Morgan Stanley: Most Energy Conservation to Come from Emerging Nations

In Morgan Stanley's Global Economic Forum Stephen Jen & Luca Bindelli provide five observations on global energy efficiency which lead to the conclusion that the brunt of energy conservation in the world will be borne by the emerging nations.  Interestingly, and counter popular notions, the U.S. is no more "wasteful" than the EU or Japan.

Below are some excerpts from the article:

Observation 5.  A threshold per capita income that matters for energy efficiency.  It is interesting to note that there seems to be a ‘threshold’ level of per capita income below which very significant energy efficiency gains could be, and has been, achieved, but above which only marginal further gains seem possible.  We observe that this ‘threshold’ income level is around US$15,000 per capita.  This reflects diminishing returns to investments and policies that encourage energy conservation.  The level of urbanisation and infrastructural efficiency associated with this particular income level may also matter for overall energy consumption.  For example, for a city or country with this level of per capita income, certain highways or electricity grids may already be in place and further efficiency gains become incrementally more difficult to achieve.   This observation has at least two implications.  First, developed countries may be able to substitute one form of energy supply (solar, wind, nuclear) for another (crude oil), but the overall level of energy consumption may not improve too much.  Second, as a result, developing countries marching toward this US$15,000 income threshold (which include all the BRIC and EM economies) will be relied upon for overall energy efficiency gains.  The US$15,000 income threshold corresponds to roughly 1,600 barrels.  This implies that, in theory, China could become 2.6 times more energy-efficient in 28 years; India could be 1.7 times more energy-efficient in 36 years. 

Bottom Line

We examined the levels of energy efficiency for different countries, and found several interesting features.  First, correcting for the level of per capita income, contrary to popular opinion, the US is not ‘outlandishly’ more wasteful than the EU25 or Japan.  Second, the improvement in energy use in the US since 1980 has been even greater than that in the EU25 and Japan.  Third, though China is the most energy-intensive user in the world, it has made tremendous strides in the past quarter of a century.  Fourth, the energy price impact on Asia/China will likely be substantial.  Fifth, there is a threshold income level (US$15,000), above which only modest efficiency gains seem possible.  This means that the world will count on EM to do most of the heavy lifting to conserve energy.

Comments

[Aalan]

In 28-36 YEARS?? China isn't going to wait 28 years to solve its energy-efficiency problems! And you're telling the US not to bother, because we're too rich to do anything cost-effectively? Bush and Cheney agree, I'm sure.

The prose of the report is as opaque as the reasoning, and the conclusion both absurd and useless.