More on the U.S. "Oil Addiction"

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In yesterday's Wall Street Journal (free link here), Reason's Ronald Bailey pooh-poohed President Bush's Advanced Energy Initiative, noting that "the only way we've ever cut back on imported oil is in response to higher prices."

Here's some data for U.S. oil consumption dating back to 1960. Forty-six years ago, we drank down 9.8 million barrels a day of the stuff, a number that had risen to 20.03 barrels a day by 2003. Clearly, those figures need to be adjusted for population growth but as Ron suggests, the only dips in consumption came during recessions and/or short-lived embargos, either of which effectively jacked the price of oil. The same basic pattern holds true for most countries.

There's an irony embedded in the consumption data and implicit in Ron's piece, too: The more efficient our cars, furnaces, you name it become, the more energy we consume, either by buying bigger houses, cars, refrigerators, or whatnot. After all, it becomes cheaper.

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  1. I wouldn’t bank too much on this past data predicting future performance, for three reasons:

    1: Oil prices aren’t coming back down.

    2: Renewables are finally getting competitive.

    3: 9-11 and Iraq have made the problem harder to ignore.

    I think we are going to see a very big and surprisingly rapid switch to alternatives to petro power in the next couple of decades.

  2. “There’s an irony embedded in the consumption data and implicit in Ron’s piece, too: The more efficient our cars, furnaces, you name it become, the more energy we consume, either by buying bigger houses, cars, refrigerators, or whatnot. After all, it becomes cheaper.”

    I don’t know if that’s necessarily true, Nick. Maybe you could show some data supporting it? Certainly, in some instances, it’s true. But really, when’s the last time you got a few low heating bills, and thought to yourself, “hey, I think I’ll buy myself a bigger house!” or, “y’know, I think I’ll jack the heat up!”? When I get better gas mileage on my car, the last thing I’m thinking about is that I’d like to drive it more. When my electric bills are low, I don’t find myself searching for a dual-bay Sub-Zero ref-freezer.

    In other words, it works better going backwards than forwards. When my heating bills double, I am forced to actively cut back on heating. But when they go down, I don’t as actively jack the heat up. Why? I would posit that it’s because when prices rise, I have no choice but to pay for them. But when prices plummet, I have a choice as to where I spend the extra money. And aside from moving back into some sort of natural “comfort/convenience zone”, there’s nothing saying that I’ll opt to spend that extra money on more of the very thing that I’m saving money on.

  3. Oil is the tree rather than the forest.
    Power/energy is the forest.
    Why do we want more power?
    Is power an end or a means?

  4. Evan,

    It has more to do with long term rather than short term decision making.

  5. Evan,

    I don’t doubt that there are not *necessary* connections, but there’s definitely an upward creep in home size (even as family size has shrunk), which is surely a proxy for a good deal of energy consumption.

    “Since the 1970s, the average single-family house built in America has grown by about 50 percent, according to a report released at the National Association of Home Builders’ meeting this week in Orlando. During the same time, average family size has fallen from more than three people to about 2.5 residents per home.” Go here for more on that.

  6. Chad,

    1: Heard it before. Before prices went up and before prices went down. Not buying it.

    2. Agreed. That’ll be a huge difference, I think, because the use of renwables will no longer be dependant government regulation or mandate.

    3. Don’t underestimate people’s ability to ignore! 😉

    I don’t so much see a rapid switch as I see a rapid integration. Mostly due to factor #2.

  7. “1. Oil prices aren’t coming back down.”

    We always say that, we always think that, we always buy boats, motorcycles, and airplanes because “this time its different”…we always get kicked in the ass by falling prices.

    ps. I guess I should have mentioned that I’m in the awl bidness, for that to make sense.

  8. So, aggregate data from long-term spans. I follow.

    Here’s another question: what about the difference between actual upward usage due to the cheapness of energy at the source, versus more efficient appliances, cars, etc.? In the former, yes, I can see the point that energy usage (and externalized effects like pollution) actually go up. But with the latter, if affluence and the cost of energy remain the same, but our technology becomes more efficient, then, I can’t imagine that we’d be seeing an actual increase in energy usage…all other things being equal.

    Take your data re: increased home size, for example. Due to vast improvements in technology, it takes much less energy to heat/cool the average square foot of house than it did in 1970. As such, as long as energy prices and affluence remain constant, that would mean that, today, you could condition a bigger house with the same amount of actual energy than you could in 1970. Of course, affluence and energy costs don’t remain constant, but that’s not part of this equation.

  9. if affluence and the cost of energy remain the same, but our technology becomes more efficient

    If the technology becomes more efficient, the cost of the energy goes down. The price of the technology has to be factored in as well – and if affluence remains the same then the new technology isn’t more efficient if it raises overall costs. The cost of energy must include to cost of the fuel and the cost of the technology converting the fuel into energy.

    Correlation isn’t causation, of course.

  10. All very well, High prices will definitely force lower consumption.
    There is only one small problem: We cheerfully continue to expand an infrastructure that forces the use use of individual transportation. Hell, most places you can’t even walk from here to there, using the ADA-compliant sidewalks to nowhere. Let alone trying to cross those 4-lane highways without getting run over.
    I certainly don’t choose to commute 140 miles round trip to pay for all the energy I’m wasting. It is simply unaffordable to live where the jobs are. Unless, of course, you’re a politician or associated pundit.
    Meanwhile any attempt to introduce mass transit is doomed to failure since it would be dependent on subsidies until more people would use it, if ever.
    That dumb energy-wasting talk from the Prez on down makes me angry.

  11. A good source for information/ workable solutions is available at

    http://www.natcap.org/sitepages/pid5.php

    Several chapters of a book on business models/ community planning that have been successfully implemented in ways that do improve energy efficiency.

    And, I think, a very libertarian friendly approach.

  12. Until the futures market believes that oil will never come back down, it’s impossible to fund capital intensive alternatives. And by alternatives, I mean Fischer Tropp, not the angel breath or mermaid splash power schemes in constant search of subsidies.

  13. Interesting — UK consumption holds at about 10% USA. Yet UK population holds at about 20% USA. Anyone know the wherefores, if my math is ok?

  14. Nick: I don’t think your conclusion follows from those home data either. Say I have a furnace that costs $100/mo to run, and heats 1000 sqft. If new furnaces are more efficient, that means a new 1000 sqft furnace would only cost, say, $80 to run, while a $100/mo furnace can now heat 1250 sqft. This might lead me to buy a 1250 sqft home… But the more efficient furnace means I’m still using the same amount of energy — I’m just using it more efficiently.

    What’s an example where more efficient appliances would lead you to use more energy?

  15. Interesting — UK consumption holds at about 10% USA. Yet UK population holds at about 20% USA. Anyone know the wherefores, if my math is ok?

    They drive less & live in smaller houses.

  16. They also do not use anywhere near as much energy for heating homes. Central heating is still relatively rare in the UK, so only one or two rooms are being heated at any time.

  17. UK consumption holds at about 10% USA. Yet UK population holds at about 20% USA. Anyone know the wherefores, if my math is ok?

    All the savings on not running dentists’ drills.
    </DumbStereotype>

  18. Interesting — UK consumption holds at about 10% USA. Yet UK population holds at about 20% USA. Anyone know the wherefores, if my math is ok?

    Smaller houses, smaller temperature extremes, and a smaller/more densely packed country would be big factors. Also perhaps a difference in the amount of heavy industry.

    Canadians use more energy per capita than Americans, for the opposite reasons. Our country is bigger and the population centers more spread out, meaning we drive more. Our winters are severe, meaning high heating bills. But our summers can be hot, meaning we might have air conditioning in the summer as well. In addition, poor roads, big snowfalls, and the higher percentage of farming/rural population means we tend to drive more trucks, SUVs, and AWD vehicles.

  19. Elasticity would seem to be an important idea here. Demand is sensitive to price in various ways across various products. To lower the marginal cost of discretionary travel is to incent more travel at the margin. To lower the cost of each additional unit of energy used to keep a home optimally climate controlled is to incent greater use of climate controlling devices up to the optimum limit.

    In any case, if my home utilities bill suddenly were cut in half, I might buy more house or I might do something else with that money. It is hard to imagine what else I’m doing with money that would be resource free.

  20. All very well, High prices will definitely force lower consumption.
    There is only one small problem: We cheerfully continue to expand an infrastructure that forces the use use of individual transportation. Hell, most places you can’t even walk from here to there, using the ADA-compliant sidewalks to nowhere. Let alone trying to cross those 4-lane highways without getting run over.
    I certainly don’t choose to commute 140 miles round trip to pay for all the energy I’m wasting. It is simply unaffordable to live where the jobs are. Unless, of course, you’re a politician or associated pundit.
    Meanwhile any attempt to introduce mass transit is doomed to failure since it would be dependent on subsidies until more people would use it, if ever.
    That dumb energy-wasting talk from the Prez on down makes me angry.

  21. Funny article on the SOTU speech:

    http://www.realcities.com/mld/krwashington/news/nation/13767738.htm?source=rss&channel=krwashington_nation

    Money Quote:

    “WASHINGTON – One day after President Bush vowed to reduce America’s dependence on Middle East oil by cutting imports from there 75 percent by 2025, his energy secretary and national economic adviser said Wednesday that the president didn’t mean it literally.”

  22. “He was using figures, therefore speaking figuratively.” –Scott McClelland

    OK, I made that up.

  23. I would expect that much of the run up in house sizes comes from increases in wealth. Here is an interesting question: If the average professional family is wealthier now than in the past, are it houses larger than equally wealthy people in the past? For example -and I am making these numbers up- suppose that the average professional family earned $50,000 2006 dollars in 1960 and $90,000 dollars in 2006. Then are the average professional family houses of today considerably larger than those of people making $90,000 2006 dollars in 1960? My guess is that they are in fact larger, but less so with the above correction.

  24. “The more efficient our cars, furnaces, you name it become, the more energy we consume, either by buying bigger houses, cars, refrigerators, or whatnot.”

    This is true for smaller increases in efficiency, but at some degree of efficiency other factors will limit consumption – time, other materials, etc. If gas were free, we wouldn’t drive 24x7x365. If heating oil were free, people wouldn’t build gigantic houses. They might build larger houses, but there’d be a limiting factor other than the cost of heating the structure.

  25. 1. You people do understand that oil is used for more than just power right? All the plastics and synthetic fibers, hell even aspirin is made from oil.
    2. I live in the South and most all the furnaces and whatnot is fueled by natural gas.
    3. Most electricity is generated by coal and natural gas not oil.

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