Energy Usage vs. GDP in the Context of Climate Change.

Introduction

Fig. 1: Energy use per capita vs GDP per capita for 77 countries and territories in 2021. (Data from Table 1.) (Image Source: A. Bonnet)

Economic development has often been intertwined with energy consumption, with access to energy considered as a basis of societal well-being and prosperity. Since the Industrial Revolution, economic growth was accompanied by surging energy demand, mainly driven by fossil fuels. However, this growth poses significant challenges in the context of the global climate crisis, raising the question of whether economic growth can continue sustainably while mitigating environmental damage. This report investigates the relationship between energy consumption and economic development, and assesses the feasibility of fostering sustainable economic growth that aligns with global climate goals.

Choice of Metrics

Before starting the analysis, it is important to explain the choice of metrics used in this study. This report focuses on measuring economic development, represented by Gross Domestic Product (GDP) per capita, instead of human development, to assess the well-being of a population. Human development indices, such as the Human Development Index (HDI), aim to broaden the concept of development by incorporating non-economic dimensions of well-being. However, these indices include arbitrary metrics that are difficult to assess. Conversely, GDP per capita has a relatively widely understood definition. While GDP does not capture every aspect of well-being, its simplicity makes it an excellent choice for the scope of this analysis. Ideally, metrics should be selected to achieve clearly defined goals, however these considerations are beyond the scope of this report. [1] Similarly, CO₂ emissions per capita will be used to measure environmental impact, as opposed to metrics like CO₂-equivalent emissions per capita. The use of CO₂ emissions ensures simplicity and aligns with the focus of this report.

Energy Consumption and Economic Development

Fig. 2: CO2 emissions vs GDP per capita for 77 countries and territories in 2021. (data from Table 1) (Image Source: A. Bonnet)

Fig. 1 illustrates the relationship between energy consumption per capita and GDP per capita for 77 countries and territories around the world in 2021 (listed in Table 1). A clear positive correlation can be observed: nations with higher GDP per capita have higher energy consumption per person. For example, the United States and China had a GDP per capita of 69233 USD and 12237 USD, and an energy use per capita of 279.9 GJ and 109.1 GJ respectively in 2021. [2,3] This is not surprising as energy is a critical input for industrial processes that transform natural resources into goods and services, as well as for transportation systems that distribute these outputs. Every country follows a similar trend. The relationships between energy use and economic activity observed over 24 years (from 1980 to 2003) across 220 nations can be expressed empirically as E∝G^0.76 (energy use per capita is proportional to the 0.76th power of GDP per capita). [4] This concave relationship indicates that energy consumption associated with economic activity grows slower as economies develop. Wealthier countries tend to use energy more efficiently on a per capita basis through economies of scale and technological advancements. [4] Nevertheless, there exist significant variations from this general trend. For example, countries with similar GDP may differ in energy consumption. Those with abundant energy resources and smaller populations, such as Oman, United Arab Emirates, Qatar, and Iceland, often consume disproportionately more energy relative to their GDP, which reflects the availability of fossil energy sources or unique geographical advantages of these countries. Overall, there is a strong correlation between energy consumption and economic development. Furthermore, causal relationships have been established in seven countries. [5]

CO₂ Emissions and Economic Development

Fig. 3: CO2 emissions vs Energy use per capita for 77 countries and territories in 2021. (data from Table 1) (Image Source: A. Bonnet)

Fig. 2 shows a strong positive correlation between CO₂ emissions and GDP. This can be attributed to the even stronger positive correlation observed between CO₂ emissions and energy consumption as shown in Fig. 3. This relationship arises from the fact that the energy mix of most economies still heavily rely on carbon emitting sources. In 2021, 82.3% of energy consumed in the world still originate from fossil fuels (184.21 EJ from oil, 145.35 EJ from natural gas, 160.10 EJ from coal out of 595.15 EJ in total). [2] As a result, increases in energy consumption are tied to increases in CO₂ emissions, linking economic growth to higher carbon output. A clear example is China, the second biggest economy and biggest CO₂ emitter, consumed more coal in 2021 (86.17 EJ) than all other country combined. [2] However, the carbon intensity of GDP varies significantly between nations. Wealthy nations that consume disproportionately more energy relative to their GDP are very carbon intensive if their energy consumption is dominated by fossil fuels, such as oil-producing nations like Qatar (most carbon intensive nation listed in Table 1) and Kuwait, as well as fossil fuel import dependent nations like Singapore (second most carbon intensive nation listed in Table 1). For example, fossil fuels represent more than 99% of Singapore's energy mix (0.01 EJ from renewables, none from nuclear and hydropower). [2] Conversely, wealthy nations with high energy consumption can achieve low carbon intensity if energy is consumed mainly from non-CO₂ emitting sources, like Iceland and Norway. For example, 72.2% of Norway's energy consumption came from non-CO₂ emitting sources (1.35 EJ from hydropower and 0.13 EJ from renewables) in 2021. [2]

A positive relationship between economic development and CO₂ emissions is clearly established. However, proving a causal relationship is much more difficult. Economic development increases both the supply and demand of environmental regulation: governments gain greater capacity to enforce regulations, while wealthier citizens are more likely to prioritize a healthy environment. [6] Furthermore, development does not have a uniform effect on the environment. Manufacturing-led economic growth, common in developing nations, can increase air pollution, whereas the expansion of the service sector, common in developed nations, may not have the same impact. [6] The previously strong relationship may be weakening. 11 among the 14 countries listed in Table 2 experience higher GDP growth rates than CO₂ emissions growth rates between 2011 and 2021, notably 6 out of 7 developed countries in Table 2 achieved economic growth while reducing CO₂ emissions. This decoupling is primarily driven by rapid advancements in clean energy investment; all forecast growth in global electricity demand through 2026 is expected to be met by low-emissions sources. [7]

Decoupling or Degrowth

In the 1970s, the Club of Rome warned about the effects of exponential economic growth, igniting a debate on its environmental impact. [8] Two sides have emerged from this debate: those who believe that economic growth can coexist with environmental limitations and those who argue that growth is fundamentally incompatible with them. Supporters of economic growth believe that it can benefit the environment by driving technological innovation and enabling the implementation of effective environmental policies. [8] They believe that growth does not necessarily require increased resource consumption or higher greenhouse gas emissions. Instead, sustainable growth can be achieved with advancements in energy efficiency and the adoption of low-carbon energy sources. It enables the decoupling of growth from environmental degradation. Critics of growth argue that growth harms the environment due to its reliance on increased physical output and advocate for policies that prioritize the environment, even if it reduces growth. [8] This is the concept of degrowth, considered as an alternative to decoupling. According to Hickel, "degrowth is a planned reduction of energy and resource use designed to bring the economy back into balance with the living world in a way that reduces inequality and improves human well-being". [9] Growth is constrained by laws of thermodynamics: the transformation of energy and materials into goods and services produces waste due to entropy. If economic growth is linked to energy use, it will eventually be limited by thermodynamics. [8] For example, biofuels can help to reduce CO₂ emissions while destroying ecosystems. [10]

Conclusion: Bridging Poverty and Climate Action

Reducing global poverty and addressing climate change are two of the most pressing challenges facing humanity today. However, these issues are deeply linked: global warming has increased the economic inequality between the world's richest and poorest nations by an estimated 25% compared to a scenario without climate change. [11] While sustainability has become a mainstream concern in developed countries, it often appears disconnected from the immediate priorities of developing nations, who suffer the most from the consequences of climate change. To address both issues, developed nations must increase their investments in clean energy initiatives in developing economies. [12,13] Disappointingly, the COP29 summit, which ended two weeks ago, failed to make meaningful progress on the financial commitments needed to support developing countries in their climate action efforts. [14] Addressing these crises demands unprecedented global cooperation, with wealthier nations leading climate action and promoting sustainable economic growth.

© Alexandre Bonnet. The author warrants that the work is the author's own and that Stanford University provided no input other than typesetting and referencing guidelines. The author grants permission to copy, distribute and display this work in unaltered form, with attribution to the author, for noncommercial purposes only. All other rights, including commercial rights, are reserved to the author.

References

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