Energy Intensity

Common opinion holds that if economic activity is increasing the consumption of energy will follow suit. At first glance this seems a convincing argument: producing 10 cars uses 5 times more energy than producing 2 cars. However, reality is not quite that simple.

First of all, there are scale effects coming into play. You do not switch on the whole production chain for each car individually, but rather try to produce the whole lot “in one go” which means that the entire production process will become more efficient which, in turn, helps saving energy. This essentially means that the scaling factor in the above example is no longer 5 but less than that.

Apart from making economic processes more efficient there are other factors which determine the level of energy intensity. Introducing energy saving measures, using machinery with a lower energy consumption, changing consumption patterns and other issues may lead to a lower energy intensity. So what is energy intensity? It is defined as the inland consumption of energy (coal, oil, gas, electricity and renewables) per unit of GDP within a certain period, usually one year.

As energy is an important cost factor it is desireable to minimize its use per economic output. This is true not only at the level of entreprises or businesses, but also for the economy as a whole. If we manage to produce more with the same (or even less) energy we may in the long run reduce our import dependency. However, so far the successful lowering of the energy intensity at European level has not yet led to a significant reduction of energy imports from third countries.

In Fig. 1 we see the energy intensity in kg of oil equivalent (kgoe) per 1000 EUR of GDP for EU-27, EU-15, Germany, France, Italy, UK and Spain from 1990 to 2009. Note that there are no data available for 1990 for EU-27. EU-15 and Germany (year of unification between East and West Germany). All data are taken from Eurostat.

Fig. 1 Energy intensity in kgoe/1000 EUR of GDP

One striking observation is that all countries of our selection as well as the EU as a whole have managed to reduce their energy intensity considerably since 1995. At EU-27 level the respective level has gone down by almost 21 %. Germany could reduce its energy intensity by almost 18 %, whereas UK managed to cut it by more than 30 %. On the other hand, the figures for the southern countries Italy and Spain are less impressive with 6.8% and 6.1%, respectively.

Another remarkable feature of our data sample is that intensity lines for individual countries generally do not cross. The line representing France is always above the one representing Italy. At first glance, this may imply some “intrinsic factors” like climate conditions, differences in economic profile (agriculture, heavy industry etc.) which may explain a certain “unbridgeable” gab between countries. However, as our figure clearly indicates, it is indeed possible that country lines cross each other. UK, starting out at an energy intensity well above Italy in 1995, has succeeded to fall consistently below the Italian level. Moreover, this is not a short term fluctuation, but rather can be safely considered a consistent trend. This, in turn, indicates that energy saving measures may have a significant impact on the efficiency of energy usage.

The decoupling of economic performance and energy consumption can be seen in the following two figures referring to Germany and Denmark, respectiveley. In order to facilitate the visibility of the effect we had to adjust the figures somewhat as will be explained immediately. Fig. 2 shows the case of Germany during the period 2001-2009.

Fig. 2 Germany´s inland consumption vs. GDP

The figures for the GDP are given in G€, whereas – for better visibility – inland consumption has been scaled as Mtoe*5. This puts the two curves close to each other and clearly indicates the respective trends.

Fig. 3 shows a similar pattern for Denmark. Here again, the GDP is plotted in G€, and inland consumption is put on a scale of Mtoe*10.

Fig. 3 Inland consumption and GDP in Denmark

Both, Fig. 2 and Fig. 3 show the impact of the economic crisis starting in 2008 on economic output and inland consumption. Nevertheless, during the years before the financial crisis it is obvious that an increase in GDP comes together with a decreasing energy consumption.

One question to be asked is whether there is a lower limit to the energy intensity which cannot be undercut. One is inclined to think that a country´s level of energy intensity may be largely determined by factors such as climatic conditions, the level of industrialization etc. However, it is possible that northern countries may “beat” the southern ones, as the case of UK and Italy indicates. Moreover, there are substantial differences even between countries situated a similar latitudes like Italy and Spain. This, in turn, may indicate that there is still a considerable potential for improvement in the case of Spain.

Summing up, we can conclude that it is possible for developed economies to have a growing GDP while at the same time keeping energy consumption stable or even lowering it.

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