Thoughts on why energy use and CO2 emissions are rising as fast as GDP

In a recent post, I discovered something rather alarming–the fact that in the last decade (2000 to 2010) both world energy consumption and the CO2 emissions from this energy consumption were rising as fast as GDP for the world as a whole. This relationship is especially strange, because prior to 2000, it appeared as though decoupling was taking place: GDP was growing more rapidly than energy use and CO2 emissions. And even after 2000, many countries continued to report decoupling.

I decided to sift through individual country results, to see if I could see a pattern emerging behind these changing results. When I did this, I found three major groupings of countries:

1. Southeast Asia, excluding Japan, Australia, and New Zealand. This group has been rapidly industrializing. In total, the group’s energy consumption has grown as rapidly as GDP in the last decade, and CO2 emissions have grown faster than GDP. This group includes China, India, Korea, Viet Nam, and a long list of other countries in Southeast Asia, including nearby islands.

2. Middle Eastern Countries. This group showed energy use growing more rapidly than GDP,  suggesting that it was taking more energy to extract oil and to pacify its population, over time. I included all countries in this group that BP includes in its Middle Eastern grouping, even though Israel (and perhaps some other countries) do not fit the pattern well.

3. Rest of the World. This group is the only group showing a favorable trend in energy growth relative to GDP growth, even in the last decade, although the pace of improvement has slowed. Two reasons for this favorable trend seem to be (a) continued growth of services, such as financial service, healthcare, and education, which use relatively little energy and (b) outsourcing of a major portion of heavy industry to Southeast Asia.

When we look at CO2 emissions broken out into these three categories, the shift over time is quite surprising:

Figure 1. Carbon dioxide emissions emitted in year shown by the three major areas described (Southeast Asia, Middle East, Remainder), based on BP Statistical Data

The vast majority of the CO2 increase since 1980 has taken place in the Southeast Asia and the Middle Eastern areas!

The energy intensity of GDP (that is, the amount of energy consumed per trillion dollars of real GDP) has shown very different patterns for the three groups of countries:

Figure 2. Energy Intensity of GDP by Area, based on BP Statistical Data regarding Energy Consumption in Barrels of Oil Equivalent, and USDA Economic Research Data regarding real GDP.

The World energy intensity of GDP has flattened in the last decade, reflecting a combination of the impacts of the three areas. The only area that has an improving energy intensity of GDP is the Remainder group. The Southeast Asia group is roughly flat. The Middle Eastern group is shows increasing energy use, relative to GDP growth.

Based on data in this post, I come to the following tentative conclusions:

1. The industrialization of Southeast Asia has allowed importers from around the world to reduce their energy intensity of GDP, but much of the savings has been offset by greater energy use (largely coal) in Southeast Asia. On a CO2 basis, we are likely  worse off, because of this transfer.

2. There is no evidence that the Kyoto Protocol reduced worldwide CO2 emissions. In fact, to the extent that it encouraged outsourcing of industrial production to the Far East and made goods from the Far East more competitive, it may have contributed to rising world CO2 emissions. It would appear that a different approach is needed that recognizes the fact that fuels are part of a world market. Fuel savings in one part of the world are not necessarily helpful for the world as a whole.

3. In my view, world industrial production has self-organized in a way that assigns different roles to companies operating in the three country groups I described above, as a way to minimize manufacturing costs. Over the long term, this particular version of self-organization cannot continue. The Middle East will reach a point where its oil exports drop rapidly. Southeast Asia will reach maximums on coal production/imports and on pollution levels. The “Remainder” is already reaching limits in competing with Southeast Asia. Unemployment rates are high, manufacturing wages are low, and many workers lack the  income needed to purchase additional services which might “grow” GDP.

Before leaving the breakdown into the three areas, I might mention that when one views energy consumption by area (Figure 3), changes in energy consumption for the three groups do not appear as extreme as changes in CO2 production (Figure 1).

Figure 3. Energy consumption by area, based on BP Statistical Data.

The results look even more like business as usual, when viewed on a real GDP basis (Figure 4), because GDP in the “Remainder” group is buoyed up by a large amount of GDP relating to services.

Figure 4. World real GDP by area, based on USDA Economic Research data.

Differences in Energy Use by Area

A person cannot help but be struck by the very different pattern in energy consumption by area. Southeast Asia’s energy use has grown by about 7% per year in the last decade, with coal being the primary source (Figure 5).

Figure 5. Southeast Asia's energy consumption by fuel, based on BP Statistical Data.

Figure 5. Southeast Asia's energy consumption by fuel, based on BP Statistical Data.

Figure 5 indicates that coal use in Southeast Asia has especially grown since 2003.

The Middle East’s energy use has grown by a little more than 5% per year in the last decade. Its energy use is almost exclusively oil and natural gas (Figure 6).

Figure 6. Middle Eastern energy consumption by fuel type, based on BP statistical data.

The Remainder grouping shows energy growth of less than 1% per year in the past decade, and a very different mix of fuels, including nuclear (Figure 7).

Figure 7. Consumption of energy by type for remainder of world, based on BP Statistical Data.

How the Fuel Consumption Market “Works”

This is my view of how the market works, in practice:

Middle East. Figure 8 shows recent oil production, consumption and exports.

Figure 8. Middle Eastern oil production, consumption and exports, from Energy Export Data Browser, based on BP Statistical data. Note that total production is in grey; exports are green. Consumption is the heavy black line.

Because the Middle East has ready access to oil, it uses it freely–to provide social programs for large populations without jobs, and to aid in increasingly energy-intensive oil extraction. At the same time, Figure 8 shows that the total amount of oil extracted has been flat to declining, so oil exports have been declining. Since GDP is based mainly on oil exports, the result is that energy consumption is rising faster than GDP, unless oil prices happen to rise very rapidly.

Southeast Asia and Remainder. These two groups have taken two very different strategies:

1. The Remainder group has sought to minimize its oil use, and the use of  fossil fuels in general, for a variety of reasons–to reduce the financial cost of imports, to minimize CO2 emissions, and to ensure “energy security” if the fuels should decline in availability. Coal is especially not favored, because of its high CO2 emissions.

2. The Southeast Asia group has chosen to try to produce economic growth through the export of manufactured goods, making use of its inexpensive labor force and the availability of cheap coal. Southeast Asia’s cost advantage is especially great in energy-intensive manufacturing, because coal is relatively cheap, and new factories often use the latest technology, limiting fuel use.

When other countries buy exports from Southeast Asia, it starts a whole chain of other economic activity as well–new roads, more concrete buildings, and more workers with a high enough salary to afford cars. So the impact of outsourcing is much greater than the energy directly used in producing the goods for export.

The Kyoto Protocol may have aided Southeast Asia in developing its export-oriented economy. Once CO2 goals were announced, it was clear that signatory countries would want to limit energy intensive manufacturing in their own countries. An easy way of doing this was to substitute the purchase of goods made in countries such as in Southeast Asia. The limits on carbon emissions also made it clear that Southeast Asia would experience relatively little competition for coal in the world marketplace, because countries that signed the Protocol would be limiting coal imports.

Furthermore, if Kyoto Protocol signators enacted carbon taxes, the taxes would tend to make Southeast Asian products (and services such as oil refining), even more cost-competitive than they otherwise would be, since similar manufacturing and services would face no taxes in Southeast Asia. And any oil that was saved by the Kyoto Protocol would be available on the world market at a slightly lower price, further helping Southeast Asia.

If there weren’t a world market in fossil fuels, and in goods made from fossil fuels (with no tariffs on them), the principles of the Kyoto Protocol would work very nicely. The problem is that the Kyoto Protocol doesn’t really address world market issues.

Why None of the Three Groupings Can Continue Its Current Strategy Indefinitely

Middle East. We know that because oil is a finite resource, eventually decline must occur. In fact, Figure 8 shows that oil exports may already have begun to decline in the  Middle East, and this may be contributing to the unrest in the region. If exports are decreasing, it is difficult to maintain welfare programs unless oil prices rise to cover the funding gap.

It is not clear whether exports can be ramped up in the future. Saudi Arabia recently put plans on hold for a $100 billion expansion to 15 million barrels a day capacity by 2020. It also has delayed until 2014 its only other big expansion plan–a  900,000 barrel per day refinery that would allow it to use oil from the Manifa field. Given this situation, Saudi Arabia may see falling exports in the not-too-distant future.

Many have hopes for expansion of oil production by Iraq, but such expansion depends on maintaining peace in the country, which may be difficult. Furthermore, even if one country (namely Iraq) has adequate oil exports, other Middle Eastern countries may face unrest if their exports are declining, and oil prices do not rise enough to offset the impact of the decline.

Southeastern Asia. This part of the world is already encountering serious pollution problems. Air quality is notoriously bad, because of all the coal burned. A recent Science article reported that fully 90% of China’s shallow groundwater is polluted, and 37% of it is so foul it cannot be treated for use as drinking water.

While coal supplies are believed to be larger than oil supplies, they are not unlimited, and costs are already rising. Higher coal costs cause dislocations in the system. For example, costs of producing goods for export are higher, making them less competitive. Higher coal prices may also mean that domestic buyers have to cut back on other purchases, if they are to continue to purchase electricity and food that uses coal inputs.

Furthermore, Southeast Asia’s production is also dependent on the continued availability of oil exports, which cannot continue indefinitely.

So the current model of continued export growth cannot continue forever, and perhaps not for very long at all–a few years at most.

“Remainder” Countries. These countries have planned to outsource a significant share of their industrial production and purchase the products as imports. This approach only works if the population has jobs, and are rich enough to afford the imports. Increasingly, this seems not to be the case.

Another part of the strategy in “Remainder” countries is continued growth of services. This growth of services works only as long as citizens have jobs that pay enough that they can afford ever-increasing amounts of services. A recent article in the Wall Street Journal called Holding Off on Haircut to Buy a New Car points out that increasingly that is not the case. Figure 9 was attached to illustrate the issue:

Figure 9. Illustration from the Wall Street Journal, November 25, 2011. Note that the red and green bars at the bottom of the graph are percentage changes since the beginning of the recovery. Percentage changes are also shown (but not graphed) relative to the beginning of the recession.

This shrinkage in growth of services would seem to explain the convergence of US GDP  growth and energy use growth in the last few years as shown in Figure 10.

Figure 10. USA growth in real GDP and growth in energy consumption

A New Model

Our current system of creating and trading goods is not the creation of any single government. Instead, there is a huge network of rules set forth by governments and organizations around the world, that has evolved over time. There is an even larger number of businesses and individuals making decisions based on these rules. The system is in many respects self-organized, because businesses try to make a profit within this system, and organize themselves in the best way they can, given  the rules they have been given to work with.

Our problem now is that we need a new system, but it is not easy to co-ordinate all of the changes in rules that would be needed around the world to create such a system. In fact, it would be virtually impossible to put together the right set of rules, because it is impossible to foresee all of the indirect impacts and feedbacks that would occur within the new system as the new rules take effect. A system almost of necessity needs to be designed piecemeal, and to evolve slowly over time.

The system we have now takes many things for granted, such as the long-term availability of fossil fuels, and that we will always be able to have enough jobs for workers. These assumptions are proving not to be true. Furthermore, it wasn’t until fairly recently that we recognized CO2 emissions might be a problem.  What we need now is a new model, with a complex set of new rules, but it is hard to see how we can get to that point. We can’t rely on any single rule–even the Kyoto Protocol–to get us to where we need to be.

This entry was posted in Energy policy and tagged , , by Gail Tverberg. Bookmark the permalink.

About Gail Tverberg

My name is Gail Tverberg. I am an actuary interested in finite world issues - oil depletion, natural gas depletion, water shortages, and climate change. Oil limits look very different from what most expect, with high prices leading to recession, and low prices leading to financial problems for oil producers and for oil exporting countries. We are really dealing with a physics problem that affects many parts of the economy at once, including wages and the financial system. I try to look at the overall problem.

50 thoughts on “Thoughts on why energy use and CO2 emissions are rising as fast as GDP

  1. Gail, you forgot one skill modern Americans have in super-abundance, namely the ability to shoot. The USA as a highly weaponised society (high level of gun ownership) will respond very poorly to the severe scarcity which is coming. It will probably teeter on the edge of civil breakdown with gun crime and neighbourhood shootouts escalating. The US is too organized overall to collapse into total civil war. What will happen however, is that martial law will probably have to be imposed at some point. The border with Mexico will have to be sealed. Millions of illegal immigrants will probably be deported. All of this might seem extreme and impossible now but near starvation has a way of changing priorities and shifting all boundaries of consideration for the humane.

    If I was an American (I am an Aussie) who could afford it, I would get out. New Zealand might be a good destination except for their earthquake threat.

    • I saw a USA Today headline today which said that guns were a big seller on Black Friday (the supercommercialized shopping day right after the US Thanksgiving holiday). Perhaps you are right.

      Don Stewart

  2. Gail, here in Australia we have managed, on the surface, to decouple energy consumption from GDP, and our political representatives score that as a major plus for our nation.

    But any such analysis ignores the fact that this country exports huge volumes of coal and natural gas to the Middle East – far more energy than we use ourselves, and new multi-million contracts are being negotiated all the time. From this perspective we haven’t decoupled at all.

    Taking into account only the energy we use directly, Australian nation has the highest per capita energy consumption in the world. Take into account our exports as well and we are responsible for many times the per capita energy production of anywhere else on the planet, other than perhaps Saudi Arabia.

    It would be great if each countries exports of energy products were matrixed into energy consumption data to show a truer picture.

    • I agree. Australia seems to be in a world of its own. We need a better measurement system, that takes into account exports as well, and penalizes the import of goods from other countries.

  3. Gail, many thanks for this interesting article. One very small suggestion for future versions (or extensions, if I may hope): I found the reference to Southeast Asia rather confusing, until I checked your definition. The grouping you refer to as “Southeast Asia” is what I would think of as “Asia” – or “Asia-ex-Japan”, abbreviated in financial markets to AsiaX. (Asia + Australia & NZ we refer to as Asia-Pacific.) “Southeast Asia” to me is approximately equivalent to ASEAN (Indonesia Malaysia Thailand Singapore Philippines Vietnam Cambodia Laos Burma Brunei), & would not include China & India. Nomenclature only, but “Asia” would seem simpler as well as clearer?

  4. Gail – nice post. Your charts of energy consumption by fuel show that oil, nat gas, coal and hydro are virtually the complete story..Given that (a) hydro is unable to expand and that fossil fuels can’t keep going at this pace for much longer, (b) the world’s population isn’t about to stop increasing, (c) prosperity is good and relates to energy consumption, and (d) renewables are a very long way off being able to supply any meaningful proportion of the world’s energy needs, then maybe the only way ahead for the foreseeable future is nuclear energy. There is plenty of uranium to ramp up production and if you don’t believe that then add in thorium, and of course don’t forget to allow for technological improvements.
    Perhaps the only disadvantage is that nuclear energy is low in CO2 emissions. More CO2 would help food production for the increasing population, and might be able to offset a small part of the possibly imminent severe global cooling

    • One problem with nuclear energy is that it only produces electricity, and that is not helpful for all of the devices we have today than use oil as a fuel. I won’t comment on the climate issues. There is definitely more than one view. CO2 is also a problem for ocean acidification, though.

      • Yes, nuclear does only produce electricity, but gas [methane etc] is being ever more heavily used for electricity now, so nuclear could release more gas for transport etc. But technologies change, and in future we may see electric vehicles predominate. It is also the case that renewables chiefly produce electricity.

        I would be wary about claims of ocean acidification. I suggest it would be best to put any doom and gloom on hold until the issue has been examined properly.

        • I personally think our biggest issue right now is financial, and is located primarily in the government and banking sectors. High oil prices damage the economy. The government steps in, and gets itself into financial trouble–bailing out banks, stimulating the economy, paying unemployment benefits, collecting lower taxes. We are running into this problem around the world now, not just the US. So this is the problem I expect to unwind next, starting first with the collapse of the Euro. But the US and Britain are not far behind, and banks will act to transmit the Euro failure to other countries.

          • Agree.
            If in your crystal ball you can see where the world’s economies go from here, please let me know!

        • Mike, the evidence for ocean acidification is quite clear, since the PH of seawater is easily measurable. Further, that increasing CO2 content in water acidifies it is simple chemistry.

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  9. As an economist, I find nothing alarming or surprising about your findings. I also think you fail to understand the nature of market economies and trade, with remarks such as “world industrial production has self-organized in a way that assigns different roles to companies operating in the three country groups I described above, as a way to minimize manufacturing costs. Over the long term, this particular version of self-organization cannot continue;” “The Remainder group has sought to …”; “The Southeast Asia group has chosen to …”; and “it was clear that signatory countries would want to limit energy-intensive manufacturing in their own countries.”

    Like climate, the world economy is a complex system which no country or group can control. Competition in many goods and services is global. To survive and grow, each firm must try to offer its customers a better deal than its competitors, while achieving profits which give a return on funds used at least equal (on a risk-adjusted basis) to alternative uses of those funds. The basis by which firms are competitive change constantly, as relative wages and prices change constantly in response to a great array of forces, forces which are almost always outside of the control of a particular firm or country.

    What you have observed is the outcome of many factors, some of which – like the 2008 US-Europe financial crisis – were difficult to predict, others which were more predictable, e.g. the shift of manufacturing to SE and NE Asia and the flow of mineral resources to those regions. It is not the outcome of conscious strategy by particular groups such as “Southeast Asia,” nor, by and large, is it the outcome of conscious strategy of any country, although to some extent the changes in China reflect government policy decisions.

    So to say that “none of the three groupings can continue its current strategy indefinitely” is nonsense. First, because there never has been any “group strategy.” Second, because no strategy can continue indefinitely in a rapidly changing world. Economists can understand some of the drivers of growth, they can make a good estimate of the impact of alternative policies, but they are very poor at forecasting – in part because forecasts must be based ion the continuation of existing relationships, and can not account for the unexpected changes or crises which inevitably occur. (In passing, the system is not as chaotic as climate, and no economist would dream of making the kind of long-range projections which some climate scientists do, nor, with rare exceptions, attempt to base policy on them.)

    We do not have an economic “system” such as you posit in your closing remarks, and never will. All attempts at central planning and direction have failed disastrously, while the undirected market system has produced unparalleled growth in incomes and living standards over the last 200 years. There is no “system” “taking things for granted,” the beauty of markets is that they respond to what is: if a good, resource or service is in short supply, its price will rise, firms will find ways to use less of it, will develop alternatives, will shift to producing something not using it, etc; if it is in excess supply, prices will fall, and firms will respond accordingly. While we do have some economic co-ordination through the WTO, IMF etc, there is no authority or group of countries – cf the EU’s eurozone crisis – which can develop and implement an over-arching system to address your concerns.

    • While your post is critical of my post, I think you make some good points. Some of the points tie in with discussions I have been having over at The Oil Drum with respect to the same post.

      I probably shouldn’t have used the wording, “none of the three groupings can continue its current strategy indefinitely,” because as you point out, it is not really their strategy. It is the strategy that fits with the system as it has evolved today, and it is the strategy of individual companies, more than it is of a particular grouping.

      I would agree with you that there is no authority or group of countries which can develop and implements an over-arching system to address my concerns. This is the issue we have been discussing in The Oil Drum comments. A top down approach to fixing the system really does not work well at all. At best, a country can fix its own laws, or a group of countries can agree to a treaty on a particular issue. But it is very difficult in practice to create big changes in this way. If businesses in one country “zig”, because businesses elsewhere will “zag”, because each business will try to find the spot where it has a competitive advantage.

      If we weren’t running into energy problems which are causing financial problems (especially among governments) right now, there would be no reason to try to change the system. The problem we run into, as we think about it, is that there really is very little we can do. Perhaps my last paragraph from the post gives too much hope that change can really be effected.

      By the way, my experience with models has been the same as yours. They do not work well decades out into the future. The climate models in particular do not recognize the impact of high energy prices on the economy, and the indirect impacts this is likely to have. Instead, the climate models assume ever-rising oil, natural gas, and coal usage–something that seems quite unlikely to me.

      • Apologies for commenting late on this. Your final paragraph above regarding climate models is different from my understanding.

        As I understand climate models, they model the climate from various physical forcings and feedbacks and are compared with both recent history and climates of long ago.

        The IPCC used various scenarios with these models to demonstrate a variety of possible outcomes. They did not present any forecast.

        I think a similar criticism, which assumed forecasts instead of scenarios, was levelled at the Limits To Growth report. However, it appears that failure to act on the findings of the LTG report is giving us an outcome not dissimilar to ones presented in their report.

        I am not an expert here, and you may wish to follow this up with others (Ugo Bardi?).

        • I am not entirely certain I understand what the issue is. (There are actually a couple of different versions of my last paragraph, depending on where you read the post.) I may have not used the correct word for the output of these models–whether it is forecasts or scenarios, by the time the indications are discussed in the news, they come out sounding like forecasts.

          IPCC’s models clearly don’t assume that other countries will ramp up their fossil fuel use, if countries adopting IPCC recommendations cut their emissions.

          • I agree that when these matters get reported in the news they sound like forecasts.

            Consequently, when events don’t match these ‘forecasts’, the original premise gets rubbished. This is my point.

            We need to be careful not to propagate misinterpretation of scenarios, which are there to inform and to guide action and not to make a forecast of The future.

            Only a minor quibble. I find your posts really informative and challenging.

    • If the system had been designed via a ‘group strategy’ then the ‘group’ could just go back to the drawing board and remedy the problems.

      Alas, global problems being systemic there is no driver. Or should I say there are too may drivers. We are like a bus full of passengers in which all of the passengers have a set of controls but little coordination between them.

      Most just happily sit there watching the video movie in front of them, blithely assuming that there is a driver in control.

      • We do have some drivers–our biological needs, the depletion of resources, and the ability of the current system to hang together under the stresses. But you are right, a lot is baked into the cake, with little control over it now. We are not used to thinking of systemic problems.

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