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 of 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 article I used the conclusions from a paper by ecological economist Robert Ayres to derive the effect of energy on GDP. While Ayres' research appears to offer an improvement over the assumptions of classical economists, it has yet to be independently validated, and was tested only against the economy of the USA. In retrospect, extending its assumptions to other countries was somewhat premature.

Accordingly, I felt that a more standard approach to modeling energy and GDP would provide a more accessible and  acceptable analytical foundation. 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.
© Copyright 2007, Paul Chefurka

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