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 0.025 0.071

(0.002)*** (0.002)*** (0.003)***

OIL PRICE -0.007 -0.014 0.001

(unit: $10) (0.003)** (0.003)*** (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 -0.011 0.004

(0.006)** (0.007) (0.019)

OIL PRICE -0.009 -0.016 -0.016

(unit: $10) (0.003)*** (0.006)*** (0.006)***

GDP 0.722 0.562 0.612

(in logarithmic value) (0.174)*** (0.263)*** (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 World OECD Asia & Pacific

Growth Rate
-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 1C

higher than the pre-industrial time

• Current rate of global warming: 0.2C/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 3C

• Climate Sensitivity (James Hansen): a doubling of CO2

(taking into account ice sheet disintegration) leads to
global warming of 6C
Global Warming Scenarios

Global Warming 1-2C 3-4C 5-6C

Scenarios

Drought and Frequent heat waves Widespread drought Much of the world

Desertification and desertification ceases to be

inhabitable

Sea Ice and Ice Sheets Disappearing of Melting of Melting of Antarctic

Arctic sea ice Greenland ice sheets ice sheets

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

Eco-systems One third of species Amazon rainforest Massive species

become extinct burns down extinction

Human Impact Half a billion people Billions become Catastrophic decline

at risk of starvation environmental of global population

refugees

Climate Feedbacks Possible initiation of Arctic permafrost Runaway global

soil and ocean and ocean algae warming

carbon feedbacks endangered

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 2C 3C 4C

Hansen Climate Sensitivity 4C 6C 8C

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 3-6C: emissions need to fall at an

annual rate of 1 percent  world economic growth rate <
1 percent

• Global warming of 2-4C: 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?