amilcare Porporato, Anu Ramswami, Joyashree Roy, Jun Jin, “Human well-being and per capita energy use,” Ecosphere, ans ESA open access journal. https://doi.org/10.1002/ecs2.3978.