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Page added on January 28, 2014

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Italy’s slow collapse: how declining energy consumption affects GdP

Italy’s slow collapse: how declining energy consumption affects GdP thumbnail

This article is an addendum to an earlier post The other side of the peak: Italy’s collapse of oil and gas consumption.

This graph compares the historical consumption of oil and gas in Italy (summed together in energy units, Terajoules) and the decline in GdP (in constant 2000 US$). The data for Italy’s GdP are from Index Mundi, updated to 2012 and 2013 (est.) from ISTAT.  The data for oil + gas consumption are from BP Statistical review of world energy. Conversion factors for oil and gas: 1 billion cubic feet of natural gas (bcf) = 1.1E3 TJ and 1 barrel of crude oil = 6.1E-3 TJ

As an integration of a previous post, where I was discussing the trends in oil and gas consumption in Italy, here is a comparison with the historical trends of the gross domestic product (GdP). As you can see, the GdP has started a clear trend of decline, after having peaked in 2007.

No GdP would exist without a continuous inflow of natural resources into the economy and the most important of these resources is energy. In Italy, gas and oil are by far the largest sources of primary energy (ca 77% of the total). So, qualitatively, we would expect that a decline in energy production would accompanied by a decline in GdP.

Now, the question is what causes what? That is, is the decline in GdP causing a decline in the demand and, consequently, a reduction in energy consumption? Or is the decline in energy availability that causes a decline in GdP? The data seem to favor the second hypothesis, since it is clear that “peak GdP” (2007) trails “peak hydrocarbons” (2005).

However, the concept of “cause and effect” may be misplaced in this case. Starting from the results of a paper published in “Energies” (U. Bardi and A. Lavacchi “A Simple Interpretation of the Hubbert Model” 2009), we can argue that the GdP can be seen as a proxy for the dissipation of the “capital stock” of a system where capital and resources are related in a feedback relationship. That is, capital is created in proportion to the rate of resource exploitation and resources are exploited at a rate proportional to the available capital. In the case of a non renewable resource, such as oil and gas, gradual irreversible depletion generates “Hubbert-like” (bell shaped) production curves and a peak in the rate of resource exploitation coming before the peak of capital dissipation.

In short, the economy of Italy seem to be declining as a consequence of the increasing cost (or – equivalently – declining energy returns, EROEI) of primary energy sources, mainly natural gas and crude oil. If such is the case, decline is irreversible. The only possibility to avoid this outcome is to decouple the economy from non renewable resources, generating energy using renewable ones.

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Note for those who hate the concept of Gross Domestic Product, GdP. It has been said many times that GdP growth is not a worthwhile objective, since growth has little or nothing to do with quality of life and personal happiness. Fine, I agree, but we should not be confusing the concept of “growth”, which we normally measure in terms of GdP and GdP itself, which does not necessarily imply growth.GdP is simply a useful measurement of the performance of an economy. Unfortunately, however, it is a fact that when GdP goes down, people tend to be very unhappy. 


Note #2 (added after publication). You may be interested in a direct comparison of GdP and gas+oil consumption – which may be obtained by shifting the curve for GdP 2 years back in such a way to match the Oil+Gas peak. Here it is

Italian cafe image via tubblesnap/flickr. Creative Commons 2.0 license.

 

Editorial Notes: Izabella Kaminska posted thoughts on decoupling of energy and the economy to the ft alphaville blog last week. Thoughts on this?

Cassandra’s Legacy



10 Comments on "Italy’s slow collapse: how declining energy consumption affects GdP"

  1. rollin on Tue, 28th Jan 2014 3:06 pm 

    Or it could be, despite the built in resilience of its niche market and luxury production, that the decline in the EU in general has flattened the GDP rise. The EU countries are Italy’s prime market for exports.

  2. yellowcanoe on Tue, 28th Jan 2014 4:52 pm 

    I think it is significant that almost all European countries are entirely dependent on imported oil and natural gas. This results in a huge outflow of money to the countries they import from and I don’t think they can afford to import the amount of oil/gas they did previously. The US is much better situated in this respect as they are producing roughly half the amount of oil they need and most of the natural gas they need. The price of natural gas in the US is also quite low in comparison to Europe and the rest of the world.

  3. GregT on Tue, 28th Jan 2014 4:56 pm 

    Someone should plot a chart showing the relationship between GDP, and environmental degradation. GDP is somewhat irrelevant, if the planet is no longer healthy enough to support life. Sadly, we place too much focus on two of the three E’s, Energy and the Economy, and we fail to focus on the most important one, the Environment.

    We appear to be unable to see the forests through the smog, and our own sense of self worth.

  4. DC on Tue, 28th Jan 2014 7:44 pm 

    The US is ‘better situated’ only because it can print infinite amounts of money to buy oil with(and then export the resulting inflation to the rest of the world). How ‘much’ amerika actually produces, is irrelevant. Italy cant print money at will to buy all the NG and oil it wants, the US can.

  5. Harquebus on Tue, 28th Jan 2014 10:30 pm 

    Renewable energy generators in their lifetime do not return the energy used to make them. They are energy loss makers.

  6. Kenz300 on Wed, 29th Jan 2014 2:23 pm 

    Buy a bicycle, walk or use mass transit……….

  7. robertinget on Wed, 29th Jan 2014 2:24 pm 

    “Renewable energy generators in their lifetime do not return the energy used to make them. They are energy loss makers”

    Who is to say how long that ‘lifetime’ is? Do we know with any accuracy how much the cost of future competitive energy will be?

    Can we put a price on reliability?
    The certainty of deliverable energy, despite drought, pestilence, banksters and
    peak bullshit.

  8. Kenz300 on Wed, 29th Jan 2014 7:09 pm 

    Wind and solar will be providing energy long into the future……………….

    Oil, coal and nuclear are too expensive and too environmentally damaging……….

    Wind, solar, wave energy, geothermal and second generation biofuels made from algae, cellulose and waste are the future.

    Biofuels can now be made from waste or trash. Every landfill can now be converted to produce energy, biofuels and recycled raw materials for new products.
    The price of the inputs to the process are cheap because they are already being collected and need to be disposed. This is much better for the environment than burying the trash.

  9. GregT on Wed, 29th Jan 2014 9:04 pm 

    Kenz,

    Without fossil fuels, wind and solar can provide energy for a few decades at the most, before they will need to be replaced. They also both require massive inputs from fossil fuels to replace a small portion of current energy production. Sorry, not a solution, not even remotely close.

    I strongly suspect that coal, oil, and nuclear will all be utilized far past the point of saving the environment. It might already be too late, and there is no sign of us ending our reliance on any of them, at any point in the future.

    There is only one answer to our dilemma. We need to end modern industrial society. If we do not, we face extinction. Everything that you continually write, is nothing more than an attempt at continuing on with BAU.

    BAU is our biggest problem, not the solution.

  10. Makati1 on Thu, 30th Jan 2014 1:43 am 

    Wind generators will not last 5 years without maintenance using oil badsed energy. Those towers are not in the city. They are scattered across areas far from anywhere, for the most part, requiring maintained roads and trucks/cranes that still work and are powered by oil, to maintain them. Not to mention the repair parts from all over the world. Solar is not much better and require the same infrastructure to exist.

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