Does a Change in Price of Fuel Affect GDP Growth? An Examination of the U.S. Data from 1950-2013

We examined data on fuel consumption and costs for the years 1950 through 2013, along with economic and population data, to determine the percent of U. S. gross domestic product (GDP) spent each year on fuels, including fossil fuels and nuclear ore, and the growth of the economy. We found that these variables are inversely correlated. This suggests that the availability and cost of energy is a significant determinant of economic performance. We believe this relation is consistent with analyses based on the energy return on investment (EROI) concept in that increasingly scarce, and hence expensive, fuels are a drag on economic growth. The best-fitting linear equation relating the percent of GDP (energy cost share) and year-over-year (YoY) GDP change variables suggests that a threshold exists in the vicinity of 4%; if the percent of GDP spent on fuels is greater than this, poorer economic performance has been likely. Currently, about 5% of GDP is spent on fuels; most of this is for liquids. Continued weak economic performance appears likely unless improvements in energy efficiency, on the order of a factor of 3 for liquid fuels, and/or a more rapid adoption of renewable or nuclear energy sources can be achieved, provided that the EROI of these new sources proves to be sufficiently high.