As peak oil sets in while the world is growing thirstier for oil, what benchmark should be used to assess if you are weaning yourself from oil? I propose it should be your income divided by the amount of oil you consume.

Why? Because this will measure how truly oil independent you are and how much purchasing power for ‘other stuff’ you will ultimately have, once oil becomes truly expensive (and I am assuming here it will be expensive, not unavailable).

As with CO2 emissions however, calculating all-in personal oil consumption with a high degree of accuracy is almost impossible. How much oil went into producing your fridge, your car, your prescription drugs, the kid’s toys, etc.? How much oil do you consume for commuting, the weekend trip, for hot water? How much oil does your supermarket consume: how much was used for logistics, how much for pesticides, how much for artificial fertilizers and how many times did the farmer have to till, plant, spray and harvest the fields? It gets infinitely complex. Therefore, let’s abstract to a higher level…

The oil consumption and gross national income (GNI) of countries can be measured with reasonable reliability. History has shown that in the short and medium term, there is an extremely robust correlation between oil consumption and GNI. Only in the long term does this relationship diminish as countries slowly grow more efficient. If we put into relationship the gross national income and the oil consumption, we receive GNI per liter of oil consumed. The graph was generated using data from the BP Statistical Review of World Energy 2009 and GNI data from the World Bank, using the Atlas method, which smoothes exchange rate fluctuations over three years. All data are for the year 2008.

The data are telling us that at the low end, countries are generating less than $10 of GNI per liter of crude. At the very high end, countries are generating $30 of GNI per liter of oil consumed. So far, so bad.

We can back in the efficiency ratio of one country and see by how much oil consumption would decline in another. Taking Denmark’s 2008 ‘oil efficiency ratio’ and applying it to the US yields the following results:
• US oil consumption would decline 57%, to 8.4 Mbpd.
• The US would cover 80% of its 2008 consumption domestically. The annual import bill for oil would have declined by $322 billion or 2.2% of 2008 GNI (assuming $80/barrel).
• World oil demand would have declined to 73.4 Mbpd or 13%, ceteris paribus.

To the question, “Is it likely that the US or other countries can achieve improvements at this scale in a time scale that is relevant?” I would answer “Is there an alternative?” Alternately, countries could simply keep the ratios where they are and decrease GNI, year on year, for decades. To the citizens of a country, it would feel like a never-ending economic depression. This prospect should strike fear in the heart of every politician.

Long-term, when can a country claim to be ‘independent’ of oil? Is it at $100, $200 or even $500 of GNI per liter? I don’t know, but I would submit that the ratio will have to end up solidly in the triple digits to continue economic activity at current levels while liquid fossil fuels become less available. At those extremely desirable levels of efficiency, remaining demand could be satisfied from biofuels, making it sustainable long after a peak in production.

So if, for example, you are making $70.000 a year, at an efficiency ratio of $200 of income per liter of oil, you and your dependents would be limiting total direct and indirect consumption to 2.2 barrels (92 gallons, 350 liters) per year. This benchmark should only sound ambitious today, but not in the future.