Energy Crisis Has Much to Learn From 1973

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Meltdown Recession Fears

Mark Twain reputedly said that history does not repeat itself but often rhymes. Indeed, the Ukraine war seems to echo the 1973 Yom Kippur War in its dire energy consequences. The 1973-74 oil embargo and skyrocketing prices caused most OECD governments to decide drastic policies and implement them quickly without significant backlash. This happened again in 2020 when the Covid-19 pandemic broke out. But the oil crisis also shows that policies set half a century ago have mostly survived regardless of how oil prices have evolved. Today, while short-term options are readily available to substitute Russian imports, the crisis could trigger decisive longer-term policies to expedite the world's low-carbon transition.

It took Western Europe about 15 years to halve its oil consumption per dollar of GDP, which is now 70%-75% lower than in 1973. This is the kind of effort the world would need to make again in the next 10-20 years in terms of carbon emissions if it wants to achieve the Paris agreement's 1.5°C target.

From Rationing to Car-Free Sundays

The oil embargo and high prices caused OECD countries to deploy savings plans unheard of in times of peace. Some measures were short-lived, such as gasoline rationing in many countries, the introduction in the Netherlands, Belgium and Switzerland of car-free Sundays, or the requirement in France for offices to switch off lights after 10 p.m. and TV stations to stop broadcasting after 11 p.m. The UK, which was also facing a coal miners' strike, introduced the three-day week, in which commercial use of electricity was limited to three consecutive days each week to reduce power consumption.

Substituting Russian Resources

Similarly, in the case of a potential Russian energy embargo in today's context, quick policy measures would minimize costs for Europe because gas demand is seasonal, a group of German economists insist in a new report on the economic impact of stopping Russian energy imports. An early move would allow "Norwegian and other sources" to take over more easily during the summer months while keeping European industrial production going. It would also "immediately trigger the substitution and reallocation dynamics that are central to reducing economic costs." Those would amount to around 2.5% of GDP or €1,000 ($1,100) per German citizen over one year, which is significant but bearable, and substantially lower than Germany's 4.5% GDP decline in 2020 during the peak of Covid-19.

Substituting Russian imports of oil and coal would "likely not pose a major problem," the report's authors note. Likewise, gas that is currently used for power generation could easily be saved by switching to coal — and possibly nuclear — and reallocated to other users. Those would have to save or substitute energy — or, for industrial companies, to reduce production — but this would be limited, the report finds.

From Speed Limits to Fuel Economy

Beyond immediate emergency measures, many policies launched during the 1973 crisis have either already made a marked long-term impact — or they provide useful models for decision-makers to follow and repeat. Road speed limits were introduced in many places in response to the crisis five decades ago, which are still in place or have been intensified. In the Netherlands, for example, the daytime motorway speed limit was recently lowered from 130 kilometers per hour to 100 km/h to reduce CO2 emissions. Similarly, energy conservation was promoted throughout OECD countries, for example with the US' Corporate Average Fuel Economy standards for new cars, which were enacted in 1975.

In France, people were encouraged to reduce heating temperatures to 20°C. This was turned into law in 1974 for public housing, schools, offices and commercial buildings, and later tightened even further to 19°C. Today, a strict EU-wide enforcement of that temperature — down from the current 22°C average — could save the EU 20% of its Russian gas consumption at almost no cost, according to International Energy Agency (IEA) data.

Impressive Investment

The 1973 energy crisis also led to greater interest in alternative energy sources, notably nuclear power. The most remarkable example, which is often cited as a model for global renewable deployment to follow, is the French nuclear program. France had launched an ambitious plan in the late 1960s to address its lack of fossil fuel resources, which was targeting 13 gigawatts of new capacity to be commissioned over 1972-77. The oil crisis caused a dramatic inflation in ambitions, with an additional 50 GW to be developed over 1974-80 and a long-term target of around 150 GW by 2000.

This was revised in the mid-1980s as low economic growth and better energy efficiency made it clear power demand was not growing as fast as expected. But France managed to commission 63 GW of nuclear capacity over 1978-99, or an impressive 3 GW per year during 21 years. The share of nuclear in French electricity production has reached 75% in 1990, up from just 8% in 1973. The IEA's net-zero scenario similarly assumes wind and solar energy should reach 70% of global power generation by 2050, up from just under 10% now.

Low-Carbon Policy, Oil Demand, CO2 Emissions
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