This article is the first release from Chapter 5 of Richard Heinberg's new book 'The End of Growth', which is set for publication by New Society Publishers in September 2011. This chapter looks in greater depth at the prospects for the developing economies of Asia.
Access previous chapters here.
Chapter 5, Part 1 - China's Unsustainable Energy Economy
. . . [C]ommerce is but a means to an end, the diffusion of civilization and wealth. To allow commerce to proceed until the source of civilization is weakened and overturned is like killing the goose to get the golden egg. Is the immediate creation of material wealth to be our only object? Have we not hereditary possessions in our just laws, our free and nobly developed constitution, our rich literature and philosophy, incomparably above material wealth, and which we are beyond all things bound to maintain, improve, and hand down in safety? And do we accomplish this duty in encouraging a growth of industry which must prove unstable, and perhaps involve all things in its fall?
—William Stanley Jevons (economist, 1865)
Is the central assertion of this book—that world economic growth is over—already disproved? How else to explain China’s continued exuberant expansion, or signs of recovery in the U.S. in 2010?
As stated in the Introduction, I am asserting that real, aggregate, averaged growth is essentially finished, though we may still see an occasional quarter or year of GDP growth relative to the previous quarter or year, and will still see residual growth in some nations or regions. The point can be summarized in a single sentence, but it bears reiterating and unpacking because there are several kinds of relative growth, and the competitive pursuit of advantage within a global economy that, overall, is shrinking rather than growing will powerfully shape political, geopolitical, and social developments for the next few decades.
In this chapter we will explore the growth prospects of the Asian economies. We will also examine the dynamics of currency wars. And we will see how rich and poor countries, and demographic sectors within those countries, are likely to fare in post-growth economy, and how increasing competition for depleting resources may drive nations toward conflict.
The best place to start this survey of prospects for short-to-medium-term relative growth is with China, which not only exemplifies rapid residual economic growth, but also points the way to how currency and resource rivalries, as well as old/young, rich/poor, urban/rural divisions might play out as the global economy contracts.
The China Bubble
If one were looking for a single arguing point against the idea that world economic growth is ending, China would almost certainly be the best choice. New Chinese cities are springing up in mere months. A stop-motion video posted on the Internet last year showed a 15-story hotel being built in six days. A new coal power plant opens, on average, every four days. Twenty million Chinese move from the countryside to cities each year. Because city dwellers contribute 20 times as much per capita to GDP, urbanization alone accounts for half or more of China’s 10 percent annual GDP growth. China is building highways faster than any other nation, and its motorists are now buying around 13 million automobiles per year, versus 11 million annually in the U.S.—which had been the world’s largest market for cars since the days of the Model T. It’s all happening blindingly fast. Indeed, in both its scale and speed, the expansion of the Chinese economy is unprecedented in world history.
But how long can this go on? Will China escape the economic fate of older industrial nations, or is it poised for its own encounter with growth limits? There are four reasons for thinking current trends cannot be sustained.
1. Resource Depletion and Resource Competition: The Story of China’s Coal
China’s appetite for resources and raw materials is driving up worldwide prices of a wide range of commodities including oil, iron, copper, cotton, cement, and soybeans. But for the Chinese economy, perhaps the single most important resource is coal. Indeed, it may not be an oversimplification to say that the fate of China’s economy rests on its ability to maintain growth in coal supplies.
China relies on coal for 80 percent of its electricity and 70 percent of its total energy; coal also supports China’s steel industry, the world’s largest. Altogether, China is one of the most coal-dependent nations in the world. In order to become the world’s second-largest economy, it has had to more than double its coal consumption over the past decade, so that it is now using nearly half of all coal consumed globally, and over three times as much as is consumed in the next nation in line, the U.S. (which prides itself on being “the Saudi Arabia of coal”).
As China energy expert David Fridley and I argued in a recent op-ed in Nature, while China claims it has enough coal to fuel continued economic growth, that claim is questionable.
The nation has recently updated its proven coal reserves to 187 billion metric tons, putting it second in line after the U.S. in terms of supplies. That would be about 62 years’ worth of coal at 2009 rates of consumption (over three billion tons per year). But this simple “lifetime” calculation is highly misleading.
Reserves lifetime figures are calculated on the basis of flat demand and lose meaning if demand grows over time. China’s coal consumption is accelerating rapidly, so that the expected “62 years’ worth” must be adjusted downward. Demand forecasts from China’s Energy Research Institute would reduce the reserves lifetime to about 33 years; but if coal demand were to grow in step with projected Chinese economic growth, the reserves lifetime would drop to just 19 years.
Yet this still doesn’t capture the situation. Production will peak and decline long before China’s coal completely runs out. Further, as with oil production, coal mining proceeds on the basis of the “best-first” or “low-hanging fruit” principle, so we must assume that China is extracting its highest-quality, easiest-accessed coal now, leaving the lower-quality and more expensively mined coal for later. Unlike the U.S., China does not have vast deposits of surface-minable coal; over 90 percent of China’s coal comes from underground mines up to 1,000 meters in depth, and those mines face increasing engineering challenges.
Hubbert analysis, which has been used to forecast oil production peaks, can also be applied to forecasting future coal supplies. In 2007, Chinese academics Tao and Li forecast that China’s coal production will peak and start to decline perhaps as early as 2025. Other forecasts are more pessimistic. A 2007 analysis by the Energy Watch Group of Germany forecast a peak of production in 2015 with a rapid production decline commencing in 2020. And a 2010 study by Patzek and Croft forecast the peak of world coal production for this year (2011); they see China’s coal peak also occurring essentially now.
China has few options for reducing its reliance on coal, since the fuel is used in so many ways. In addition to powering the electricity and steel sectors, coal provides winter heat to hundreds of millions of northern Chinese; it is also used in the cement, non-ferrous metals, and chemicals industries. While China is rapidly expanding its supply of natural gas,to replace just the coal used for heating would double total gas consumption.
China is quickly developing alternative energy sources. But can these be brought on line fast enough to make a difference? Let’s do some numbers. China aims to have 100 gigawatts (GW) of wind power capacity by 2020, and the nation’s leaders plan to expand installed solar capacity to 20 GW during the same period. These are truly astonishing goals, and, if China even comes close to accomplishing them, it will become the world’s renewable energy leader. But there is a problem. Total Chinese electricity generation capacity is 900 GW currently; with seven percent growth, that means the nation’s electricity demand in 2020 will be something like 1800 GW. Wind and solar together would supply less than seven percent of that. The only thing likely to boost that percentage much would be a dramatic reduction in growth of energy demand to, say, two percent annually.
The situation with nuclear power is similar: China has 11 atomic power plants now and is in the process of building 20 more, with a target of 60 GW of generating capacity, or possibly more, by 2020. But this will supply only between three and five percent of total electricity demand, depending on energy demand growth rates. In late 2010, energy policy makers in Beijing evidently began to take notice of the looming electricity supply problem, and rumors circulated of new efforts to construct up to 245 new nuclear plants over the next two decades (the U.S. has only 104 in total). If this new target is real, and if the Chinese succeed in achieving it, a large fraction of new electricity demand for the coming years could be met through sources other than coal—but China would still have an enormous (though more slowly growing) coal dependence to feed. Meanwhile, China’s soaring demand for uranium would push up global prices for this energy mineral.
In 2009 China was a substantial net importer of coal, having been a net exporter every year through 2008. China could import more coal to enable further growth, but the biggest exporters of coal—Australia, Indonesia, and South Africa—have much smaller reserves and production rates. The entire seaborne trade in steam coal (mainly used by power plants) currently amounts to only 630 million tons per year, and China could absorb this much with only three years of continued growth in coal demand. That’s not going to happen, though: Other nations need that export coal, too—including India, also a major coal-based economy, and also a country needing to import increasing amounts of fuel.
The conclusion is unsettling but inescapable: China’s reliance on coal cannot be significantly reduced as long as its demand for electrical power continues to grow at anything like current rates. And even if energy demand growth tapers off and alternative energy sources come on line quickly, the country’s ability to supply enough coal domestically will still be challenged. This will drive up coal prices worldwide, while choking off economic growth at home. China’s energy economy is unsustainable and will cease growing in the foreseeable future, impacting many other nations as it does so.