Carbon Intensity Reduction Could Curb China’s Appetite for Oil and Coal
The Wall Street Journal said on Wednesday that some oil industry analysts believe China’s seemingly insatiable energy demands may actually subside if its government follows through on its recent pledge to decrease the carbon “intensity” of China’s economy. Carbon intensity refers to the emitted carbon per unit GDP, basically the energy efficiency of carbon-emitting facilities.
On Monday, China agreed to reduce its carbon intensity levels by 40–45 percent by 2020. According to the Journal, Amy Myers Jaffe, an energy fellow at Rice University in Houston, said on a blog that if China’s plan is implemented, its oil demand may decrease by about 4.5 million barrels per day over the next two decades. Decreased energy demand over the long term will hopefully mean falling oil prices, particularly since the most recent spike in crude prices is mostly attributable to real and anticipated energy demands from China.
Barclays Capital issued a research note on Wednesday noting that China’s plans to reduce carbon intensity would have large “ramifications for the entire energy complex,” and coal in particular; China is the world’s largest consumer of coal. Barclays used data from the IEA and BP’s annual statistical review to conclude that the proportion of coal among China’s total energy consumption would decrease from its current position at more than 75 percent to 52 percent by 2020 as other fuel sources, such as nuclear energy, gain a larger share.
China will almost certainly continue to drive increases in world oil demand in the years to come. In its recent long-term energy forecast, the International Energy Agency projected Chinese oil consumption to more than double and reach 16.3 million barrels per day by 2030. In contrast, oil demand in the U.S. is expected to drop by 0.2 percent over the same 20-year period to 21.8 million barrels per day, even though the U.S. is the world’s biggest oil consumer, followed by China.
China’s thirst for energy has sent commodities markets skyrocketing to record high prices in recent years. Its demands however, may have been all smoke and mirrors. Commodities trader and analyst Stephen Schork attributes the price of oil to unfounded American beliefs that other countries, especially China, are consuming oil at unprecedented rates. As he eloquently put it, “the idea of a billion Chinese trading their Schwinns for Cadillac Escalades—I think that is what is driving the market.”
Maybe just the perception that China is making an effort to decrease its oil consumption will be enough to drive down prices.