China, Peak Oil, and Climate Change

Dr. Minqi Li, Assistant Professor

Department of Economics, University of Utah

E-mail: minqi.li@economics.utah.edu

Webpage: www.econ.utah.edu/~mli

February 2010

Presentation at Utah Valley University

The 21st Century Crisis • The Decline of the US / The Rise of China • Peak Oil • Climate Change • Structural Crisis of Global Capitalism

World Energy Consumption Total Energy Consumption (2009): 10,400 million tons of oil equivalent Oil: 37% Natural Gas: 26% Coal: 32% Nuclear Electricity: 2% Renewable Electricity and Biofuels: 4%

World Energy Consumption Growth Average annual growth rate (1998-2008): Total: 2.5% Oil: 1.3% Natural Gas: 2.9% Coal: 3.8% Nuclear: 1.2% Renewables: 4.0% Cumulative increase in volume (1998-2008, million tons of oil equivalent): Total: 2,300 Oil: 480 Natural Gas: 670 Coal: 1,030 Nuclear: 30 Renewables: 120

China’s Energy Consumption Total Energy Consumption (2009): 2,100 million tons of oil equivalent Oil: 19% Natural Gas: 4% Coal: 74% Nuclear Electricity: 0.3% Renewable Electricity: 3%

China’s Renewable Electricity TWH: trillion-watt hours (11.63 trillion-watt hours = 1 million tons of oil equivalent) Hydro Electricity: 620 TWH Geothermal Electricity: 0.2 TWH Solar Electricity: 0.4 TWH Wind: 60 TWH

China’s Energy Consumption Growth Average annual growth rate (1998-2008): Total: 8.0% Oil: 6.8% Natural Gas: 14.9% Coal: 8.0% Nuclear: 17.1% Renewable Electricity: 11.0% Cumulative increase in volume (1998-2008, million tons of oil equivalent): Total: 1,030 Oil: 180 Natural Gas: 50 Coal: 750 Nuclear: 5 Renewables: 30

Peak Oil? • World oil discoveries peaked in the 1960s • 28 significant oil producing countries (accounting for about half of the world oil production) have passed the oil production peak • 16 of the world’s 20 largest oil fields have passed the peak • World oil supply capacity may peak in 2014 (Skrebowski)

Oil Consumption: US and China • US Oil Consumption (2009): 19 million barrels/day • China’s Oil Consumption (2009): 9 million barrels/day • If China’s oil consumption grows annually by 400,000 barrels/day, China’s oil consumption will rise to 13 million barrels/day by 2020 • If China’s oil consumption grows at an annual rate of 7%, China’s oil consumption will rise to 18 million barrels/day by 2020 • From 2006 to 2009, OECD oil consumption fell by 4 million barrels/day

Oil Price and Economic Growth, 1980-2009

(Dependent variable: logarithmic value of GDP)

World OECD Asia & Pacific

INTERCEPT 0.031

(0.002)***

0.025

(0.002)***

0.071

(0.003)***

OIL PRICE

(unit: $10)

-0.007

(0.003)**

-0.014

(0.003)***

0.001

(0.004)

R-square 0.143 0.417 0.002

Standard errors are in parentheses.

**Statistically significant at 5 percent level.

***Statistically significant at 1 percent level.

Oil Consumption, Oil Price, and GDP, 1980-2009

(Dependent variable: logarithmic value of Oil Consumption)

World OECD Asia & Pacific

INTERCEPT -0.013

(0.006)**

-0.011

(0.007)

0.004

(0.019)

OIL PRICE

(unit: $10)

-0.009

(0.003)***

-0.016

(0.006)***

-0.016

(0.006)***

GDP

(in logarithmic value)

0.722

(0.174)***

0.562

(0.263)***

0.612

(0.263)**

R-square 0.603 0.584 0.324

Standard errors are in parentheses.

**Statistically significant at 5 percent level.

***Statistically significant at 1 percent level.

Alternative Scenarios of Oil Consumption and Economic Growth

(Economic growth rates consistent with stable real oil price are reported)

Oil Consumption

Growth Rate

World OECD Asia & Pacific

-2% -1.6%

-1% 0.4% 0.2%

0% 1.8% 2.0%

1% 3.2% 3.7%

2% 4.6% 2.6%

3% 4.2%

4% 5.9%

5% 7.5%

Dealing with Peak Oil • Energy Efficiency? • Coal-to-liquids • Biofuels • Electricity

Energy Efficiency • Long-term physical limit: transportation (400%) • Short and medium-run: limited by the pace of equipment/structure replacement • Assumption: new capital stock reduces energy intensity by 50%; new capital is 5% of the existing capital stock ENERGY EFFICIENCY RISES BY 2.5% • Probable realistic energy efficiency growth rate: 2%/year

Coal-to-Liquids • Two tons of coal contain the same amount of energy as one ton of oil • Coal liquefaction involves an energy loss of about 50% • It takes approximately four tons of coal to make one ton of oil • To replace 10 million barrels of oil/day (annual consumption of 500 million tons), it will take 2 billion tons of coal (or 30% of world coal production)

Biofuels • Biofuels currently replace about 1 million barrels of oil/day (50 million tons of annual consumption) • About one-third of the US corn production is committed to biofuels • If the world’s entire cropland (1.5 billion hectares) is committed to biofuels, it can replace about 2,000 million tons of oil (50% of world oil consumption) • To replace 10 million barrels of oil/day (annual consumption of 500 million tons), it will take 25% of the world’s total cropland

Electricity • Cannot replace fuels for trucks, ships, airplanes, tractors, and oil feedstock used in chemical industries; requires massive infrastructure transformation • To replace 10 million barrels of oil/day (annual consumption of 500 million tons), it will take 2,000 trillion-watt hours of electricity (or 10% of world electricity generation) • To generate 2,000 TWH of electricity, it will take 500 billion cubic meters of natural gas (15% of world natural gas production) • Or 280 giga-watts of new nuclear power plants (a 75% expansion relative to the current nuclear power capacity) • Or 900 giga-watts of new wind power (takes 20 years of construction costing 2 trillion dollars) • Or 1,500 giga-watts of new solar photovoltaic power (takes 30 years of construction costing 8 trillion dollars)

Climate Change • 2010 was the warmest year since 1880 • Global average surface temperature is now about 1C higher than the pre-industrial time • Current rate of global warming: 0.2C/decade • Pre-industrial atmospheric CO2: 280 ppm • Current atmospheric CO2: 390 ppm (rising at a rate of 2ppm/year) • Climate Sensitivity (IPCC): a doubling of CO2 leads to global warming of 3C • Climate Sensitivity (James Hansen): a doubling of CO2 (taking into account ice sheet disintegration) leads to global warming of 6C

Global Warming Scenarios

Global Warming

Scenarios

1-2C 3-4C 5-6C

Drought and

Desertification

Frequent heat waves Widespread drought

and desertification

Much of the world

ceases to be

inhabitable

Sea Ice and Ice Sheets Disappearing of

Arctic sea ice

Melting of

Greenland ice sheets

Melting of Antarctic

ice sheets

Sea Level Rise Several meters 25 meters (?) 75 meters (?)

Eco-systems One third of species

become extinct

Amazon rainforest

burns down

Massive species

extinction

Human Impact Half a billion people

at risk of starvation

Billions become

environmental

refugees

Catastrophic decline

of global population

Climate Feedbacks Possible initiation of

soil and ocean

carbon feedbacks

Arctic permafrost

and ocean algae

endangered

Runaway global

warming

Climate Stabilization Scenarios (Gt: billion metric tons)

Climate Stabilization Scenarios Scenario I Scenario II Scenario III

Atmospheric CO2 350 ppm 450 ppm 550 ppm

Atmospheric CO2-equivalent 450 ppm 550 ppm 700 ppm

Global Warming:a

IPCC Climate Sensitivity 2C 3C 4C

Hansen Climate Sensitivity 4C 6C 8C

21st Century Carbon Budget:

Cumulative CO2 Emissions Budget 1,000 Gt 2,000 Gt 3,000 Gt

Less: deforestation emissions 200 Gt 200 Gt 200 Gt

Cumulative Fossil Emissions Budget 800 Gt 1,800 Gt 2,800 Gt

Less: early 21st century emissions 300 Gt 300 Gt 300 Gt

Remaining Fossil Emissions Budget 500 Gt 1,500 Gt 2,500 Gt

a Long-term equilibrium temperature increase relative to pre-industrial time.

Will Peak Oil Take Care of Global Warming? BP Statistical Review of World Energy: World Oil Proved Reserves: 180 billion tons World Natural Gas Proved Reserves: 170 billion toe World Coal Proved Reserves: 830 billion tones Potential carbon dioxide emissions: 2.5 trillion tons

Emissions and Economic Growth • Rate of emission reduction = rate of emission intensity reduction – rate of economic growth • Assumption: annual rate of emission intensity reduction = 2% • Global warming of 3-6C: emissions need to fall at an annual rate of 1 percent world economic growth rate < 1 percent • Global warming of 2-4C: emissions need to fall at an annual rate of 4 percent world economic growth rate < -2 percent

Total Social Product Surplus product Population’s basic consumption Replacement of means of production used up

Capitalism and Economic Growth • Pre-capitalism: surplus product was under (non-democratic) social control used for elites’ consumption, wars, or religious activities • Capitalism: surplus product was not under social control used primarily for capital accumulation • Dominance of market competition individuals, businesses, and states are all driven to accumulate capital endless accumulation of capital (economic growth) • Ecological sustainability requires zero economic growth surplus product not used for accumulation social control over the surplus product + social choice of zero economic growth

The 21st Century Crisis and the Future of Humanity • Reform of Capitalism: capitalism with social equity and ecological sustainability? • End of Capitalism: what to replace it – socialism, post-capitalist feudalism, utopianism? • Ecological Catastrophes – end of civilization, end of the humanity?