Book Review: Energy Innovation – Fixing the Technical Fix

The energy policy of our time is a mess. What can be done about it? Lewis Perelman addresses the problem by first analzsing its various roots and subsequently pointing towards possible solutions. Not surprisingly, the roots are manifold comprising technical as well as political sources. In a nutshell: there are very good reasons to go “away from emissions regulation and toward technology innovation”.  The ultimate goal is to “make clean energy cheap”.

Clean energy, however, does not become cheap by subsidising a particular branch of industry (as is currently the case in Germany with detrimental effects to the economy) but rather by providing the appropriate technology which is competitive against conventional energy sources.

Needless to say that there is a lot of effort put into R&D as well as innovation programs funded by countries and/or international organisations. In spite of that the great breakthrough is still lying ahead of us. Nevertheless, technology is the ultimate answer to our energy problems. Clearly, there are clean technologies, but so far none of them is cheaper and/or equally practical as the conventional carbon-based ones.

Perelman is convinced that governments have an important role to play in that game. I wonder why the market should not be able to create its own viable (and sustainable) solutions without regulators interfering. Nevertheless, also the role of government has its limits as Perelman acknowledges.

Thus the only way out from the current state of affairs is a big technology breakthrough. But how do we get there? There are clearly new ways needed to stimulate innovation in the energy sector. Thinking out of the box is paramount.  Going beyond conventional mechanisms to promote innovation may open new possibilities. Perelman discusses various ways to overcome the traditional path of innovation management, like new financing models, prizes, the role of philanthropists etc.

All in all, Perelman’s book offers a great insight into the complexity of the energy problem as well as into the even more challenging complexity of how to overcome it. Technology can save us – it has to!

Energy Innovation – Fixing the Technical Fix

by Lewis Perelman

www.energyinnovation.perelman.net

 

Does Saving Energy Push Renewables?

Yes it does. Let us look at a concrete example in order to get the point. The EU plans to improve its energy efficiency by 20% by 2020. In other words, 20% less energy will be used by then, according to plans. The baseline is the primary energy consumption for 2010 which was 1770 Mtoe. Thus, if all measures are in place, by 2020 this figure should be down to 1416 Mtoe.

In all likelihood, the savings will concern almost exclusively the use of conventional energies (coal, nuclear, oil) whereas renewable energies will not be touched by this development. Therefore, we may safely assume that on the consumption side renewables will be equally well off  as they are now. In fact, this is a very conservative estimate. On the contrary, renewable energy use may well be expected to rise over the next decade. But let us stick to our conservative approach for the time being. In 2010, the consumption of renewables amounted to some 172 Mtoe corresponding to 9.7% of total consumption.

Fig. 1 EU Gross inland consumption in 2010

Given our  2020 scenario from above and keeping renewable consumption at 172 Mtoe, we may conclude that by then renewables account for about 12.2% of total consumption. Bear in mind that this is true even if energy production from renewable sources does not increase.

The projection for 2020 would consequently look like this.

Fig. 2 EU Gross inland consumption in 2020

Thus, by saving energy the relative weight of renewables in the energy mix is automatically increased. The bigger the savings on the one hand the bigger the extra share of renewable energies on the other.

 

 

Oil Dependency of Developed Economies

Oil is one of the major energy sources for a modern economy. Both, developed and developing economies depend heavily on it. So we may ask ourselves to what exent we depend on this critical source. Intuitively, we know that renewables are constantly gaining ground. However, the simple fact that oil prices continue to be a vital indicator for economic activity shows us that oil still keeps its dominant role in the energy mix.

In order to find out how our dependency on oil and oil products has developed over the past decade, we compare the economic output in terms of nominal GDP with the respective oil consumption figures. This is done for the EU, the United States and Japan. The period in question is running from 2000 to 2010. Both, the GDP and oil consumption are normalized to be equal to 100 in 2000. The raw data for our investigation have been taken from Eurostat and the Shell Statistical Review of World Energy 2011.

Let us start with the European Union. Fig. 1 gives us a nice impression about the decoupling of economic activity and oil consumption which has taken place in the past decade. A net gain in real GDP is accompanied by a significant drop in oil use.

Fig. 1 EU-27 oil dependency 2000-2010, 2000 = 100.

The underlying reasons for this significant development are twofold: on the one hand, oil is facing competition from other sources such as natural gas. On the other hand, oil using machinery, like car engines etc. are getting more efficient, i.e. using less energy per km/mile.

Fig. 2 displays the same analysis for the United States. Again, real GDP and consumption of oil are jeading in different directions. As in the case of EU-27, the decoupling becomes even more siginificant as of 2006/2007. Quite remarkably, during the economic crisis in 2008/2009 the relative drop in consumption was considerably bigger than the one in economic performance.

Fig. 2 US oil dependency 2000-2010, 2000 = 100

As a final example, let us have a look at the situation in Japan. In one of our previous post we have already observed that Japan excels particularly when it comes to energy intensity, i.e. economic output per unit of energy used. Having this in mind, we would expect quite similar findings for the case of oil consumption. Fig. 3 shows the results of our analysis.

Fig. 3 Japan´s oil dependency 2000-2010, 2000 = 100

Although Japan´s GDP has performed less favourably when compared to the US and the European Union, its oil dependency has fallen much stronger than the one of its competitors. The decoupling between economic performance and the respective oil consumption is already quite significant in the beginning of our observation period, getting larger during the years. Thus, the reduced consumption of oil and its products is one of the key factors in Japan´s successful struggle to obtain a higher economic output per unit of energy.