The good news about America’s energy supply just keeps coming. Last week, the Interior Department made headlines with new data showing that, stored deep under Montana, North Dakota, and South Dakota, the United States has double the oil reserves and three times the volume of natural gas than previously thought.
The oil and gas boom, which emerged because of breakthroughs in hydraulic fracturing, aka “fracking” technology, is a big deal. But another piece of the energy equation is just as, if not more, important: Economists agree that if the U.S. wants to cut dependence on foreign oil and protect the still-fragile economy from price spikes, it has to pair the increase in supply with decrease in energy demand.
Particularly, economists say, it’s essential that we see a continued push to lower energy intensity, defined as the amount of energy consumed for each dollar of gross domestic product generated—how much economic juice we can squeeze out of a gallon of gasoline or a ton of coal. Cutting energy intensity is not simply a matter of consuming less by conserving—a word that conjures up cold showers and carpooling—but rather using energy efficiently while boosting the economy.
Calls to reduce energy use tend to be met with political resistance because increased energy consumption is typically associated with economic growth. But for the past 30 years, the nation’s tumbling energy intensity has quietly been one of the most important good-news energy stories for the economy.
Triggered by oil price spikes in the 1970s, the advent of efficiency standards for cars, buildings and appliances, plus a long-term shift in the economic structure—from manufacturing to services—the U.S. energy intensity fell by half between 1980 and 2010. And that was happening even as economic output more than doubled, with a 120 percent growth in GDP.
For example, a refrigerator built today runs on just 25 percent of the electricity of one built back in 1970—and today’s fridge is bigger, stronger, longer-lasting, and snazzier than its electricity-guzzling ancestor. That means the consumer who buys that 2013 fridge will spend less money on electricity to run it and have more to spend on food to fill it. Jet engines now fly just as far and fast on less fuel; between 1995 and 2010, engineers figured out how to squeeze out 15 percent more “seat-miles” per gallon.
Cars will soon have to wring more from less, too. In 2000, a typical passenger vehicle traveled an average of 27.5 miles on a gallon of gas. But thanks to a 2007 fuel-economy law signed by President Bush and new regulations promulgated by President Obama to accelerate the timetable of that law, cars will have to nearly double that average,to 54.5 mpg, by 2025. The same story applies across the economy; it now takes less energy to run air conditioners and washing machines, manufacture plastics, and drive to work.
“Energy intensity is extremely important,” said James Turnure, director of the Office of Energy Consumption and Efficiency Analysis at the Energy Department’s Energy Information Administration. “If you’re looking at energy intensity at the national scale, it encompasses the entire economy; as a big-picture indicator, it’s economy-wide. It can make a big difference.”
Economists are concerned, however, that the new energy supply will curb market and policy trends to lower energy intensity. “To me, the big fear with the oil and gas boom is that it will convince our political system that it’s not important to look at efficiency,” said Michael Levi, director of the energy-security and climate-change program at the Council on Foreign Relations, and author of The Power Surge: Energy, Opportunity, and the Battle for America’s Future. “People assume that if you’re producing more, you don’t need to reduce.”
That’s because the more an economy depends on oil of any kind—foreign or domestic—the greater its vulnerability to price spikes. Make no mistake: The increased supply of fracking-produced oil is good news for the U.S., but it won’t prevent Americans from experiencing devastating pain at the pump in the future. Global forces of supply and demand, beyond the control of U.S. markets or policymakers, determine the prices of oil and gasoline.
In the coming decades, global energy demand is set to surge, particularly as the Chinese and Indian economies continue to grow, creating a nascent middle class of billions of consumers and drivers who will start to compete with Americans for energy on a global market. Even with the wealth of new U.S. supply, American drivers won’t be immune from a price spike caused by, say, a demand surge in China and political upheaval in the Middle East.
“Rising production is good news, but falling intensity is extremely important,” Levi said. ”The less central energy use is to the economy, the smaller the portion that energy takes up in people’s budgets, the stronger and less vulnerable the economy will be.” In other words, the health of the U.S. energy economy depends as much on fridges and fuel standards as it does on fracking.
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