A Primer on Energy
- Have we become an energy blind society?
The human endeavour to impose order on the environment – something we are required to do for survival – depends on the amount of available energy we can use for this task. An indigenous tribe is limited in its capacity of imposing order compared to a society that has the technical means to erect entire cities made of steel, glass, and cement.
Originally, our species was limited to the physical strength of our own muscles during the hunter-gatherer period, with the addition of domesticated animals and early “machines” like wind- and watermills once settled agricultural societies became the norm. This evolution, however, always had an energy component that permeated both our social and our biological development: There is significant evidence that using fire (a form of thermal energy) to cook meat before consumption makes the energy contained more easily absorbable for the human body, causing Homo sapiens to become both stronger and taller.
Every step along the way of energy’s evolution human beings became more prosperous, because it freed up time and capacity to do additional things. For example, once the task of grinding cereals into flour is no longer done manually but by wind- or watermills, it frees up both time and energy for other activities, yet will still end up with more flour than before. The emergent calorie surplus than allows you to have people engaging in activities like science and medicine because they can be fed despite not contributing directly to food production itself, allowing societies to become ever more productive and live longer lives.
The history of economic development is not only a story of institutional innovations and reforms that enabled free markets, but also a story of constant progress in the use of ever more efficient energy sources, culminating in the Industrial Revolution of the 18th century. The Industrial Revolution was in many ways an energy revolution, characterized by the shift away from wood, animal, and human labour to first industries powered by machines and hydrocarbons (coal, oil, and gas).
While institutional and cultural changes played an important role, most of contemporary economic history tends to neglect that what made the Industrial Revolution unique was the exponential growth in available energy. In 1870, British steam engines generated 4 million horsepower, the equivalent of work done by 40 million men – at a time when the entire population of Great Britain was a mere 31.5 million. Feeding such a workforce would have required three times Britain’s entire wheat output, but once it was possible to create one horsepower per pound of coal, instead of feeding humans, industry fed machines with a resource abundantly available. But coal was just the beginning as human beings were climbing up the ladder of energy dense resources: Wood was replaced by coal, and coal was replaced by oil and since 2008 increasingly by natural gas – or to be more precise, fuels were added, since we are still consuming all of these resources in different ways for energy.
The current yearly energy use of the world is close to 100 billion barrels of oil equivalent, which is about the same amount of energy created by 500 billion human workers. The energy content of a barrel of oil is 5,700,000 British Termal Units (BTUs = the amount of heat required to raise the temperature of one pound of water by one degree Fahrenheit) or 1700 kWh of work potential. For comparison, it would take the average person 4.5 years to generate the same amount of work.
Described in terms of physical labour, the energy use in Western countries is equivalent to having between 200 and 240 people working nonstop for the average person compared to pre-industrial times when machines did not exist. The average American has about 40 devices plugged in and drawing energy all the time – from cell phones to refrigerators to washers and dryers. Modern civilization is a direct consequence of the availability of energy (mostly in the form of hydrocarbons), because it enabled exponential growth in productivity. Although the combustion of materials like coal, oil, and gas has certain inefficiencies, (a lot of energy gets lost as heat), the power of the steam engine and its successors was still superior to manual labour or wind- and water mills.
The transformation from manual labor to machines did not just multiply industrial output, it also made economic models based on slavery and forced labor uncompetitive. It is no coincidence that after the Industrial Revolution Great Britain also became the leading force in the abolishment of slavery, or that during the American Civil War it was the industrialized North that fought against the slave-holding South. Certainly the energy driven industrialization had its downsides as well, especially the exploitation of the newly emerged working class. It remains important, however, to put this into perspective as well: It took humanity millennia to abolish slavery, but only a few centuries to transform an impoverished working class into a prosperous middle class.
This allowed a tremendous increase in living standards, causing the average Briton in 1960 to be six times richer than his great grandfather in 1860. It also allowed more and more people to move from the agricultural sector to other sectors of the economy, as the industrialization of farming enabled higher outputs with less labour, freeing human capital for other endeavours and allowing human beings to make a living based on skills other than physical labour. Between 1800 and 2020, the required labour to produce one kilogram of grain dropped by more than 98 percent. Corn yields in the United States rose from 2 tons per hectare in 1920 to 11 tons per hectare in 2020. Similar trends can be observed around the world: As agriculture becomes more energy intensive, outputs start to increase significantly. Since 1961 cereal production and cereal yields have grown by over 200% worldwide. In the 100 years between 1900 and 2000, the global population grew approximately 400%, compared to an expansion of available farmland by about 40 percent. According to in-depth calculations, the energy used by human beings in the area of agriculture has grown by a factor of 90, especially due to the widespread use of energy embedded in agrochemicals and the fuels directly consumed by machinery.
From food to material comforts, an abundant and steady supply of energy is the resource that makes all of it possible. In other words, it is the master resource ultimately deciding the level of prosperity a society can maintain. Western societies have become so hostile to the concept of energy (particularly from fossil fuels) that both the public and policymakers seem to believe that our current standards of living can be maintained even as energy becomes a scarcer and more expensive resource. Another assumption is that all hydrocarbon sources of energy can be easily replaced by wind, solar, and other renewables. Both of these assumptions are wrong, and pursuing them will have a negative impact on future economic growth and price levels.
- Where are we heading?
Until the invasion of Ukraine by Russian forces in the spring of 2022, most Western societies where not particularly concerned about broader the role of energy in their economies and daily lives. Most people simply assumed that electricity supply is constant and reliable, heating a matter of flicking a switch, and that food and agricultural products are available both in abundance and at low prices in local supermarkets.
As already mentioned, all of these conveniences of modern life are extremely energy intensive to maintain and without access to it, both supply security and prices can change very quickly. From modern health care systems, global communication networks, mechanized agriculture, artificial fertilizer, to the air conditioning of living spaces in areas afflicted by great heat or significant cold spells – all of these amenities of modern life require massive amounts of energy. In the words of the anthropologist Leslie White: “Other things being equal, the degree of cultural development varies directly as the amount of energy per capita per year harnessed and put to work.” The standard of living a society enjoys is directly connected to the amount of energy it can use. It is therefore no coincidence that the wealthiest billion people on this planet consume on average 14 barrels of oil per capita, while the remaining 7 billion only consume 3 barrels per capita. The average per capita energy supply of 3.1 billion people on this planet is about the same level as it was in Germany and France in 1860. For Africa to reach the same energy per capita use as Germany, their energy consumption would have to grow by a factor of 10.
For most of human history, a significant part of our economic activities was connected to the provision of energy. In pre-industrial times, societies spent 30% to 40% of GDP on energy, of which over 70% consisted of biomass: Food for labour, food for animals, and wood for combustion. Contemporary modern economies spend less than 10% of their GDP on energy, because the sources of energy have become both cheaper and more efficient. The Industrial Revolution was in truth an energy revolution, freeing up both economic and human resources for new activities.
Contrary to how it is often represented, energy is not just one resource among many, but it is the “Master Resource” that keeps everything else moving. To put it differently, it is the energy sector of a modern economy that makes all other sectors possible. Energy is needed for everything in our economy, and there is no area contributing to GDP that does not have a significant energy input. The way in which this energy is produced and the price following the nature of production therefore influences all areas of the economy. The contemporary global economy is primarily fossil fuels based: Global primary energy consumption in 2022 consisted of 28% coal, 32% oil, 26% natural gas, 0.82% solar, and 1.31% wind.
Assuming that all humans everywhere aspire to have higher living standards, these energy needs will not decline in the future. These aspirations, however, cannot be fulfilled without bringing more energy sources online. Global energy demand will grow for decades to come, and any policy restricting the further exploration and exploitation of energy sources will lead to supply shortages with significant consequences. The world got a taste of this in 2022, when the risk of energy shortages in Europe caused governments from Portugal to Poland to spend over USD 1.2 trillion on energy and energy subsidies. After Russian gas became less available, European nations had the financial means to divert global energy supplies to their advantage, but at great cost for those countries that were priced out of the market. American LNG kept the lights on in Europe, but Pakistan and Bangladesh had to experience an electricity crisis because they could no longer afford natural gas.
- Is there an energy transition?
Despite all the talk about an imminent energy transition and the end of fossil fuels, the reality is more complex. On a global scale, we are experiencing an “energy addition” not and energy “transition.” Renewable energy sources are being added to the consumption of other forms of energy, but in most cases there is no significant replacement of traditional energy sources with the exception of coal in some developed nations. At the current state of technology, the most prominent sources of renewable power – wind, solar, and hydropower – are producing electricity, which accounts for approximately 20% of global final energy consumption. About 3% of global electricity are produced through the burning of oil, which means that at best renewables can replace those 3%, but they cannot replace the other 97% of crude oil use. Also the widespread adoption of electric vehicles will only have a limited impact on the global consumption of oil. First, it is impossible to process only a fraction of a barrel of oil. This means that as long as the world needs all the other products made from oil (asphalt, diesel, petrochemicals, plastic-precursors, etc) refineries will also continue to produce gasoline as a by-product. A growing share of EVs will most likely lead to a decline in gasoline prices, and while the internal combustion engine is about to be banned in some parts of the West, gasoline powered cars will remain on the road throughout the world, and their drivers will gladly accept cheaper gasoline prices. A second aspect is that the energy transition as it is currently planned will need significant increases in global mining activities. As the International Energy agency has assessed, clean energy needs more minerals than other sources of energy production: “Solar photovoltaic (PV) plants, wind farms and electric vehicles (EVs) generally require more minerals to build than their fossil fuel-based counterparts. A typical electric car requires six times the mineral inputs of a conventional car and an onshore wind plant requires nine times more mineral resources than a gas-fired plant. Since 2010 the average amount of minerals needed for a new unit of power generation capacity has increased by 50% as the share of renewables in new investment has risen.” Mining, of course, is a very energy intensive industry and most of the machinery used needs large amounts of Diesel, which will be mostly produced from crude oil for decades to come.
The closest thing to an actual transition has been from coal to natural gas in the United States, where the shale revolution and the widespread use of fracking have led to low prices for natural gas. Based on data from the energy transition in the United States, there have been three successful ways of moving away from coal, and these are the increased use of nuclear, hydropower, and natural gas. The idea that a full transition to primarily wind and solar is possible in the near future is not anchored in reality. Electricity production via weather dependent renewables is not reliable enough to become the sole source of electricity, much less energy in general. This would only be possible after a series of significant technological breakthroughs in battery and storage technology – and after these breakthroughs have become economically viable and can be produced at scale. Such transitions take time even after their theoretical possibility has been proven: The Lithium-Ion battery was invented in the 1970s but did not become commercially available until the 1990s. This means that whatever promising developments are currently taking place in laboratories and research institutions – and encouragingly, there are quite a few – it will take time until the most practical of them can be rolled out on an industrial scale. The most promising source of electricity that both provides reliability and efficiency would be nuclear power. This technology, however, continues to fight an uphill battle against political opposition and often excessive regulations, causing both prohibitive construction costs and times. There seems to be an attitude shift among the European public, so it cannot be ruled out that nuclear power will experience a Renaissance, but at the moment this remains uncertain.
Another potential solution is the increase in energy efficiency, meaning we can do more with less. As a matter of fact, this is already happening: Since the 1990s, the amount of energy required to produce one Dollar of GDP has declined by 36% – in the same time, however, overall energy consumption has increased by 63%. Energy supplies will have to grow to keep pace with the economic aspirations of the developing world, especially as these countries continue to modernize and, even more crucially, urbanize.
There is the pervasive misconception that the number of human beings is the biggest reason for rising emissions and pollution, but that is not true. If we would all live like hunter gatherers, our carbon footprint would be relatively small. It is urbanization and modernization that is the driving force. The scientist Vaclav Smil describes cement, steel, plastics, and ammonia as the four pillars of civilization – the first three are needed to build cities, and the last is needed to feed them in the form of synthetic fertilizers. They consume 17% of the world’s primary energy and generate a quarter of fossil fuel CO2 emissions.
The world will continue to run on energy, and fossil fuels will continue to play a significant role for decades to come. While the energy transition is inevitable, it is not imminent – a fact that will not change despite promises to the opposite by politicians. The global energy outlook for the medium to long term will continue to be on a growth path, and the biggest threat to prosperity is underinvestment in the energy sector.
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