Millennial Behavior Is About To Make Fools Of Peak Energy Demand Theorists
There are a lot of policymakers and pundits hanging plans on the idea that the nation is facing a 'new normal' rooted in ostensibly unprecedented behaviors exhibited by Millennials. Since that generation is now and will be for decades the largest share of the population, how they behave impacts everything going forward, especially for energy forecasters.
Nearly one-half of America’s total energy consumption is associated with just two things: homes and cars. We’re told that Millennials would rather bike and rideshare than own a car, and that they rather AirBnB or share a tiny urban apartment than buy a suburban house. If true, it’s a big deal not just for energy markets but also retailers and manufacturers; a permanent behavioral shift like that would give credence to the new trope of “peak demand.”
Start with the peak-driving proposition that’s been so eagerly advanced over the past half-dozen years. Here, wishful thinking aside, recent trends are unequivocal. America’s affection for cars is far from over.
Over the past couple of years, the data show travel on America’s roads has been growing at a record pace. By year-end 2016 road travel had hit an all-time high, north of 3.2 trillion vehicle-miles. Gasoline demand has followed apace, also hitting new highs. So much for peak driving.
It’s true that because of the Great Recession driving in the U.S. declined by some by 50 billion vehicle-miles in 2009, and stayed flat for half-dozen years. It was the biggest drop and longest stagnation in road travel in automobile history. But the peak theorists confused the effects of economic deprivation with structural changes in behavior. It turns out that Millennial behavior during the recession—living in the basement rather than driving to work, and biking and sharing rides elsewhere—did not reflect a preferred lifestyle so much as an accommodation to the longest recession and slowest recovery in modern U.S. history.
And Millennials aren’t just driving more now, they’ve started buying cars too. Sales data and surveys show that Millennials exhibit more of a preference for new versus used cars compared to the gen Xers that immediately preceded them, and prefer SUVs and luxury cars rather than econo-boxes and electric vehicles. So much for peak oil demand.
U.S. Annual Vehicle-Miles Driven: “Peak Demand” Refuted
Data from: St. Louis Federal Reserve
What about the housing market? This sector lags automotive by a couple of years. Houses cost more and take longer to build than cars, but Millennials are starting to buy, rather than continue to share or couch-surf. They already make up over 40% of home buyers. This shouldn’t be surprising. As LendingTree CEO Doug Lebda has noted about Millennials: “I mean, you can’t obviously buy a house without a good job.” And the data show that “starter” homes for Millennials are nearly as big as the average sized home already owned by boomers. What does this imply about average home size as, in due course, Millennials move up market? Do we need to note that bigger homes consume more energy?
Here’s a prediction, given that homes are responsible for nearly 40% of the nation’s electricity consumption: As Millennials have kids and buy houses, the past eight years of flat electric demand will soon follow the same upward curve seen in road-miles. And imagine what happens to household electric meters if automakers finally make affordable and useful electric cars. But without regard to Tesla and its wannabes, peak electric demand is very unlikely.
Finally, one cannot ignore the ‘hidden’ energy consumed in building homes, a factor not included in the above accounting. Fuel is used by both heavy construction equipment and in the production of materials, such as lumber, concrete, wire and glass. Measured in SUV terms—the fuel used annually by one SUV—building the average house uses at least 10 SUVs of fuel, and a ‘McMansion’ more than double that. Those vehicle-miles-equivalents of energy really add up now that construction starts, which bottomed below 0.5 million in 2009, are now past a million homes annually. Just consider the energy math when Millennials drive housing starts to the old peak of nearly two million a year.
Efficiency mavens will say that technology will moderate all that. But here too history is instructive. In the two decades prior to the Great Recession, efficiency gains caused residential energy use per square foot to decrease by one-third. Still, the overall residential energy sector energy demand rose nearly 30% over that period.
The trends suggest that we will soon see recession-dominated stagnant demand for residential electricity use tick up, possibly dramatically. Combine this with rising vehicle-miles and the peak energy demand theory will suffer the same fate as the heretofore popular and discredited peak oil theory.
U.S. Annual Electricity Consumption: Poised to Follow Road Behavior?