Are we finally changing the growth of demand?

For many years it has been an article of faith amongst energy economists and analysts that energy demand will always increase with increasing wealth (GDP). This is the basis of most energy scenarios and forecasts.  Now, however, some evidence is appearing that this linkage has been broken, or at the very least significantly changed.  If it proves to be correct it has significant implications for energy planners and the energy industry everywhere.  It also has implications for fans of the Jevons paradox.

The Energy Information Administration is projecting that electricity use in the U.S. will rise an average of just 0.6% a year for industrial users and 0.7% for households through 2040 – well below the projected rates of economic growth.  Some of this is due to changes in the structure of the economy but some is due to accelerated efforts to improve energy efficiency.  As a result utilities are having to rethink old assumptions.

http://online.wsj.com/article/SB10001424127887323689604578217831371436110.html

Massachussets for example, which has long had aggressive energy efficiency goals has set even more rigorous targets in its 2013-15 Clean Energy and Climate Plan (CECP).  The state has the following aims: to increase electric energy savings from 2.11 percent of retail electricity sales in 2012 to 2.60 percent by 2015 and gas energy efficiency from 1.02 percent to 1.19 percent over the same period.  The proposed three-year energy savings for the period 2013-2015 is about 1.19 million megawatt hours greater than savings from the combined 2010-2012 levels, or equivalent to the greenhouse-gas reductions that would be achieved by eliminating the energy use of approximately 100,000 homes.

Here in the UK we have seen a number of businesses including Sainsburys switch from a relative energy reduction target (energy per square metre or similar) to an absolute energy reduction target.  Given that the retailers haven’t given up growth this really illustrates that energy use can be decoupled from economic growth.

If we can accelerate the on-going reduction in energy demand per unit of GDP from its long-term average of c.1% per annum to 2 or 3% per annum, then overall energy use will go down if economic growth is 2 to 3% per annum (which would be very nice in the UK or the rest of Europe!). This acceleration in the rate of reduction in energy demand per unit of GDP should be one of the key targets of energy policy.