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The continuing change in the energy mix of societies

Energy transition is about changing the decisions consumers and producers make regarding energy. These changes in consumption and production decisions result in changes in the amount of energy as well as the types of energy that are being used. The preferred direction of these changes depend on the objectives of society. If a society wants to reduce the emissions of carbon, the preferred changes are a reduction in energy consumption as well as a replacement of fossil fuels by renewables. If another society wants to become an international gas hub, then the preferred changes are an increase in the use of natural gas as well as using more gas instead of other energy sources.

In order to understand what energy-transition policies mean, one needs to acknowledge the fact that the level of energy consumption and the mix of sources used is continuously changing without any specific policy measures. These changes occur as a result of individual decisions of consumers and producers in response to changes in costs, prices and incomes. Note that in the energy-systems approach the focus is on how the energy mix evolves over time and how the different components are related to each other from a physical perspective. In the economic perspective on energy systems, the focus is more on how decisions of consumers and producers result in changes in the use of energy and on how energy consumption is related to other economic activities.

The strong increase in the price of oil in the late 1970s, for instance, triggered all kinds of measures by energy consumers to reduce the use of oil[1]. Since that time the annual growth in the global use of oil is below the annual growth of the global economies, measured by the GDP (see the figure below). This holds also for the annual growth of energy. Consequently, the energy intensity has declined on a global level.

BP 2013 Statistical Review of World Energy and USDA compilation of World Real GDP - Growth in world GDP, compared to growth in world of oil consumption and energy consumption, based on 3 year averages

The average annual growth in the use of oil has also been below the average annual growth in the use of energy, which means that the energy mix has changed as well. We are using less oil and more other of energy sources compared to the period before the oil crises of the 1970s. The current oil intensity of industrialised economies is about 50% of the intensity in that earlier period. This implies that these economies are less vulnerable to shocks in the oil price than in the past. These changes in the size and mix of energy consumption have largely been triggered by changes in the energy markets.

Hence, although energy transition is about changing the mix and level of energy consumption and production, most changes in how much and which types of energy are being consumed and produced result from autonomous decisions of individual consumers and producers in response to market prices.

Author: Machiel Mulder

References

[1] Auer, J. et al. (2014). The changing energy mix in Germany. The drivers are the Energiewende and international trends. Deutsche Bank Research, Current Issues.

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Solving the Energy Puzzle: A Multidisciplinary Approach to Energy Transition

University of Groningen