One of the biggest drivers of climate change is the on-going development of third world nations. Around the globe, countries that have spent centuries with economies largely built on subsistence agriculture are slowly starting to advance into the modern world. This is bad news for those concerned about climate change. As modern economies develop, electrical use outstrips population growth which, in turn, is creating more and more need for energy. The World Bank notes that while the global population grew 36 percent between 1990 and 2013, worldwide energy use increased by 54 percent.
At this point around 85 percent of the world’s population has electricity, but that still leaves 15 percent of people without it. The remaining segments of the global population without basic amenities of modern life are likely to eventually advance enough to acquire them, which will put even more strain on the global energy infrastructure.
While clean energy sources have made significant strides over the last 30 years, fossil fuels are still responsible for more than 80 percent of the world’s total energy generation. What’s more, the largest share of renewable energy actually comes from traditional biomass like wood fuel, agricultural by-products, and dung. This is not sustainable over the long run because, as much as trees are theoretically a renewable resource, the reality is that they renew too slowly to serve as a primary substitute for oil and natural gas. Traditional biomass use is not being done out of environmental concerns in most cases, but out of necessity and lack of options. Solar and wind power only account for around 1 percent of total energy generation needs each, which shows that despite the progress made in both areas, neither is even close to be a replacement for fossil fuels at this point. Related: Is OPEC A U.S. National Security Threat?
What’s more, renewable energy use is actually declining or stagnant in most parts of the world. Since 1990, only North America and Europe have seen renewable energy use increase as a percentage of overall energy generation. Sub-saharan Africa, South Asia, Latin America, the Middle East, and East Asia have all seen renewable energy sources decline as a percentage of total generation results.
The one positive side of all of this is that the entire world, across all income groups, is using energy more efficiently today than in 1990. The ratio of energy supply to GDP in purchasing power parity terms has fallen across every quartile of global economic income levels. This essentially means that the world is using less energy to produce each dollar of economic output. That doesn’t mean energy use is declining – quite the opposite in fact. But it does mean that the world is getting better at figuring out how to use energy efficiently to generate the goods and services that modern society demands.
The World Bank’s data sheds empirical light on a number of interest questions for investors. Related: Oil Prices Spike Ahead Of Inventory Reports
First, while solar power has made considerable progress in recent years, it literally could grow ten-fold in the next ten years and still only be meeting a small fraction of the world’s energy needs. The runway for solar power is either very long or very hyped up depending on one’s perspective.
Second, the battle against climate change is very far from won, and it may in fact be unwinnable given the unstoppable force of economic expansion that will continue to drive greater energy needs for decades to come.
Third, renewables are clearly becoming increasingly important in the first world countries. This also means that the future of coal – the least economical and useful of the major fossil fuel groups – is likely to be based on the needs of the third world. Coal’s competition in these areas of the world is not solar or wind, nor is it even natural gas or oil. Instead, for coal to stage a comeback it needs to economically compete with and displace trees and dung as sources of heat and lighting. That’s probably a tall order in the foreseeable future.
By Michael McDonald of Oilprice.com
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