Just as the modern oil and debt fuelled consumer age was building momentum in wealthy industrialised countries, the energy taps were turned off by the 1973 OPEC oil crisis. As the world now gets to grips with the realities of making a rapid transition away from fossil fuels in the next decade, is it time to look again at how quickly we moved back then, when we had to?
Great innovation can emerge as a direct result of crisis. The case of the Organization of the Petroleum Exporting Countries (OPEC) oil crisis shows how government led energy conservation and a whole new industry based on renewable energy can emerge as a result of crisis. In the early 1970s, fossil fuel consumption was soaring and the industry was booming – until the supply tap was turned off in a shock manoeuvre by the Middle Eastern oil producers. Overnight, national governments were forced to put in place measures to drastically reign-in consumption – and people had to change their behaviour. Despite the deep recession this caused, economies survived and industries adapted. Faced with a sudden lack of oil, energy conservation and efficiency became a top priority. Research into renewables also stepped up. The 1973 oil crisis, with its loud echo in 1979, is a clear historical example of rapid transition and what people, communities and governments can do when mobilised to act.
In October 1973, the Arab members of the Organization of the Petroleum Exporting Countries (OPEC) raised their benchmark oil price by 70% and agreed to reduce production. Oil exports to countries that supported Israel in the Yom Kippur War were stopped. Oil prices almost quadrupled to over $12 a barrel and the ensuing energy crisis marked the end of the era of very cheap gasoline. The share value of the New York Stock Exchange dropped by $97 billion, ushering in one of the worst recessions the world had ever seen.
The US government was forced to introduce fast, severe measures to ensure the economy did not grind to a halt: Americans used to cheap, plentiful fuel found themselves in queues around the block to fill their cars, daylight saving measures to reduce the need for energy for lighting continued throughout 1974-75, and a new national speed limit of just 55 miles per hour was introduced. Notably, there was an understanding that during this period of rapid adaptation it was vital to prioritise the population’s overall welfare and that policies should be implemented with demonstrable fairness. A ‘Congressional Declaration of Purpose’ announced that ‘positive and effective action’ was needed to protect ‘general welfare . . . conserve scarce energy supplies’ and ‘insure fair and efficient distribution’.
Congress created the Strategic Petroleum Reserve to ensure the supply of at least 90 days of oil in case of another embargo. Similar emergency measures were swiftly enacted by governments across Europe and the rest of the developed world, leading to improved energy use and efficiency in a variety of sectors- and embedding the idea of saving energy in the minds of a generation.
Scientists, green activists and inventors in several European countries and North America turned simultaneously to to idea of harnessing the wind, the sun and geothermal hot water to produce electricity domestically. None of these technologies were new, but they were all experimental or used in a limited way- such as US western rural wind-powered water pumps, alternative fuel cars, and, ironically, solar systems on oil rigs. These green shoots look now with hindsight to be the start of the global renewables industry we see today.
The oil crisis of 1973 is interesting because it forced us to examine energy use and efficiency, encouraging accelerated innovation and research into renewables. It also brought the acute nature of our dependence on fossil fuels into sharp relief for governments, industry and individual users, as well as their finite nature. It was resonant also, because it was around this time that the American geophysicist, M. King Hubbert, had accurately predicted the peak and long-term decline of conventional oil production in North America.
Altogether, this encouraged changes in behaviour alongside state sponsorship of alternatives, with the birth of energy conservation laws and governmental and non-governmental organisations to monitor use. We are seeing similar moves today, with climate change pushing governments to reduce fossil fuel use, so it is worth looking at some of the huge shifts that happened in the 1970s to understand what is possible. The OPEC members who created the oil crisis inadvertently gave the rest of the world a life-saving head start in the struggle to avoid, or at least mitigate, the threat of catastrophic climate change.
The car industry changed overnight as US car manufacturers saw a sharp decline in demand for its big, heavy gas-guzzlers, but failed to develop successful small cars to meet the government’s new corporate average fuel economy standards. Japanese and other importers quickly took market share – and kept it. There was a shift of balance in the automotive industry away from the US toward the more fuel-efficient models designed in East Asia and Europe. The quest for better fuel economy, lower fuel bills and so-called energy independence brought diesel and the ethanol revolution in Brazil, and the start of hybrids and electric vehicles. It also brought a wave of technology innovations that continue to deliver increased efficiency, including turbocharging, lightweight materials, front-wheel drive, eight-speed transmissions, and direct fuel injection.
Government programs in many countries invested funds in alternative sources of energy, such as solar, wind, geothermal. From the mid 1970s through to the mid 1980s, the US government worked with industry to advance wind turbine technology and enable large commercial wind turbines. This effort was led by the National Aeronautics and Space Administration (NASA) and was a successful government research and development activity.
Denmark became a pioneer in developing commercial wind power during the 1970s, and today a substantial share of the wind turbines around the world are produced by Danish manufacturers and component suppliers. To encourage investment, families were offered a tax exemption for generating their own electricity locally. Some families bought their own turbines, but most purchased shares in cooperative-owned community wind turbines. In 2015, wind power produced the equivalent of 42.1% of Denmark’s total electricity consumption. The cooperative model has spread to Germany and the Netherlands.
The oil crisis hit the country hard, resulting in frequent power blackouts and a three-day working week. In January 1974, the government started financing research and development into energy, including renewable resources such as geothermal and hydropower. The UK government used TV advertisements, posters, and “Switch off” stickers to encourage consumers to use less. It also subsidised energy surveys, which led to the rise of energy consultancy. The Energy Conservation Demonstration Projects Scheme subsidised early adopters of new technologies in return for the right to disseminate information about the results.
In Sweden, the oil crisis, coming on the back of environmental legislation, resulted in the wood pulp industry reducing its fossil fuel use by 70%. Most of the shift came from developing biofuels. Initially, reductions in oil consumption and improvements in energy conservation were accomplished by relatively small measures, but long-term research and development (R&D) was required to push technology development further. The need for international competitiveness played a role too, as the government encouraged inter-firm and state-firm collaborations toward the “greening” of the industry.
Context and Background
The industrialised world had shifted from coal as the major source of energy in the 1950s to oil by the 1970s. By 1970, the UK was dependent on oil for 94% of its total energy consumption. In the United States, a whole suburban infrastructure had evolved during an age of relatively easy access to fossil fuels, where homeowners were completely reliant on cars. Day to day living required driving between homes and places of work, education and even for basic groceries. These car-dependent, sprawling suburbs later became known as ‘dead zones’. Across Europe, the motorway network was growing and seemed to herald the way of the future. But the limitations of fossil fuels were starting to show.
As early as 1956, M. King Hubbert predicted “peak oil” would be reached by 1970 and was remarkably accurate in his projections at least for conventional oil, but failed to predict the later rise of so-called unconventional fossil fuels, such as shale oil and gas . Even before the OPEC embargo, an American oil crisis was indeed on the horizon: domestic reserves were low; the US was importing 27% of the crude petroleum it needed every year; and gasoline prices were rising. In 1972, the US Secretary of the Interior released an Environmental Impact Statement (EIS) stressing the importance of minimizing the nation’s dependence on foreign oil.
Nixon had already upset the OPEC nations earlier in 1971, when he removed the US dollar from the Gold Standard. This sent the price of gold soaring and the US dollar plummeting. Oil contracts were priced in US dollars, which meant producer countries’ incomes fell with the dollar. The final straw came on October 19, 1973, when Nixon requested $2.2 billion from Congress in emergency military aid for Israel during the Yom Kippur War – and the Arab states within OPEC took action.
The rapid transition away from oil in 1973-74 was painful for many, but it was accomplished very quickly. Governments provided the framework, the legislation and the financial support; while individuals responded to the need for energy conservation; industries funnelled money into R&D to reduce energy use and to find alternative sources; and environmentalists started to hold everyone to account. The time was right for all these elements to come together. In fact, in many ways, it is surprising that the oil crisis – and the 1979 second crisis after the revolution in Iran – did not do more to turn economies away from oil.
The idea of the oil running out was a familiar nightmare in the popular psyche. The developed economies had known since early in the process of mass mining of coal and oil, that there would be a peak and a time when these resources ran out. Theories about how to replace fossil fuels had been discussed since long before they assumed their late 20th century dominance. Even in 1912, a paper in Scientific American hypothesized that soon fossil fuels would run out, leaving solar power the only option for the US, and investment in solar power technology was popular up until the First World War. In the 1950s, the concept of peak oil began a new drive towards renewables and solar, hydropower and others forms of energy generation were seized upon by both environmentalists and industrialists.
Meanwhile, a growing environmental movement, the development of environmental sciences and a push against pollution (such as the Clean Air Act in the US and equivalents in other countries, most of which passed in the 1960s and 1970s) meant that more than ever before, renewable energy became not just a scientific innovation for the future, but a necessity.
When governments legislate for a change that is needed, it is surprising how quickly people respond. One of President Nixon’s first moves after the OPEC ban on exports was to initiate “Project Independence”. The US was to meet its own energy needs “without depending on any foreign energy sources” by 1980. In November 1973, Nixon called for people to make a personal sacrifice: “It will be essential for all of us to live and work in lower temperatures. We must ask everyone to lower the thermostat in your home by at least 6 degrees…”
The new US Department of Energy started its Low Income Weatherization Assistance Program (WAP) program, helping the nation’s most vulnerable reduce energy use. The Residential Conservation Service (RCS), established by the 1978 National Energy Conservation Act, promoted energy audits and asked consumers to insulate their homes, weather-strip windows, wrap water heaters, turn down thermostats, and turn-off lights. Some states offered offered a price per kWh paid for verified energy savings. In 1977 the US Department of Energy launched the Solar Energy Research Institute in Colorado – the first federal facility dedicated to harnessing power from the sun.
In the UK, a four-fold increase in oil prices forced not only the creation of the first Department of Energy that year, but also a rethink about energy efficiency. The Department’s Industrial Energy Thrift Scheme was the first industry-wide attempt to gather information on energy use and to provide advice on how to improve energy efficiency on site. Over 6000 site visits were carried out during the mid to late 1970s and the information gathered was aggregated and published in industry sector guides.
Scope and evidence
- In 1970, less than a quarter of one percent of electricity was generated from renewable sources worldwide. In contrast, by March 2019, globally, around one third of electricity generating capacity was from renewables including hydropower. New generating capacity from renewables now outstrips all new fossil fuels combined. Some nations generate more than 50% of their total electricity from renewable sources. Famously, in 2015 Costa Rica generated 100% of its electricity from renewables. In July, 2018, Baynes (2018) reported that Germany generates enough solar energy in six months to meet the nation’s energy needs for an entire year.
- In 1973, the American Institute of Architects (AIA) formed a separate committee, the AIA Committee on Energy, dedicated to researching passive systems, such as reflective roofing materials, and technological solutions, such as triple-glazed windows.
- The “DTH zero-energy house” was designed in Denmark by by Prof. Vagn Korsgaard (Kopenhagen, 1973) as a Passive House. Simultaneous experiments in the US and Germany developed super-insulated homes.
- US federal investments in energy R&D more than doubled from 1973-1976.
In 1977, US President Carter delivers an energy speech arguing for conservation and alternative fuels.
- 1978 saw the world’s first solar powered village at the Tohono O’odham Reservation, Arizona.
- December 1980 saw the world’s first modern wind farm comprising 20 wind turbines built in New Hampshire, USA.
- Amadeo, K. (2019) The Balance. https://www.thebalance.com/opec-oil-embargo-causes-and-effects-of-the-crisis-3305806
- Bergquist, A-K., Söderholm, K., (2014) Business and Economic History On-line : Papers Presented at the BHC Annual Meeting, Vol.12, pp.1-18. “Industry Strategies for Energy Transition in the Wake of the Oil Crisis.”(2014). www.deutschland.de.
- Durand, Richard, and M. Sharma. (1982) “Conservation or Energy Development: Consumer Perceptions of Alternate Solutions to the Energy Crisis.” Journal of the Academy of Marketing Science 10.4. Pages 410-31.
- International Energy Agency (2018) World Energy Balances 2018
- IRENA (March 2019) Renewable capacity highlights
- History.com (2013) https://www.history.com/this-day-in-history/opec-states-declare-oil-embargo
- Ross, Michael L. (2013) Foreign Affairs. https://www.foreignaffairs.com/articles/north-america/2013-10-15/how-1973-oil-embargo-saved-planet
- United States Code, Title 15: commerce and Trade, Chapter 16B – Federal Energy Administration, Subchapter I, Section 761. Congressional declaration of purpose.
- Verbong, G., Geels, Frank. W. & Raven, R. (2008) Technology Analysis and Strategic Management. “Multi-niche analysis of dynamics and policies in Dutch renewable energy innovation journeys (1970–2006): hype-cycles, closed networks and technology-focused learning.” https://www-tandfonline-com.ezproxy.sussex.ac.uk/doi/full/10.1080/09537320802292719?scroll=top&needAccess=true
- Vincent, D. 11 Janaury 2017. University of Sussex, Centre on Innovation and Energy Demand (CIED). “The historical foundations of UK energy policy since the 1940s.” Historical-foundations-uk-energy-policy-since-1940s