Climate

U.S. Economic Growth Decouples From Both Energy And Electricity Use

CREDIT: Shutterstock

In a stunning trend with broad implications, the U.S. economy has grown significantly since 2007, while electricity consumption has been flat, and total energy demand actually dropped.

“The U.S. economy has now grown by 10% since 2007, while primary energy consumption has fallen by 2.4%,” reports Bloomberg New Energy Finance (BNEF) in its newly-released 2016 Sustainable Energy in America Factbook. BNEF’s Factbook, which is chock full of excellent charts and data, cites studies attributing most of this change to improvements in energy efficiency.

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CREDIT: BNEF

Equally remarkable, this “decoupling” between energy consumption and GDP growth extends to the power sector: “Since 2007, electricity demand has been flat, compared to a compounded annual growth rate of 2.4% from 1990 to 2000.” As I discussed in my recent renewables series, this decoupling is an unprecedented achievement in modern U.S. history. It may seem especially remarkable for an economy underpinned by soaring usage of the internet and electronic equipment — but as I wrote in a 1999 report, a true Internet-based economy was always likely to be a more efficient economy.

The decoupling of GDP growth from energy and electricity consumption has been a key reason the United States has been able to reduce its overall greenhouse gas emissions since 2005. In particular, flat electricity demand has meant that the explosive growth in renewables and natural gas power has come directly at the expense of dirty coal, as this 2016 Energy Information Administration chart shows:

U.S. power

U.S. power generation since 2006, showing decline of coal (light blue) as both natural gas (yellow) and new renewables (brown) rose, while nuclear (green) and hydro (dark blue) remain flat. Via EIA.

The key driver of the decoupling of electricity use and GDP growth is energy efficiency policy and investment. BNEF notes that in 2014 (the most recent year we have data for), “Natural gas and electric utility spending on efficiency reached $6.7bn, up 8.1% from the $6.2bn seen in 2013; Energy Savings Performance Contracting (ESPC) investment topped $6.4bn.” The ESPC funding is generally distinct from the utility funding and “mainly focused on public buildings.”

Since 2006, utility efficiency spending is up four-fold. The result is that “since 2007, incremental efficiency achievements have risen 17% on average annually.”

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Largely unheralded, “The key policy story of the past decade has been the uptake of EERS [Energy Efficiency Resource Standards] in US state targets and decoupling legislation among US states,” BNEF explains.

Utility “decoupling,” is a change in regulations decoupling a utility’s revenues from the amount of electricity they generate and sell. Absent decoupling, utilities (like most businesses) are highly incentivized to sell more of their product — in this case, power — to make more money. That in turn disincentives utilities from putting money into energy efficiency; decoupling removes that disincentive. With EERS, “utilities are required to implement energy efficiency measures, typically among their consumers, equivalent to a target volume of kWh (usually specified as a fraction of the previous year’s kWh sales).”

US states

Number of U.S. states with Energy Efficiency Resource Standards (EERS) and decoupling legislation for electric utilities. Via BNEF, ACEEE.

So utility decoupling, especially when combined with EERS, drives investments in energy efficiency, which in turn helps the nation as a whole decouple electricity use from economic growth. Note that United States has achieved this nationwide decoupling even though most states have not put in place the optimum policies for promoting energy efficiency.

In other words, when the U.S. as a whole gets truly serious about energy efficiency, we can certainly achieve more savings than we have already for a long, long time. A 2015 study of states as diverse as California, Vermont, Idaho, and Oregon clearly shows that the amount of efficiency investment and electricity savings soars after utility decoupling is enacted.

ClimateProgress has been a proponent of utility decoupling almost since this website began (see here and here). Energy efficiency has long been the biggest and cheapest “new” source of electricity by far. And it’s carbon-free. And it doesn’t require new transmission lines. And new energy-efficient technologies have been demonstrated to boost both public health and productivity, as a major 2014 International Energy Agency report concluded (see “$18 Trillion Windfall: Health And Productivity Benefits of Efficiency Top Energy Savings”).

The BNEF report notes that, “In 2015, California passed a law to increase building energy efficiency 50% by 2030 for both residential and non-residential properties.” The state that, with Massachussetts, leads all other states in efficiency policies — and the state that has had the strongest building efficiency measures for the longest period of time — is confident based on its experience that it can still make its buildings drastically more efficient.

Fundamentally, energy efficiency is the low-hanging fruit that grows back. The efficiency resource never gets exhausted because technology keeps improving, smart control systems keep getting smarter, and knowledge spreads to more and more people.

Finally, we can expect the efficiency trend to continue expanding thanks to the Clean Power Plan (CPP), which is a set of carbon pollution standards for power plants issued by the EPA in consultation with the public, industry, and states. The CPP gives states unique flexibility in how they achieve CO2 reductions in the electricity sector, allowing them, for instance, to use energy efficiency as a core strategy.

The decoupling of U.S. electricity consumption from economic growth is thus likely to continue for the foreseeable future. So is the overall trend of decoupling U.S. energy consumption from economic growth, since that is driven in part by the electricity decoupling and in part by other key efficiency trends in the economy, especially rising fuel economy standards.

As efficiency expands, it becomes cheaper and cheaper to meet stronger and stronger carbon pollution targets. And with renewable energy on an unstoppable path to larger and larger market penetration at lower and lower cost, we appear to be entering the long-awaited era where CO2 emissions can continue their steady decline while overall energy bills remain either flat or also continue declining.