Monday Chart
Monday 31 July 2023
OECD per capita power consumption has now fully recovered to pre-pandemic levels. Non-OECD per capita power consumption, meanwhile, never felt a scratch. Both will go higher for the next few decades as energy—historically consumed in transportation—moves over to the grid along with an array of industrial processes, domestic heating and cooling, and general consumption. Per capita oil consumption in the global aggregate therefore will continue fall. Indeed, we can think of oil as making a slow exit from our lives as electricity grows and expands.
We also have to consider a dynamic known as convergence: a common principle that prospects for the likelihood that developing economy consumption eventually aligns with the developed world. Here at The Gregor Letter, this principle is treated with caution. Directionally, it’s solid and merits observation. But the common expectation that consumption will reach parity is not likely to be realized. Per capita consumption of electricity in the Non-OECD is not going to reach 8 MWh, for a variety of reasons, mostly due to a dynamic in higher density domains that sees per capita energy consumption footprints top out at lower levels. That said, 2.7 MWh in the Non-OECD is too low. An example: China’s population is not going to grow miles travelled in electric cars so much in the decades ahead, owing to density, urban populations, and public transit. However, as seen in other post-industrial revolution domains, wealth is going to continue to accumulate in China, and that will go directly to general consumption.
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Is there a downside case, or a weaker growth case, for global electricity consumption? Perhaps. We find ourselves currently at the long expected juncture where actions taken to lessen the effects of climate change are flourishing at the very moment that destruction from actual climate change is starting to land with more frequency. As discussed in Nature’s Wealth, this means that future profits and thus future economic growth will be less than expected because we’ll have to spend capital to mitigate climate impacts, thus reducing discretionary consumption. Systemically, climate change can be thought of as a new taxing authority that will take more frequent bites out of GDP, and reduce consumer surpluses. To be clear, the accounting of GDP reductions and losses has already begun.
—Gregor Macdonald
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