By - Jim Vess

Link between economic growth and electricity use weakens around the world, says EIA forecast

Energize Weekly, November 29, 2017

The link between economic growth and increasing electricity consumption is weakening around the world, according to the federal Energy Information Agency’s (EIA) International Energy Outlook 2017.

Economic growth, as measured in gross national product (GNP), has historically been coupled with increases in electricity demand. “More recently this relationship has been decoupling in many countries,” the EIA said. “The amount of decoupling in various countries is caused by many factors—including the countries’ relative level of development, electrification, economic makeup, and income levels.”

A big reason for this in developed countries, such as the 35 nation members of the Organisation for Economic Co-operation and Development (OECD), has been a change in the nature of their economic activity.

“The United States, United Kingdom, and Japan, have been shifting from manufacturing economies toward service economies,” the EIA study said. “Service-based economies tend to use less electricity than economies with high levels of industrial activity, as commercial services are generally less energy-intensive compared with manufacturing.”

The manufacturing sectors the OECD countries retain, which are still sizable, are also changing, moving to advanced manufacturing, using less energy-intensive technologies. “As more economic activity shifts from lower-skilled manufacturing to services and higher-skilled advanced manufacturing, additional economic activity can be generated without requiring as much electricity use,” the EIA said.

National electricity use has remained flat in OECD member countries, and the EIA Energy Outlook projects only modest growth. In the 30 years between 1985 and 2015, electricity demand in the U.S. has grown from a little less than 10,000 kilowatt-hours per capita to a little more than 15,000 kilowatt-hours per capita.

Total electricity use by non-OECD countries surpassed electricity use by OECD members in 2011, and the Energy Outlook projects it will continue to grow in those developing countries. “The amount of electricity needed in the future will largely depend on how fast non-OECD economies grow and what type of activities make up that economic growth,” the analysis said.

Countries not in the OECD that are rapidly growing—such as China, India, Brazil and Egypt—are often seeing that growth spurred by large or growing manufacturing sectors, which rely on less efficient technologies and low-skilled labor. So, they continue to require more electricity to make goods.

Still, for both groups, the forecast is for electricity growth to be below the rate of economic growth. In OECD countries, GDP is projected to increase by an average 1.7 percent a year between 2015 and 2040 compared with an increase in electricity use of 0.9 percent a year. In non-OECD countries, GDP is set to 3.8 percent a year, and electricity use increases by 2.0 percent per year over the same period.

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