Reduction in Global Emissions of CO2 Gives Hope for Economic Growth

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A surprise announcement by the International Energy Agency (IEA) last week could be good news for energy intensive industries worldwide.

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Firms have been investing billions in energy efficiency and global emissions reduction technology yet the targets seem to be ever ratcheted lower in spite of gains made, but a report to be published on June 15 will show that for the first time in 40 years emissions of carbon dioxide did not rise last year.

According to a Financial Times article after growing at an average of 2.4% over the last decade in 2014 the global economy grew 3%, while the amount of  CO2 pumped out remained at the 2013 level of 32.3 billion tons. There have only been three times in four decades when emissions fell or stopped rising, the FT quotes the EIA as saying. After the oil price shock and US recession in the early 1980s; in 1992 after the collapse of the former Soviet Union; and in 2009 during the global financial crisis.

Many Factors Led to Reduction

As you would expect, the reasons are a fortunate coincidence of trends, not one single factor. Energy shifts in China, said to be the world’s biggest polluter are a major contributor, as its use of coal, one of the biggest sources of carbon emissions, has been cut and the country has installed more hydroelectric, wind and solar power.

At the same time, the country’s electricity consumption growth rate has fallen from 10% a year to about 3-4% as China imposes energy efficiency standards for industry, shuts older factories and shifts away from the heavy manufacturing that has powered its economic growth. That trend still has far to run as our recent posts on the closure of polluting steel and coke plants and coal-fired power stations reports, China is on a mission to reduce environmental pollution and in particular to improve air quality in the face of growing public outcry as was graphically illustrated by the documentary “Under the Dome.”

In tandem with developments in China, the FT reports wealthy countries in the Organization for Economic Cooperation and Development (OECD) group of nations have started to “decouple” economic expansion from emissions increases, as they install more renewable energy plants and set stricter standards for everything from car fuel economy to home appliance energy use.

Back to that pain manufacturing has been experiencing for the last 20 years, all that investment is showing some return by way of falling emissions levels. In the past five years, OECD countries’ economies grew nearly 7% while their emissions fell 4%, the IEA has found.

Downside risks remain. Some 1.2 billion people in the developing world are still without electricity and countries such as India are at present committed to building many more coal-fired power stations which, once operational, would lock us in to higher emissions for decades over the life of the plants.

Not an Either/Or Situation

But what the findings do show is that rather than accept emissions are going to continue to rise regardless of our best efforts for many years to come, it is possible they could be stabilized at current levels while economic growth continues. It isn’t an either/or situation.

But encouragingly the cost and pain Western consumers have gone through is paying off. That is not to say politicians will let matters rest at current levels, expect emission limits to continue to be reduced but the switch to natural gas both for power generation and industrial use will continue to gradually reduce carbon emissions regardless of reduced targets.

A recent Telegraph article gives some encouragement regarding the economic sustainability of that trend, saying prices will fall in the years to come as a number of massive new LNG projects come online (particularly in Australia) to feed the Asian market with natural gas.

According to the UK’s BG Group, supply has remained stalled at levels recorded in 2011 and that last year shipments grew by only 1.5% to around 243 million metric tons. However, by 2025, the company is forecasting that the LNG supply will reach 400 mt, a 5% annual growth rate, almost twice the projected growth rate in demand resulting in a glut of supply and falling prices.

Japanese gradual restarts of nuclear plants will reduce demand in Asia’s second-biggest economy for LNG and the start of exports from the US of LNG from shale will also add to supply in addition to other projects outside of the Australian mega projects. The US Department of Energy estimates that natural gas burned in power plants produces about half as much carbon dioxide as coal and fewer nitrogen oxides, too.

Growth Can Work With Emissions Cuts

If natural gas can provide some of this increased demand, particularly if India can be encouraged to install renewable and natural gas for power generation rather than coal, then a cap below the target 2% rise in CO2 may be more readily achievable than many had feared, while still sustaining global growth with all the benefits in reducing poverty in the developing world that growth can deliver. The next crunch date will be the December gathering in Paris of global leaders looking to agree targets and limits for the years ahead. These findings from the IEA give hope that reductions can be achieved without the expense of crippling costs or disproportionate limits to growth.

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