Energy

Incomes have recently peaked for most people

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After becoming the richest people of all times around the year 2000, inflation-adjusted incomes since shrunk for most households in advanced economies , despite many attempts at reviving growth. Equally, prospects for young people are becoming bleaker, and many are struggling to find jobs matching their expensive educations, to buy a house or build a nest egg.

Farming around 1900 (Wikimedia Commons)
Farming around 1900 (Wikimedia Commons)

Less than 100 years ago, if you asked a random person where they had grown up, over half would have answered: "on a farm." Today, you are lucky to ever get that reply, as only 1 in 50 people work in agriculture in most advanced economies [1].

Had you further asked those farmers back then what decided if you were rich or poor, they would have been quick to say that the size of your land and its soil mattered most, and how many good hands, oxen and horses were available to work that land. They too might have mentioned the weather, the right amount of sunlight and water, the absence of pests, and maybe your capability to store and sell your crops. Economic text books, back then, said the same as the farmer.Today, for most of us, our lives revolve around other things. We work in offices or factories, or provide services to people who work in offices and factories. And even if we are one of those rare farmers, what matters most has changed altogether. Farmers work with machines and computers like everyone else, and run that farm pretty much as any other business.

graphic_cornyelds_wip01.jpg
Corn Yields in the United States (Source: USDA)

Grain yields per acre have increased massively within a few decades (e.g. corn yields per acre grew 6-fold between 1930 and 2010[2]) If they industrially farm fruit or vegetables in a greenhouse or livestock raised inside, neither the acreage of their land nor the amount of sunlight or rain matter much, just the size of the "factory", how well they manage growing conditions, and avoid pests and diseases.

Why has all this changed completely? Why have we seemingly become so independent from land, sunlight and water to go about our lives? Commonly, this change is attributed to the industrial revolution , specifically the introduction of technology to do things more easily that previously required a lot of manual or animal labor , which brought us luxuries our ancestors never had, such as cars, airplanes, or smartphones.  This process started about 250 years ago with the introduction of steam engines in England, and has since spread to every single corner of our planet. We would rather label it "energy revolution", but let's first take a brief history tour.

1800 - 13 years after the U.S. Constitution was born

Capitl Hill ca 1800 by William Russell Birch)
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For most people, not much had changed for centuries, about 75% of them were farmers like almost everywhere around the world, working their land with draft animals and their bare hands. A few steam engines had made their appearance in coal mines and factories, but there were no railroads yet, no electricity, and not much else resembling today's advanced societies.  Parts of Europe and the newly born "United States of America" were like today among the richest places around the world. But "rich" back then meant that an average person's income was about $2500 in 2015 dollars[3]. That is a little more than $200 a month. Can you imagine living off $200? You have to travel far into the poorer regions of Africa or Asia to find countries with similar per-capita incomes today.
Just for comparison: a full 1800 years earlier, in ancient Rome around 1 A.D., annual average incomes had been around $1500[4] in today's money, only 40% less than in the year 1800. Very little progress for such a long time.

Fast track to 1950 - modern life is here

Photo by Clem Onojeghuo
Photo by Clem Onojeghuo

Only another 150 years later, the average American had experienced a sevenfold increase of his or her inflation-adjusted income. Everything we know today was showing up: cars, planes, TVs, telecommunications, the first computers, and modern farming, feeding more people per acre than ever before. However, farmers still made up more than 12% of the workforce, as many still worked their land the way their ancestors had for centuries.

The Year 2000 - a peak for everyone

Another jump forward by 50 years to the year 2000, and within those short 50 years, per-capita incomes had tripled again.

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Real U.S. per-capita income (Maddison Project, IIER)

The bubbles in the left-hand graph show how impressive that development really was. The average American's income was 12 times that of 200 years prior when adjusted for inflation. And the good part was that lower incomes had participated more than anybody else in this rise, making each person the richest person in history within their income range.

 UN, Maddison Project)
A much bigger planet: Earth population and income growth (UN, Maddison Project)

The entire world took part in the same growth story, often a little later and less pronounced, or starting from lower levels. From 1820 to 2010, within less than 200 years, global per-capita incomes grew 11 times in inflation-adjusted dollars, while the world population increased from roughly 1 to 7 billion people within the same period. In other words, the entire global economic output is now 77 times larger than what it used to be 200 years ago. Or more precisely: Around the year 1820, almost all of the 1 billion people on our planet lived in poverty by today's standards. Today, a little less than 1 billion people lives in absolute poverty, whereas the remaining 6.5 billion people are doing much better than their ancestors 200 years ago.

The 21st century - a turning point

During the past 15 years, this amazing growth pattern began to break. It started with low-income earners in advanced economies, and more recently hit almost everyone but the ominous top "1 percent" in those countries (yet even for them, their still growing income figures don't tell the entire story.). Between the year 2000 and 2014, all but the richest U.S. households saw their inflation-adjusted incomes shrink. Recent data shows that in 2015, there was a slight improvement after energy and resource prices had dropped by more than 50%, but that benefit unfortunately isn't here to stay.

U.S. household incomes 2000-2014 (consus.gov)
U.S. household incomes 2000-2014 (consus.gov)

Let's try to understand this with a chart: households at the top of the lowest quintile (meaning that 20% of households make less, and 80% earn more), have seen their annual incomes shrink by 14% between the years 2000 and 2014[5], throwing them back to the levels of 1974. Households at the 60% mark (40% have a higher income), lost 8% in those 13 years, pushing their incomes back to 1995. Only households above the 95% level have seen a rise, at least on paper Similar developments can be obvserved in almost all advanced economies during the past decade.

What is particularly remarkable: this decline partly took place during a recovery period after the so-called " Great Recession " following the financial crisis of 2008/9 [6]; despite feverish attempts of governments and central banks to restart the economy, ranging from deficit spending , economic stimulus , to the lowest interest rates in history. This new dynamic is puzzling everyone, but it can be explained by something rarely talked about: we have more or less used up the easily accessible natural resources on our planet with no good replacements in sight, and are now working our way through the hard-to-get ones, which makes continuiong our formindable 20th century growth miracle much more difficult.

About energy&stuff - how to safely make it through the 21st century

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After 10 years of mostly scientific work on understanding our human ecosystem, energy&stuff is IIER 's first public outreach project. Given the very negative societal dynamics observed around the world, with hate and blame on the rise, we consider it relevant to instill a sense of reality into the discussion, hopefully supporting a different and more constructive dialogue moving forward.
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After 10 years of mostly scientific work on understanding our human ecosystem, energy&stuff has become the first public outreach project of IIER. Here's why.

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Consuming less means leading a better life

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There are so many things in life that can make you happier than "shopping therapy." We simply have to re-learn them. Once we embrace that and find ways to leave the struggle for "more" behind, we can live a great life with much less material wealth.

This website is providing you with many ideas and practical examples to make it happen in your personal life.

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More material wealth is not required for a happy life, once we accept that we have enough. We show you how to get ready for the future.

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Energy and resource limits are now inhibiting growth

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After 250 years of unlimited expansion, energy and natural resources are once again limiting our world. Extracting more is becoming increasingly difficult, making it hard to expand the economy further. This is difficult to grasp for all of us, as our brains are wired to use the recent past for guidance. If that fails, we are getting confused, and angry.

A road with many unknowns

The end of economic growth has been predicted repeatedly throughout the past 250 years, but never before has it been a present reality. Quite the contrary, whoever cried wolf was later defeated by further growth. These (sometimes premature) warnings might have added to the effect that, today, hardly anybody is listening.

But now, the situation is different, as growth is ending nearly everywhere despite our frantic attempts at reviving it, and economic limits are becoming a real threat for a growing number of people on our planet. Unless a miracle changes that trajectory, this won't go away, but will only accelerate.

Sources: UNEP, IEA, World Bank, IIER models

Why is that so? If we wanted to meet even the modest target of 2% global economic growth per annum for the next 35 years, by the year 2050, we would have to double our resource consumption from today. Instead of using around 82 billion metric tons in 2015, we would consume about 164 billion tons in 2050. Total energy consumption, if improved at the recent rate of 0.3% p.a., would grow by 90% from today's 13,147 MTOE to around 25,000 MTOE. And if we keep introducing renewable energy at the pace of the past 10 years, fossil fuel consumption would grow by 85%, reducing the share of fossil fuels from 86% in 2014 to only around 83-84% in 2050.

All this assumes we will improve our resource and energy efficiency at the same rate as we did recently, we don't report paper growth, and no miracle breakthrough in energy occurs. We are aware of all those very ambitious objectives to improve global energy and resource efficiency, but so far, there are no indications these breakthroughs are happening - and can happen without affecting economic growth.

However, there are three key developments that make it almost impossible to ever get to the point of doubling the global economy by 2050: the diminishing marginal productivity of new resource exploration, limits on economic benefits of consumption, and credit limits.

Marginal resource productivity is declining

Ofshore oil platform

When extracting fossil energy and other natural resources, we don't really pay for everything that makes them available to us. We don't pay for the geological processes that have concentrated and enriched minerals in a way that makes it affordable to unearth them, and we don't pay for most of the damage we do when mining them, nor the damage we create when we dispose of waste. We primarily pay for finding, extracting, enriching, and transporting them to their point of final use. But on all these fronts, we are fighting an uphill battle. Extracting oil from the ocean in reservoirs up to 30,000ft deep is obviously more difficult than drilling a hole on land, where oil just seeps from rocks close to the surface, and mining copper from deposits that contain only a tiny fraction of the shiny metal makes us move and crush much more rock, and create much more landscape damage. Numerous examples exist, where we increase the effort to get additional, less rich mines and fields into production.

Source: USGS

To stick with copper: In 2015, global copper was produced from ores with 0.65% copper content, an all-time low. In U.S. mines, ore grades are even lower at around 0.4%. The more we want to extract, the more effort is needed to tap into lower quality marginal sources, which reduces economic benefits.

How small or big those benefits become from using natural resources largely depends on the effort required to obtain them. The more we have to invest into getting the inputs, the less will be left for running the "machine" of industrialized societies. With increasingly lower marginal benefits from newly mined sources, our economies are bound to become smaller, not bigger.

Consumption reduces resource benefits

Fossil fuels and their usability to convert high-quality natural resources into useful goods has enabled our current lifestyle. To imagine the process we have been experiencing, we can use the analogy of invisible "helping hands" assisting us in whatever we do. Just like a draft animal uses additional solar energy from grazing to help improve crop output on a farm, a machine doing work for us in a factory channels past solar energy (in the form of fossil fuels) to support a lifestyle we could never accomplish with our bare hands or the help of a mule.

During the first 200 years after the industrial revolution , many of those benefits went into the creation of infrastructure that truly furthered growth. Machines, factories, railroads, roads, telecommunications networks, better housing for everyone, better hospitals and schools were investments into the ability to create more economic output. During the past decades, though, we have increasingly shifted away from investment towards consumption. In the U.S., for example, the GDP share of household consumption rose from 58% in 1970 to 69% in 2015. Buying more clothes than our closet can hold, having more toys than our kids can ever play with, getting a new smartphone every year, or having that bigger house or car that just feels better, but does essentially the same as the previous one, are only creating value (measured as GDP) when they get manufactured and purchased, but not afterwards. That way, we are increasingly shifting away from the creation of multipliers to one-off benefits. It is like if we tried to keep a fire going with matches alone.

Debt limits are adding to the problem

Source: U.S. Federal Reserve

On top of the physical limits we are experiencing, we are facing further headwinds from financial markets. As a side effect of increasing consumption over investment, almost all economies have grown their financial obligations much faster than their income (measured as GDP). This is as if your own family gets deeper into debt each year, while your income grows much more slowly. And that’s exactly what has happened: On average, each household, each country, and each company today owes more, relative to their income, compared to 30 or 40 years ago. It is very hard to imagine that we can continue growing debt levels, particularly because we are already experiencing the lowest interest rates in history, which temporarily gave us more room to breathe by reducing the debt service burden on households, companies and governments. In the United States, households have already experienced these limits since the financial crisis of 2008, and overall credit availability for private individuals has shrunk. But without growing debt, the ability to invest and consume remains limited.

Adding renewable energy complicates things

Benefits and problems of solar power with a small market share

Many people hope that rising prices of natural resources and energy will benefit a transition to renewable energy sources. So far, introducing wind and solar - the two most relevant renewable alternatives - has only happened in places with large subsidies or government mandates or at least some imbalance in cost attribution of the overall system. For example, people who produce solar electricity on their roof at a rate that compares favorably to the power charged by their utility receive the reliability of the power grid for free, giving them as much electricity as needed at times when their solar panels don't produce enough. Often, their utility is also buying back excess solar energy at above-market prices. This works well as long as solar power (or wind turbines) have a relatively small market share like today, once everyone produces their own power when the sun shines, getting grid services for free is no longer feasible.This demonstrates a problem almost all energy sources that are driven by "current solar power" have versus those driven by "prehistoric solar power": the latter are available as stores, ready to unearth and to burn when we want to use them, whereas the former come with the weather, demanding a lot of extra effort to convert them into useful energy flows to our societies. Given these constraints, we consider it unlikely that current solar flows will ever become as beneficial as the easy fossil fuels we were burning during the 20th century.

This might also explain why we have - despite commitments to the contrary - been notoriously bad at adding renewable technologies. So far, in every year except for 2009, when the global economy and thus energy use shrank by 2%, total fossil fuel consumption grew faster than renewable energy use. If we continue to add renewable energy sources at the pace of the past 10-15 years, we will only reduce the share of fossil fuels from 86% of global raw (primary) energy consumption in 2015 to about 83-84% by 2050. If we try to do more, we will face problems with scaling up that will also impact the ability of our economies to grow.

The farm’s growth potential is exhausted

What will finally give?

What is taking place today is rather simple: If we think back to our initial example of a farm, we are doing almost everything we can to increase crop output, but we are no longer harvesting heaps more every year as we used to. We can make big efforts, such as bringing in the latest machinery, even more fertilizer or more helping hands in order to squeeze out a little bit, but at a high cost and with unsatisfying results. And now, they are even taking some of our fancy tools and machines away.

Since 2008/9, nothing has been normal for economics , because we are at a point where growth becomes almost impossible. Compare it with when you have stretched a rubber band to its maximum length. Pulling it further becomes harder as the force against your pull is strengthening, and it is only a matter of which will give: you, because the rubber is stronger, or the band when it snaps. The best alternative is to recognize the situation and reduce the pull.

Our brain is looking backwards for guidance

When planning for the future, it has always been useful to look at the past for guidance. This has been great advice for most of human history, as throughout 99.9% of our 200,000 years on this planet, with the exception of the past 250, changes have been very slow to arrive, except for sudden events like natural disasters. Those hunters and gatherers who took the beaten path were much more likely to return home than those who ventured into the unknown parts of the jungle, looking for new discoveries and adventures. Out of 100 people who took the risk, one might have returned rich, while 99 never made it back.

Where to go from here?

For many people alive today, the dominating experience was that next year will likely be better than last, and that economic growth can be taken for granted. It requires true reflection, combined with a reach into our planet's history beyond the year 1750, to understand that our current experience has been shaped by the one-time benefits of burning 500 million years of solar power that will never return once they are used up.

Drivers behind our success: energy and natural resources

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When trying to understand the recent problems to maintain growth, we have to re-discover an old truth: More economic activity means more energy and resource use. Solar power has always been driving prosperity, but since the beginning of the industrial revolution we have been tapping into fossil fuels (=prehistoric sunlight) at breathtaking speed.

Photograph by Eniko Polgar

"Turning to dust" is a proverb accurately describing what happens with things over time. If we don't put effort into maintaining a car or a house, sunlight, wind and rain as well as the mechanical wear from their use, slowly but steadily turn them into a pile of rubble that is no longer useful. The term behind this process is called entropy. Or, to use another simple analogy: if we never clean up, at one point our living or working space will become a useless mess we can't even access, let alone find anything we might need.

Photograph by qinghill

To counteract this perpetual force of destruction, we have to put in hard work: repainting walls, replacing broken roof tiles, fixing a leaking pipe. And we clean up regularly, some more often than others, before chaos completely wins. Nature does the same: after a plant has died, a new one grows out of the ground, turning the disorganized molecules of rotting plant biomass into yet another beautiful and well-organized shoot.

What do all these efforts have in common? They require energy - for us to produce and apply the new paint, for the plant to grow. We need fuels to run a factory or food for our body, while the energy for plants is coming from a process called photosynthesis, the ingenious way of nature to turn sunlight into glucose that provides the energy to assemble new branches, leaves and flowers from molecules available in air and soil , assembling elements like carbon, hydrogen, nitrogen, phosphorus, oxygen, iron, and many more into life.

More activity means more energy and resource use

It may seem obvious and certainly was to our ancestors farming their land, but it's neither part of today's common sense nor anywhere represented in standard economic theory: every time we fight entropy and try to create order, we apply energy to organize resources into more organized forms. If we build a car, we need electricity and heat to convert raw materials into that shiny piece of human ingenuity, we need fuels to drive it, and energy for regular maintenance so it doesn't break down. And we even need energy to disassemble the vehicle at the end of its life and dispose of or recycle the parts. If we want two cars instead of one, the amount of energy needed is roughly twice as much. We can become a little bit better at building cars as we improve our manufacturing process, or a bit more efficient at retrieving or converting raw materials. There is - however - no way around using more energy for more units of economic output, irrespective of what kind of "more" we are doing.

Sources: United Nations, World Bank, BP

Over time, we can document that correlation well. Between 1970 and 2010, total global extraction of natural resources from our planet (fuels, ores, salts, biomass, etc.) is estimated to have grown 3.2-fold from 22 to 70 billion tons. During the same time period, the size of the world economy, adjusted for inflation, grew 3.4-fold from $18.9 to $65.6 trillion. For one additional unit of Gross World Product (GWP), we needed close to one additional units of natural resources.

Sources: BP, World Bank

When looking at energy, relationships look similar. Final energy use (electricity, or transportation fuels like gasoline and diesel) track the size of the world economy the same way as other natural resources. Until the first energy crisis in 1973, energy consumption and GWP were directly correlated - to achieve one more dollar of economic output, we needed 10.7 MJ of primary energy. After energy suddenly became more expensive, we managed to slight reduce overall primary energy use per unit of GWP between 1973 and 2000 to around 7.9 MJ, by improving processing efficiency, particularly in electeicity generation and the production of bulk materials like steel, aluminum and copper. Since the year 2000, our improvements have slowed down, as fewer large efficiency gains are left, and globalization has added more transportation needs to the economy:: to achieve the same amount of GWP next year, we need 0.997 units of this year's energy.  Should we continue at the same pace,  doubling the global economy between 2015 and 2050 (which means 2% real growth every year) would require approximately 1.9 times (or 190%) of today's energy. This is if we are accurately accounting for GDP and inflation and are not overstating growth numbers.

For individual economies, these relationships are a lot weaker, as globalization has moved a lot of resource processing to low-cost countries. As most advanced economies have shifted from manufacturing things to importing energy and natural resources as parts of goods produced elsewhere, they seem to become more energy- and resource-efficient on paper, where in fact they are not. The processing just happens elsewhere, for example in China..

Photosynthesis, still the most important process for life and our energy systems

Schematic display of the photosynthetic process

Where does all that energy come from? In 2014, over 90% of all the energy used by humans is the output of past and present photosynthesic plant growth. In 2014, total global energy consumption was 13,147 MTOE, where a small part (5%) from currently growing plant biomass, but mostly (85%) from fossil fuels like coal, natural gas and oil that represent nothing but ancient biomass stored underground during the past 500 million years.

For this conversation, it is important to understand that the sun fuels more than 95% of all energy use on Planet Earth, as wind and hydro power are equally driven by heat from sunshine moving air and water. The only sources that didn't require solar contributions during the past billion years are nuclear power (4.6% of global primary energy production in 2014) and geothermal energy (0.05%).

Our primary helper: prehistoric solar energy

During the industrial age, economic growth has mainly be attributed to our human prowess and ingenuity, ignoring that, without fossil solar power, it would simply have been impossible to convert all those resources into houses, cars, planes and mobile phones.

We are consuming those fossil stores of coal, natural gas and oil at a breathtaking rate: each year, we approximately use the quantity that took around 4.5 million years to form, or after 7 seconds into January 1 of each new year, we have used up what our planet took an entire year to produce. And all this energy was almost free for us during the past 250 years.

We used and still use fossil energy for all the things we do today. We extract minerals like copper, iron or silicone from the ground, we refine them, and turn them into products, like building materials, machinery, or computers. We transport these around the globe, and travel ourselves, we build, maintain and heat our factories, offices and living spaces. Also, we use this same fossil energy to grow food, as we have long moved away from simply growing what is possible on a given plot of land without fossil inputs. Current sunlight isn't enough to feed all 7.4 billion humans.

All these inputs are also used to create renewable energy infrastructure. Solar panels, wind turbines, and batteries are mostly manufactured by using fossil fuels to extract and convert natural resources into a final product. So far, we have achieved little: the share of fossil fuels in global energy consumption has dropped from 88% in 1985 to 86% in 2015. Ironically, in order to further accelerate that, we would need even more fossil fuels in absolute terms.

 

Outsourcing - how some countries became (seemingly) efficient

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Many advanced economies seem to have become much more energy- and resource-efficient during the past decades, emitting far less greenhouse gases per unit of economic output. Unfortunately, the largest part of those improvements exist only on paper, as globalization and the related de-industrialization have driven the "heavy lifting" elsewhere.
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Many advanced economies seemed to have become much more energy- and resource-efficient during the past decades. Unfortunately, the largest part of those improvements are only on paper, as globalization and de-industrialization have driven the "heavy lifting" elsewhere.

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Renewable energy can only power a less rich future

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All available evidence tells us that a return to energy system that mostly rely on renewables will significantly shrink our economic activity. Unfortunately, the new optimistic term "free solar energy" gives too many people an incorrect impression that we could migrate off fossil energy while maintainng our standard of living and economic growth.
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So far, renewable energy is still contributing a very small share to our global energy consumption. We show why it is unrealistic to hope for expanding their use and maintaining economic growth.

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English