In Energy Use, Efficiency Matters

Todd Hirsch is the Calgary-based Chief Economist for ATB Financial and co-author of The Boiling Frog Dilemma: Saving Canada from Economic Decline.

T here’s no denying the fact: rich countries gobble up far more energy than do poor ones. And because of the environmental concerns surrounding carbon emissions, the world’s wealthiest nations are being vilified for their voracious consumption. But are we really comparing apples to apples?

Absolute energy consumption is one metric of comparison, but energy efficiency is another. How much energy is used to generate one dollar of economic output – and particularly how that ratio is changing over time – is a better way to compare and judge.

The World Bank collects information measuring the gross domestic product (GDP) that results from one kilogram of oil equivalent of energy. For example, Canada’s ratio is 4.8, meaning it generates 4.8 dollars of GDP for every one kilogram of oil equivalent consumed. Countries’ GDP-to-energy ratios vary considerably by their geographic size, climate and industrial mix.

Surprisingly, there’s little correlation between the country’s wealth and its absolute GDP-to-energy ratio. Some emerging countries such as Peru have very high ratios, while others like Ghana have low ratios. Similarly, some wealthy countries such as Singapore have high ratios, while others like the United States do not.

But where the industrialized nations stand apart from their developing nation counterparts is how their energy efficiency is improving over time. Wealthy countries are generally getting better at using less energy to produce more wealth. Comparing the percentage change in their ratios over the last 30 years reveals interesting trends.

In 1980, Canada’s GDP-to-energy rate was 2.9; by 2011 it had increased to 4.8, an improvement in energy efficiency of 62 per cent. Other wealthy industrialized nations show similar patterns.

GDP per unit of energy consumed has increased even more in Luxembourg, the United Kingdom, Germany and the United States.

Some emerging nations have also shown improvements, but much of their gains have come quite recently. For example, between 1980 and 2002, India’s GDP-to-energy ratio increased a bit, but it improved by an even larger amount over the most recent decade. China is an extreme outlier – it holds the title of having the greatest improvement in its GDP-to-energy ratio on a percentage basis. However, it started from an extremely low ratio in 1980; more than tripling energy efficiency is relatively easy when you start from such a low level, and China’s ratio in 2010 is still among the lowest in the world.

However, most of the world’s poorest countries – regardless of their original GDP-to-energy ratio – have failed to show significant improvement over time. Since 1980, low- to middle-income nations have increased their energy efficiency by 31 per cent, compared to an increase of 56 per cent among high-income OECD countries.

This is where the rich nations are taking the lead. While it’s true that they tend to use more energy, wealthy countries are learning how to use it more efficiently. Improving transportation codes, developing energy-saving technologies, educating consumers about energy efficiency, and legislating emission standards are ways that First World countries are part of the solution.

None of this lets any country – rich or poor – off the hook. As energy resources become more costly and their environmental impacts become better understood, all countries must constantly strive for improvements. But the biggest strides are often being made by those accused of using too much energy: the industrialized countries.

The following data – comparing dollar of GDP per kilogram of oil equivalent of energy consumed between Text  – illustrates that wealthy countries are generally getting better at using less energy to produce more wealth.

0.9 to 0.9
China (+339%)

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