Energy
Intensity and GDP in 2050
To Have or Have Not
Introduction
In an
earlier article, "World Energy to 2050" I
developed a scenario for the changing global energy supply picture
between now and 2050. That article concluded that the total
energy
available to the world would drop by about 30% in that time. That
single figure, however, didn't give much insight into the the changes
that will occur as the world is forced to
transition from an fuel-based energy economy to one based
primarily on electricity.
The impact on energy
changes on different parts of the world was examined a subsequent
article, "World Energy and GDP to 2050".
That analysis looked at changes to the energy circumstances of
individual
nations and regions, in the context of national
population changes projected by the United Nations. Changes
to national GDP driven by changing energy supplies were translated into
changes to the average per-capita
GDP of various countries and regions.
In that earlier
article the effect of energy on GDP was derived from a
paper by ecological economist Robert Ayres.
While Dr. Ayres' research and conclusions appear to
offer a substantial improvement over the assumptions of classical
economists, this work has yet to be independently validated. When
I then
considered that Ayres' model was tested only against
the economy of the USA, extending its assumptions to other countries
seemed somewhat premature.
Accordingly, I felt that a more standard approach to modeling energy
and GDP would provide a more accessible and generally acceptable
analytical
foundation for the discussion. This article revisits the question
of national GDP in 2050 using the more standard approach of Energy Intensity.
Caveat: As with the previous articles in this series, the
analysis is intended
solely to clarify future trends based purely on the
situation as it now exists and the directions it shows obvious signs of
taking. The model does not include any effects of the various
large-scale changes in direction that have been proposed to cope
with declining oil supplies or rising levels of greenhouse gases.
Solar
or nuclear power "Manhattan Project" style efforts, for example,
are not considered. Treat this scenario as a cautionary
tale: Given projected trends in
energy supplies, energy efficiency and population levels, this is a
probable outcome if we just
continue business as usual.
Methodology
National
Energy Budgets
In the first article of the series I defined global
supply curves for the next 43 years for
each of our main energy sources - oil, gas, coal, hydro, nuclear, solar
and wind
power. I then used the
national energy consumption figures from the BP
Statistical Review of World Energy 2007 and my supply curves to
estimate each
country's energy mix in 2050.
Energy
Intensity
Energy
intensity is a
measure of the amount of energy it takes to produce a dollar's worth of
economic output, or conversely the amount of economic output that can
be generated by one standardized unit of energy. This value
varies widely between countries,
depending on their level of industrialization, the mix of services and
manufacturing in their economies, and the attention they pay to energy
efficiency. I will use projections of countries' energy
intensities to examine how energy changes
may influence national economic performance over the next 4 decades.
The
American Energy Information
Administration maintains extensive data on national energy
intensity, all of which is summarized in this
spreadsheet. I used this EIA data, which gives the energy
intensity of every country on Earth from 1980 to 2005, as the basis for
my intensity projections.
I
first plotted each
country's intensity data on a graph in Excel, then used the trendline
feature to project the 25 years of
historical data forward for the following 45 years. This process
required a certain amount of judgment. The data for many
countries is very noisy, with large swings over the years, and so does
not show clear trends. For some other countries their energy
intensity rises or falls so steeply that simple linear
projections result in absurdly high or absurdly low values. In
these cases I investigated the other equations Excel provides for
calculating trendlines, to find one that matched the existing
data well and gave what seemed like a
"reasonable"
value in 2050. If no clear trend could be determined for a given
country, I assumed that their energy intensity would remain
unchanged from its current value. I found that I could
get acceptable results for the vast
majority of countries using either a linear
or exponential extrapolation.
This
process was unavoidably subjective. As a result I caution readers
not to place too much trust in the specific values of individual
nations' projected energy intensities. After all, 2050 is too far
away for accurate predictions and there will inevitably be changes
between now and then that will alter energy intensities either
positively or negatively. Instead, consider that I made the
projections as carefully as I could, and take them as indicators of
trends that become more accurate when you consider groups of similar
nations rather than single countries.
National
Population and Per Capita GDP
As in the previous
article, I used current national
population and GDP figures from the CIA
World Factbook.
The figures for 2050 were obtained from the medium-fertility
data from the United
Nations
Population Fund report of 2004.
Per
capita GDP
is derived by dividing the actual (2006) or projected (2050) national
GDP by the actual or projected national populations.
Raw Data
The
data used in this article is available in the Excel spreadsheet WEAP2_data.xls.
Comparison
of Methodologies
The
first thing we should do is make a high level comparison between the
results obtained from the Energy Intensity model with the results from
the earlier Ayres model.
Figure 1: National average per
capita GDP using Energy Intensity and the Ayres models
Figure
1 shows the
sorted output of the two methods, along with the l2006 actual data as a
baseline. It is obvious that the
two models generate somewhat different results, and that the difference
increases at higher GDP values. The Ayres model approximately
matches
results of the the Energy Intensity approach for moderate values of
per-capita GDP (from about $5,000 to $18,000. It underestimates
values over $10,000, and consistently overestimates values below about
$10,000.
The main reason for the divergence of the two models is that Ayres'
paper proposed a constant ratio of 0.7 to 1 for the GDP change produced
by a 1% change in energy. With the Energy Intensity model, the
GDP produced by a unit of energy varies depending on the energy
intensity of the national economy being examined. Since every
country
has a different energy intensity, a constant ratio like the one in
the Ayres model will rarely reflect the situation in any particular
country.
In addition, national energy intensities change over time.
Countries with higher GDP tend to have energy intensities that improve,
helping to insulate them from some of the the erosive
effects of declining energy supplies. Countries at the bottom of
the GDP scale tend to require more and more energy to produce the same
amount of GDP as time goes by, rendering them doubly vulnerable to
energy declines.
As a result of this comparison, I have concluded that national energy
intensities is probably the better predictive tool for future GDP in
the context of changing energy supplies. This article
re-develops the global GDP picture using this approach, and will form
the basis of any further analysis in this series.
National
Results
Winners
and Losers
The
research disclosed some of the profound economic changes that will
affect the nations of the world over the next four or
five decades. To start
getting a sense of these changes, let's first take a look at
the top 20 and bottom 20 nations in terms of average per capita
GDP, in
2006 and 2050. All GDP figures are in 2006 dollars.
The
Richest
| 20
Richest Nations |
| 2006 |
2050 |
| Norway |
$46,435 |
Norway |
$58,929 |
| Ireland |
$44,073 |
Sweden |
$58,102 |
| USA |
$43,607 |
USA |
$39,022 |
| Iceland |
$37,682 |
Denmark |
$36,460 |
| Hong Kong |
$36,971 |
Switzerland |
$35,921 |
| Denmark |
$36,636 |
Germany |
$35,576 |
| Canada |
$35,269 |
Finland |
$34,103 |
| Austria |
$34,610 |
Canada |
$33,920 |
| Finland |
$33,923 |
United
Kingdom |
$29,591 |
| Switzerland |
$33,618 |
France |
$27,371 |
| Japan |
$33,069 |
Japan |
$26,193 |
| Australia |
$33,069 |
Czech
Republic |
$24,641 |
| Sweden |
$32,289 |
Austria |
$24,324 |
| Germany |
$31,917 |
Australia |
$23,940 |
| Netherlands |
$31,873 |
Poland |
$23,480 |
| United
Kingdom |
$31,743 |
Iceland |
$22,046 |
| Belgium
& L'bourg |
$31,741 |
New
Zealand |
$21,998 |
| Singapore |
$30,696 |
Taiwan |
$21,708 |
| France |
$30,353 |
Lithuania |
$20,843 |
| Italy |
$30,224 |
Hungary |
$19,288 |
Table
1: Top 20
nations in 2006 (actual) and 2050 (projected)
The Poorest
| 20 Poorest Nations |
| 2006 |
2050 |
| Belarus |
$8,551 |
Peru |
$3,012 |
| Colombia |
$8,432 |
India |
$2,074 |
| Turkmenistan |
$8,400 |
Malaysia |
$2,009 |
| China |
$8,094 |
Thailand |
$1,997 |
| Ukraine |
$7,868 |
Ecuador |
$1,704 |
| Algeria |
$7,508 |
Kuwait |
$1,646 |
| Azerbaijan |
$7,373 |
Venezuela |
$1,644 |
| Venezuela |
$7,165 |
Turkmenistan |
$1,587 |
| Peru |
$6,502 |
Philippines |
$1,558 |
| Other Middle East |
$5,871 |
Algeria |
$1,296 |
| Other C&S America |
$5,185 |
Other C&S America |
$1,292 |
| Philippines |
$4,940 |
Iran |
$1,196 |
| Ecuador |
$4,458 |
Saudi Arabia |
$1,102 |
| Egypt |
$4,164 |
Indonesia |
$1,027 |
| Indonesia |
$4,040 |
Uzbekistan |
$832 |
| India |
$3,678 |
Egypt |
$799 |
| Pakistan |
$2,656 |
Other Middle East |
$759 |
| Bangladesh |
$2,239 |
Pakistan |
$659 |
| Uzbekistan |
$2,005 |
Other
Africa |
$473 |
| Other
Africa |
$1,889 |
Bangladesh |
$228 |
Table
2: Bottom
20
nations in 2006 (actual) and 2050 (projected)
For the
20 nations on the bottom of the
ladder in 2050, their average per capita GDP has dropped by 75% in
2050.
The average income has fallen from $13.50 per day now to $3.28 per day
(in today's dollars) in 2050. Because their average
income is so low, well over two billion people in this group will be
trying to live on less than a dollar a day, compared to one billion
today.
On
a
national level, three factors seem to determine how well or poorly a
country will fare economically. These factors are their current
wealth, their
population change
(falling is good, rising is bad) and their changing energy intensity
(falling energy per dollar is good, rising energy per dollar is bad).
Developed nations
have hit the trifecta: they are rich, they tend to have stable
or declining populations and they tend to have
constantly improving energy intensities. The result of set of
advantages is that even in the face of energy shortfalls their
per-capita
GDP will not fall by much. Their population and energy intensity
changes both move in positive directions that help insulate them from
the worst effects of energy declines. In a few cases, such as Norway
and Sweden, their income
levels may actually improve.
Underdeveloped
nations are another story altogether. Rather than a trifecta
they face a triple threat: they are poor to begin with, and have few
energy options beyond fossil fuels; they have exploding populations
because underdeveloped nations tend to have high Total Fertility
Rates; finally,
their economies tend to show worsening energy intensities over time.
This
combination of factors leads to a massive increase in the global
disparity of national incomes reflected in per-capita GDP.
Figure 2: Global income distribution
in 2006 and 2050
The
most
telling number is what happens to the world’s mean (average) and median
income between now and 2050. The median income means that half
the people in the group make more than that amount, and half make less.
Today
the
world’s mean income is about $10,000 per person, while the median
income is about $8,000. In 2050 the global mean income declines 25% to
$7,500. The median income, however, plummets a full 70%, to a meager
$2,500.
The
end
result is that the number of “poor” as I have defined them
(those in countries with an average per-capita GDP less than $3,000)
goes up almost five times,
while the mean income within the group drops from
$2,000 to $1,200.
Three
Case Studies
To
clarify the picture we will now take a closer look at three nations
that dominate the economic and energy news these days. We will
examine the specifics of their energy use and how that use will
evolve until 2050. By translating their energy use into an
estimate of their future GDP and then factoring in the changes in their
energy intensity and population, we will derive an
estimate of their per capita GDP in 2050.
United
States: Hanging On
| Year |
Energy
(Mtoe) |
Population (millions) |
GDP ($Millions) |
Per Capita GDP |
| Oil |
Gas |
Coal |
Hydro |
Nuclear |
Renew |
Total |
| 2006 |
939 |
567 |
567 |
66 |
188 |
0 |
2,326 |
301 |
$13,130,000 |
$43,607 |
| 2050 |
169 |
146 |
599 |
90 |
183 |
178 |
1,365 |
395 |
$15,413,522 |
$39,022 |
The
energy picture of the USA is dominated by oil and natural gas, and
the decline of those sources will strongly affect the nation's future.
Oil
Multiplying
current
US oil consumption by the expected 82% global decline in supply gives us the American
consumption in 2050.
America
currently consumes over 900 million tonnes of oil a
year. Of that total, 300 million tonnes are produced domestically
and over 600 million tonnes are imported. American domestic oil
production has been in decline since 1970, at a constant rate of around
2% per year. If that rate holds for the future, the USA will be
producing about 130 million tonnes per year in 2050. In order to
meet the calculated figure of 169 million tonnes in 2050, America will
have to import about 40 million tonnes of oil compared to 600 million
today. I believe that
this is a reasonable expectation because of the imminent effect of the "Net
Oil Export Problem". Under that scenario it is possible for
global oil exports to go to zero quite rapidly, and according to the
linked
paper by Jeffrey Brown is it possible that this may happen by
2040. Accordingly, projecting American imports of 40
million tonnes per year in 2050 may even be optimistic. It is
possible, however,
that such a level of imports could be secured by long term contracts or
even military force.
Gas
Natural
gas production in the USA has been relatively constant for the last 30
years, though this has required drilling ever more holes at an
ever-rising cost to maintain the level of supply. Gas imports
have risen to
about 15% of overall consumption. These indicators point to a
coming peak (in my opinion within the next decade), followed by a sharp
decline for reasons outlined in my earlier article.
The projected drop of 75% would be generated by a loss of imports
and a decline in domestic production of 5% per year from 2020.
This is in fact less than the average 6% decline rate I used in my
earlier
article.
Coal,
Hydro and Nuclear
These
sources follow the global patterns determined in the earlier
article. Coal use will be up marginally world-wide in 2050,
nuclear power will be down marginally, and hydro use will see a general
increase of about 40% over today's values. These changes seem
reasonable given the current energy development patterns in the USA.
Renewables
As I said
above, I assigned an arbitrary percentage of renewable power to each
country based on its industrial capacity and its current level of
involvement with renewable energy. That meant that I allotted
the USA an additional 15% of their total energy in 2050 to account for
wind and solar development.
The
Changing Energy Mix
The
energy mix of the USA stays quite diverse, though the growing role of
coal is clear. Because of their original heavy reliance on oil
and gas, the total US energy supply in 2050 declines to about 60% of
its present
level.
Energy
Intensity and GDP
I project
the United States' energy intensity to improve by about 50% from now
until
2050. This means it will take the USA only half the energy to
produce a dollar of GDP then as it does now. Due to
the 40% decline in total energy, and the 50% rise in energy intensity,
the American GDP will rise by about 15%.
Population
and per capita GDP
According
to the UN figures, the American population will have grown by about 30%
in 2050. This offsets the rise in total GDP given above,
resulting in a 10%
drop in average per capita GDP. This would
still leave the USA as the third wealthiest country in the world in per
capita terms.
China:
Rocketing Ahead
| Year |
Energy
(Mtoe) |
Population (millions) |
GDP ($Millions) |
Per Capita GDP |
| Oil |
Gas |
Coal |
Hydro |
Nuclear |
Renew |
Total |
| 2006 |
350 |
50 |
1,191 |
94 |
12 |
0 |
1,698 |
1,322 |
$10,700,000 |
$8,094 |
| 2050 |
63 |
13 |
1,257 |
129 |
12 |
147 |
1,621 |
1,392 |
$17,030,195 |
$12,232 |
China's
energy picture is dominated by coal.
Oil
Unlike
the USA, Chinese oil production is rising, though slowly (about 1.5%
per year). However, their largest oil field, Daqing, has
peaked. This makes it quite probable that overall Chinese oil
production will go into decline in the next decade. In addition,
China became a net importer of oil in 1993 and currently imports
about half their requirements. If they, like the USA, lose access to
most of their imports over the next 40 years, a decline in domestic
production of only 3% per year would bring them to the projected level
of oil consumption. As in the case of the USA is is entirely
possible that China will try to secure oil supplies outside of normal
market channels, so they may end up with a bit more oil than I have
projected.
Gas
Natural
gas production in China has been rising rapidly in recent years,
averaging 15% annual growth since 2000 as China pursues an aggressive
program of industrialization. So far their production has kept
pace with their usage, but a decline parallel to that of oil is
inevitable over the next four decades, especially if they attempt to
increase their extraction in concert with their economic growth.
The derived global mathematical ratio of 25% by 2050 seems reasonable,
though it is also reasonable to assume that China will try and secure
foreign gas supplies either though long term contracts or military or
economic warfare.
Coal
It is
clear that China has placed enormous emphasis on their large endowment
of coal. Recent reports indicate that they have plans to build
two or three coal-fired power plants per week for at least the next
decade. As a result, it's possible that China may exceed the 6%
projected net global growth in coal power by 2050. If they do, it
could give a large boost to their GDP and vault them well into the
global lead.
There are two factors
that could keep China from realizing such
advances, however. The first is the problem of the
environmental damage done by coal, both from the CO2 production and
localized pollution by soot, ash and heavy metals. The extent to
which this will restrain China's development of coal power remains to
be seen, though the human effects have already become obvious.
The second problem is
that China's use of coal could exhaust its
available reserves before 2050. Relative to the size of its
reserves, China uses 4.5 times as much coal as India, 5 times as much
coal as the USA, and over 10 times as much as Russia. Since China
appears to have almost 50 years'
supply of coal reserves remaining, however, we will leave the
increase in China's coal use in line with the global model.
Hydro
The
development of the Three Gorges Dam has left no doubt that China is
serious about developing its hydro potential. The increase of 40%
in hydro power postulated by the model seems entirely achievable,
especially given China's apparent willingness to sacrifice ecological
concerns in favour of industrial development.
Nuclear
Nuclear
power may see its strongest growth in China, growth that will be driven
by the need for electricity that produces less greenhouse gases and
enabled by the willingness of the central government to ignore the
personal wishes of its citizens. It is also likely that there
will be less public opposition to nuclear power in China than in the
West because of the relative weakness of their environmental
movement. China currently has 30 reactors planned and 86
proposed, a full third of the world total. It is quite likely
that the contribution of nuclear power proposed by the energy model
will be too low in China's case. If that turns out to be the
case, its contribution could push their GDP decisively past today's
level.
Renewables
One area
where my model has perhaps been too generous to China is in the
penetration of wind and solar. To cover their increasing role I
have allotted China an additional 10% of their non-renewable energy
budget. However, while China may play a large role in
manufacturing such equipment, it seems less likely that they will
install it with much enthusiasm. The Chinese system is much more
sympathetic to large, centralized power sources and as such more likely
to favour increased nuclear power over wind and solar.
In
the
final analysis the model's pessimism with respect to nuclear
power may be balanced by its optimism over wind and solar, with the net
result being a wash. Only time will tell.
The
Changing Energy Mix
The
role of coal in China's energy picture is obvious. As I said above,
much of the increase in renewable energy in 2050 could be replaced by
nuclear power, with the two sources essentially trading
importance. As they are both electrical sources, that realignment
would make no difference to the outcome of this particular
analysis. The total Chinese energy supply in 2050 is projected to
drop by about 5%.
Energy
Intensity and GDP
I project
China's energy intensity to improve by about 40% between now and
2050. Given that China's total energy consumption will fall by
only about 5% over that time, China's GDP will rise
by about 60%. According
to the latest UN figures, the Chinese population will have grown by
about 5%
in 2050. As a result their per capita GDP will be about 50%
higher than it is today.
India:
Falling Behind
| Year |
Energy (Mtoe) |
Population (millions) |
GDP ($Millions) |
Per Capita GDP |
| Oil |
Gas |
Coal |
Hydro |
Nuclear |
Renew |
Total |
| 2006 |
120 |
36 |
238 |
25 |
4 |
0 |
423 |
1,130 |
$4,156,000 |
$3,678 |
| 2050 |
22 |
9 |
251 |
35 |
4 |
16 |
336 |
1,593 |
$3,303,962 |
$2,074 |
For its population,
India has a much smaller energy base than the USA or even China.
Oil
India's
oil production has been constant for the last decade, though its
consumption and imports have been slowly rising. India currently
imports about two thirds of its oil requirements. That level of
imports leaves it in a very vulnerable position as the international
export market dries up. Its domestic production is barely enough
to cover the mathematically projected oil consumption in 2050 (20% of
current consumption), so any decline in their production could drop
India below even the projected 22 million tonnes per year.
Gas
Natural
gas production in India has risen by 25% since 2000 but its imports
have recently shown a sharp rise - from 0 in 2003 to 20% of their
consumption in 2006. As in the case of China's gas consumption,
this is probably due to India's ongoing industrialization. The
relatively small amount of natural gas used in India and their
relatively healthy level of production means that even if depletion
strikes other continental gas exporters India's gas supplies may fare
somewhat better than the model indicates.
Coal
Like
China, India has placed great reliance on coal as a proportion of their
energy supply. It is likely that this dependence will continue in
the years and decades to come. As a result, it is possible that
India may exceed the expectations of the model to some extent,
especially as a growing population demands enough electricity to live a
basic life. On the other hand, the resulting ecological damage
expected in China would also be expected in India, and might, to some
extent slow the growth of coal power. For now, the picture is
unclear enough to warrant moving away from the model's projections for
coal.
Hydro
India's
hydro development is expected to be on par with the global
projection. However, in this case the reduction
of Himalayan glaciers due to global warming may reduce water flows
faster than experienced in other parts of the world. This
reduction would slow the development of more hydro power, which would
act to offset any gains in the coal sector. As with coal, we will
accept the projections for hydro, on the assumption that any shortfall
could be broadly balanced by increased generation in other energy
sectors.
Nuclear
India is
also taking the development of nuclear power seriously, with 19
reactors currently in the planning or proposal stages. There is a
possibility for India to outperform the model's projections over the
next couple of decades, but this performance should be taken with a
grain of salt. A trend towards de-industrialization driven by
declining oil and gas supplies may put the brakes on nuclear
development after 2025. This trend could manifest not only as a
loss of industrial capacity, but also in a loss of the capital required
to support such a technologically intensive enterprise.
Renewables
There are
significant opportunities for solar power in India, both in small
photovoltaic installations and in the use of thermal solar
generation. At the moment there isn't much penetration of solar power
in India, especially for utility-scale electricity. There has
been some installation of point application solar power, for running
specific services like pumps, lighting etc. where grid feeds are not
available. As a result I have given India a 5% allotment for
renewable energy. To put that amount in perspective, it would
give renewables a greater role than natural gas by 2050.
The
Changing Energy Mix
India
uses almost as high a proportion of coal as China, though their total
energy supply is only a quarter the size. As time goes on, coal
will take on even more of the burden - not so much by choice as by
default, as imported oil falls away. It seems unlikely that
renewable energy will be able to alleviate much of the 20% drop in
energy supplies projected to occur by 2050.
Energy
Intensity and GDP
India's
energy intensity is projected to remain about the same as it is
today. As a result, the 20% decline in total energy will result
in a 20% decline in GDP by 2050. According
to the UN figures, the Indian population will have grown by
about 40%
in 2050, resulting in a 43% drop in per capita GDP in 2050. This
decline from $3,700 to $2,100 per person will represent a catastrophic
drop below the poverty line for most of the Indian population.
Conclusion
The
conclusion is straightforward. By 2050 well over half the world's
population will be desperately, abjectly poor, and even the rich will
find themselves living in constrained circumstances. Just at the
time when foreign aid
is most desperately needed, the nations that will be called on to
supply it will
find themselves less able to deliver. The implications for life
and death in
the poverty-stricken regions of the world are dire indeed.
Current
statistics from The
World Bank indicate that over a billion people today live on a
single dollar a day - the total number of people I identified above as
comprising the poor of 2006. The growth in that population,
coupled with the drop in per capita GDP, implies that several times
times that number will be desperately poor in 2050 - perhaps as many as
4
billion. According to the same source, about half the
world's population today lives on less than $2 a day. If the scenario
developed in this article is close to being true, the coming demographic and
economic earthquake could leave over 6
billion people - the size of today's entire global
population - trying to survive on such a pittance. The
social consequences of such a shift are literally unimaginable.
So
far,
these articles have examined only the impact of energy and
demographics on the global economic picture. Complicating factors
which have not yet been addressed include: geopolitical upheavals
(primarily economic migrations and the threat of increased resource
wars); the effect of
impoverishment on the food
supply of the growing ranks of the destitute; and the underlying
drumbeat of ecological damage heralded by the droughts and floods of
climate change, the loss of soil fertility and ground water supplies
and the death of the oceans. The prospects for the Earth's
poor are not likely to improve as we progress though this analysis.
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