Soaring oil prices illustrate the importance of green energy. However, the fuel crisis facing Europe also emphasizes the need for energy security.
That’s why smart investors know that a complete transition away from fossil fuels to renewable sources is years if not decades away, and that most developed nations will maintain access to fossil fuels while still pursuing green technologies.
While energy usage per dollar of GDP has declined each year since 1949, the overall economy remains dependent on access to energy. In the United States, energy consumption is split across four end-use sectors, industrial (33%), transportation (28%), residential (21%) and commercial (18%). Fossil fuels accounted for approximately 82% of all energy usage last year. The remainder is generated largely from renewable sources, primarily hydro and wind power.
In 2021, energy demands increased by over 5% from a COVID-19-impacted 2020. Still, 2021 energy demand was just 1.3% higher than in 2019. Despite this expanding demand, the consumption of fossil fuels was unchanged between 2019 and 2021. Renewables and greater energy efficiency accommodated the growth, but the reliance on fossil fuels is not being displaced.
This story has played out before. During the Industrial Revolution of the 19th Century, coal emerged as the world’s primary energy source, outpacing wood burning. Then oil surpassed coal in the 1960s, yet coal burning has increased threefold since then. Similarly, renewables might well become the world’s dominant energy source, but demand for fossil fuels will likely continue, perhaps at levels comparable or greater than that of today.
This highlights the importance of continued investment in both traditional and renewable energy sources. Maintaining access to domestic resources will be critically important to U.S. energy security and the transition to green technologies.