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 Environment
 
Decarbonisation of The Economy
India Friday, November 25, 2011

Barun Mitra
Decarbonisation of the world economy is a natural process which evolves due to the human need to lower the cost of energy --which has made heat -to-energy processes more energy efficient and has been going on for the past 500 years. A competitive market continuously strives for greater energy efficiency. Mr. Barun Mitra shows how the Indian economy has been following the same path towards decarbonisation after the initiative of economic liberalisation in the early 1990s. Developing countries like India, in his view, must have the freedom to choose the lowest-cost and most efficient energy solutions in order to pursue their economic development.

A summary analysis based on the presentation made at the international climate change conference at Mumbai University on October 14, 2011.

Abstract

Decarbonisation of the world economy has been going on for the past 500 years, ever since mankind began moving from wood and charcoal to coal. In recent years, carbon intensity of economies across most countries has been declining steadily. As economies have been reforming and becoming more competitive, energy efficiency has been improving, while carbon intensity falling. This has been a secular trend, quite irrespective of whether carbon emissions are causing global warming or not. Therefore, market reforms and a competitive environment would go a long way in improving energy efficiency, and reducing pollution. Anthropogenic sources of carbon are generally held responsible for climate change, but this is a theory which many international scholars doubt. Without going on to that debate, could a market economy system help in reducing carbon emission, quite irrespective of climate change? Would a Kuznet's curve in carbon or other environmental pollutant, become a reality?

Introduction

The purpose of this brief analysis is to explore the relationship between economic development (GDP), and carbon emission. It is worth noting that no economic actor emits carbon for its own sake. Carbon is emitted as a consequence of energy use, since most of the fuel sources are carbon based from wood to coal and petroleum products. Therefore, the two measures of carbon we use in this paper are:
(i) carbon intensity (metric tons of carbon per $1,000 of
GDP produced)
(ii) per capita carbon emission (metric tons per capita).
The GDP is measured in constant US dollar in year 2000.

The thrust of the analysis is to look at the relationship between economics and carbon emission, without going in to the debate where CO2 is contributing to the global warming or not, and how much of the climate change is part of the natural changes in the environment, or is the change induced by anthropogenic emission of greenhouse gases.

Content

Section 1: Per Capita GDP and the Carbon intensity in G-20 countries
Section 2: Economic development, Energy Efficiency
and Carbon Intensity
Section 3: Decarbonisation of the Economy
Section 4: Kuznet’s Curve in Carbon
Section 5: Effective Saving in Carbon
 
Section 1: Per Capita GDP and the Carbon intensity in G-20 countries

Fig. 1
 

This graph clearly shows that among G-20 countries, there is a clear inverse relationship between levels of income and carbon intensity. Lower the income, higher the carbon intensity.

This broadly implies that while the technology is currently available which could significantly improve energy efficiency, and reduce carbon intensity, either the technology is not widely available, or accessible; or that some countries are not in position to adopt the technologies.

Section 2: Economic development, Energy Efficiency and Carbon Intensity

Fig. 2.1 India

Fig. 2.2: China

Fig 2.3: Japan


 
Fig. 2.4: United States of America 
 

This set of four figures illustrates the relationship between economic development, energy efficiency and carbon intensity, for the selected countries. It shows that carbon intensity diverges sharply as GDP increases. For China and India, the divergence is very sharp, since their growth rates are much higher, and they started from a low base.

Most interestingly, in the graphs for China and India, the carbon intensity begin to decline sharply after an initial increase following the economic reforms in late 1970s and early 1980s for China, and early 1990s for India.

For India, the chart is even more startling. There was a steady increase in carbon intensity, from 1970 to 1990, during a period of controlled economic conditions, and regulated industrialization, characterized by lack of competition. But with the economic liberalization, and increased competition, both domestic and foreign, following the reforms in 1991, not only did the economic growth pick up, but also the efficiency improved and the carbon intensity began to decline.

The second interesting aspect which can be observed is that in richer countries, like Japan or the US, economic development and carbon intensity had decoupled. But particularly, in case of India, there was clear phase when the two factors were coupled together till the early 1990s, and then decoupled, following liberalization.

Section 3: Decarbonisation of the Economy

Fig 3.1: Japan and the US

Fig. 3.2: China and India
 

Between 1970 and 2008, the US economy reduced its carbon intensity by over 50%, but Japan traditionally has remained more efficient. But the gap in carbon intensity between the two economic giants has greatly narrowed in the past four decades.

In 1970, USA produced 1.18 metric tons of carbon dioxide for every $1000 of GDP. The carbon intensity declined in 2008 by 0.49 metric tons. Similarly, between 1970 and 2008, Japan’s carbon intensity decreased from 0.45 to 0.24 MT CO2 per $1000 of GDP.

The same pattern is more dramatically reflected in two of the most significant emerging economies – China and India. China began its economic reforms about a decade before India, and the graphs reflect that.

Between 1980 and 2008, China reduced its carbon intensity from 8.01 metric tons of carbon dioxide for every $1000 of GDP, to 2.63 metric tons. India shows a mixed trend of carbon intensity. Between 1970s and early 1990s, India’s carbon intensity increased from 1.76 to 2.25 MT CO2/$1000, but after that it decreased from 2.25 to 2.14 MT CO2/$1000 by 2008.

In the 1970s, the China had a virtually closed economy, consequently, China was much more inefficient, and therefore its carbon intensity was much higher than India’s. But over the past decade, as both the countries attempted to reform their economies, the carbon intensity of the two countries declined, and have begun to converged significantly, although Chinese economy remains somewhat more carbon intensive, than India.

Section 4: Kuznet’s Curve in Carbon

In following set of graphs, G-20 countries have been categorised into three income groups – High income group, Middle income group, Low income group.

High Income group includes Australia, Canada, France, Germany, Italy, Japan, Korea Rep., United States, United Kingdom and Saudi Arabia.

Middle Income group includes Argentina, Brazil, China, Mexico, Russia, South Africa and Turkey.

And, Low Income group includes India and Indonesia.

Fig 4.1: Low Income Countries in G-20 with low carbon emission
 

Fig 4.2: Middle Income countries in G-20, with higher carbon emission
 

Fig 4.3: Middle Income countries in G-20, with lower carbon emission
 

Fig 4.4: Higher Income countries in G-20, with higher carbon emission
 

Fig 4.5: Higher Income countries in G-20, with lower carbon emission
 

Fig 4.6: Higher Income countries in G-20, with lower carbon emission
 

Fig 4.7: Higher Income countries in G-20, with lower carbon emission
 

This set of graphs shows that among G-20 countries, the lower the income level, there is a positive trend between per capita carbon emission, and increase in per capita GDP. Since the income levels are low, the countries consume less energy, and the carbon emissions are low.

As the economies grows from this low level, the energy consumption increase, and so does the carbon emission. But as counties move to higher GDP brackets, the slopes of the curves tend to become flatter, indicting that the decoupling of the economy from carbon emission is a possibility.

With further increases in the GDP level, slope of the curve may turn downwards, as it have for many of the European countries, and also the United States. While the per capita carbon emission in the US at present is double that of the EU, nevertheless, the slopes of the curves are distinctly headed south, for many of the rich countries. No doubt there are significant variations among countries, yet, the prospect of a Kuznet’s curve in carbon has perhaps never been brighter. Clearly, it needs to be explored further.

Section 5: Effective Saving in Carbon

In this section we measure the effective saving in carbon emission (%) for India, China, Japan and United States. To measure the carbon saving we have calculated the possible carbon emission at actual GDP level using the carbon intensities prevailing in 1970, 1980, 1990, 2000 and 2008.

Fig. 5.1: India’s carbon emission, compared at different carbon intensity levels
 

Fig. 5.2: China’s carbon emission, compared at different carbon intensity levels
 

The thick red line in both the graphs is the estimated total carbon emission. The thinner lines are implied carbon emissions if the carbon intensities had stayed at the level of 1970, 1980, 1990 and 2000. The area between the red line, and the other lines indicate the effective carbon saving, positive or negative, between actual carbon emission, and the projected emission based on the earlier carbon intensity level, for the actual levels of GDP.

By this measure, China has had an effective saving in carbon emission of 110%, between 1990 and 2008, when China’s carbon intensity declined from 5.53 to 2.63 MT per $1,000 of GDP. That is the effective saving in carbon of over 100% had the Chinese economy grown to the same level as today, with carbon intensity remaining at the level of 1990.

The effective carbon saving for India is a more modest 33%, between 1990 and 2008, with the carbon intensity declining from 2.87 to 1.86 MT per $1,000 of GDP.

The purple line at the bottom of both the graphs indicates the possible carbon emission, had the Chinese and Indian economies been able to adopt the very low carbon intensity levels of Japan. Carbon intensity in Japan today is one-sixth that of India, and one-tenth that of China. If both China and India could improve their energy efficiency, and lower their carbon intensity to the Japanese level, their total carbon emission would be a fraction of today’s, at the same GDP level as today.

Conclusion

Japan, with 0.24 MT of carbon emission per $1000 of GDP, has achieved this low carbon intensive economy with the technologies currently available. So the conclusion is that there is enormous scope for countries like China and India to improve energy and reduce carbon emission, by adopting the state of the art technologies that are already in the market today. The question is, do emerging economies have access to these technologies, or are the conditions within the developing countries not conducive for quick adoption of the best available technologies. Whether climate change is caused by anthropogenic greenhouse gas emission will continue to be debated for a long time. But what is beyond any doubt is that man-made policy interventions that have retarded the diffusion of the best technologies, which have perpetuated energy inefficiencies, and increased environmental pollution.


Acknowledgement: Ms Nitu Maurya, research consultant at Liberty Institute, contributed with the data analysis. All the data is from the World Bank’s online World Development Indicators database.

Liberty Institute,
Julian L. Simon Centre
4/8 Sahyadri, Plot 5, Sector 12,
Dwarka, New Delhi 110078. India

Tel: +91-11-28031308

Email: info@LibertyInstitute.org.in
Websites: www.InDefenceofLiberty.org

www.ChallengingClimate.org

www.EmpoweringIndia.org

 

Author : Mr Barun Mitra is the director of Liberty Institute, an independent public policy think tank in New Delhi.
Tags- Find more articles on - carbon intensity | carbon intensity decline | Decarbonisation of economy | effective saving in carbon emission | energy efficiency

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