Friday, February 13, 2009

Part 2: Energy Consumption as a Function of Economic Growth

The direct link between economic growth and energy consumption is nicely illustrated on this 2005 graph created by the Energy Information Administration of the US Department of Energy. From 1980 to 2005 the graph shows a single line which represents the historic increase in energy consumption over this time period. From 2005 to 2030, three different projections are provided. The reference scenario assumes that the global economy will continue to grow at roughly the same rate as it has for the past 25 years. If the economy were to grow more rapidly, the forecast indicates that this would correspond a more rapid growth in energy consumption. Lower economic growth would result in a slower increase in energy demand.

This strong correlation between economic growth and energy consumption isn’t unexpected. Economic growth is commonly defined as the increase in the amount of goods and services produced by an economy over time. In our industrialized world, the creation, transportation and consumption of these “goods and services” are completely dependent on a unrestricted source of cheap and available energy.

It might be helpful to give an example. Let’s look at automobiles. There is a chain of events that occurs for every car that is produced and every step in that chain consumes a certain amount of energy. These steps range from the mining, extraction and refining of iron ore, manufacturing steel, transporting materials to factories, forging parts, molding the plastic components, powering the factory assembly lines, transporting workers from their homes to the factories and transporting the finished cars to the dealerships. Each car that is produced represents an accumulated expenditure of energy. The more cars that are produced, the larger the energy expenditure. This same type of illustration can be made for the resource extraction, agriculture, construction, transportation, housing, communication and tech sector.

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