The Energy of Nations
Energy blindness is leading to policy blunder.
Editor's note: Earlier versions of some of the ideas in this article have appeared in the Financial Post of Canada.
I. Energy consumption in the West is faltering
Since about 2005, and in almost every Western economy, something historically unprecedented and extremely alarming has been happening to energy consumption: it’s either flatlining or in decline. This remarkable but little discussed fact is jeopardising almost every aspect of our public policy, from climate change mitigation, through national security to societal progression itself. President Biden’s plans to vastly increase spending on renewables such as wind and solar through the Inflation Reduction Act are grabbing the headlines, and it’s not hard to see why, but they may actually be counterproductive, and in any case are overshadowed by the sweeping macroscopic trend of falling Western demand for energy.
According to data collected by the Department for Business, Energy and Industrial Strategy, total energy consumption in the UK, for example, is back at levels not seen since the 1950s; there has been a 30 percent decline from its peak in 2003, which is astonishing given that the population has increased by 12.5 percent, to 67 million, over the same period.
According to the European Environment Agency, energy consumption in the EU stalled with the financial crisis of 2008, has fallen by about 13 percent from the peak of 2006 and is now at levels not seen since before 1990. Even in North America, energy consumption is stagnant. Post-2007, total energy consumption in the United States fell substantially and then flatlined, falling again because of the pandemic, and, by 2020, it had lost about 13 percent of the 2007 high. Some of that lost demand was recovered in 2021, as public health restrictions were lifted, but it remains to be seen whether demand will return even to the earlier flatline levels. Canadian demand is faltering similarly. Across the Pacific, Australia has shown weak to non-existent growth in demand since 2008 and Japanese energy demand has fallen by over 20 percent from its 2004 peak.
This pattern applies not only to energy consumption in general but also to the consumption of electricity. Since the 2005 peak, UK electricity consumption has fallen by about 20 percent to levels last seen in the early 1990s. Reduction in the consumption of a form of energy that is a key indicator of a modern society is not a good sign.
Some will reasonably ask, “Isn’t reduced energy demand, even for electricity, just evidence of increased efficiency?” Counterintuitively, the answer is “No.” In fact, greater energy efficiency in one domain merely provides energy for consumption in another. Energy efficiency will either increase demand for the now-cheaper good or service or, if demand for the good or service cannot increase rapidly, the saved energy will be economised to improve the quality of life in another sector, and so total energy consumption will tend to rise. The money you’ve saved by switching to energy-efficient lightbulbs and appliances can now be spent on a holiday or a new Tesla, or, much further up the chain, to improve higher-level societal goods such as new roads, better healthcare, or stronger military defence. Energy, like cash, is never left on the table. There is no obvious limit to improvements to our wellbeing—and energy provides the means.
This is a matter of documented history. The increasingly efficient use of coal from the late medieval period onwards resulted in centuries of greater creativity, freedom, and enterprise—and more coal consumption, not less. In fact, the increased consumption of coal led to the greater wealth and sophistication that eventually led to the harnessing of electricity as a carrier and higher-quality energy sources such as oil, gas, and uranium, the use of which increased energy consumption still further. History shows conclusively that energy efficiency improvements precipitate increases in consumption and are, therefore, extremely unlikely to be causing the sweeping cross-national reductions in Western energy demand. Like healthy people, healthy economies have strong appetites. A medical doctor presented with a patient not eating enough would hardly celebrate their efficiency, but would instead worry about underlying physical and mental conditions. In the same way, when we see a starving economy, we should worry and order an immediate check-up.
So, what is causing Western energy consumption to collapse? Regrettably, it is due to environmental policy and its far-reaching unintended consequences. Of these interventions, the most damaging are emissions trading schemes and the unprecedented investment in renewable energy, both of which are significantly increasing consumer costs and causing consumption to plummet. The EU’s emissions trading scheme adds about €17 billion a year to energy costs within the bloc, and the UK’s newly independent version is expected to cost a staggering €6.7 billion in the current financial year. In addition to this, the EU has spent an incredible €800 billion providing income support to renewables since 2008, a total that is still increasing at €69 billion a year. The UK alone is paying over €12 billion every year topping up incomes for wind and solar. So far, the US is a relatively minor player, having spent a mere €120 billion from 2008 to 2018, which is probably part of the reason that things are not as bad on that side of the Atlantic.
The expectation was that these subsidies would bring down the cost of renewable energy and reduce emissions of greenhouse gases at an affordable cost. Both hopes have been disappointed. Capital and particularly operating costs have remained stubbornly high, while grid system management costs are rising sharply. Because green electricity is still extremely expensive, the cost of preventing the emission of a tonne of carbon dioxide by switching to wind or solar vastly exceeds even high-end estimates of the Social Cost of Carbon, which is a monetised value of the harm done to human welfare by the climate change arising from that carbon dioxide. The conclusion is obvious. The cure is worse than the disease.
The intentions may have been good, but by committing these vast subsidies to renewables, politicians have failed to provide an economically compelling example of a low-carbon energy transition and have succeeded only in making energy much more expensive, resulting in price-rationing and falling consumption.
These were very bad policy errors. How did we get here? The answer lies, in part, in the absence of natural intuitions for reasoning about the concept of “energy.”
II. We are ‘energy blind’
Humans have the capacity to reason about a wide range of phenomena. Evolution by natural selection has equipped humans—as it did many other animals—with the ability to rapidly grasp and make decisions about many facets of the biological, physical, and social worlds that held survival value. For instance, it takes no effort to know when we’re at risk from a predator; that solid objects do not pass through one another; when we are liked or disliked by friends; which foods are safe to eat; which individuals are attractive sexual partners; and which individuals are family and, therefore, not suitable as mates. The mental toolbox is full of gadgets like these, and rich intuitions guide our reasoning in many domains. But we seem to lack intuitions regarding “the physics of energy.”
Indeed, we hold surprisingly few scientifically accurate cognitive intuitions to guide decisions about the character of energy and its importance. Without science, we are more or less energy blind, in the same way, perhaps, that fish are blind to the idea of water. This is to be expected, perhaps, since the concept of energy was a recent development in science, dating only from the early to mid-19th century. And part of the problem we have in understanding this concept is that it is extremely abstract. Energy isn’t a substance like coal or oil; rather, it is an abstract property of all substances, namely the capacity to cause change in the world—to do work, a potential measured in joules.
Joules can be realised as a property of the chemical bonds in fossil fuels, the forces holding an atom together, moving objects such as flowing wind or water, electromagnetic solar radiation, and objects acting on each other through gravity. All have the capacity to cause change, but this capacity varies in both quantity, which is intuitively obvious, and much more importantly, its quality, its ability to do work, to change the world, and here the mind is particularly weak in grasping the essentials. Yes, there is a large quantity of energy in the sunshine and in the wind blowing around the globe. But that energy is of very low quality and not available to do much useful work. There is also a great deal of energy in the vibrating atoms in the objects around you in the room as you read this article, or in falling raindrops—lots of energy, yet all basically useless. Wind and sunlight are only a little better. There is a reason why no creatures make a living by extracting energy from the wind—the quality level is just too low—and there is a reason that the organisms that manage to build lives from solar energy, plants, are relatively simple and, generally speaking, stationary. There is only so much you can do with a low-quality form of energy like solar radiation at the surface of the Earth. Creatures that eat plants can be more complex; creatures that eat herbivores can be more complex still.
The science of thermodynamics tells us that for a fuel to have high value to us, what matters is the quality, and that the fuel must have a very low degree of disorder (low entropy) if it is to support a complex society such as our own. But we have few intuitions of this, and our energy blindness requires us to rely on evidence and reason to tell us that fossil fuels are of high thermodynamic quality, as is fissile uranium. By comparison, the plentiful energy of renewables such as wind and solar is of low quality. In fact, both wind and solar radiation are so disordered that their entropy is close to that of low-temperature random heat, that is, the random movement of atoms and molecules. Their potential to do work—to cause change—is very limited.
Moreover, transforming sunlight and wind into grid electricity requires turbines and photovoltaic panels, themselves complex and expensive states of matter, as well as any number of ingenious and expensive grid kludges such as batteries to render it useable. That makes renewable energy intrinsically expensive. The sunshine and wind might be free, but not the extraction, conversion, and stable delivery to market.
Yet, starting in the 1990s and gathering pace in the early 2000s, many energy-blind decision-makers in Western states have forced the rapid introduction of renewable energy through subsidies, mistakenly believing that the costs would come down. However, the low thermodynamic quality of wind and solar radiation means that there is no hope of significant reductions in renewable energy costs relative to fossil fuels and nuclear energy. The quality gap is just too large to bridge. At present, we can afford to use renewables as Veblen goods because the bulk of our energy still comes from high-grade sources, but when renewable generators are manufactured and maintained with renewable energy, the margin of work left over in the economy to serve other human wishes will be small, much smaller than that needed to address even modest requirements. Everyone would suffer, except those owning and controlling the renewable energy sector, who would enjoy great relative wealth and socio-political power. One can’t help but be reminded historically of those who owned the renewable energy sources that powered pre–fossil fuel Europe, namely the landed aristocracy and gentry. That pre-fossil social structure is history and should stay there.
III. Trouble ahead
We need to wake up to these dangers before it’s too late. There is a lot at stake. Wealth is more than just property that has an exchangeable value; it is all the delightfully improbable states of matter around us that suit our human purposes. Yes, your iPhone is wealth, but so is a clean and pleasant living space, national infrastructure, societal institutions, and even intellectual traditions such as science itself. All these things are created by using energy to do work on the world, sometimes over very long periods.
Wealth is the outcome of the Energy of Nations. High-quality and increasing energy use creates and maintains unlikely states of matter that meet human requirements. Low-quality and decreasing energy use implies the reverse. Consider how much energy a hunter-gatherer family would have used over their lifetime compared to what you might use in a year or even a single hour. It is offensively puritanical to say that this is just needless waste. The availability of high-quality energy sources has facilitated the production of a myriad of cultural artefacts that make human lives healthier, longer, and more fulfilling. Mortality rates, particularly for children, are extraordinarily low by historical standards. Large numbers of people in the world today, and not just the richest, have temperature control in their homes and workplaces, low levels of pathogens in their food supplies, transport at will, access to education, and vast information storage systems. And this is to say nothing of the many other thermodynamic improbabilities that suit us as organisms, including sophisticated intellectual traditions that allow us to meet a new threat such as a previously unknown virus and swat it with technology before it wipes us out.
Falling energy consumption is, therefore, a very serious matter. It will not only mean a decline in our ability to create new wealth and still more widespread human wellbeing, but also our ability to maintain the complex environment that we have designed to be a secure place in which to live and raise our families. Everything in the human sphere around us—machines, roads, homes, health and education systems, nutrition—requires maintenance; all require the constant input of energy to prevent decay. Societal regression towards thermodynamic equilibrium, which is certain without adequate energy input, will be unwelcome and horrific.
Before you dismiss us as Chicken Littles crying that the sky is falling (though we are, and it is), we admit that the world outside is far from dystopian. Even countries where energy consumption is falling don’t yet feel much pain. And there is a good reason for this. While Western energy consumption is stalling or collapsing, one country is increasing its energy use, propping up our consumption with its exports and giving the rest of the world a false sense of security: China.
Since 2007, when the West began its energy starvation diet, Chinese energy consumption has increased by well over 50 percent and its electricity consumption has increased by over 200 percent. In 2007, the US was consuming 30 percent more electricity than China, but China's electricity use is now 70 percent higher than that of the US. Moreover, China is 90 percent reliant on thermodynamically superior fossil fuels and nuclear energy, and only some of the immense wealth being generated in China by these fuels is being exported. What are they doing with the rest? Time will tell.
IV. The West must change course
But right now, as a matter of extreme urgency, the West must reverse the decline in the quality of its energy supply and the consequent collapse in energy consumption. Further improvements in energy efficiency might help protect consumers over the short term by keeping money in the bank and shielding them from the consequences of bad energy policies, but they are not a long-term substitute for a healthy and physically sound energy supply. If we value the quality of human lives—if we value our freedom—then toying with low-density energy sources is an indulgence; and if reducing carbon emissions is a requirement, as we believe it is, then reason shows that fossil fuels are the necessary bridge to a nuclear-based, low-carbon future.
With the Chinese economy on a thermodynamically sound footing and those in the West very much not, the world has turned upside down in the blink of an eye. The economic consequences of this are serious, the security implications potentially terrifying. Our energy blindness is both costly and dangerous.
