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Energy Is Everywhere

Wednesday, October 24, 2012

Nearly half of what people pay for energy comes ‘embodied’ in the various goods and services that they use, and about half of that comes down to two things: food and health care.

Editor’s note: This is part three in a series of essays on energy system dynamics and energy policy.

There is no substitute for energy. The whole edifice of modern society is built upon it ... It is not “just another commodity” but the precondition of all commodities, a basic factor equal with air, water, and earth.—E. F. Schumacher, 1973

Energy costs are experienced in many ways in American society. There is, of course, the cost of energy you pay for directly, such as your monthly electricity and gas bills, gasoline, and so on. But people also pay for energy that they consume indirectly — that is, in the goods and services they consume.

According to the last Residential Energy Consumption Survey, the average American household in 2005 spent about $1,800 on non transportation-related energy use, including electricity, natural gas, fuel oil, kerosene, and liquid petroleum gas. About $1,122 of that was spent on electricity, $471 was spent on natural gas, and $115 was spent on fuel oil. The amount spent on kerosene was relatively trivial. On top of that, the average American household in 2005 paid about $2,000 per year for gasoline. Considering that the average household income was about $46,000 in 2005, direct energy expenditures would have consumed a little over 8 percent of the household budget.

But that’s just the beginning of America’s energy bills. In addition to the direct use of energy, Americans consume a great deal of energy indirectly. Consider a simple cotton T-shirt. Energy is used to grow and harvest the cotton. More is used to transport that cotton to a factory. Still more energy is used to process the cotton, bleach, and dye and to weave the cotton into cloth. More energy is used to package the T-shirt, get it to a store, and so on. And that’s only the tip of the energy iceberg, because it took energy to make the machines used throughout the process, as well as the dyes and chemicals. And we haven’t even mentioned keeping the lights on at the various factories, moving the workers around, powering the looms, using the washing machines, and so on. All of the energy used at each stage of production factors into the final price you pay for whatever good or service you consume.

My colleagues and I at the American Enterprise Institute calculated just how much energy is used indirectly as a component of the various goods and services that we consume in our daily lives. What we found surprised us. For example, it turns out that nearly half (46 percent) of what people pay for energy comes “embodied” in the various goods and services that they use, and about half of that comes down to two somewhat important things: food and health care. Transportation, another important part of our economy, comes in third. Table 1 shows the top 10 ways that Americans consume indirect energy.

Aside from the simple percentages, one can derive a lot of useful information by looking at how Americans consume their indirect energy. As mentioned earlier, health care and food are the two big-ticket items in terms of Americans’ indirect energy consumption. But there are additional data within those broad categories.

Within health care consumption, for example, about half (almost 47 percent) of the indirect energy consumed involves the preparation of pharmaceuticals. Physician services come next, accounting for roughly 18.5 percent of health care’s indirect energy use. Now that the United States has adopted public policy guaranteeing access to health care for everyone, it’s easy to see how higher energy rates are going to influence the government’s future health-care budgets.

Food Fight

Indirect energy in food is another interesting subject with policy relevance, and even relevance to individual consumer decisions. Many young people are interested in vegetarianism, and some claim that vegetarianism is good for the earth because it uses less energy. And there is, indeed, significant variance in the energy intensiveness of the production of various kinds of meat. In general, processing larger animals is less energy efficient than processing smaller ones. A study conducted in Sweden found that chicken had the lowest energy consumption of the types of meat studied, at 18,500 calories per pound produced. Pork and lamb had 21,000 calories and 23,000 calories per pound, respectively, and beef had energy inputs of up to 40,000 calories per pound. This is a similar finding to those of other studies.

Moreover, we found that, in general, a vegetarian diet is more energy efficient than a non-vegetarian one, which is something that environmental groups regularly highlight. Overall, however, we found that meat consumption is only responsible for slightly more indirect energy use than fruit and vegetable consumption, and there are wide variations in how many calories it takes to produce different meats. This suggests that although growing vegetables in your backyard is certainly more energy efficient than buying beef, cutting out meat may not be the most cost-effective way for Americans to reduce their energy consumption.

Recently, some people have taken an interest in the idea of “local production” of food, in what some people call the “locavore” movement, which seeks to reduce energy use and associated environmental impacts by eating foods that are grown locally. This is related to the idea of indirect energy consumption, and it plays into our intuition. After all, wouldn’t it be better to eat something locally grown than to have it shipped across the country, with all the energy consumption that goes along with transportation?

Alas, as with all things involving energy, things are not as simple as they may seem. As author Stephen Budiansky observed in an article in the New York Times, “It takes about a tablespoon of diesel fuel to move 1 pound of freight 3,000 miles by rail; that works out to about 100 calories of energy. If it goes by truck, it’s about 300 calories, still a negligible amount in the overall picture. (For those checking the calculations at home, these are ‘large calories,’ or kilocalories, the units used for food value.) Overall, transportation accounts for about 14 percent of the total energy consumed by the American food system.”

Budiansky goes on to point out that what you do with your food once you get it home is far more important than where you get it from:

The real energy hog, it turns out, is not industrial agriculture at all, but you and me. Home preparation and storage account for 32 percent of all energy use in our food system, the largest component by far.

A single 10-mile round trip by car to the grocery store or the farmers’ market will easily eat up about 14,000 calories of fossil fuel energy. Just running your refrigerator for a week consumes 9,000 calories of energy. That assumes it’s one of the latest high-efficiency models; otherwise, you can double that figure. Cooking and running dishwashers, freezers, and second or third refrigerators (more than 25 percent of American households have more than one) all add major hits. Indeed, households make up for 22 percent of all the energy expenditures in the United States. Agriculture, on the other hand, accounts for just 2 percent of our nation’s energy usage; that energy is mainly devoted to running farm machinery and manufacturing fertilizer.

Researcher Hiroko Shimizu derives slightly different values for the transportation component of food, but her conclusions are fundamentally the same: “Production technologies matter: ‘Food miles’ refer to the distance food travels from farms to retailers. In the American case, the food production stage (planting, irrigating, harvesting, using heated greenhouses, applying fertilizers and pesticides, etc.) contributes far more greenhouse gas emissions (83 percent) than the food miles segment (4 percent). Therefore, the resources needed to produce food matter a lot more than how close a production venue is to consumers. As a rule, the alleged energy savings attributable to increased local purchases is dwarfed by the additional inputs required in less productive locations.”

The food mile issue comes under more scrutiny in a longer article by Shimizu, coauthored with University of Toronto professor Pierre Desrochers. In “Yes We Have No Bananas: A Critique of the ‘Food Miles’ Perspective,” the authors discuss the various studies that examine the transportation dimension of food consumption as it pertains to environmental impacts, social impacts, health impacts, and economic impacts. They observe that:

Another largely overlooked issue is the way consumers handle their food. Garnett (2006) points out that 25 percent of all produce grown ends up as waste. Another British study conducted by the Waste & Resources Action Programme (2008) analyzed the trash of 2,138 households and estimated that more than 6.7 million tons of food — roughly a third of the food bought by consumers — was thrown out in the United Kingdom every year. According to the report’s authors, 61 percent of this food waste (consisting mostly of fresh fruits, vegetables, and salads, and amounting to approximately 70 kg/year/person) could be avoided with better shopping and meal planning. Food waste costs were estimated to be on the order of £10.2 billion (about US$19.5 billion) and the cause of 18 million tons of CO2 emissions per year in the United Kingdom — an amount equivalent to the annual emissions of one-fifth of the British car fleet during this time period.

Desrochers and Shimizu conclude that “the evidence presented suggests that food miles are, at best, a marketing fad that frequently and severely distorts the environmental impacts of agricultural production. At worst, food miles constitute a dangerous distraction from the very real and serious issues that affect energy consumption and the environmental impact of modern food production and the affordability of food.”

The Impact of Indirect Costs on the Poor

But the most important information we discovered when we studied indirect energy consumption relates to how energy prices affect different parts of the population, particularly the poor versus the better off. It has long been known that the poor spend a greater share of their income on energy than do the better off. It is not simply that the poor have less income — an aggravating factor is that the poor often live in older, less energy-efficient houses and apartments, drive older, less energy-efficient cars, and often have to drive them longer distances to work.

We found that the same dynamic holds true for the indirect energy consumed by Americans. Table 2 shows the ratio of indirect energy expenditures to income for the population by income deciles in 2003, the most recent year for which full data were available. Notice that the poorest people in American society pay the highest percentage of their income on indirect energy (5 percent), while the wealthiest only pay about 1.3 percent. The implication of this finding is that government policies that raise the cost of energy have the greatest impact on the poor, not only directly as they gas up their cars or flip on their lights, but also as they consume goods and services across the economy.

We should remember, too, that affordable energy isn’t only important to us as consumers of both direct and indirect energy. As a prime input to economic productivity, energy costs affect the entire economy. From the time we awake to the time we go to sleep, we’re consuming energy both directly and indirectly. If energy costs go up, so do all other costs. When that happens, consumption declines and unemployment rises. As with many things, the poor are the most harmed by actions that undermine energy affordability in the United States, and still more are harmed in the most poverty-stricken reaches of the world.

Of course, energy affordability is not the whole picture. The production, distribution, and consumption of energy have many impacts on society and the environment. Our next essay will turn to the question of reliability, another key issue to ponder as we consider the direction of our nation’s energy policy.

Kenneth P. Green is a resident scholar at the American Enterprise Institute. This essay is derived from the introduction of Abundant Energy: The Fuel of Human Flourishing, a supplementary text for college students, published by AEI Press.

FURTHER READING: Green also writes “Homo Sapiens or Homo Igniferens?” and “Energy Abundance vs. the Poverty of Energy Literacy” and coauthors “Presidential Power: Obama vs. Romney on Energy” with Elizabeth DeMeo. Pierre Desrochers and Hiroko Shimizu ask “Locavores or Loco-vores?” Mark J. Perry adds “President Obama's Some-of-the-Above Energy Policy” and “Unleash Private Sector to Produce Energy, Create Jobs.” 

Image by Darren Wamboldt / Bergman Group

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