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Dave Cohen

Dave Cohen

Dave Cohen writes the blog Decline Of The Empire. His commentaries cover a wide variety of subjects, including the American economy & macro-economics, the oil…

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The Close Relationship between Economic Growth and Carbon Emissions

The Close Relationship between Economic Growth and Carbon Emissions

Some readers didn't quite believe the premise in my reprinted Tuesday post How To Think About The Future (Redux). I'll repeat that assumption here.

As we consider the middle [IPCC] scenarios AIM 6.0 and MiniCAM 4.5, we must bear in mind this very important point:

All other things being equal, anthropogenic CO2 emissions are a proxy for economic growth *
* "a proxy for" in this context means "provide an alternative measurement of", or "stand in for"

As things stand, and in the foreseeable future, anthropogenic emissions from burning fossil fuels will rise if and only if the global economy is growing. See my recent post For Humans, The Economy Is Everything. Also see my much longer essay Economic Growth And Climate Change — No Way Out? (This long essay is not for the faint-hearted.)

I will use recent findings about economic growth and CO2 emissions in the United States to illustrate why my assumption still holds true. When the global economy blew-up in 2008-2009, data which would confirm the relationship between economic growth and CO2 emissions was not yet available. Now it is.

This text and graph are from Climate Central's Can U.S. Carbon Emissions Keep Falling? (pdf).

Box 1: Reductions in Gross Domestic Product Account for the Most Significant Share of the Recent Declines in CO2 Emissions

U.S. CO2 emissions in a given year can be viewed as the product of three quantities: 1) U.S. gross domestic product for that year, 2) the total amount of energy used per dollar of GDP that year (the energy intensity of the economy), and 3) the CO2 emissions per unit of energy used that year (the carbon intensity of energy):

Relationshipe between GDP and CO2 Emissions

The figure below shows how all four of these quantities have been changing since 1985. Gross domestic product, the energy intensity of the economy, and the carbon intensity of energy all show smooth trends from 1985 until 2007. Correspondingly, CO2 emissions, the product of these 3 quantities, also grew smoothly during this time (dashed line).

But CO2 emissions declined sharply after 2007, leveling off for 2009-2011. The inset figure [below] strongly suggests that the dominant reason for the drop in CO2 emissions after 2007 was the large drop in GDP.

A secondary contributor was the reduction in carbon intensity that began around that time...

Changes in GDP

Gross domestic product in constant dollars (GDP$), carbon intensity of energy (CO2/BTU), energy intensity of the economy (BTU/GDP$), and CO2 emissions are each plotted relative to their 1985 values to highlight trends. In the inset, the quantities are plotted relative to their 2007 levels. You can see a small drop in emissions in 2011 but the economy is allegedly growing. We could argue about what this blip in the data means.

The Climate Central report sums up the situation like this—

The recession has been a major contributing factor to the recent decline in emissions, but other forces— including energy efficiency gains, growth in renewables and natural gas, and the decline in coal’s portion of electricity generation — are also at work.

Related Article: The U.S.-EU Green Energy Divide

This raises the possibility that the decline could continue even after the economy rebounds, and that significant reductions might continue going forward.

Such optimism ignores several fundamental features of the American energy economy. The first is the sheer enormity of our dependence on fossil fuels...

Just as we would expect, when the U.S. economy went into reverse, as measured in GDP dollars (GDP$), CO2emissions declined. Why does this relationship hold?

1.    The relationship between economic growth (accumulated wealth over time) and energy consumption (the 2nd term in the formula above) is unalterable and fundamental. See my post Wealth And Energy Consumption Are Inseparable, which describes physicist Tim Garrett's work on the relationship (Wealth = Power).

2.    The carbon intensity of the energy upon which economic growth depends is subject to change (the 3rd term in the formula above). In the United States, abundant natural gas has replaced some coal since 2009, and in so far as natural gas emits about 1/3rd as much CO2 as coal, there was a concomitant drop in carbon intensity. However, American (and global) energy consumption is very carbon-intensive, i.e. it depends on burning fossil fuels, so economic growth resulting in higher CO2 emissions always overwhelms reductions in carbon intensity. Also see my remarks on China below.

The dream of environmentalists goes like this: humans can continue to grow the American and global economies (measured by GDP$) while achieving dramatic drops in carbon intensity by switching to wind, solar, geothermal and other "clean" renewable sources of energy. However, it is not possible to bring a sufficient amount of "clean" energy (measured in BTUs) into the mix fast enough to get both economic growth and significant reductions in carbon intensity.

In short, you cannot have your cake and eat it too. You can have economic growth—if you can achieve it—and higher CO2 emissions, or you can shrink economies and decrease emissions, as we've seen in the United States since 2008. All other views reflect ignorance or denial. We've got plenty of both here on Planet Earth.

Related Article: Putin Plays Down Russia's Deadly Dependence on Oil & Gas Revenues

Since about mid-2009, the global economy and thus CO2 emissions have indeed been growing, but not in the OECD (developed) countries. The growth was led by the Asia-Pacific region, especially in China. These graphs are from Robert Rapier's Global Carbon Dioxide Emissions — Facts And Figures.

CO2 Emissions 1965-2011 1

CO2 Emissions 1965-2011 2

It is easy to see that growth in Asia-Pacific emissions easily outpaced reductions in the developed world.

What does the future hold? Straightforwardly, future trends in CO2 emissions will depend on the fate of the global economy. Despite large reductions in carbon intensity since 2005, economic growth in China in 2011 resulted in much higher emissions, which helped the world set yet another record.

CO2 emissions rose by 3.2 percent last year to 31.6 billion metric tons (34.83 billion tons), preliminary estimates from the Paris-based IEA showed.

China, the world's biggest emitter of CO2, made the largest contribution to the global rise, its emissions increasing by 9.3 percent, the body said, driven mainly by higher coal use.


"When I look at this data, the trend is perfectly in line with a temperature increase of 6 degrees Celsius (by 2050), which would have devastating consequences for the planet," Fatih Birol, IEA's chief economist told Reuters...

China, CO2 emissions per unit of GDP — or its carbon intensity — fell by 15 percent between 2005 and 2011, the IEA said, suggesting the world's second-largest economy was finding less carbon-consuming ways to fuel growth.

In the United States, the world's second-biggest CO2 emitter, a switch to natural gas from coal in power plants, a slower economy and a mild winter helped cut emissions by 1.7 percent.

"The replacement of coal by shale gas is a key factor and what happened in the U.S. could very well happen in China and other countries and could definitely help in reducing CO2 emissions," the IEA economist said.

In Europe, a relatively warm winter combined with sluggish growth helped cut emissions by 1.9 percent.

Asked about prospects for global carbon emissions in 2012, Birol said:

"It would come as a very, very big surprise to me if we saw a significant decline in CO2 emissions."

This Reuters article was published on May 24, 2012, and since then we have found out that unused coal is piling up in Chinese ports. Nonetheless, Fatih Birol is right—it would be a very, very big surprise if we saw a significant decline in global CO2 emissions in 2012, despite stagnant or recessionary economies in the developed world and the slowing of growth in emerging markets.

Now and for the foreseeable the future, global CO2 emissions are tied to global economic growth. That will always be the case while the energy mix, which is very fossil fuels intensive, remains what it is. In fact, emission increases could grow if nations like Japan and Germany move away from nuclear power.

Birol also warned about the impact of phasing out nuclear power output after the Fukushima accident in Japan, which helped push Japanese carbon emissions 2.4 percent higher in 2011.

"In Japan, the rise is almost exclusively due to higher fossil fuel use. This is a very important indication of what could happen if there was a move away from nuclear energy in other countries," he said.

And on that happy note, I will conclude today's post.

By. Dave Cohen

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  • C K on February 27 2014 said:
    I sometimes wonder if all economics is bunk, to misquote Henry Ford. You acknowledge carbon intensity of energy can change, so why not carbon intensity of GDP? The main thing is that it has to if human population and GDP are not to fall: See the report by Sulston et al from the Royal Society.

    It's highly speculative, but could not the direction of causation be rather different? What if the subprime mortgage crisis etc was triggered by hitting a limit on conventional energy production and consequently rising commodity prices?

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