Today in Energy

November 20, 2017

Link between growth in economic activity and electricity use is changing around the world

graph of GDP and electricity use growth rates, as explained in the article text
Source: U.S. Energy Information Administration, World Bank

Growth in economic activity (measured as gross domestic product) has tended historically to be coupled with increases in electricity use as populations grow and generate more goods and services. However, more recently this relationship has been decoupling in many countries. The amount of decoupling in various countries is caused by many factors—including the countries’ relative level of development, electrification, economic makeup, and income levels.

Most member countries of the more developed Organization for Economic Cooperation and Development (OECD), such as the United States, United Kingdom, and Japan, have been shifting from manufacturing economies toward service economies. Service-based economies tend to use less electricity than economies with high levels of industrial activity, as commercial services are generally less energy-intensive compared with manufacturing.

OECD member countries still have sizable manufacturing sectors, but they are shifting toward advanced manufacturing, which uses technologies that tend to be less energy-intensive. As more economic activity shifts from lower-skilled manufacturing to services and higher-skilled advanced manufacturing, additional economic activity can be generated without requiring as much electricity use.

graph of electricity use and GDP per capita, as explained in the article text
Source: U.S. Energy Information Administration, World Bank

Some non-OECD member countries, such as China, India, Brazil, and Egypt, have rapidly growing economies, often generated by a large or growing manufacturing sector. However, these economies use technologies that are less efficient and have lower-skilled labor relative to OECD countries, which requires more energy and more electricity usage to generate goods and services.

National electricity use among OECD member countries has generally remained flat in recent years, and in EIA’s International Energy Outlook 2017 (IEO2017), electricity use from these countries is projected to grow modestly. Total electricity use by non-OECD member countries, however, surpassed electricity use by OECD members in 2011, and IEO2017 projects it to continue growing. The amount of electricity needed in the future will largely depend on how fast non-OECD economies grow and what type of activities make up that economic growth.

For both groups, IEO2017 projects electricity growth to remain lower than the rate of economic growth. In the IEO2017 Reference case, among OECD member countries, gross domestic product (GDP) increases by 1.7% per year, and electricity use increases by 0.9% per year between 2015 and 2040. In non-OECD countries, GDP increases by 3.8% per year, and electricity use increases by 2.0% per year over the same period.

graph of electricity use and GDP , as explained in the article text
Source: U.S. Energy Information Administration, International Energy Outlook 2017 Reference case
Note: Gross domestic product comparisons based on purchasing power parity (PPP).

Principal contributor: David Peterson