Peak Oil, the Rise of China and India, and the Global Energy Crisis



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Peak Oil, the Rise of China and India, and

the Global Energy Crisis

Dr. Minqi Li, Assistant Professor

Department of Economics, University of Utah

1645 E. Campus Center, Salt Lake City, UT 84112

Phone: 801-828-5279; E-mail: minqi.li@economics.utah.edu

(Accepted by The Journal of Contemporary Asia for Publication, January 2007)



Abstract

Under the current trend, China and India are widely expected to play leading roles in the world economy in the 21st century. However, the economic rise of China and India coincides with the decline of fossil fuels. There is growing consensus that the world’s total oil production is likely to reach the peak in the near future and to alleviate global warming, it is necessary to dramatically reduce the use of all forms of fossil fuels. This paper discusses the interactions between the economic rise of China and India and the global energy crisis. Several scenarios that range from the failure of the Chinese and the Indian national development projects to global environmental catastrophes are discussed.


Keywords

China; India; Peak Oil; Global Energy Crisis; World Economy

The spectacular growth of the Chinese and the Indian economy is transforming the world at an unprecedented pace. Under the current trend, China is set to become the world’s largest and India the third largest economy by 2020. Some predict that after centuries of Western domination, now it is just a matter of time before Asia recovers its historical leadership over the world economy with China and India at its center (Arrighi and Silver, 1999; Arrighi et al., 2003).

The rise of western industrial capitalism under the British hegemony and the American hegemony coincided with (and one may say, depended upon) the enormous expansion of energy consumption, and especially the consumption of fossil fuels (oil, gas, and coal). Today fossil fuels account for 80 percent of the world’s total primary energy supply. However, there is growing consensus that the world’s total oil production is likely to reach the peak in the near future and experience an irreversible decline thereafter. Further, the greenhouse gas emissions from human activities (primarily from the use of fossil fuels) contribute to global warming with potentially catastrophic consequences. To prevent or alleviate the catastrophes, it is necessary to dramatically reduce the use of fossil fuels.

In this context, a serious question may be raised, that is, whether the world has enough energy and other resources to accommodate China’s and India’s search for material abundance, with their enormous population. To the extent this cannot be easily accomplished, what could be the implications for China and India, and for the rest of the world?

This paper discusses the interactions between the economic rise of China and India and the global energy crisis that is likely to take place in the coming half a century. The next section discusses the changing relative positions of China and India in the world economy and the potential implications for world energy consumption. The third section discusses the coming peak of the global oil production, impact of global warming, and the prospect of alternative energy sources. The fourth section evaluates the likely prospect of world energy supply in the coming half a century and argues that there will be great difficulty for the world to meet the projected energy demand. The shortage of liquid and gaseous fuels could become a binding constraint on the future world economy. The fifth section discusses the implications of China’s and India’s economic rise for the global energy crisis. Several possible scenarios are considered. The last section concludes the paper.


China and India in the World Economy: History and the Future
Figure 1 presents the historical and projected shares of world GDP of the world’s major economies: China, India, “Euro 4” (the four largest Western European Countries, UK, France, Germany, and Italy), and US, over the period 1820-2020.1 Until the early 19th century, China and India were the two largest economies in the world, accounting for more than one-third of the world GDP. The two countries, however, experienced sustained declines in relative economic positions over the following one and a half centuries. Western Europe dominated the world economy through the 19th century and the early 20th century. After WWII, the US achieved the undisputed world hegemony. Despite its relative decline over the past half century, the US remains the world’s largest economy. However, if the current trend continues, China will soon overtake the US to become the world’s largest economy. By 2020, China and India combined will again account for more than one-third of the world GDP, restoring their historical positions.

Such a development would certainly lead to major transformations in the world economy and geopolitics. There is one area, where “the rise of China and India” is set to bring about fundamental changes, that has not yet been extensively discussed. That is, how would the rise of China and India affect the consumption and distribution of world resources, especially the energy resources?

The current pattern of world energy consumption is highly uneven. The high-income countries, with 18 percent of the world population, account for 49 percent of the world’s total primary energy consumption and 60 percent of the electricity consumption. China and India together, with 37 percent of the world population, account for only 19 percent of the world’s total primary energy consumption and 16 percent of the electricity consumption. 2

According to some analysis, the current rate of energy and resources consumption in high-income countries is already unsustainable. “Footprint” analysis suggests that it takes 8.5 hectares of productive land to provide food, water, and energy settlement area for an average person living in a rich country. Yet the world’s productive land per person is about 1.2 hectares (Trainer, 2005: Chapter 10). To stabilize the global climate, the world’s emissions of greenhouse gases need to fall to about one tonne of carbon dioxide equivalent per person. But the current emissions in high-income countries stand at about 11 tonnes of carbon dioxide equivalent per person (in the US it is about 20 tonnes per person).

This raises a serious question. That is, how much energy and other resources are left available for the development of the rest of the world? Can the world generate a sufficiently large energy supply in the coming decades to accommodate the rise of China and India? Figure 2 presents the actual and projected shares of world energy consumption of the world’s major economies.3 Under the current trend, China and India together will account for about one quarter of the world’s total primary energy consumption by 2020 (this would still be less than their share of the world population). If the energy consumption in US, China, and India all grow at their current trends, then by 2050, the total energy consumption in the three countries would reach 9 times the US energy consumption in 2004 or 11 times the US energy consumption in 1990 (the reference year for the Kyoto Protocol). Will the world have enough energy resources to support ten more Americas?

There is no doubt that the Chinese and the Indian people have every right to development, understood as the fulfillment of their basic needs as well as their desires for a decent life. Further, it would not be unreasonable for one to argue that the existing pattern of resources distribution in the world is historically and morally unjustified. Nevertheless, to the extent the existing world economy is already on an ecologically unsustainable path, it cannot be denied that the attempt to replicate the existing pattern of consumption of the high-income countries among nearly two-fifth of the world population would make it even less sustainable.


Peak Oil, Global Warming, and Limits to Energy Supply




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