Tuesday, February 28, 2012
I posted a graph the other day showing the improvements in the oil efficiency of the US economy. Several commenters suggested this was due to increasing concentration of financial services in the economy, but that turned out not to be very consistent with the data. Another suggestion was that the improvement was an artifact of outsourcing the most energy intensive parts of manufacturing to other parts of the globe.
To assess this I constructed a global measure of oil efficiency by taking the IMF estimates of global GDP (at purchasing power parity - adding the output of different countries as though identical goods and services were priced identically rather than using market exchange rates which can be heavily influenced by financial asset flows) and converting them to 2005 dollars using the BEA price indexes for GDP. I then divided this by global oil production (BP) to get the same kind of ratio of GDP/barrel.
This only gets us annual data from 1980 to 2010 but it's enough for a comparison (above). You can see that the planet as a whole has been fairly consistently 10-15% more oil efficient than the US (unsurprising given the degree of sprawl in US cities and comparatively poor fuel economy in the US vehicle fleet). The trend in US and global efficiency are roughly comparable. So clearly the improvements in the US cannot mainly be a matter of exporting our problems elsewhere.
You frequently see people (especially economists) claim that we are less dependent on oil because we use it more efficiently. This doesn't really follow. As a simple analogy, consider needing to commute 300 miles a week in a 10mpg SUV versus a 50mpg hybrid (non plug-in). Clearly in the hybrid case, we only need one fifth as much oil as in the SUV case. However, to make it comparable to the world situation, we have to also posit that in the second case only one fifth as much oil is available. This is because - although the world is now more oil efficient - it is using all the available supply. Then dependence is about our ability to handle a further shock - say a 10% reduction in supply. In the SUV case, a 10% reduction means we have only 27 gallons each week instead of 30. In the hybrid case, we only have 5.4 gallons instead of 6 gallons. However, in both cases we can only go 270 miles instead of 300, and therefore we aren't going to be able to get to work one day out of the week. In this sense, we are just as dependent in the hybrid as the SUV - we still can't go anywhere without oil.
This is the correct way to model the situation because realistic oil shocks come in country-sized units. Oil shocks are generally caused by geopolitical issues within some particular country and the size of the shock is set by the fraction of global oil production currently produced by that country - whether it's Iran with about 4% of global oil production, or Libya with about 2%, to take examples of recent or current interest.
Of course this doesn't mean we shouldn't become more oil efficient - we must. The worst case is trying to continue to drive the SUV on a fraction of the oil supply. That really won't work.