energy resources, and many of the environmental and other social impacts of producing and using energy were simply unaccounted for.

The underpricing of energy encouraged rapid increases in the use of our most convenient and irreplaceable fossil fuels. At the same time, it provided inadequate incentives to search for additional supplies or substitutes. It is precisely because of this cheap-energy climate, and the consumption patterns it fostered, that there is now so much room for improvement in the efficiency of energy use before we shall begin to feel any serious economic penalties. Transportation (particularly via highway vehicles), comfortably warm or cool buildings, and industrial heat can be provided by much less energy than has been customary. In the future, if current trends in the cost of energy continue, the amount of energy consumed to provide a given economic product will gradually decrease. As the economy moves toward a new economic balance between the costs of energy and those of capital, labor, and other factors of production, it will surely come to produce goods and services with much improved energy efficiency.

DETERMINANTS OF ENERGY DEMAND

Energy is an intermediate good, valued not for itself but for the services it can provide. The amounts and kinds of energy needed to perform a given set of tasks are not fixed but vary from time to time and place to place, depending on a number of technological, economic, and demographic variables. The most important independent variables in this case are the level of economic activity, measured by the gross national (or gross domestic) product,1 and the relative prices of energy in its various forms. These in turn influence the composition of GNP and the efficiency with which energy is used. Secondary influences are provided by such factors as climate and the geographical distribution of population and industry.*

A useful measure of the energy intensity of a society is the ratio of its energy consumption to its economic output, measured in dollars of constant purchasing power. This ratio is expressed for convenience as energy/GDP or energy/GNP. Among the advanced industrial societies it varies by a factor of about 2. The United States energy-to-output ratio is one of the highest.

Some, but not all, of this difference is due to geographical and demographic differences. European configurations of industry and settlement, for example, are more compact than those of this country, and

*

See statement 2–2, by J.P.Holdren, Appendix A.



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