Energy Consumption and Economic Performance

Technically, energy equals the work done. Every economic activity needs energy for various purposes. Various studies have investigated long run and causal relationships between economic growth and energy consumption of the countries and have come up with a variety of results. In this article, we aim at deriving inferences based on the data from 2018 and 2019 (years before the COVID-19 outbreak) on the energy consumption of 66 large economies in the world.

The data collected includes 66 countries but accounts for almost 93% to 96% of the total energy consumption. It also includes data collected from 28 OECD (Organisation for Economic Co-operation and Development) countries, which includes developed countries with high Human Developed Index.

Across various continents, the highest energy consumption was observed in Asia, which does not come as a surprise since it acts as the residence of 60% of the population. However, the energy consumption in Asia was about 680 EJ (6.7B Mtoe), which is about 52% of the world’s consumption in 2019. North America, comprising three major developed countries namely Canada, the USA and Mexico accounted for 21% (120 EJ or 2.8B) of the energy consumption, which is also almost equivalent to Europe’s share while accommodating only 7.5% of the population.

Fig1: Distribution of Population and Energy Consumption of different regions of World

*CIS - Commonwealth of the Independent States, which includes Azerbaijan, Armenia, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajikistan, Turkmenistan, Uzbekistan and Ukraine

As compared with their share in the population, Europe, North America, Middle East and Australia hold a greater share of the world’s energy consumption, while South America, African Countries and South-East Asian Nations hold lesser shares. The regions with overall high per capita incomes showed larger consumption of energy and ultimately indicated larger per capita Energy consumption. It also implies that such regions have a greater number of industrial areas, better power supply and naturally are involved in more production.

In terms of the countries, China’s total energy consumption accounts for 25% of the total world’s (48% of Asia), followed by the USA, which is at 17%. The difference here is that China is a developing country with almost 20% of the world’s population whereas the USA is a highly developed country with 4.25% of the total world population.

Energy consumption changed in various ways in different countries. According to this report from The Washington Post, nine major economies were showing signs of recession in 2019 (way before the COVID-19 pandemic started), which included Argentina, Brazil, Germany, Italy, Mexico, Russia, Singapore, South Korea and the United Kingdom. Our analysis showed similar results but in terms of energy consumption. All these countries, except Brazil, experienced a fall in demand for energy. Brazil didn’t experience a fall in total consumption, but there was a significant decline in the demand for Coal by -5.8%.

GDP growth and energy consumption for the countries which are set to experience recession.

On comparing the OECD countries with Non-OECD nations, we observed that out of 28 OECD nations, 18 of them experienced a fall in energy consumption, while 12 of the non-OECD countries experienced a fall in their energy consumption. These OECD countries had an average fall in GDP per capita by -3.8%.

Venezuela and Argentina had the greatest slump in the GDP per capita (-35% and -15%) from 2018 to 2019, they also exhibited a similar pattern in the case of energy consumption. Norway which had a -7.7% fall in GDP per capita, also showed a -7.2% fall in energy consumption. Pakistan was an interesting case as there was a -13% decline in per capita income accompanied by a 2.4% rise in energy consumption. Bangladesh had the largest rise in energy consumption of about 18.6%, with a 9.3% increase in per capita income. Iraq, Vietnam and Turkmenistan showed similar results, with higher growth in energy consumptions.

Fig 2a

Fig 2b

Fig 2 and 3: Per Capita GDP growth and Energy Consumption of a) Top 10 Fastest growing economies and b) 10 worst performing Economies in 2018-19

There is no constant pattern being implied by the data, as some countries which had very high per capita incomes, like Uzbekistan and Ukraine, showed a slump in oil consumption. Similar results were presented by many researchers, with deeper analysis and described data.

One important point to be noted here is that a rise in economic activities in an economy leads to rising in energy consumption but at the same time, the energy requirements are largely met by most countries through imports of petroleum and other resources, which affect GDP negatively. This effect of oil in the economy makes it difficult to predict the exact relationship between energy consumption and economic performance.

With our initial discussion on the various regions of the countries, we noted that poorer economies had a lower level of per capita energy consumption and countries which had high populations also had lower per capita energy consumptions. The vital requirement for increasing energy consumption is the infrastructure. Per capita, energy consumption can be increased by increasing investment in the economy and boosting the growth of economic activities. Fiscal measures, by governments, can also lead to a rise in energy consumption.