Recessions And Energy Efficiency

At least to me, it's not immediately obvious how a recession might affect energy efficiency--which can be defined as the amount of energy needed to produce a given amount of output. An overall rise in energy efficiency is a consistent pattern over time: for example, here's a figure showing US energy consumption divided by real GDP over the last 70 years or so. 

(Click on image to enlarge)

There are a variety of reasons for this long-run pattern. Developed economies over time tend to grow more slowly in energy-intensive industries like manufacturing and more quickly in service industries. As an environmental protection measure, governments often push for energy efficiency standards for everything from cars to buildings to appliances and electrical equipment. Companies that use a lot of energy have direct incentives to find ways to produce with less. In the US, the greater growth of the population in warmer-weather states has also tended to reduce the growth of energy demand. 

But what happens in a recession? Both economic output and energy use are likely to drop, but which one is likely to drop more--and thus how will energy efficiency be affected? The International Energy Agency has published its Energy Efficiency 2020 report (December 2020, free registration required). (The IEA is an autonomous Paris-based intergovernmental organization, somewhat similar to the OECD, which publishes a steady stream of energy-related reports.) The IEA has been warning for the last couple of years that from a global perspective, gains in energy efficiency have been declining, and the recession seems likely to worsen this situation. 

Overall, the IEA expects global primary energy demand in 2020 to decrease by 5.3% from 2019. With global GDP falling by 4.6%, primary energy intensity improvement is projected to increase by only 0.8%, the lowest rate since just after the last global economic crisis in 2010 ... roughly half the rates, corrected for weather, for 2019 (1.6%) and 2018 (1.5%). This is well below the level needed to achieve global climate and sustainability goals. ... It is especially worrying because energy efficiency delivers more than 40% of the reduction in energy-related greenhouse gas emissions over the next 20 years in the IEA’s Sustainable Development Scenario ... This is well below the average annual improvement of more than 3% which would be consistent with meeting international climate and sustainability goals.

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