BlogSpot by Skip Laitner l Desert Years:$3 Trillion Thought Experiment for Rio+20

John A. “Skip” Laitner is Director of Economic and Social Analysis for the American Council for an Energy-Efficient Economy (ACEEE), based in Washington, DC.  Tucson is his family’s hometown, and he likely will be there through August of 2012. While these columns do not reflect the official opinion or views of ACEEE, its board or its staff, he can be reached at jslaitner@aceee.org.

Because I roam the desert a lot, the UV Index is something I pay attention to.  It is an international standard that measures the strength of ultraviolet radiation from the sun at a given time and place. Canada was the first to adopt such an index in 1992. The U.S. followed in 1994, as have any subsequent number of countries since that time.  Today the World Health Organization (WHO) has standardized the UV Index by replacing the many different regional methods that otherwise provided an inconsistent set of results.

 

A UV index of zero is essentially a nighttime reading.  An index of 10 (highlighted by the color red) roughly corresponds to the midday sun beating down on the earth through a clear sky.  Here on the desert we often hit the extreme, at noon, with index of 11.  That is the color purple and not really all that uncommon.  And as I reflected on the thought experiment I am about to describe, yes, I was out on the desert floor at roughly the time when the UV Index hit purple.

 

Knowing my exposure, I suspect some are likely to think that the intense sunshine will explain my estimate of a $3 trillion loss to the U.S. economy. But, I was properly protected and not really outside for all that long. And if we step back to think about it, that very big number may prove a useful metric to help us understand the huge economic opportunities that await us – should we begin to think big about energy efficiency. And I discuss all of this in the context of the 2012 Earth Summit to be convened in Rio later this month.

 

The 1992 and the Coming 2012 Earth Summit in Rio

Twenty years ago the United Nations convened what was called the Conference on Environment and Development in Rio de Janeiro. It was also known variously as the Rio Summit, the Rio Conference, and the Earth Summit. While there was advancement on several environmental fronts, a number of critics suggested that significant progress, both during and following the 1992 Earth Summit, was derailed by what has been called the North-South divide; in effect, the serious economic differences between the rich industrial nations and the many developing countries.

 

I might suggest, in fact, that progress was held up more by failure to read and understand the energy intensity index. We can think of this as a connection between environmental quality and the huge inefficiencies with which we use energy, water and other natural resources (see More by Waste than Ingenuity for a different look at the scale of our wastes).

 

More to the point, if we pay attention to increased energy productivity, we are better able to see that we can actually afford the investments which will enable our efficiency upgrades; and we will find we are better off if we make those large-scale efficiency improvements over the next several decades.  The question becomes one of how we might introduce the productivity perspective when the United Nations convenes the United Nations Conference on Sustainable Development later this month – hosted again by Brazil in Rio de Janeiro. Rio 2012 or Rio+20 will be an important 20-year follow-up to that historic 1992 summit.

 

An Energy Efficiency Thought Experiment

Yes, it absolutely does require energy to drive our economy. But we can power economic activity so much more efficiently and cost-effectively if we’ll step back and ask better questions – ones that lead to more productive investment patterns.  We can get a sense of the scale and missed opportunity these past 20 years by examining the change in our energy intensity over the last bunch of years, especially since 1950 to provide a historical context, and also since 1992 when the last Earth Summit was convened.  And we can then compare the year 2012 as we now expect it to look with what a greater energy efficiency improvement might have otherwise provided. Key data are provided in the table that follows.

 

 Year

GDP

(Billion 2005 $)

Total Energy

(Quads)

Intensity (kBtu/$GDP)

Average Annual Growth Rate

1950

2,006

34.6

17.3

n/a

1992

8,287

86.0

10.4

-1.2%

2012 preliminary actual

13,589

97.1

7.2

-1.9%

2012 thought experiment

13,589

76.7

5.6

-3.0%

Source: Various data from the Energy Information Administration and author calculations based on those data.

 

Before we examine the table above, we first need to understand what we might think of as the energy equivalent of a UV Index, or what we call energy intensity. In this case we measure energy intensity as the number of energy units, Btus or British thermal units, as they are consumed per dollar of Gross Domestic Product (GDP). Here we compare physical energy units to constant dollars of GDP to remove the effects of inflation.  It is not an entirely satisfying indicator but we can use the reduction in Btus per dollar of GDP as a proxy for improvements in energy efficiency.

 

In 1950, for example, we needed 17.3 thousand Btus of energy for every dollar of economic activity recorded in that year.  That might be akin to the color purple in the UV Index. Our total energy needs in that year was about 34.6 Quadrillion Btus, or Quads. By 1992 a variety of efficiency gains dropped that index to 10.4 thousand Btus; unfortunately, still in the red zone.  While there was something of a roller coaster effect in the actual year-to-year changes, the data above show an average 1.2% rate of decline over that 42-year period.

 

The good news is that we showed some improvement with a rate of decline that accelerated to 1.9% annually over the period 1992 to 2012. Hence, our nation’s energy intensity will have dropped to somewhere close to 7.2 thousand Btus later this year.  While this is, indeed, a decent rate of improvement, we are still in the orange or high zone. We could have done much better.

 

If we had followed the kinds of improvements that were laid out in the January 2012 study published by the American Council for an Energy-Efficient Economy (ACEEE), the Long Term Energy Efficiency Potential, we might have encouraged an even better 3% annual rate of decline in our nation’s energy intensity.  That would have pulled us down to 5.6 kBtus per dollar of economic activity – what we might think of as now in the yellow or moderate zone. By way of comparison, the ACEEE Long Term Energy Efficiency Potential study suggests that, with smart policies and improved investment patterns, we could get down below 2.0 kBtus over the next three to four decades.  That would certainly put us in the green zone.

 

The table above doesn’t show all the individual annual values but as it turns out, we actually did achieve a 3% rate of improvement four different times out of the 20 total years since the last Rio summit. But if we had actually sustained a 3% rate of improvement over the full 20 years, we would be using 21% less energy than we do today, or 76.7 quads instead of the 97.1 quads now projected for the end of this year.

 

More critically, our nation’s economy would have saved something very close to a cumulative $3 trillion in avoided energy costs over the period 1992 through 2012.  Again referencing the ACEEE study, that magnitude of energy bill savings would have been more than sufficient to pay for the program and investment costs – and still have left a health amount of money for households and businesses to pay for goods and services other than energy.  Perhaps equally compelling, the physical energy savings would have saved us two years of greenhouse gas emissions. In effect, a smart pattern of energy efficiency investments would have produced a net savings of money, and would have greatly reduced the impact on the global climate and environment.

 

The Usual Caveats Do Apply, But It’s Still a Pretty Good Story

I’m the first to admit the usual caveats apply.  These are rough values which I offer more in the way of gedankenexperimenten, or thought experiments that are very much in the tradition Hans Christian Ørsted and Albert Einstein, rather than as a counterfactual or the basis for specific actions that we might undertake following Rio+20.  To be sure, there are a good many questions that we would need to answer. For example, would the economy have rebounded and grown slightly larger with a higher level of productivity? In effect would we have used up some of the energy savings with a slightly larger economy?  But would energy costs have dropped as a smaller demand would create a downward pressure on energy prices?

 

And with smaller levels of demand, might we have eliminated a proportionately larger share of fossil fuels which are the single biggest driver of greenhouse gas emissions and other pollutants?  Yes, this thought experiment would benefit from a further validation, but I think it’s still a potentially powerful story; and one that might allow us to follow Rio+20 with a much smarter pattern of behaviors and investments.