Chinese Energy & Economic Challenges: Is the World in Denial?*
Slide 1
Chinese Energy & Economic Challenges: Is the World in Denial?* by Malcolm Shealy Senior Associate PCI, Arlington & James P Dorian International Energy Economist Washington, DC Presentation to the Center for Strategic and International Studies May 11, 2007
Slide 2
*Presenter’s Note: All opinions, analyses and statements are solely those of the authors and do not reflect the official position of any U.S. or international organization or government agency.
Slide 3
Coal Consumption
million tons of coal/year
2000 1500 Total
1000 Other Sectors
500 Electric Sector
0 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006
Slide 4
Electric Generation by Fuel 3000 2500 Total TWH/year
2000 1500 Hydro
1000 500
Coal
0 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006
Slide 5
Income Elasticities Year 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
GDP Growth 11.3% 4.1% 3.8% 9.2% 14.2% 14.0% 13.1% 10.9% 10.0% 9.3% 7.8% 7.6% 8.4% 8.3% 9.1% 10.0% 10.1% 10.2% 10.5%
Electric Growth 9.6% 7.3% 6.2% 9.1% 11.3% 11.1% 10.8% 8.6% 7.2% 5.0% 2.8% 6.3% 9.4% 8.6% 11.5% 16.3% 15.3% 12.2% 14.4%
Annual Income Elasticity .85 1.77 1.64 .99 .79 .79 .83 .79 .72 .54 .36 .82 1.12 1.03 1.26 1.63 1.52 1.20 1.37
Low reported growth (3.7%) Low reported growth (3.7%)
Question whether economy faltered Start of New Story
Slide 6
Thought Experiment: What If… GDP growth averages 5.9%/yr from 20072025 Income elasticity drops to 1.1 from 2007 through 2025
Slide 7
Then… Big numbers by 2025:
Generation (TWH)
2006
2025
Multiplier
2,825
9,445
x3.3
622
1,899
x3.1
Capacity (GW)
Slide 8
Compare to DOE and IEA Electric Generation, TWH: 2006
2025
Multiplier
2,825
9,445
x3.3
DOE Forecast, 2006
5,778
x2.0
IEA Forecast, 2006
6,488
x2.3
Thought Experiment
Slide 9
Why So Different? Gross TWH 2025 Implied Income Elast Thought Exp 9,445 1.10 DOE, 2004 4,058 0.70 DOE, 2005 4,797 0.77 DOE, 2006 5,778 0.83 IEA, 2004 4,635 0.96 IEA, 2006 6,488 0.99 DOE and IEA forecasts implicitly assume lower income elasticities.
Slide 10
EIA Projections of Chinese Electricity (Presented in EIA Units.)
7,000 6,000 2006
5,000 TWH/year
2005
4,000 3,000 2,000
Actual
1,000 0 2000
2005
2010
2015
2020
2025
2030
Slide 11
Perspective Are such large increases reasonable? Put into perspective by comparing to: Kwh/capita for other countries Income elasticity for other countries
Slide 12
Perspective: kwh/capita China
year: kwh/cap:
2006 2,157
2025 6,521
19 years
US
1948 2,176
1967 19 years 6,467
Japan
1966 2,153
1989 23 years (recession) 6,447
Taiwan
1978 2,095
1996 18 years 6,619
South Korea
1989 2,207
2002 13 years 6,887
Slide 13
Perspective: Income Elasticity Income Elasticity of Electric Demand Long Run
Period
China
1.10
2007-2025
US
1.91
1948-1967
Japan
1.07
1966-1989
Taiwan
1.00
1978-1996
South Korea
1.68
1989-2002
Slide 14
Implications for Coal million tons/year 2025 3,500 just for electric power 4,800 allowing for industry… 6,000 base growth (7.5%/yr)
Slide 15
Implications for Coal (China surprises everyone!) million tons/year 2025 Thought Exp 3,500 just for electric power 4,800 allowing for industry… 6,000 base growth (7.5%/yr) DOE, 2004 2,330 2005 2,790 2006 4,090 IEA, 2004 2,240 2006 3,550
Slide 16
Carbon Emissions m illion m etric tons carbonyear
6000 5000 4000 3000 2000
US
1000 0 2000
China, DOE’04
2005
2010
2015
2020
2025
Slide 17
Carbon Emissions m illion m etric tons carbonyear
6000 5000 4000 3000 2000
US
1000
China, DOE’04
China, DOE’05
0 2000
2005
2010
2015
2020
2025
Slide 18
Carbon Emissions m illion m etric tons carbonyear
6000 5000 4000 China, DOE’06
3000 2000
US
1000 0 2000
China, DOE’04
China, DOE’05
2005
2010
2015
2020
2025
Slide 19
Carbon Emissions m illion m etric tons carbonyear
6000 5000 Thought Exp, High Gr
4000
Base* Low
3000 2000
US
1000
China, DOE’04
0 2000
2005
2010
2015
2020
2025
*On the base path China will emit twice as much carbon as the US within about 20 years.
Slide 20
Sulfur Emissions from Electricity 80 70 “What If”, base
million tons
60 50 40
If no controls are implemented and enforced:
30
“What If”, low
20 10
US Chinese Goal
0 2005
2010
2015
2020
2025
Slide 21
Slide 22
Slide 23
Slide 24
Slide 25
Slide 26
Projected Vehicle Ownership in China, 2000-2020 250 IMF
Million vehicles
200
S. Korea/ Taiwan Model
150
SINOPEC
100
Goldman Sachs
50 0 2000
2005
2010
2015
2020
2025
Note: Follow ing pattern in South Korea and Taiw an (dark blue); Slow er grow th scenario forecast by Chinese government (red); Various Western and Chinese sources, 2004-2005.
Slide 27
Concluding Remarks China may have the greatest impact on world energy over the next two decades and beyond. Increased attention needed on coal, improved efficiencies, and vehicle use. Potential energy bottlenecks could constrain future economic growth affecting both China and rest of world. Is China’s current energy and economic path sustainable? If not, how will the Chinese government respond to the problems?
Chinese Energy & Economic Challenges: Is the World in Denial?* by Malcolm Shealy Senior Associate PCI, Arlington & James P Dorian International Energy Economist Washington, DC Presentation to the Center for Strategic and International Studies May 11, 2007
Slide 2
*Presenter’s Note: All opinions, analyses and statements are solely those of the authors and do not reflect the official position of any U.S. or international organization or government agency.
Slide 3
Coal Consumption
million tons of coal/year
2000 1500 Total
1000 Other Sectors
500 Electric Sector
0 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006
Slide 4
Electric Generation by Fuel 3000 2500 Total TWH/year
2000 1500 Hydro
1000 500
Coal
0 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006
Slide 5
Income Elasticities Year 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
GDP Growth 11.3% 4.1% 3.8% 9.2% 14.2% 14.0% 13.1% 10.9% 10.0% 9.3% 7.8% 7.6% 8.4% 8.3% 9.1% 10.0% 10.1% 10.2% 10.5%
Electric Growth 9.6% 7.3% 6.2% 9.1% 11.3% 11.1% 10.8% 8.6% 7.2% 5.0% 2.8% 6.3% 9.4% 8.6% 11.5% 16.3% 15.3% 12.2% 14.4%
Annual Income Elasticity .85 1.77 1.64 .99 .79 .79 .83 .79 .72 .54 .36 .82 1.12 1.03 1.26 1.63 1.52 1.20 1.37
Low reported growth (3.7%) Low reported growth (3.7%)
Question whether economy faltered Start of New Story
Slide 6
Thought Experiment: What If… GDP growth averages 5.9%/yr from 20072025 Income elasticity drops to 1.1 from 2007 through 2025
Slide 7
Then… Big numbers by 2025:
Generation (TWH)
2006
2025
Multiplier
2,825
9,445
x3.3
622
1,899
x3.1
Capacity (GW)
Slide 8
Compare to DOE and IEA Electric Generation, TWH: 2006
2025
Multiplier
2,825
9,445
x3.3
DOE Forecast, 2006
5,778
x2.0
IEA Forecast, 2006
6,488
x2.3
Thought Experiment
Slide 9
Why So Different? Gross TWH 2025 Implied Income Elast Thought Exp 9,445 1.10 DOE, 2004 4,058 0.70 DOE, 2005 4,797 0.77 DOE, 2006 5,778 0.83 IEA, 2004 4,635 0.96 IEA, 2006 6,488 0.99 DOE and IEA forecasts implicitly assume lower income elasticities.
Slide 10
EIA Projections of Chinese Electricity (Presented in EIA Units.)
7,000 6,000 2006
5,000 TWH/year
2005
4,000 3,000 2,000
Actual
1,000 0 2000
2005
2010
2015
2020
2025
2030
Slide 11
Perspective Are such large increases reasonable? Put into perspective by comparing to: Kwh/capita for other countries Income elasticity for other countries
Slide 12
Perspective: kwh/capita China
year: kwh/cap:
2006 2,157
2025 6,521
19 years
US
1948 2,176
1967 19 years 6,467
Japan
1966 2,153
1989 23 years (recession) 6,447
Taiwan
1978 2,095
1996 18 years 6,619
South Korea
1989 2,207
2002 13 years 6,887
Slide 13
Perspective: Income Elasticity Income Elasticity of Electric Demand Long Run
Period
China
1.10
2007-2025
US
1.91
1948-1967
Japan
1.07
1966-1989
Taiwan
1.00
1978-1996
South Korea
1.68
1989-2002
Slide 14
Implications for Coal million tons/year 2025 3,500 just for electric power 4,800 allowing for industry… 6,000 base growth (7.5%/yr)
Slide 15
Implications for Coal (China surprises everyone!) million tons/year 2025 Thought Exp 3,500 just for electric power 4,800 allowing for industry… 6,000 base growth (7.5%/yr) DOE, 2004 2,330 2005 2,790 2006 4,090 IEA, 2004 2,240 2006 3,550
Slide 16
Carbon Emissions m illion m etric tons carbonyear
6000 5000 4000 3000 2000
US
1000 0 2000
China, DOE’04
2005
2010
2015
2020
2025
Slide 17
Carbon Emissions m illion m etric tons carbonyear
6000 5000 4000 3000 2000
US
1000
China, DOE’04
China, DOE’05
0 2000
2005
2010
2015
2020
2025
Slide 18
Carbon Emissions m illion m etric tons carbonyear
6000 5000 4000 China, DOE’06
3000 2000
US
1000 0 2000
China, DOE’04
China, DOE’05
2005
2010
2015
2020
2025
Slide 19
Carbon Emissions m illion m etric tons carbonyear
6000 5000 Thought Exp, High Gr
4000
Base* Low
3000 2000
US
1000
China, DOE’04
0 2000
2005
2010
2015
2020
2025
*On the base path China will emit twice as much carbon as the US within about 20 years.
Slide 20
Sulfur Emissions from Electricity 80 70 “What If”, base
million tons
60 50 40
If no controls are implemented and enforced:
30
“What If”, low
20 10
US Chinese Goal
0 2005
2010
2015
2020
2025
Slide 21
Slide 22
Slide 23
Slide 24
Slide 25
Slide 26
Projected Vehicle Ownership in China, 2000-2020 250 IMF
Million vehicles
200
S. Korea/ Taiwan Model
150
SINOPEC
100
Goldman Sachs
50 0 2000
2005
2010
2015
2020
2025
Note: Follow ing pattern in South Korea and Taiw an (dark blue); Slow er grow th scenario forecast by Chinese government (red); Various Western and Chinese sources, 2004-2005.
Slide 27
Concluding Remarks China may have the greatest impact on world energy over the next two decades and beyond. Increased attention needed on coal, improved efficiencies, and vehicle use. Potential energy bottlenecks could constrain future economic growth affecting both China and rest of world. Is China’s current energy and economic path sustainable? If not, how will the Chinese government respond to the problems?
