Monday 9 March 2015

Gwyneth Paltrow made the term “conscious uncoupling” famous when she split from Coldplay’s Chris Martin (ed. who he?) but now perhaps the time has come to adopt it in the energy world. I have written before about the decoupling of energy use and GDP (see here). When I was first learning about energy and economics in the late 1970s it was an article of faith that the link between energy use and GDP was fixed and therefore that as economies grew wealthier they would use ever more energy. This fed into (and still feeds into) all official projections of energy use (see here for example), as well as the technical fantasies of the government of the day and bodies such as the old CEGB. The Department of Energy, for example in 1976 estimated energy demand by 2000 would be up 43%, instead it rose by 3%. More recently the decision to proceed with Electricity Market Reform was primarily driven by unrealistic scenarios of greatly increased electricity use – for details see “A Corruption of Governance” by ACE and Unlock Democracy here.


Over the last few years there has been mounting evidence that the link between GDP and energy use has been broken in mature economies including the UK, Europe and the USA. The latest figures from DECC (see here), released on the 26 February, just add to this evidence base. To quote: “Primary energy consumption on a fuel input basis decreased by 7.0 per cent, and on a temperature adjusted basis, was down 3.1 per cent continuing the downward trend of the last nine years.” About 1 per cent of this change (both temperature adjusted and unadjusted) is accounted for by a switch from coal generation to wind as wind and solar are measured as energy output, while losses are recorded in transforming coal to electricity.


UK GDP grew 2.6 per cent in 2014 and so the energy ratio (energy consumption per unit of economic output) has fallen by around 5.6 per cent, above the average of 3 per cent per annum since 2000. UK GDP grew 67 per cent between 2000 and 2014 while primary energy consumption (temperature adjusted) fell by 18 per cent.


In Europe there is a similar story. According to Eurostat Europe’s total gross energy consumption is down 9 per cent from its historical peak in 2006 and is currently at a level last seen in the early 1990s (see here).


This is a great result but I probably should have titled the piece “unconscious uncoupling” because I don’t think we have been very conscious about accelerating energy efficiency over that period. There is an underlying “natural” rate of improvement in energy efficiency that comes about through the introduction of more efficient products and buildings as capital stock turns over – that has been going on over centuries of technological progress. Then overlaying that is the “accelerated” rate of energy efficiency improvement that comes about from active policies and programmes to encourage further gains. I am starting to believe that we have actually improved both of these over the last few years as entrepreneurial talent and investment has increasingly moved into energy efficiency technologies and regulations have forced underlying assets like cars to be inherently more efficient. Having said that we have not yet aggressively set out to accelerate the rate of improvement.


Having sounded a positive note, it is clear from surveying the current energy and energy efficiency scene that there is still a massive potential to improve overall energy efficiency and that there is still too much focus on energy supply side solutions. Efforts like the Investor Confidence Project and new contract structures are helping to make energy efficiency more investable, making it look more like any other source of energy services, and if we can deliver these solutions at scale then we will see further significant improvements in energy per GDP, probably at a level that will greatly surprise the energy supply establishment and governments.


There were some other interesting numbers in the DECC statistical release. Fossil fuel dependency has fallen to 83 per cent, a record low. More alarmingly, given the long-term prospects for the global energy market, and the more immediate geopolitical concerns around Russia and the Middle East, is that import dependency once again increased, reaching 48.7 per cent in Q3 2014, up 5.7 percentage points from Q2 2014 – despite the growth in renewables. Our import dependency, driven by rapidly declining UK Continental Shelf oil and gas production, is a big concern as it leaves us vulnerable to supply disruptions and limits our degrees of freedom on the global stage – a particularly important point at this time. In Europe the energy security situation is even worse with import dependency of 53 per cent and an expenditure on energy imports of more than €500 billion in 2013, that is €1.3 billion a day that was shipped out of Europe. Even with the fall in oil prices this is a major security and economic issue.


It is increasingly clear that our best solution to import dependency and the associated energy supply risks, as well as other energy supply related problems, is to reduce energy demand by aggressively targeting even larger rates of reduction in energy per GDP through accelerating energy efficiency across the economy. Doing so would bring multiple benefits at individual, local, national and global levels.


To learn more about conscious uncoupling see here and here.


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Dr Steven Fawkes

Welcome to my blog on energy efficiency and energy efficiency financing. The first question people ask is why my blog is called 'only eleven percent' - the answer is here. I look forward to engaging with you!

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