The Worst Way to Measure Energy Efficiency
The international focus on “energy intensity” is hurting the fight against climate change.
Recognizing the flaws of simple energy intensity ratios, the U.S. Energy Information Administration has developed several new indexes to measure the real energy efficiency of the economy. One of them, the "economy-wide energy intensity index," attempts to measure the energy needed to perform a particular activity, but measures it in energy terms to avoid the pitfalls of GDP. (As Robert F. Kennedy quipped in 1968, GDP “measures everything … except that which makes life worthwhile.”) By the Energy Information Administration’s index, the aggregate intensity of transportation, industrial activity, residential and commercial buildings, and electricity generation across the whole U.S. economy fell by only 0.56 per year—one-third the rate of the simple measure.
Source: Department of Energy Efficiency and Renewable Energy/2013 Economic Report of the President
Second, the rate of decline in energy intensity has slowed considerably in recent years, from 1.2 percent per year on average between 1980 and 2000, to only 0.5 percent per year between 2000 and 2010, according to the International Energy Agency. The agency attributes most of the slowdown to the global shift of energy-intensive activity to the developing countries of Asia, where coal is still king in power generation.
In its World Energy Outlook reports, the International Energy Agency has repeatedly urged the world to adopt policies that accelerate improvements in energy efficiency. In its 2012 report, it graphically illustrated what energy demand would look like under multiple scenarios and what it would take to limit global atmospheric carbon concentrations to 450 parts per million—the concentration generally agreed to limit the average global temperature rise to 2 degrees Celsius over pre-industrial levels and avoid the worst outcomes of global warming.
The International Energy Agency’s New Policies Scenario assumes a 16 percent reduction in energy intensity by 2015 in China, new fuel-economy standards in the United States, a 20 percent reduction in Europe's energy demand by 2020, and a 10 percent reduction in Japanese electricity demand by 2030. But the International Energy Agency admits that even with the 1.8 percent per year reduction in global energy intensity through 2035 outlined in its optimistic New Policies Scenario, the world would hit the international 2-degree target by 2017. To delay that intersection by just five years, the reduction in global energy intensity would need to be 2.4 percent per year—a rate that has never been attained—and achieved through an additional $11.8 trillion investment in efficient end-use technologies.
Unfortunately, even the International Energy Agency’s New Policies Scenario might be out of reach.
For example, it is far from certain (or even likely) that China will develop its substantial shale gas resources and drastically cut its coal demand after 2015. According to a 2008 analysis by researchers at the Universities of California at Berkeley and San Diego, the IPCC estimate of China's CO2 emissions rising by 2.5 to 5 percent between 2004 and 2010 was far too low; the region's emissions were actually set to grow by at least 11 percent. According to the U.S. Energy Information Administration, China's coal consumption has surged for 12 consecutive years, and it now burns almost as much coal as the rest of the world combined.
Things aren't much better in the United States, which has been expected to help lead the way on global energy efficiency improvement. A congressional package of tax credits and grants designed to cut the power demand of buildings and factories faces an uphill climb against intransigent GOP lawmakers determined to block any increase in federal spending. Meanwhile, hopes for a binding global agreement to take action on climate change are all but dead, while carbon emissions and energy consumption are projected to keep rising up, up and away in all status-quo scenarios.
But perhaps a kind of progress is under way. President Obama's 2008 "Plan to Make America a Global Energy Leader" declared his intent to "[d]ramatically improve energy efficiency to reduce energy intensity of our economy by 50 percent by 2030." By contrast, the just-released 2013 Economic Report of the President recognizes the deficiencies of simple energy intensity, highlights the Energy Information Administration’s new Economy-Wide Energy Intensity Index as a better way of measuring energy efficiency, and expresses a commitment to achieve better energy efficiency and switch to zero-emissions energy sources like wind and solar.
The European Environment Agency, however, still uses the energy intensity metric and claims that it shows a "decoupling between energy consumption and economic growth" which "is likely to alleviate the environmental pressures of energy production and consumption." Such blithe assertions cannot be the basis for sound climate and energy policy. It's time to leave the squishy energy intensity metric in the dust. As Wang remarked, "Lower energy intensity is not the only way to solve the climate change problem." Real improvements on climate and energy can't be obtained by offshoring dirty industries to the rest of the world. Only an economy that runs efficiently on clean energy will suffice.
Chris Nelder is an energy analyst, consultant and media guest who has written about energy and investing for more than a decade. He is the author of Profit From the Peak and Investing in Renewable Energyand has written for the Harvard Business Review blog, Financial Times Alphaville, the Economist Intelligence Unit, Scientific American, and many other publications. He consults with business and government on the future of energy, writes a column at SmartPlanet, and blogs at GetREALList.com.