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: Low-Carbon Technologies in Global Energy Markets

Yorcim Krozer

Introduction

Do economies shift to low-carbon technologies? This question is discussed in terms of modem renewable energy based on geothermal, solar and wind resources in energy production which competes with fossil fuels (coal, oil, gas and nuclear) and traditional renewable energy (biomass and hydro). Justification of this focus is that modem renewable energy is infinite, nearly carbon-free throughout the life cycle, and it can be applied virtually all over Earth and in space on a mega-scale and individually. Applications of low-carbon technologies are comprehended as innovations and adaptations that enable nearly pollutiou- ffee energy consumption without large infrastructure but the production is variable in time, needs much space, and it can degrade nature and landscape.

These innovations were introduced in the 1970s, when activists were campaigning for self-reliance and pollution prevention, while businesses pursued stand-alone products in remote areas on demands of authorities; the societal perspectives on low-carbon technologies still differ. These applications grew fast when the international prices of fossil fuels increased din ing the periods from 1979 to 1986 and from 2005 to 2015. These prices in real US dollars of2005 (US$,005) increased from US$1005 20-30 to USS,005 60-100 per barrel oil equivalent (b.o.e.). Dining high prices, policies supported low-carbon technologies with subsidies and taxes in a few countries, particularly much in the United States of America (USA), Europe Union (EU) and Japan (Haas et ah, 2011). However, the policy support for low-carbon technologies was several times smaller than the support for fossil fuels (EEA, 2004: IEAOEGCD. 2019). As the applications of low carbon technologies expanded, many adaptations entailing lower costs per energy unit in time, referred to as the cost-reducing technological change or technological learning, were introduced. The unit costs decreased faster than the unit costs of other energy technologies, whilst the unit cost of nuclear power increased (Rubin et ah, 2015). The applications of low-carbon technologies, however, remained costly in many countries, when assessed based on standardized variables for investments and operations, called levelized costs of technologies (Levelized costs, 2019). Opinions about the future growth of low carbon technologies differ because fast dissemination due to the decreasing unit costs (Deng et ah, 2012) and social initiatives in renewable energy (Sovacool, 2016) is obstructed by persistent energy systems (Griibler et ah, 2016) and vested interests in energy markets (Fouquet. 2016).

Energy resources evolve toward lower carbon density quasi-autonomously; it is hypothesized, because more hydrogen and electrons per resource mass deliver higher energy performance (Herman et al., 1989). It is argued that high-carbon energy resources be substituted for lower carbon ones: Biomass and peat for fossil fuels based on coal, then oil and natural gas, as well as from low electron-density hydropower to high electron-density nuclear power, which is followed by geothermal, wind and solar energy (Grubler and Nakicenovic, 1996). Note that biomass absorbs carbon dioxide (CO,) from air when plants gr ow but as an energy resource it is more carbon-dense than coal. This hypothesis is referred to as the decarbonizatiou of energy resources.

Another explanation of the shifts in energy resources refers to the “value added” of energy services; value added is income from sales of products minus costs of material purchases. In general, value added is generated when producers deliver novel qualities that are perceived as beneficial by consumers in businesses and households despite being costlier than the vested alternatives (Lancaster, 1966). Advances in energy sendees can deliver valuable qualities to consumers, such as refined fuels for high temperature combustion, electricity on grid for ah conditioning, power off-grid for mobile applications and others. Applications of low-carbon technologies are costly but can be used in remote areas and stand-alone systems. They are also valued because they prevent pollution and are enable to generate income in communities. When the value added of energy sendees increase over several years, it is called the valorization of energy sendees. This viewpoint challenges the ideas that the countries' incomes grow mainly due to more cost-effective energy use (Ayres and Voudouris, 2014) or cheaper energy resources (Beaudreau and Liglitfoot, 2015); cheap energy is important for basic industries and other energy- intensive activities but hardly relevant in sendees and energy-extensive businesses when compared to labor, capital and knowledge.

In this chapter, the question of whether the decarbonizatiou and valorization can be observed as the global trends in energy markets is discussed. A trend is defined as annual average growth during 10 years or longer and the energy markets as transformations of energy resources starting from winning of the resources downstream, through processing into energy sendees for consumption in households and businesses. Based on a literature review (Krozer, 2017) and assessment of the value added in energy markets (Krozer, 2019), it is estimated whether those trends converge or diverge across countries, because converging trends are easier to manage in international policies, e.g.. the policies on climate change. Changes from 1990 to 2015 are divided into the periods of low oil prices din ing 1990-2004 and high oil prices during 2005-2015; oil price is the conventional benchmark of all fuel prices (Energy expenditures,

2017). The period of high prices coincides with the financial crisis in 2008 and economic depression is several countries, as well as larger policy support for renewable energy and policies aiming to reduce carbon dioxide emissions (CO, emission), which is the largest mass of greenhouse gas that causes climate change. These periods indicate when conditions for low-carbon technologies were unfavorable and favorable, respectively.

Statistical data on income, energy consumption, energy resources, and CO, emissions are used. All countries above 100 million people in 2017 are considered, the European Union of 28 member countries (EU) as if it is one country. In order of purchase power (GDP-PPP), i.e., income for typical consumer purchases after inflation collection, those countries are: USA, Japan, and the EU, considered high income: Russian Federation (Russia), Mexico. Brazil, China, Indonesia, Philippines and India, considered mid income; Nigeria, Pakistan. Bangladesh and Ethiopia, considered low income. These countries together covered in 2015 about 70% of the global population, 78% of the global GDP, 65% of all energy production, 72% of the energy consumption, 76% of the electricity consumption, as well as 88% of the coal supplies, 63% of oil, 64% of gas, 83% of nuclear, 71% of biofuels, 66% of hydropower, 84% of applications of low-carbon technologies, and 73% of all CO, emissions. Trends in those countries indicate the global trends.

Solely authoritative, open sources databases are used in order to avoid opinions and private databases that can be biased by particular interests. Data on GDP-PPP. energy consumption and CO, are derived from the World Bank database and data on the energy resources are based on the International Energy Agency (IEA) database because they are absent in the World Bank data. It is given that the CO, emissions are not measured in the ah but estimated with emission factors per resource after collection for absorption. The following factors are used based on IEA data: 3.80 ton CO, per ton coal. 2.53 per ton oil and 2.16 per ton oil equivalent of gas (IEA. 2017). Comparison of the World Bank and IEA data is also made. While the growth rates based on World Bank data are annual averages, the IEA data are annual averages per 5 years. The diverging or converging trends across countries are assessed based on the global growth rates and standard deviation of the growth rates across countries per period. A diverging trend is assumed when the standard deviation across countries is larger than the global growth rate and the converging trend when the standard deviation is smaller than that global growth rate. All regressions are Pearson correlation across fourteen countries and the world (n = 15).

After this introduction, the economic context of energy consumption is discussed. Thereafter, the decarbonization trend and the role of low-carbon technologies in it are presented. This is followed by discussion of the valorization trend. Finally, conclusions are drafted.

Economic Context

Are applications of low-carbon technologies affordable? To answer this question, one must consider the total incomes because a larger income enables more expenditure on those applications. A fairer income distribution is also relevant because more people can spend on energy, which is a basic good, and more people are able to afford low-carbon technologies if they perceived them beneficial. The countries’ income growths and declining income disparities across countries and within countries enable more applications of low-carbon technologies. Herewith, GDP. GDP-PPP and Gini coefficients are used because they indicate the countries' economic output in nominal USS, the purchasing power of citizens and income distribution, respectively. The Gini coefficients show index per 10% income class in a country from 0 to 1; 0 meaning no income difference (all incomes equal) and 1 meaning one class has all income. This indicator is often used though far from perfect because do not cover wealth, consumption patterns, division between wages and capital, the richest few percent and the World Bank data do not cover all countries and only for a few years; however, more complete global statistics are unavailable.

Income for energy

The countries’ economic output, citizens' purchasing power and income distribution in 2015, and growth during 1990-2015, as well as during periods 1990-2004 and 2005-2015 are assessed with the World Bank statistics. The income distribution is shown for the earliest and latest year between 1990 and 2015 because this data is scarce. All results are per capita, based on there being 7.4 billion inhabitants in the world in 2015 and the global population growth of 1.3% annual average throughout 1990-2015 though the growth rates vary from -0.1% in Russia to 3.0% in Ethiopia (note high correlation of income to population across countries: R: = -0.61). Table 1 shows the results.

The nominal average GDP per capita in 2015 w'as about USS 11.000 globally, however, the USS 640 average in Ethiopia was 88 times lower than the USA average. All countries’ GDP grew but the growth rates were usually lower in high-income countries than in mid-income and low-income countries. A global citizen could purchase based on USS,oos 17,000. but a citizen of the USA had a 35-times higher purchasing powers than an Ethiopian with an average of US$,005 1,600. The purchasing power of a global citizen grew fir e-fold from 1990 to 2015 but only twice in high income countries compared to nearly 14 times higher in China, 5 tunes in India and 4 times in Bangladesh and Ethiopia. The growth rates of GDP and purchase power converged across countries from 1990 to 2015; they converged more duiing high fuel prices from 2005 to 2015 than duiing low prices because they decreased in high income countries and increased in all mid and low-income countries, except Mexico. The income disparities within most mid-income countries and the USA (45 to 61 points) were twice as large as in Japan, the EU and low income countries (25 to 35 points), and the disparities decreased in most countries during 2005-2015 except the USA, Pakistan and Bangladesh. Regarding the converging purchase power across countries and larger disparities within the mid-income countries and USA than high- and low-income countries, the conventional division between the developing countries and developed ones hardly holds.

Regarding the grow'th of GDP and purchasing power in all countries, as well as the decreasing income disparities across countries and. within most countries, more people can afford low-carbon technologies.

Bold: higher growth during 2005-2015 than 1990-2004

GDP

GDP-PPP

Gini coefficient

USD nominal/ capita

Average growth

bold: Lower growth rates during high fuel prices

us$2MS/

capita

Average growth

bold: Lower growth rates during high fuel prices

Earliest found 1990s to 2000s

2015

2015

1990-2015

1990-2004

2005-2015

2015

1990-2015

1990-2004

2005-2015

World

11,042

4.1%

3.5%

4.9%

15,694

4.4%

4.0%

4.9%

N.A.

N.A.

USA

56,611

3.5%

4.1%

2.7%

56,469

3.5%

4.1%

2.7%

38

41

Japan

35,764

2.1%

3.3%

0.4%

40,607

3.0%

3.2%

2.6%

32

-

EU

37,752

3.9%

4.5%

3.0%

38,447

3.9%

4.2%

3.5%

N.A

N.A.

Russia

12,245

9.4%

4.7%

15.1%

24,692

5.5%

2.1%

10.1%

48

38

Mexico

10,761

6.2%

7.6%

4.2%

16,983

4.6%

4.9%

4.4%

50

46

Brazil

11,836

7.6%

3.3%

13.7%

15,617

3.8%

3.2%

4.5%

61

51

China

8,289

14.4%

12.0%

17.9%

14,450

11.5%

11.4%

11.7%

43

42

Indonesia

3,363

9.8%

7.9%

12.4%

11,040

5.5%

4.8%

6.4%

40

-

Philippines

2,926

6.3%

3.3%

10 4%

7,320

4.2%

3.2%

5.6%

N.A.

N.A.

India

1,700

6.7%

4.3%

10.2%

6,127

7.0%

6.0%

8.3%

35

-

Nigeria

3,446

13.4%

8.1%

20.9%

6,038

4.9%

4.6%

5.3%

45

43

Pakistan

1,362

5.7%

4.3%

7.6%

5,000

3.8%

3.7%

3.9%

33

34

Bangladesh

1,217

5.7%

3.3%

90%

3,336

5.7%

4.7%

7.0%

28

32

Ethiopia

640.2

4.7%

-3.6%

16.2%

1,633

5.6%

2.6%

9.9%

45

39

This is encouraging for the carbon management, though the affordability does not automatically enhance expenditures on energy consumption because other basic goods are also purchased.

Energy consumption

Table 2 shows that the global energy consumption per capita was about 22.6 MWli in 2015, but the consumption of 2.7 MWh in Bangladesh is 31 times lower than that in the USA. From 1990 to 2015, the energy consumption decreased in all high-income countries and Russia, and increased in all other countries. Although the growth of energy consumption is correlated to the purchase power across those countries (R2 = 0.78 during 1990-2015, R2 = 0.76 during 1990-2005 and R2 = 0.70 dining 2005-2015) the global consumption grew 7 tunes slower than that real income; it was 2 to 30 times slower in mid- and low-income countries. High prices of fossil fuels had little effect on the energy consumption that grew even faster in several mid- and low-income countries. The growing purchase power is apparently the main factor for the growth of energy consumption, not another way around. Moreover, the gr owth of energy consumption diverged across countries. This growth indicates that changes in the composition of businesses in economies, so called economic structure, and the use of energy-efficient technologies in businesses and households are also important factors in energy consumption.

Renewable energy in energy consumption was about 18% in 2015; this share varied from 3% in Russia and 6% in Japan up to 41% in Brazil, 46% in Pakistan, even 88% in Nigeria and 91% in Ethiopia. Although renewable energy is considered costly, its share in energy consumption is usually higher in mid- and low-income countries than in high-income countries. However, that share grew in high-income countries and declined in all mid- and low-income countries. High prices of fossil fuels invoked faster growth of the renewable energy share in high-income countries and Nigeria, but had hardly any impact in fil e mid- and low-income countries whilst the share declined in fil e others. Growth of the renewable energy share in energy consumption diverged across countries.

The energy consumption decoupled from income in nearly all countries dining low and high prices of fossil fuels. More reneivable energy ivas purchased in high-income countries where the share in energy consumption ivas loiv and less ivas purchased in mid-income and low-income countries where the share ivas high. The growth rates of energy consumption and the share of reneivable energy in it diverged across countries.

 
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