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China and India’s economies continue to grow at a staggering pace, pushing up energy needs sharply but drastically improving quality of life; a need that must be supported by the rest of the world. However, worldwide global energy demand is increasing alarmingly, especially when set out against existing and future climate changes. Here the outlook for world energy and, in particular, China and India contributions to this are considered. With a possible scenario of global energy needs being well over 50 per cent higher in 2030 than today, collective world action is the only long term solution to the threat of climate change.
CHINA AND INDIA – EMERGING GIANTS
Energy developments in China and India are transforming the global energy system by dint of their sheer size and growing weight in international fossil fuel trade. The staggering pace of Chinese and Indian economic growth in the past few years, outstripping that of all other major countries, has pushed up their energy needs sharply, a growing share of which has to be imported. These developments are contributing to a big improvement in their quality of life, a legitimate aspiration that needs to be accommodated and supported by the rest of the world.
The consequences for China, India, the OECD and the rest of the world of unfettered growth in global energy demand are, however, alarming. If governments around the world stick with current policies, (the underlying premise of our Reference Scenario) the world’s energy needs would be well over 50 per cent higher in 2030 than today. China and India together account for 45 per cent of this increase in demand. Globally, fossil fuels continue to dominate the fuel mix leading to continued growth in energy related emissions of carbon dioxide (CO2) and to increased reliance on imports of oil and gas, much of them from the Middle East and Russia.
THE WORLD FACES A FOSSIL FUEL FUTURE TO 2030
The world’s primary energy needs in the Reference Scenario of the World Energy Outlook 2007 (in which only those policies already enacted as of mid 2007 are considered) are projected to grow by 55 per cent between 2005 and 2030. Developing countries, whose economies and populations are growing fastest, contribute 74 per cent of this increase. Fossil fuels remain the dominant source of primary energy, accounting for 84 per cent of the overall global increase in demand between 2005 and 2030. Oil remains the single largest fuel, reaching 116 million barrels per day (mb/d) in 2030, 32 mb/d up on 2006. World oil resources are judged to be sufficient to meet the projected growth in demand to 2030, with output becoming more concentrated in OPEC countries. The Reference Scenario projections are based on the assumption that the average IEA crude oil import price falls back from recent highs to around US$60 (in year-2006 dollars) by 2015 and then recovers slowly, reaching US$62 (or US$108 in nominal terms) by 2030.
In line with the spectacular growth of the past few years, coal sees the biggest increase in demand in absolute terms, jumping by 73 per cent between 2005 and 2030. Most coal increase use arises in China and India. Higher oil and gas prices are making coal more competitive as a fuel for baseload generation. China and India, which already account for 45 per cent of world coal use, drive over four-fifths of the increase to 2030 in the Reference Scenario. In all regions, the outlook for coal use depends largely on relative fuel prices, government policies on fuel diversification, climate change and air pollution, and developments in clean coal technology in power generation.
CHINA’S SHARE OF WORLD ENERGY DEMAND EXPANDS
In the Reference Scenario, China’s primary energy demand is projected to more than double, growing on average by 3.2 per cent per year. China, with four times as many people, overtakes the US to become the world’s largest energy consumer soon after 2010. In 2005, US demand was more than one-third larger. In the period to 2015, China’s demand grows by 5.1 per cent per year, driven mainly by a continuing boom in heavy industry. In the longer term, demand slows, as the economy matures, the structure of output shifts towards less energy intensive activities and more energy efficient technologies are introduced.
Oil demand for transport almost quadruples between 2005 and 2030, contributing more than two-thirds of the overall increase in Chinese oil demand. The vehicle fleet expands seven fold, reaching almost 270 million. New vehicle sales in China exceed those of the US by around 2015. Fuel economy regulations, adopted in 2006, nonetheless temper oil demand growth. Rising incomes in China underpin strong growth in housing, the use of electric appliances and space heating and cooling. Increased fossil fuel use pushes up emissions of CO2 and local air pollutants, especially in the early years of the projection period.
China’s energy resources, especially coal, are extensive, but will not meet all the growth in energy needs. More than 90 per cent of Chinese coal resources are located in inland provinces, but the biggest increase in demand is expected to occur in the coastal region. This adds to the pressure on internal coal transport and makes imports into coastal provinces more competitive. China became a net coal importer in the first half of 2007. In the Reference Scenario, net imports reach three per cent of its demand and seven per cent of global coal trade in 2030. Conventional oil production in China is set to peak at 3.9 mb/d early in the next decade and then gradually decline. China’s net oil imports jump from 3.5 mb/d in 2006 to 13.1 mb/d in 2030, while the share of imports in demand rises from 50 to 80 per cent. Natural gas imports also increase quickly, as production growth lags demand over the projection period. China needs to add more than 1,300 GW to its electricity generating capacity; more than the total current installed capacity in the United States. Coal remains the dominant fuel in power generation.
INDIA’S ENERGY USE POISED FOR RAPID GROWTH
In the Reference Scenario, primary energy demand in India more than doubles by 2030, growing on average by 3.6 per cent per year. Coal remains India’s most important fuel, its use nearly tripling between 2005 and 2030. Power generation accounts for much of the increase in primary energy demand, given surging electricity demand in industry and residential and commercial buildings. Among end use sectors, transport energy demand sees the fastest rate of growth as the vehicle stock expands rapidly with rising economic activity and household incomes. Residential demand grows much more slowly, largely as a result of switching from traditional biomass, which is used very inefficiently, to modern fuels. The number of people in India relying on biomass for cooking and heating drops from 668 million in 2005 to around 470 million in 2030, while the share of the population with access to electricity rises from 62 to 96 per cent.
Much of India’s incremental energy needs to 2030 will have to be imported. India will continue to rely on imported coal for reasons of quality in the steel sector and for economic reasons at power plants located a long way from mines but close to ports. In the Reference Scenario, hard coal imports are projected to rise almost seven fold. Net oil imports also grow steadily, to six mb/d in 2030, as proven reserves of indigenous oil are small. Before 2025, India overtakes Japan to become the world’s third-largest net importer of oil, after the US and China. Yet India’s importance as a major exporter of refined oil products will also grow, assuming necessary investments are forthcoming. Power generation capacity, most of it coal-fired, more than triples between 2005 and 2030.
AN ALTERNATIVE ENERGY FUTURE
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| Figure: Increase in energy related CO2 emissions, 2005-2030. |
In the Alternative Policy Scenario, in which policies under consideration are assumed to be fully implemented over the projection period, global primary energy demand grows by 1.3 per cent per year over 2005-2030, 0.5 percentage points less than in the Reference Scenario. Global oil demand is 14 mb/d lower in 2030, equal to the entire current output of the US, Canada and Mexico combined. Coal use falls most in absolute and percentage terms. Energy related CO2 emissions stabilise in the 2020s and, in 2030, are 19 per cent lower than in the Reference Scenario.
China
China is already making major efforts to address the causes and consequences of burgeoning energy use, but even stronger measures will be needed. In the Alternative Policy Scenario, a set of policies the government is currently considering would cut China’s primary energy use in 2030 by about 15 per cent relative to the Reference Scenario. Energy efficiency improvements along the entire energy chain and fuel switching account for 60 per cent of the energy saved, eg policies that lead to more fuel efficient vehicles produce big savings in consumption of oil based fuels. Demand for coal and oil is reduced substantially but demand for other fuels, eg natural gas, nuclear and renewables, increases.
India
Stronger policies that the Indian government is now considering could also yield large energy savings. In the Alternative Policy Scenario, India’s primary energy demand is 17 per cent lower than in the Reference Scenario in 2030. Coal savings, mainly in power generation, are the greatest in both absolute and percentage terms, thanks to lower electricity demand growth, higher power generation efficiency and fuel switching in the power sector and in industry. As a result, coal imports in 2030 are little more than half their Reference Scenario level. Oil imports are 1.1 mb/d lower in 2030 than in the Reference Scenario, but oil import dependence remains high at 90 per cent
THE WORLD’S ENERGY SECURITY
Rising global energy demand poses a real and growing threat to the world’s energy security. In the Reference Scenario, China’s and India’s combined oil imports surge, from 5.4 mb/d in 2006 to 19.1 mb/d in 2030, representing more than the combined imports of Japan and the US today. Inter-regional oil and gas trade grows rapidly over the projection period, with a widening of the gap between indigenous output and demand in every consuming region. The Middle East, the transition economies, Africa and Latin America export more oil while all other regions have to import more oil.
Increasing import dependence in any country does not necessarily mean less secure energy supplies, any more than self sufficiency guarantees uninterrupted supply. However, it could carry a risk of short term energy insecurity for all consuming countries, as geographic supply diversity is reduced and reliance grows on vulnerable supply routes.
Longer term risks to energy security are also set to grow. The increasing concentration of the world’s remaining oil reserves in a small group of countries, notably Middle Eastern members of OPEC and Russia, will increase their market dominance and may put at risk the required rate of investment in production capacity. The greater the increase in the call on oil and gas from these regions, the more likely it will be that they will seek to extract a higher rent from their exports and to impose higher prices in the longer term by deferring investment and constraining production. Higher prices would be especially burdensome for developing countries still seeking to protect their consumers through subsidies.
UNCHECKED GROWTH IN FOSSIL FUEL USE AND CLIMATE CHANGE
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| The continued and predicted increase use of coal primarily in China and India, will continue to drive up global energy related CO2 emissions. |
Rising CO2 and other greenhouse gas concentrations in the atmosphere, resulting largely from fossil energy combustion, are contributing to higher global temperatures and to changes in climate. Growing fossil fuel use will continue to drive up global energy related CO2 emissions over the projection period. In the Reference Scenario, CO2 emissions jump by 57 per cent between 2005 and 2030. The US, China, Russia and India contribute two-thirds of this increase. China is by far the biggest contributor to incremental emissions, overtaking the US as the world’s biggest emitter in 2007. India becomes the third-largest emitter by around 2015. However, China’s per capita CO2 emissions in 2030 are only 40 per cent of those of the US and about two-thirds those of the OECD as a whole in the Reference Scenario. In India, they remain far lower than those of the OECD, even though they grow faster than in almost any other region.
More efficient use of energy has positive environmental benefits. In 2030, SO2 emissions in China are 20 per cent lower in the Alternative Policy Scenario, compared with the Reference Scenario. An associated benefit is the dramatic reduction in CO2 emissions, by an impressive 2.6 gigatonnes (Gt). In the Alternative Policy Scenario, CO2 emissions stabilise soon after 2020. Lower fossil fuel use results in a 27 per cent reduction in CO2 emissions in India in 2030, most of which stems from energy efficiency improvements on the demand and supply sides.
Urgent action is needed if GHG concentrations are to be stabilised at a level that would prevent dangerous interference with the climate system. The Alternative Policy Scenario shows that if measures currently being considered by governments around the world were enacted, they could lead to a stabilisation of global emissions in the mid 2020s and cut this level in 2030 by 19 per cent relative to the Reference Scenario. Yet global emissions would still be 27 per cent higher than in 2005. Assuming continued emissions reductions after 2030, the Alternative Policy Scenario projections are consistent with stabilisation of long term CO2 equivalent concentration in the atmosphere at about 550 parts per million. According to the best estimates of the Intergovernmental Panel on Climate Change, this concentration would correspond to an increase in average temperature of around 3°C above pre-industrial levels.
In order to limit the average increase in global temperatures to a maximum of 2.4°C, the smallest increase in any of the IPCC scenarios, the concentration of GHGs in the atmosphere would need to be stabilised at around 450 ppm. To achieve this, CO2 emissions would need to peak by 2015 at the latest and fall between 50 and 85 per cent below 2000 levels by 2050. This would require energy related CO2 emissions to be cut to around 23 Gt in 2030, 19 Gt less than in the Reference Scenario and 11 Gt less than in the Alternative Policy Scenario. In a ‘450 Stabilisation Case’, which describes a notional pathway to achieving this outcome, global emissions peak in 2012 at around 30 Gt.
Emissions savings come from improved efficiency in fossil fuel use in industry, buildings and transport, switching to nuclear power and renewables, and the widespread deployment of CO2 capture and storage (CCS) in power generation and industry. Exceptionally quick and vigorous policy action by all countries, and unprecedented technological advances, entailing substantial costs, would be needed to make this case a reality.
ADDRESSING GLOBAL ENERGY CHALLENGES REQUIRES COLLECTIVE ACTION
The emergence of China and India as major players in global energy markets makes it all the more important that all countries take decisive and urgent action to curb runaway energy demand. The primary scarcity facing the planet is not of natural resources nor money, but time. Investment being made now in energy supply infrastructure will lock in technology for decades, especially in power generation. The next 10 years will be crucial, as the pace of expansion in energy supply infrastructure is expected to be particularly rapid. China’s and India’s energy challenges are the world’s energy challenges, which call for collective responses. There can be no effective long term solution to the threat of climate change unless all major energy consumers contribute. The adoption and full implementation of policies by industrialised countries to address their energy security and climate change concerns are essential, but far from sufficient.
Author
Dr Fatih Birol is Chief Economist and Head of the Economic Analysis Division of the Paris based International Energy Agency. He is organiser and director of the World Energy Outlook series, the IEA’s flagship publication. Dr Birol worked for six years in the Secretariat of the Organization of Petroleum Exporting Countries (OPEC) in Vienna, before joining the IEA in 1995. He has received several distinguished awards including the International Association of Energy Economics’ Outstanding Contributions to the Profession Award, a Chevalier dans l’ordre des Palmes Academique from the French Government and the Golden Honour Medal of the Austrian Republic in recognition of his outstanding contribution to the understanding of global energy issues.
Organisation
The International Energy Agency (IEA) acts as energy policy advisor to 26 member countries in their effort to ensure reliable, affordable and clean energy for their citizens.
The IEA publishes the World Energy Outlook, on which this article is based. The series is widely recognised as the most authoritative source for forward looking energy market analysis. More than 20 IEA analysts contribute to the publication, which also benefits from the input of distinguished energy and climate change experts from around the world.
Picture credits: Chinese city - Anho Eijeriks/Fotolia; Fossil fuel power plant - adisa/Fotolia
