Getting It Wrong: A Brief History of Energy Forecasts
Recent forecasts argue the U.S. will be energy independent in the next decade or maybe two. Or at least North America will be energy independent, with the U.S. taking the place of Saudi Arabia as the world’s largest oil producer. The U.S. will also be a net energy exporter—meaning we will export a greater energy equivalent of liquefied natural gas (LNG) and coal than we will import in oil. Press reports of these studies seem at times to be near euphoric: at last, energy independence!
But just how seriously we should take projections—no one likes the word “forecast”—that extend out two decades or more. The most prominent of these, The World Energy Outlook 2012 by the International Energy Agency (IEA), contemplates the world energy picture to 2035.
History would suggest that little or none of what the IEA, or anyone else, projects will come to pass. As my forthcoming book, U.S. Energy Policy and the Pursuit of Failure (Cambridge University Press), details, energy forecasts of the past 60 or so years have been so far off that they would be comical but for the fact that the government often spent billions of taxpayer dollars because of them.
Here is a picture 2012 if the forecasts of the last half of the 20th century had come to pass. First the bad news:
- The U.S. has run out of natural gas, that happened some years ago;
- Oil also is gone or is on its way out; it costs hundreds of dollars per barrel in any case so no one can afford to use it;
- Demand for electricity has never stopped growing; it is so great that a new power plants must open just about every day; the number of such plants has increased more than five-fold since the 1970s;
- Most of the rest of the world is also running out of oil and gas except maybe OPEC, which has accumulated trillions of petrodollars—money that these countries are using to become the world’s richest economies;
- Which is a good thing for OPEC because by now few can afford to use any fossil fuels except coal, which is polluting cities across the globe;
- In general, the age of oil and natural gas is over.
But not to worry, there’s plenty of good news:
- Nuclear power is ubiquitous in the U.S. and too cheap to meter;
- Cellulosic ethanol was commercialized in the 1990s and is plentiful; it costs less than $1 per gallon;
- Coal is being turned into liquid and gaseous substitutes for oil and gas that are much cheaper than what’s left of the real thing;
- Homes use solar heat and hot water—which became the commercial leader in the late 1980s;
- Electric cars are commonplace, but most people rely on public transportation.
While many of these predictions/projections were made in the 1970s and ‘80s (or in the case of “too cheap to meter” the 1950s), wildly inaccurate forecasts have a more recent history. In 2008, for example, a Goldman Sachs analyst foresaw oil hitting $200/barrel by 2010, and others saw it higher still by now and rising.
So I for one am taking a skeptical approach to the IEA projections. It would, of course, be positive for the U.S. economy if we became an exporter of LNG and boosted reserves of domestic oil. But I’ll believe the more grandiose stuff about independence and the next Saudi Arabia only when they happen. History’s lesson is clear: whether good or bad, don’t put too much stock in energy forecasts.
Image: What's Next? via Shutterstock
Peter Z. Grossman is the Clarence Efroymson Professor of Economics at Butler University. He is the author of U.S. Energy Policy and the Pursuit of Failure, which is now available from Cambridge University Press. Links to more of his work can be found at: http://peterzgrossman.wordpress.com/.
Other Posts by Peter Z. Grossman
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