Why Energy Equals Life?
Today I would like to talk about a concept that I think is being forgotten by people in developed countries. This will help you understand better energy policies since this is universal and true throughout all history. Energy equals life.
Energy equals life: Enables population growth
Let’s take a look at the graph below.
In it, you can see the last 200 years of history. The red line represents the number of people in the world. The blue line is the amount of energy consumed worldwide. Some would say that the reason why energy consumption is growing is that there are more people. It makes sense; the more people, the more energy they consume. Yet, I would argue that this phenomenon is the other way around. The more energy is available to us, the more we are able to expand as a species. Energy equals life.
Let me prove it to you.
Why does energy equal life?
Imagine a 1-person-society where the environment offers them 2500 kcal per day. Notice that kcal is a measure of energy. In such an environment, a 2-people-society could not exist because they would need twice as much energy. The amount of energy caps the potential amount of people. Conversely, in a 2-people-society where there are available 5000 kcal, if something would happen to that source of energy, there would be a direct impact on those 2 people.
Those two people would spend most of their energy searching and collecting food from the forest. But let’s imagine that one of them now learns how to grow potatoes and by themselves manages to increase the amount of energy available to 10000 kcal/day. Suddenly 1 person produces more than enough for the 2-people-society and 1 is free to use their energy as they consider best. For example, improving shelter conditions or any other thing useful for the people around.
As you see, energy availability is the necessary condition for a population to expand. Energy comes first, and life is the consequence of it. Energy also reinforces that expansion by raising the living standard of people. The more energy we can use, the freer the society members are to improve other areas of life. Think of all those things that make us live longer, like food, shelter, medicine, etc.
This is what just happened during the last 200 years. Since the industrial revolution, we have increased the amount of energy utilization. And we have raised the energy cap level, leading to a population expansion.
But how does this manifest in the economy?
Energy has an inelastic demand
By saying that energy equals life, we are also saying that energy is one of the most important things to have. I would even say that it is the fundamental and most basic element in society. This makes the demand for energy inelastic.
Inelastic demand in energy means that regardless of the energy cost, you will still consume the same as long it is available.
If you go by car to work, regardless of the price of gasoline, you will fill the tank. Otherwise, you cannot work, you don’t get paid, and you cannot buy food.
If you are hungry, no matter what will be the cost of food, you will always pay for it or you will starve.
You need to switch the lights on if you want to see…etc. You get my point.
Understanding this dynamic is crucial to understand energy policy and its effects throughout the world.
How does this apply to a global scale?
If the demand for energy is inelastic, the people in the world will consume the same amount as long as they can. Then, if the amount of energy gets reduced, its price will inevitably increase. If the price gets higher, the developed countries will manage to pay for the available energy, leaving the poorest ones without access to it, potentially reducing their energy cap levels below what their population needs to exist.
For example, let’s take a look at the case of food that has fuel as an input cost. Most likely, the amount you spend on food is below 15% of your monthly income. If the food prices doubled because there was not enough fuel, you would spend 30%, but you might still manage by reducing other expenses.
In other countries, they spend 40-50% of their budgets on food. If the prices doubled, just food would eat up 80 -100% of their income. For a better understanding, 80 -100% would mean that you have to choose between transportation to go to work or to buy food. Just pick one of the two.
These are the tough consequences of adopting policies that reduce energy production. People in emerging countries suffer the consequences simply because they cannot compete against the developed ones. Energy equals life and its absence equals death.
In today’s western policy
Unfortunately, our political class fails to explain the cost-benefit analysis to citizens when implementing policies that obstruct access to energy. And each one of those is a step closer to what is described in this post.
An example of recently implemented policies that reduce energy production could be:
- Reducing oil production in the US due to environmental concerns.
- Reduction of fertilizer use in Canada and the Netherlands.
- The attempt to ban Russian energy due to the war in Ukraine.
In this blog, I prefer policies that allow cheap and abundant energy. Those are the only ones that help poor countries prosper. They reduce inequality and help people live longer and better.
I hope this post helped you to have a wider perspective on energy policies and understand why it is important that we keep producing so others one day can live the same way you and I live.
Let me know what you think in the comments, and connect/subscribe to receive an update when the next post is out.
