Energy Intensity in Europe, the US and Japan

In the previous posting we analyzed the development of energy intensity at a European scale. The findings were twofold: on the one hand, we saw a clear tendency to lowering the amount of energy per unit of GDP. This means that energy is used in a more efficient way. On the other hand, there are still remarkable differences between the EU member states. The gap between, say, Spain and Denmark which amounted to 63.72 kgoe/1000 EUR in 1995 has actually widened over the years and was at 79.44 in 2009. Thus, Denmark has clearly done better than Spain during that period. This, in turn means, that there is substantial room for improvement on the Spanish side.

Arguably one might say, that Spain and Denmark are not at the same level in terms of productivity, and that is certainly a valid point. However, from the Spanish point of view it is strongly desirable to become more competitive and thus increase its productivity.

In this post we want to have a closer look at the energy intensity of the three main economies in the world having comparable levels of productivity: the EU, the US and Japan. The raw data for the following analysis have been taken from Eurostat. As usual, the quantity in question is measured in kgoe/1000 EUR of GDP.

Fig. 1 Energy intensity in the EU, US and Japan, kgoe/1000 EUR

First, we observe a decline of energy intensity in all three economies. However, this decline is much more pronounced in the EU and the US than in Japan. During the period in question the US saw its intensity figure falling by 25.6%, while Europe faced a decline of 20.9%. Japan, on the other hand, came down by a mere 11.8%. Why is that so? It seems that Japan has already reached a saturation level when it comes to using energy in the most efficient way. The US and Europe have considerably improved their output figures, delivering a higher GDP per unit of energy used.

Nevertheless, there is still a huge gap between the two “Western” economies and Japan. Clearly, the gap is narrowing. In 1995, it was some 104.9 kgoe/1000 EUR between the EU and Japan, while the respective difference between the US and Japan was 134.6. In 2009, this has come down to 73.5 (EU-Japan) and 85.7 (US-Japan), respectively. Thus, the United States are still using almost twice as much energy per unit of GDP as Japan.

Improving productivity and introducing energy saving measures are the key parameters if we want to perform equally well as Japan. Clearly, Japanese economy has set the baseline which we should try to achieve. It is possible to bring energy intensity down to less than 100 kgoe/1000 EUR. However, this may take several decades given the current level of progress.

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.

Europe´s Energy Production and Consumption

Europe´s energy production is declining. Taking the year 1990 as a baseline, total energy production was down by more than 13 % in 2009. Although the years 1995 and 2000 show a slightly higher output compared to the baseline scanario, the overall trend is pretty obvious. In absolute figures, the loss amounts to some 125.6 Mtoe. The source data for the following figures have been taken from Eurostat.

Fig. 1: Total EU Energy Production 1990-2009, Mtoe

However, this observation based on the entirety of all primary energy sources deserves a closer inspection. Let us therefore have a look at the various sectors of energy production. These are as follows: solid fuels, oil, gas, nuclear, renewables and others. Examining these sectors in more detail reveals some important facts.

The first striking observation is that the production of solid fuels went down by more then 50 % during the period in question (1990-2009). Simultaneously, the production from renewables more than doubled. Nevertheless, the increase of the the latter (76 Mtoe) is by far insufficient in order to compensate for the decline in solid fuel production (201 Mtoe). Compared to those two factors the variation of the other components such as gas, nuclear etc. has been of minor importance.

Fig. 2: EU Energy Production by Sector, 1990-2009, Mtoe

At the same time, Europe´s energy hunger is increasing as can be seen from the figure below. Yet, this is not the only remarkable piece of evidence. Whereas production output is ranging slightly over 800 Mtoe in 2009, the consumption figures are about twice as high. This creates a significant import dependency which gets even more pronounced as the data clearly indicate that indigenous production is decreasing while simultaneously consumption is growing (with the exception of 2009 due to obvious economic problems).

Fig. 3: EU Gross Inland Consumption, 1990-2009, Mtoe

It is worthwhile to combine the data for production and consumption in one figure. This clarifies the dimension of the gap between these two basic parameters. This gap needs to be filled with imports from third countries. The slump in consumption in 2008/2009 is caused by the financial crisis which severely affected the European economy. Once the economic activity recovers, an increase to pre-crisis levels may be anticipated.

Fig. 4: Gap between EU Energy Production and Consumption 1990-2009, Mtoe

As a matter of fact, Europe is highly dependent on energy imports. This is not the place to discuss the strategic, political and economic consequences of that clearcut observation. Moreover, it remains to be seen to what extent this apparent import dependency may be compensated by the increasing use of renewable energies. At first glance, it appears that the huge gap may never be filled completely by renewables. So the question is to what extent they may contribute to diminishing Europe´s import dependency on primary energy sources.