The Implication of Limited Conventional Fossil Fuels and. Declining EROI on Economic Growth in China. July 16 th, 2014

Transcription

1 The Implication of Limited Conventional Fossil Fuels and Declining EROI on Economic Growth in China Professor Lianyong Feng School of Business and Administration China University of Petroleum, Beijing July 6 th, 204

2 CONTENT Introduction; 2 What s Energy Return on Investment (EROI)? 3 The trend of EROI in China; 4 Method; 5 Result; 6 Conclusion.

3 Introduction In the recent 0 years, the rapid growth of China Economic is largely based on the large consumption of fossil energy, while fossil energy is limited and nonrenewable. The conventional fossil energy, becoming tight in supplying recently, takes more than 90% in the production structure of China. It will become one of the most important factors that restrict the development of economy and society in China if shortages. Since the reform and opening up in 978, the average annual growth of China maintained a growth of around 0%, but some international institutions forecast that the economic growth in China will slowdown in the future. In the context of fossil energy, what s the economic growth will be?

4 The GDP Growth of China from 978 GDP: Billion yuan GDP growth rate % The GDP growth of 20 of China is 9.4%, GDP-47 Trillion Yuan 202: GDP growth is 7.8%, GDP: 5.9 Trillion Yuan

5 2 EROI EROI (Energy Return on Investment) is a method to calculate the energy returned to the economy and society compared to the energy required to obtain that energy (Hall CAS, 20). EROI n i= = n i= λ E i λ E i O i I i O E, I E the output and input in form of heat equivalent value λ the mass factor

6 2 EROI Energy production boundary Economic boundary Forming Industry Capital Solar URR Raw energy Raw energy Available 净能源 energy Commercial Labor Transport ation Public sector Governme ntal service The relationship between fossil fuel production and economic activity Economic activities rely on the energy resources and other resources from nature, and discharge waste to nature. Fossil fuels formed by absorbing solar energy and capital and labor formed by the economic system flow into the energy production process. Part of any economic output is needed to deliver energy production. Hence, what the economic system can use is net energy, which is energy production minus the energy consumed by the production process.

7

8 Post-oil age:the development of unconventional oil

9 3 The trend of EROI in China The value of EROI of China s fossil energy has been declining, and this decline is irreversible (Hu et al., 203). A lower value EROI means less energy is provided for the social economic system (Murphy et al., 20). EROI of Oil and Natural Gas Extraction in China with Linear Best Fit EROI of Coal Minging in China with Linear Best Fit

10 4 Method The ratio of net import and production for fossil fuels in three scenarios Low scenario Middle scenario High scenario Coal % 3% 5% Crude oil 00% 20% 40% Natural gas 0% 20% 30% The article takes the ratio of net imports and total production as the evaluation criteria, following the method of Scenario Analysis. Coughlin (202) found that if energy consumption is between 0 and 20%, the method of linear and nonlinear calculations is similar in calculating μ the total consumption ratio of the economy except the energy sector and the EROI can be calculated by μ/(μ ). For this, we predict energy consumption from 202 to 2025 during the process of energy production by studying the linear trends of the Chinese oil and gas industry and the coal mining industry. Multiplier and the linear approximation μ_lin as a function of fuel intensity

11 year coal crude oil natural gas low scenario year middle scenario year high scenario total energy consumption of two sectors 4 Method The consumption of fossil fuels in three scenarios from 202 to 2025(unit: 0 8 J) The C-D production function Y = F( K, L) = K α L α, 0 α Nel and Cooper (2009) built an energy-type production function as: Y µ t = F( E, K, L) Y = A e µ ( t) E ξ ( E, )] 0 [ i th, i i i t i µ t, i GDP = A0e [( ) Eth, i ξi ( Ei, t)] ct i + αe µ µ + αe = ct Taking GDP as the economic output, the complete energyreturning production function is: + λ t

12 4 Method The Solutions for Unknown µ α c A0 coal crude oil natural gas n ) Yua 2 0 ( P D G actual GDP simulated GDP The trends of actual and simulated GDP

13 6 Result 25?? n Yua 2 0 ( P D G actual GDP simulated GDP forecast GDP(low scenario) forecast GDP(basic scenario) forecast GDP(high scenario) China s economic growth in three scenarios until 2025 Historical and forecast rate of change for real GDP from98 to 2025 historical rate forecast rate year % 7.92% 2.28% year % 9.76%.23% year low scenario 7.56% 5.7% 3.66% basic scenario 9.26% 6.0% 4.29% high scenario 0.99% 6.30% 4.86%

14 5 Conclusion Because of the declining EROI of China, China s economic growth rate will be 5.7% and 3.6% in the Thirteenth Plan and Fourteenth Plan periods, which means China s economic growth will break down. Moreover, the economic growth in China will decline from 205 to In the future, China needs to know how much net energy is available. The impact of net energy on China s economy is huge even though the ratio of energy consumed in the process of production to energy produced is as small as 4 to 5%. Furthermore, a small change in net energy in China has a large impact on economic growth. China should consider net energy supply in energy decisions and decrease the actual energy consumed by the energy production process.

15 Thanks!