Ringside: Induced Demand is a Prerequisite for Abundance

Not quite two years ago an influential book, “Abundance,” by Ezra Klein and Derek Thompson challenged the conventional liberal approach to achieving affordability and equity. They argued that economic and social goals could more effectively be realized by achieving abundance than by redistributing existing wealth and resources.

To this end, the authors identified well-intentioned but excessive regulations as the biggest obstacle to economic development.

But in response, California’s state legislature is restricting regulatory relief to only a few favored avenues of development, insufficient to make a difference.

This brings us to a core premise of what are now well-established policies in California that guarantee chronic scarcity of everything – roads, housing, water, and energy. It is the concept of “induced demand,” which posits that if you increase supply, it won’t just bring down prices, it will also induce more demand. And more demand, according to this reasoning, is not sustainable. This is why “conservation” (more aptly referred to as “rationing”) is the only policy governing resource management that enjoys a broad political consensus in states like California. Do nothing, because doing nothing is sustainable.

The alleged threat of “induced demand” is trotted out as a moral justification to deny countless worthy projects. For example, we are advised to put our urban areas onto a “road diet,” converting lanes for cars into dedicated lanes for bicycles and scooters. The alternative, to actually widen boulevards and freeways, is unthinkable, because it would encourage more people to drive.

The concept is widely applicable. If we produce more water, people will waste water. If we produce more energy, people will waste energy. But if we produced more water and energy, and if we quit pretending we were running out of open space, we could then build new cities with millions of detached single family homes. And if we did that, more people would be moving into our state than moving out.

Induced demand is not always a bad thing. It can be a very, very good thing. It enables abundance in resources we already depend on. This improves our quality of life. We can afford more. We can do more. We can use more. Equally, if not even more beneficial, is the fact that abundance will enable economic viability for new and emerging technologies that will further improve our lives.

There is an irony here: for California to achieve its most cherished energy goal of the electrification of the economy, induced demand is an inevitable consequence. To enable electrification to spread across all of California’s economic sectors, electricity will have to be abundant and inexpensive. The numbers are unequivocal.

If every non-commercial vehicle was an EV, based on Federal Highway Administration statistics, they would collectively log around 300 billion miles per year, which at 4 miles per kilowatt-hour would require 75,000 gigawatt-hours (GWh) of electricity.  If our commercial fleet of trucks and buses became EVs, logging, say, 25 billion miles per year at 1 mile per kilowatt-hour, that would require another 25,000 gigawatt-hours. Don’t laugh. If the technology continues to improve, everybody’s going to want EVs, even the shipping companies.

Electrifying California’s residential sector, based on roughly 500 trillion BTUs of non-electrical input in 2024, at a 75 percent conversion efficiency to end-use (very optimistic), would require over 100,000 gigawatt-hours of electricity.

Compare this to the California Energy Commission’s official goal of 500,000 GWh of electricity production by 2045. It’s not enough. The state consumed 278,338 GWh in 2024. Add 100,000 GWh to electrify the transportation sector, and another 100,000 to electrify the residential sector, and you already require 478,338 GWh.

What about California’s commercial and industrial sectors? To what extent shall they be electrified? If you considered California’s total estimated “energy services,” actual end-user energy consumption, realized in the form of horsepower, thrust, light, heat, cooling, pumping, communication, computing, etc., and expressed it in units of electricity, it was 691,453 GWh in 2024. But getting from raw fuel inputs to energy services, even with electricity, will see a lot of power lost along the way. For example, overall, California only turned 35 percent of its raw fuel supply into energy services in 2024. Could that efficiency be doubled with electrification?  That’s the goal. But even if 70 percent of electrical inputs, presumably coming from vast, benign fields of solar panels and wind turbines, made the journey all the way to end user energy, we would have to generate not quite 1.0 million GWh of electricity.

And then there’s everything else that’s coming. If electricity consumption by data centers triples in the next 5-10 years (a realistic projection), and if they’re built in California at a rate proportional to California’s percentage of total U.S. population, that’s likely to add another 50,000 GWh to annual demand. What about desalination? That would only require 7,000 GWh to produce 2 million acre feet of fresh water from the ocean – quite an energy bargain compared to everything else.

What about robots, passenger drones, and tunneling machines? What about more water pumping, so we can store millions of additional acre feet of water underground? What about carbon neutral synfuels, a fantastic innovation that will only make commercial sense when electricity is dirt cheap?

Whether they are necessities or wonders of the future, these forms of energy consumption make our lives better. Trotting out the “induced demand” principle to delay or deny their fruition is small thinking. We have myriad ways to achieve energy abundance. Natural gas, solar, geothermal, and nuclear are all capable of independently increasing production by hundreds of thousands of GWh per year. Meanwhile, we have petroleum reserves sufficient to cost-effectively meet demand until other forms of energy utilization deliver better performance at lower prices.

Induce demand. The more the better. It is a concept that should be adopted as an imperative, not an impediment.