Monday, November 18, 2013

Can we Decarbonize Growth?

The relationship between energy consumption and economic growth is long-established.  There exists a strong direct link between a country’s power sector and its GDP. This means that as the power sector of a country becomes more developed, its GDP increases and vice versa.  Since 2000, the world energy use has grown approximately as fast as world real GDP, indicating the growing inability of the two to decouple.

Thus it is evident that the economic development of any country irrespective of its size mainly depends upon the development of the power sector. Power is central not only to all household activities, but to economic development as well. In fact it is the fuel of economic progress in all sectors, not only agricultural and industrial but all allied areas. Economic progress depends very much upon how successfully and profitably a country manages its power sector.
If GDP growth and energy use are so closely tied, it will be even more difficult to meet CO2 emission goals than most have expected. Critics argue - that measures to make countries more sustainable would raise the prices of products and make it more difficult for the nations to do business, forcing the Gross Domestic Product downward.  A reduction in emissions is likely to require a similar percentage reduction in world GDP.
On the other hand, some analysts argue that the correlation between energy consumption and growth is not so tight. The linkage between energy use and economic growth can be mitigated by a number of factors, including shifting to higher quality fuels and technological change aimed at increasing the economic productivity and, specifically, at reducing pollution.

 In 2012, U.S. energy-related carbon dioxide emissions were at their lowest level since 1994, more than 12 percent below the 2007 peak.  The carbon emissions dropped by 3.8% despite a 2.8% growth in gross domestic product. Prior to the last few years, economic growth had been closely tied to increased carbon emissions. In 2009, the sharp drop (7.1%) in CO2 released into the atmosphere was directly attributed to the recession. The US Energy Information Administration identified a variety of causes for the drop in carbon emissions. These included:

Substitution of Natural Gas for Coal in Power Generation: Despite the overall decline in renewables, the carbon intensity of power generation still fell by 3.5 percent, largely due to the increase in the share of natural gas generation relative to coal generation.

A mild heating season: Half of the overall energy decline was from the residential sector, where a very warm first quarter of the year lowered energy demand and emissions. By the end of March 2012, cumulative heating degree days were about 19 percent below the 10-year normal and 22 percent below 2011.

Residential sector electricity consumption was lower in 2012 as compared to 2011.  The residential electricity consumption declining by 3.4 percent, electricity system losses declined even further, (4.8 percent) implying an efficiency increase in electricity generation, transmission, and distribution of over 1 percent.

The transportation sector also contributed to lower energy-related CO2 emissions. Vehicle miles traveled in 2012 were flat compared to 2011 (8,072 million miles per day in both years), while more energy-efficient vehicles continued to enter the market.

Conclusion- Given the constraints imposed by resource depletion and climate change on the long-term sustainability of economic growth, the fundamental challenge remains- Can we sustain economic growth while radically reducing energy consumption and carbon emissions, at the same time? If not, is the continued economic growth sustainable?

{Source:  U.S. Energy Information Administration (EIA); USDA Economic Research Institute data}
                                                                                                                                                        Infraline Energy Power & Coal Knowledgebase Team

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