Sunday, April 26, 2015

Chinese energy figures suggest much slower growth than advertised

Last year China reported the slowest economic growth in 24 years, about 7.4 percent. But the true figure may actually be much lower, and the evidence is buried in electricity figures which show just 3.8 percent growth in electricity consumption.

David Fridley, a staff scientist in the China Energy Group at the Lawrence Berkeley National Laboratory, has been a longtime collaborator with the Chinese on energy management, efficiency and policy. Fridley, who has held Chinese energy-related jobs for 35 years, believes that electricity consumption in China is a better indicator of its economic growth.

Historically, electricity consumption and economic growth in China have been very closely linked. "From 2005 to 2013, the average elasticity of electricity demand was 1.09, meaning electricity demand was up about 1.09 percent for every percent rise in GDP," Fridley wrote in an email. "In 2014, that number fell to 0.51, the lowest in this 10-year period. During the economic crisis of 2008, it did fall below the average, to 0.60, but quickly rebounded to above 1."

That tells Fridley that something is up. He's not the only one who thinks the government growth numbers aren't reliable. China's premier, Li Keqiang, has said China's GDP figures are "for reference only." Bloomberg reported that in a declassified U.S. diplomatic cable from 2007 then-U.S. ambassador Clark Randt related a dinner conversation with Li, secretary general of Liaoning Province at the time, in which Li revealed his preferred indicators of Chinese economic activity: rail cargo volume, loan disbursements and--wait for it--electricity consumption. China's leaders don't believe their own government growth numbers.

Fridley notes that electricity consumption figures are considered quite reliable and have suffered only minor revisions over the years. Preliminary numbers for the first quarter of 2015 suggest further slowing of the economy as year-over-year electricity consumption growth decelerated to just 0.8 percent. February data showed a 6.3 percent decline in electricity consumption from the previous month. March saw another decline of 2.2 percent.

Fridley also notes that residential electricity growth registered an extraordinary fall: "From 1980 to 2013, residential electricity grew on average 13.5 percent a year—and last year it fell to 2.2 percent. From 2005 to 2013, elasticity of residential energy demand was 1.11, and fell to 0.30 in 2014. This is unprecedented."

But it wasn't just electricity consumption that seemed out of step with China's reported growth rate. Fridley wrote that diesel and natural gas demand also indicated slowing economic growth:

Diesel demand in 2014 fell slightly, also for the first time, and the growth rate for natural gas was the first time it had been below double digits this century. Diesel demand growth is primarily driven by trucks hauling freight, and although the 2014 numbers for freight by mode aren’t out yet, the 2013 freight numbers went flat after growing by 3 to 4 billion tonnes per year since 2000. Trucking freight actually fell by over a billion tonnes. Rail freight was flat.

Does all of this prove that China's reported economic growth rate was inflated in 2014? Fridley again:

At this point, the data point to an economy that is weaker than what official GDP would say, but there’s not enough complete data available for 2014 to really understand everything that is going on. Others do provide their speculations, and perhaps some of it is spot on, but I just follow the data.

Economist Michael Pettis has been forecasting much lower growth in China for the rest of this decade as China rebalances its economy away from high investment and toward consumption. He says this has happened to every high-growth economy in the past and will almost surely happen to China.

He explains that it will come in one of two ways:

In the best-case orderly adjustment, growth rates will drop every year, more or less smoothly, as credit growth is constrained and investment growth drops with it. As the reforms proposed during the Third Plenum are implemented, ordinary Chinese households will benefit from direct or indirect transfers from the state sector, so that total household wealth will continue to rise more or less in line with the growth in household income during the past decade. In that case, consumption growth will remain in the 5 to 8 percent range.

The second way will not be so pleasant:

A disorderly adjustment will have a different dynamic. It is likely to occur after another two to three years of relatively high (7 to 8 percent) GDP growth rates followed by a very ugly contraction once debt capacity is exhausted--which will occur when new loans cannot grow fast enough both to roll over existing bad loans (by which I mean loans that funded projects whose returns were insufficient to liquidate the loans) and to generate economic activity. Average growth rates in the case of a disorderly adjustment will be well under 3 to 4 percent but the adjustment will be highly discontinuous.

You might have to read Pettis's words twice to get the full import of them. But he's explaining why China will grow more slowly in the future one way or another.

So, the question is: Has China entered this slow-growth phase which Pettis believes it must? Or will the adjustment to slower growth be delayed once again? No one knows for sure. But energy consumption statistics hint that China may have already begun its decent into slower growth and that that growth will be much slower than almost anyone except Pettis has forecast.

Kurt Cobb is an author, speaker, and columnist focusing on energy and the environment. He is a regular contributor to the Energy Voices section of The Christian Science Monitor and author of the peak-oil-themed novel Prelude. In addition, he has written columns for the Paris-based science news site Scitizen, and his work has been featured on Energy Bulletin (now Resilience.org), The Oil Drum, OilPrice.com, Econ Matters, Peak Oil Review, 321energy, Common Dreams, Le Monde Diplomatique and many other sites. He maintains a blog called Resource Insights and can be contacted at kurtcobb2001@yahoo.com.

Sunday, April 19, 2015

Taking a short break--no post this week

I'm taking a short break this week and expect to post again on Sunday, April 26.

Sunday, April 12, 2015

How the climate change debate got hijacked by the wrong standard of proof

Everyone loves a courtroom drama--especially one that pits a feisty, but a determined criminal defense attorney against the awesome power of a prosecutor who has the resources of the state behind him or her. We see such David and Goliath stories every week on television.

We cheer as the defense attorney pokes one hole after another in the case of the prosecutor, raising what the audience now perceives as reasonable doubt. But will the jury see it that way? We'll return after these messages....

This is just the sort of metaphorical setting into which the climate change denial lobby is trying to place the debate over climate change without the public or even most policymakers realizing it. The deniers in the fossil fuel industry and elsewhere are attempting by sleight-of-hand to get both the public and policymakers to abandon the preponderance of evidence standard used primarily in civil trials--and which is similar to evidence-based public policymaking--in favor of another judicial standard designed for criminal trials, namely, beyond a reasonable doubt.

So long as the deniers get to claim the role of defense attorney in this public fight, their task will be much easier. The reason that the deniers want to change the standard of proof, of course, is because climate scientists have already shown through an overwhelming preponderance of evidence that human activities are a major cause of climate change. The deniers have no hope of winning the intellectual argument if this standard of proof is used.

Drawing from tactics permitted to defense attorneys in criminal proceedings, the deniers are freed from the need for consistency, clarity or comprehensiveness. Instead, they pursue several lines of contradictory rebuttal in hopes that one or more will stick since they believe they need only to poke holes in climate science to win. The deniers as defendants are not called upon to offer their own coherent theory of climate change. That's why they simultaneously claim that there is no global warming, that global warming is caused by nonhuman forces, and that global warming is good even if it is caused by human activities.

Some people wrongly treat the fossil fuel industry and carbon dioxide itself as if they are both somehow involved in a quasi-criminal proceeding. They think any one piece of evidence--even in isolation--that might suggest, however tenuously, that neither is implicated in climate change leads to reasonable doubt and a verdict of not guilty.

But, this kind of criminal trial thinking is not relevant to public policy deliberations. It is based on longstanding jurisprudence as expressed by the great English jurist William Blackstone who said: "It is better that ten guilty persons escape than that one innocent suffer." The principle at stake is that the freedom of the innocent is so precious that society should make every effort to ensure that no one is wrongly deprived of his or her personal liberty--even if it means that the courts are skewed toward letting some guilty defendants go free. But neither fossil fuel corporations nor carbon dioxide are actual living individuals, and so no one is going to be deprived of his or her personal liberty--that is, be imprisoned--by greenhouse gas emission regulations.

Probably the single most important question one can ask about this move by the deniers is whether they would accept the role of the prosecution. That would oblige them to offer an internally consistent theory of climate change supported by bona fide scientific evidence which somehow explains away all the evidence for human involvement in climate change.

As defendants in this hypothetical turnabout, climate scientists would only need to poke one or two holes in such a theory to prevail and win the case for the regulation of greenhouse gases. (This would roughly be the equivalent of the precautionary principle in action.) You can be assured the deniers only want to play the role of the defense in this faux courtroom drama. This is because they simply cannot marshal a winning prosecutorial case with the meager evidence they have and a story that is all over the map and riddled with holes.

There are only a tiny number of bona fide climate scientists who still say that the evidence is inconclusive concerning human contributions to climate change. There are none--so far as I know zero--who say that climate science PROVES that humans are NOT causing climate change--which would imply that these skeptics have a comprehensive, evidence-based theory of climate change which does not merely suggest nonhuman causes (which are already accepted by climate science), but which successfully refutes the enormous and growing evidence for human activities as a major cause.

Climate change deniers would like the public to believe that regulating greenhouse gas emissions should only be undertaken when we are 100 percent certain of their role in global warming. But anyone familiar with public policy knows that such regulatory policies are never undertaken with anything approaching 100 percent certainty--though the role of greenhouse gases in causing climate change comes closer to a 100 percent certainty than perhaps any previous scientific finding used to justify public policy action.

Where uncertainty remains concerning the possible consequences of climate change, that uncertainty--far from supporting inertia--actually cries out for significant and aggressive action in an effort to avert possible catastrophe. If the future of climate change meant merely that we all risked getting a hangnail, perhaps waiting would be an option. However, the history of climate change shows that we have consistently underestimated its pace and consequences. The changes already apparent and which climate change models forecast suggest that we are risking nothing short of the stability and even survival of modern civilization if we do not act now. To wait would be akin to a cruise line deciding that lifeboats for its vessels will only be ordered when a ship starts sinking.

And, now back to our program (mentioned at the beginning)....We return to the courtroom, but it turns out to be a courtroom of the future. As the planet burns outside, the prosecution is asking for the imprisonment of scores of defendants who denied the dangers of climate change and delayed effective responses to it. These defendants are charged with crimes against humanity.

In this case the proper standard for a guilty verdict is "beyond a reasonable doubt" because the personal liberty of each defendant is at stake. The prosecution tries to prove that the climate change deniers knew they were lying to the public about climate science and understood that the future consequences of climate change might be severe, even catastrophic, but acted with reckless disregard for the safety of humanity.

The jury is not convinced "beyond a reasonable doubt" and frees all of the defendants. As the now freed defendants leave the courtroom, they thank their lucky stars that the court could not invoke the preponderance of evidence standard--a standard that would likely have landed them all in prison.

Kurt Cobb is an author, speaker, and columnist focusing on energy and the environment. He is a regular contributor to the Energy Voices section of The Christian Science Monitor and author of the peak-oil-themed novel Prelude. In addition, he has written columns for the Paris-based science news site Scitizen, and his work has been featured on Energy Bulletin (now Resilience.org), The Oil Drum, OilPrice.com, Econ Matters, Peak Oil Review, 321energy, Common Dreams, Le Monde Diplomatique and many other sites. He maintains a blog called Resource Insights and can be contacted at kurtcobb2001@yahoo.com.

Sunday, April 05, 2015

The hidden reasons behind slow economic growth: Declining EROI, constrained net energy

It should seem obvious that it takes energy to get energy. And, when it takes more energy to get the energy we want, this usually spells higher prices since the energy inputs used cost more. Under such circumstances there is less energy left over for the rest of society to use, that is, for the non-energy gathering parts--the industrial, commercial and residential consumers of energy--than would otherwise be the case.

It shouldn't be surprising then that as fossil fuels, which provide more than 80 percent of the power modern society uses, become more energy intensive to extract and refine, there is a growing drag on economic activity as more and more of the economy's resources are devoted simply to getting the energy we want.

A more formal way of talking about this is Energy Return on Investment or EROI. The "energy return" is the energy we get for a particular "investment" of a unit of energy. The higher the EROI of an energy source, the cheaper it will be in both energy and financial terms--and the more energy that will be left over for the rest of society to use.

But we've seen a persistent decline in the EROI of U.S. oil and natural gas in the past century, a trend that is likely to be reflected elsewhere in the world as well. Here's a summary from the abstract of a 2011 study:

We found two general patterns in the relation of energy gains compared to energy costs: a gradual secular decrease in EROI and an inverse relation to drilling effort. EROI for finding oil and gas decreased exponentially from 1200:1 in 1919 to 5:1 in 2007. The EROI for production of the oil and gas industry was about 20:1 from 1919 to 1972, declined to about 8:1 in 1982 when peak drilling occurred, recovered to about 17:1 from 1986–2002 and declined sharply to about 11:1 in the mid to late 2000s. The slowly declining secular trend has been partly masked by changing effort: the lower the intensity of drilling, the higher the EROI compared to the secular trend. Fuel consumption within the oil and gas industry grew continuously from 1919 through the early 1980s, declined in the mid-1990s, and has increased recently, not surprisingly linked to the increased cost of finding and extracting oil.

We rarely think of the energy it takes to get the energy we need because the processes are hidden from most of us. For example, when we drill for oil, there is energy expended to build the rigs, make the pipes, move and deliver them, drill the well, complete the well and pump the oil. The people involved all require energy in the form of food to live and tools and transportation to do their work. The oil is then transported by pipeline or tanker to refineries which use yet more energy to make the final products such as the diesel and gasoline we use. These products are transported to distributors and finally to retail service stations or large end users. This list is actually cursory, but it illustrates the scope of the activities involved.

A similar series of energy expenditures could be adduced for natural gas, coal, uranium, biofuels, solar power, wind and, in fact, any energy source available to us.

The methods for assessing energy consumed in obtaining energy are not universally consistent. But no matter what methods are used, they point to one fact, fossil fuel EROI including coal has been declining. This is entirely consistent with the observation that we have extracted the easy-to-get resources first and are now going after oil and natural gas deposits that are progressively more difficult to extract--in deep shale deposits requiring extensive hydraulic fracturing or fracking, in deep ocean waters and in the Arctic. For coal this is reflected in the declining heat value per unit of coal that is now being mined.

So, if EROI has generally been declining for decades, why has the economy grown consistently? The answer comes from one more piece of the puzzle: net energy. Net energy is the energy left over for the rest of society after we expend the necessary energy to extract, refine and deliver it. That sounds like EROI, but it is an absolute number, not a ratio.

It turns out that we have greatly expanded the gross amount of energy we are extracting from all sources in the past century. This vast increase in gross extractions of energy has masked falling EROI by giving us consistently more net energy for society.

However, the growth in net energy appears to have slowed while EROI of fossil fuels continues to fall. That has led to greater competition for the available net energy and a general rise in fossil fuel prices from 2000 onward. There have been fluctuations, sometimes violent ones, tied to the so-called Great Recession of 2008 and 2009 and to the softening of the world economy in the past year which led to steep declines in oil prices (something which may be telling us there is another recession in the offing).

If the composition of our energy resources weren't so skewed toward finite fossil fuels which supply more than 80 percent of all energy to human society, then the question of net energy might be less important. The vast amount of solar energy available on the Earth's surface might be available to us with a relatively low EROI, but the gross amount available is orders of magnitude greater than the amount we are using today. As solar becomes a larger and larger part of world energy production and as the technology becomes more efficient at converting sunlight to useable energy, we may see the EROI of our total energy mix turn up.

But it's doubtful that solar and other renewable alternatives can make up for the vast energy contribution of fossil fuels anytime soon. This means that we may be facing a secular slowdown in net energy growth or even stagnation or decline in the net energy available to society. As our major energy sources, fossil fuels, continue their downward EROI trajectory, it is getting harder and harder for gross extractions to compensate.

This suggests that the net energy available to society might actually peak and decline even as gross energy extractions continue rising. No doubt many experts will cite the rising trend as reason not to be concerned about energy supplies--even though, on a net basis, energy available to society might actually be shrinking.

Kurt Cobb is an author, speaker, and columnist focusing on energy and the environment. He is a regular contributor to the Energy Voices section of The Christian Science Monitor and author of the peak-oil-themed novel Prelude. In addition, he has written columns for the Paris-based science news site Scitizen, and his work has been featured on Energy Bulletin (now Resilience.org), The Oil Drum, OilPrice.com, Econ Matters, Peak Oil Review, 321energy, Common Dreams, Le Monde Diplomatique and many other sites. He maintains a blog called Resource Insights and can be contacted at kurtcobb2001@yahoo.com.