Economic Growth Driving Higher Emissions

Growth in carbon dioxide (CO2) emissions from fossil fuel burning and industrial
processes has lifted markedly in the early twenty first century. These emissions grew at only 1.1 per cent a year on average from 1990 to 1999.

They increased at 3.1 per cent per year from 2000 to 2006. This increase occurred
despite the dampening effect of extraordinarily large increases in petroleum prices,
and through short-term cross-substitution, prices of other fossil fuels. Global emissions from combustion of fossil fuels accelerated sharply from around
2000. Since 2000 actual emissions have grown significantly faster than one of the
high-growth SRES scenarios (A1FI) and about as fast as a second, A1B, which has
the fastest short-term growth of all SRES scenarios (Figure 2).

Global emissions are likely to continue growing rapidly in the absence of effective
mitigation measures. Global economic growth, the energy intensity of growth, and
the carbon intensity of energy in the early twenty first century have all been exceeding expectations that had been built into the most influential assessments of
climate change.

Over recent years, average annual global economic growth has been around five
per cent (using purchasing power parities (PPPs), as one should15, rather than
market exchange rates (MERs)). This is much higher than in the last quarter of the
twentieth century.

This accelerated expansion has been led by growth rates of ten to twelve per cent in
China and eight to nine per cent in India. The evidence is accumulating that these
high average growth rates of the early twenty-first century are not temporary
phenomena. In China, there are reasonable prospects for growth rates in the vicinity
of ten percent per annum—higher still for a while—to continue for some time, and
for high growth to continue until average Chinese productivity levels and living
standards are approaching the range of developed countries in the late 2020s
(Garnaut and Huang, 2007; Garnaut, 2007a). In India, the new, higher growth
trajectory is soundly based, and has strong momentum.

Global GDP growth at market rates has averaged 3.6 per cent for the last five years,
compared to the A1FI scenario growth rate for the first decade of the twenty-first
century of 3.3 per cent16. Global growth will accelerate in coming decades as the
economic weight of the rapidly growing developing countries increases, at least in
line with the modest increases foreseen by A1FI, perhaps more.

Second, the IPCC scenarios presume continued reductions in the energy intensity of
global growth along the lines of the late 20th century. This perspective would have
been strongly influenced by perceptions of developments in China. The energy
intensity of Chinese growth fell markedly through the first two decades of Chinese
reforms in the 1980s and 1990s, when price reform and the dismantling of central
planning led to large one-off gains. However, energy intensity of Chinese growth in
the twenty-first century has been far higher than in the 1990s. The more recent
tendency for energy intensity to increase is in line with the experience of most
countries at similar levels of development.

Energy intensity of global GDP fell by just 0.2 per cent per year from 2000-2005,
compared to 1.4 per cent during the 1990s. In the SRES A1FI scenario, energy
intensity is assumed to fall by 0.8 per cent per year from 2000-2010, with higher
reduction rates after 2010.

The fossil fuels of oil, gas and coal currently dominate the global energy mix. While
increasing demand and limitations on expansion of production have lifted oil prices
to exceptional levels and seem likely to keep them high, there is no similar scarcity
constraint on coal, and total fossil fuel consumption could continue to increase
rapidly for many decades to come. There is no necessary reason why the relationship between fossil fuel emissions and economic growth will change markedly and favourably without effective policy interventions. Technology for carbon capture and storage, if and when it becomes commercially available, would carry significant additional investment and operating costs and so will only be deployed under mitigation policies.

The recent effects of higher oil prices are instructive. Two highly emissions-intensive
alternatives – coal and synthetic liquid hydro-carbons (derived from coal, tar sands,
shale or natural gas) – are expanding their roles in the major developing countries
and in much of the world more rapidly than the lower-emission alternatives.
Globally, the emissions intensity of total energy supply increased by 0.4 per cent per
year from 2000-2005, compared to a reduction of 0.2 per cent per year over the
previous decade. The A1FI scenario assumes an annual reduction of 0.2 per cent
from 2000-2010, and the same to 2030.

Initial analysis carried out for the Review suggests the likelihood, under business as
usual, of continued growth of emissions in excess of the highest IPCC scenarios.
Figure 3 shows that assuming more realistic growth and energy intensity for China
and India alone produces higher projected global emissions from fuel combustion
than even the most pessimistic of the IPCC scenarios out to 2030 (Sheehan et al.,
2007).

Notes:

• The comparison between SRES and actual emissions shows the overestimation of emissions by the SRES scenarios during the 1990s, and the sharp increase in actual emissions after 2000. The updated projection suggests how emissions would greatly exceed the highest of the SRES scenarios if current trends continue.
• A1FI and A1B are high-emissions-growth scenarios, while B1 is a widely-used low-emissions-growth scenario.
• Emissions shown are CO2 sourced from fossil fuel combustion and cement only – emissions from land use change are not included.
• ‘Actual’ combustion emissions data is sourced from International Energy Agency to 2005. 2006 data (shown in grey) is from the Netherlands Environmental Assessment Authority, 2007, based on estimates from BP energy data for consumption of coal, oil products and natural gas. Cement data to 2004 is sourced from Carbon Dioxide Information Analysis Centre (Marland et al., 2007), with projections included for 2005 and 2006 data. Emissions from cement represent around 3-4 per cent of the total.
• The updated projections from Sheehan et al. (2007)17, reflect the implications on global emissions projections of what are judged to be realistic growth and emission intensity trends in China and India (between 7.5 and ten per cent per year). Global projections are made by Sheehan et al. (2007) with historic emissions (to 2003) from the IEA.

Source: GARNAUT CLIMATE CHANGE REVIEW, INTERIM REPORT TO THE
COMMONWEALTH, STATE AND TERRITORY GOVERNMENTS OF AUSTRALIA, February 2008.