China Daily is reporting the extreme heat and humidity in Beijing has lead to record consumption of electricity. Beijing’s power consumption exceeded 15 million kilowatts for the first time in history on July 23, around 5 million kilowatts of which was consumed by air-conditioners, according to a report from the Mirror Evening News.
The picture below, with the iconic Gucci shirt, provides ironic symbolism for the superconsumer trends unfolding in China.
(source: China Daily)
As China’s population has grown, per capita income and consumption have grown. Let’s take a look at the trends in energy use and per capita income relative to US and India. Using GapMinder’s Trendalyzer with energy consumption data from BP’s Statistical Review of World Energy 2010 and income data from the IMF, we can see some powerful trends unfolding (N.B.: Data presented for 1965 through 2008, 1 year steps, circle area proportional to population size, energy use in tonnes of oil equivalent):
Per Capita Income and Energy Consumption in China, India and the US
China and India show steadily increasing per capita income, with China having the biggest change – outperforming India more than 2 to 1.
This increase in income is fueling the growth of China’s middle class. Western-style patterns of consumption are leading to China’s increased consumption of energy, water, raw materials… The trend is strong and steady, with no signs of slowing.
To meet this growing need for energy, China has been building about 2 power plants per week – mostly coal burning. As is widely known, coal power generation is about as dirty as it gets, and accounts for about 20 percent of Greenhouse Gas (GHG) emissions globally. Coal is used to produce about 70% of energy consumed in China.
The Chinese are in a climate change death spiral. Using the heat wave in Beijing as an example – to meet the expanding populations growing demand for energy, China builds about 2 coal-fired power plants per week. The coal exacerbates global warming. The population turns up their air conditioners, which leads to record energy consumption and drives the need for more power plants, and the spiral continues until… What?
This chart from Lawrence Livermore National Laboratory provides a simple clear way to understand how energy is used in the US.
I use this chart a lot in my presentations. It is a classic example of the adage “A picture is worth a thousand words.” On a single page it shows the sources for the energy we use, where it goes, how much is used and how much is wasted.
Energy Use in the US (click to enlarge) (source: Lawrence Livermore National Labratory and DOE)
Some things to note:
Energy sources are on the left side – solar, nuclear, hydro, wind, geothermal, natural gas, coal, biomass, petroleum.
Energy users are broken in to four categories – residential, commercial, industrial, and transportation.
The gray boxes on the right sum up the energy that was used and the energy that was lost (rejected).
The width of the lines running from the various energy sources to their destination uses is proportional to the amount of energy used.
Zeroing In On Oil
As can be seen, the lion’s share of US energy consumption comes from fossil fuel sources (oil, coal, natural gas). Of the fossil fuels, oil is the source most in demand, the bulk of which is used by the transportation sector. And oil consumption in the transportation sector is growing fast.
(source: DOE)
Zooming in to the transportation sector, we can see that most of that oil is used for personal vehicles (cars, light truck and SUVs).
(source:DOE)
Any attempt to reduce our dependance on oil will require grappling with transportation in general, and personal transportation in particular.
Price of Oil and Consumer Behavior
Personal transportation is 4 to 10 times less efficient than public transportation (commuter rail, trains and buses). When oil prices rise quickly, as they did in 2008 (to over $140 per barrel), consumer behavior shifts rapidly. Automobile manufactures saw their large car sales plummet. Airlines saw their fuel costs skyrocket, and bookings plummet. Commuters embraced public transportation, with many metropolitan areas seeing 30 to 45 percent increases in use of public transportation in just one quarter.
The last century was a time of abundance in energy. There is a new economy of scarcity emerging in the 21st century. Understanding the energy trends shaping our world is essential to managing risk and innovating solutions for business, government and community.
Lloyds of London, the insurance market, and Chatham House have published a white paper on Sustainable Energy Security that details the risks and opportunities for business.
Lloyd’s CEO, Dr. Richard Ward, doesn’t mince words in his foreword to the white paper:
This report, jointly produced by Lloyd’s 360 Risk Insight programme and Chatham House, should cause all risk managers to pause. What it outlines, in stark detail, is that we have entered a period of deep uncertainty in how we will source energy for power, heat and mobility, and how much we will have to pay for it.
Is this any different from the normal volatility of the oil or gas markets? Yes, it is. Today, a number of pressures are combining: constraints on ‘easy to access’ oil; the environmental and political urgency of reducing carbon dioxide emissions; and a sharp rise in energy demand from the Asian economies, particularly China.
All of this means that the current generation of business leaders – and their successors – are going to have to find a new energy paradigm. Expect dramatic changes:
Prices are likely to rise, with some commentators suggesting oil may reach $200 a barrel.
Regulations on carbon emissions will intensify.
Reputations will be won or lost as the public demands that businesses reduce their environmental footprint.
The growing demand for energy will require an estimated $26 trillion in investment by 2030. Energy companies will face hard choices in deciding how to deploy these funds in an uncertain market with mixed policy messages. The recent Deepwater oil spill shows all too clearly the hazards of moving into ever more unpredictable terrain to extract energy resources. And the rapid deployment of cleaner energy technologies will radically alter the risk landscape. At this precise point in time we are in a period akin to a phony war. We keep hearing of difficulties to come, but with oil, gas and coal still broadly accessible – and largely capable of being distributed where they are needed – the bad times have not yet hit. The primary purpose of this report is to remind the reader that all businesses, not just the energy sector, need to consider how they, their suppliers and their customers will be affected by energy supplies which are less reliable and more expensive.
The failure of the Copenhagen Summit has not helped to instil a sense of urgency and it has hampered the ability of businesses – particularly those in the energy sector – to plan ahead and to make critical new investments in energy infrastructure. I call on governments to identify a clear path towards sustainable energy which businesses can follow.
Independently of what happens in UN negotiating rooms, businesses can take action. We can plan our energy needs, we can make every effort to reduce consumption, and we can aim for a mix of different energy sources. The transformation of the energy environment from carbon to clean energy sources creates an extraordinary risk management challenge for businesses. Traditional models that focus on annual profits and, at best, medium term strategies may struggle. Parts of this report talk about what might happen in 2030 or even 2050 and I make no apology for this. Energy security requires a long term view and it is the companies who grasp this who will trade on into the second half of this century.
Executive Summary
Businesses which prepare for and take advantage of the new energy reality will prosper – failure to do so could be catastrophic.
Market dynamics and environmental factors mean business can no longer rely on low cost traditional energy sources.
China and growing Asian economies will play an increasingly important role in global energy security
We are heading towards a global oil supply crunch and price spike.
Energy infrastructure will become increasingly vulnerable as a result of climate change and operations in harsher environments.
Lack of global regulation on climate change is creating an environment of uncertainty for business, which is damaging investment plans.
To manage increasing energy costs and carbon exposure businesses must reduce fossil fuel consumption.
Business must address energy-related risks to supply chains and the increasing vulnerability of ‘just-in-time’ models.
Investment in renewable energy and ‘intelligent’ infrastructure is booming. This revolution presents huge opportunities for new business partnerships.
A change in the energy market balance between East and West
Advanced economies remain the biggest consumers of primary energy per person but by 2008 non-OECD countries led by China and India had outstripped them in terms of the share of world demand. This shift began in the 1990s, partly because manufacturing shifted eastwards. Meanwhile, lower population growth, de- industrialisation, greater efficiency, higher fuel prices and a concern for the environment are lowering demand for oil-based fuels and coal in the OECD.
These consumption trajectories mean there is likely to be a tipping point in 2015 when countries in Asia-Pacific need more imported oil in total than the Middle East (including Sudan) can export.
Middle East oil surplus vs Asia-Pacific deficit (Source: John Mitchell, Chatham House 2010)
The white paper goes on to detail market forces, energy trends, risk and opportunity. This is recommended reading for business and government leaders and risk managers.
Google Trends tells me that starting in 2008 the monthly number of news stories on population doubled. Most of the stories like to talk about how global population will expand by 30%, peaking at about 9.1 billion people by around 2050. Though 2050 is a nice round number, and a convenient mid-century marker, one can be lulled in to feeling like it’s a problem that is 40 years off. Not so. The population problem is here and now. And it’s not just about the number of people on the planet, but how those people consume resources. Let’s take a look at the pertinent trends.
Energy and Population
The rate of population growth has a strong correlation with the effectiveness of the dominant fuel source at any given point in history. As the chart below shows, wood was the dominant fuel until coal came on the scene in the 1600s. The population growth rate increased modestly with the proliferation of coal. But the real exponential growth began with the discovery and exploitation of crude oil. Crude oil production is peaking and the world is in the early stages of a transition from fossil fuels to renewable sources of energy.
China, Brazil and India – Chasing the American Dream
As the population has grown, per capita income and consumption have grown. The most dramatic growth has been in the developing countries of China, Brazil and India. Let’s take a look at the trends in energy use and per capita income relative to some of the leading developed nations. Using GapMinder’s Trendalyzer with energy consumption data from BP’s Statistical Review of World Energy 2010 and income data from the IMF, we can see some powerful trends unfolding (N.B. data presented for 1965 through 2008, 1 year steps, circle area proportional to population size, energy use in tonnes of oil equivalent):
China, Brazil, and India all show steadily increasing per capita income, with China having the biggest change – outperforming India and Brazil more than 2 to 1.
Though US per capita energy consumption is substantially larger than China, Brazil or India, growth has been flat. This comes from conservation initiatives (efficient lighting, insulation, etc.). We must do better.
China, Brazil, and India’s energy consumption is growing quickly as they move toward American patterns of consumption. The trend is strong and steady, with no signs of slowing.
(click for larger image)
Less Is The New More
Though Americans represent only 5% of the world’s population, we are consuming about 24% of worlds energy. We are similarly voracious consumers of water, food, land, etc. Citizens in developing nations aspire to live the American lifestyle. Fareed Zakaria refers to this as the “rise of the rest” in his book A Post American World. But the world has only so much to give. Much of what we consume is not renewable. We are bumping up against the limits of earth’s ability to provide for us. As the population expands, for developing nations, their historically meager slice of the pie will expand. For developed nations, their slice of the pie must contract.
Our Ecological Footprint
Using ecological footprint data from Global Footprint Network we can see the current state of consumption for North America and the rest of the world (N.B. width of bar proportional to population in associated region).
N.B. Ecological Footprint accounts estimate how many Earths were needed to meet the resource requirements of humanity for each year since 1961, when complete UN statistics became available. Resource demand (Ecological Footprint) for the world as a whole is the product of population times per capita consumption, and reflects both the level of consumption and the efficiency with which resources are turned into consumption products. Resource supply (biocapacity) varies each year with ecosystem management, agricultural practices (such as fertilizer use and irrigation), ecosystem degradation, and weather. This global assessment shows how the size of the human enterprise compared to the biosphere, and to what extent humanity is in ecological overshoot. Overshoot is possible in the short-term because humanity can liquidate its ecological capital rather than living off annual yields.
Carrying Capacity
The last sentence of the note above is important. The developed nations are already consuming beyond the earths capacity to provide. Carrying Capacity has been exceeded and as it is exceeded, Carrying Capacity declines. While developed nations are making headway improving conservation, there has been little reduction of consumption – we have simply slowed the rate of per capita consumption. Meanwhile developing nations are moving up the consumption curve, aiming for an American-class lifestyle. Depletion of earth’s precious resources accelerates – oil, potable water, wild fish, species, clean air, etc. are all in decline. Earth’s Carrying Capacity is thought to be somewhere between 1 and 3 billion people. We have been operating the planet well beyond that for almost 50 years now.
Even if the population stopped growing today, we are consuming beyond the earth’s capacity to provide. With 6.8 billion people already on the planet, the growth of consumption is the population problem, right now.
Zacharia suggests “As each country rises up, they become more self confident and nationalistic, and less inclined to cooperate in global unity toward a common goal of tackling the pressing problems of this century.”
And quoting Hamlet: “There’s the rub.”
Population has grown beyond the Carrying Capacity of the earth.
Increasing demand for critical resources (energy, water, food, land, …) reduces Carrying Capacity further, and accelerates decline exponentially.
Climate is changing, pollution growing, species extinction accelerating.
And our ability to work cooperatively to meet these challenges is failing.
This is not sustainable.
How do we break the vicious spiral? How can our global economy – grown soft and pudgy during the 20th century’s age of abundance – adapt and function in the lean and mean dog days of the 21st century?
