There is now wide agreement that human activity, directly and indirectly, contributes substantially to greenhouse gas (GHG) emissions and global warming. Hence, with the worst of the global recession behind us and agreement that all countries must to some extent share the burden of limiting emissions, attention would return to the problem of addressing climate change. But attention alone would not serve to resolve a problem that is clearly not easily tractable, because of its implications for growth in the near-term.

There are two well-known features of the processes underlying GHG emission and associated warming. The first is that activities that are at the centre of modern economic growth such as energy supply and consumption, industrial production, transportation and construction contribute an overwhelming share of total emissions (Chart 1).

CO{-2} emissions due to the burning of fossil fuels accounted for around 56 per cent of anthropogenic GHG emissions in 2004. In addition, other outcomes of modern economic growth, such as deforestation, also contribute significantly to emissions. Emissions due to deforestation and decay of biomass amount to 17.3 per cent of the total.

The second feature is that at the margin (comparing 1990 and 2004) certain activities, especially energy production and supply, transportation and forestry, are overwhelmingly large contributors to GHG, especially CO{-2}, emissions.

Emission intensities

The dominance of these sources of emission suggest that as countries transit from lower middle to upper middle and higher income levels, especially through a development trajectory involving diversification in favour of manufacturing, emission intensities are likely to rise sharply. Two (related) factors are primarily responsible for this increase in carbon intensity: energy demand and expansion of transportation. Consider, for example, the fastest growing economies in the world: China and India.

According to estimates by the IEA, global energy demand is likely to increase by 50 per cent by 2030 and these two countries would account for around 45 per cent of that increase.

In the case of transportation, though considerable fuel economies are expected as well as an increase in the use of hybrid and electric cars, these effects would be more than neutralised by the increase in demand for cars.

According to one estimate, the number of cars worldwide will increase by 2.3 billion between 2005 and 2050, and that the number of cars in emerging and developing countries will increase by 1.9 billion. Investment in road infrastructure is expected to facilitate this trend.

Issues involved

Given these features, analysts have focused on two aspects of the relationship between growth and emissions. One is the nature of the relationship between aggregate and per capita GDP growth, the rate of GHG emission and the concentration of GHG gasses. The other is the role of specific technological options and choices in individual sectors in increasing the extent of GHG emission.

There are three issues involved when examining the growth and emissions issue. The first is the relationship between levels of per capita income and the level of current per capita emission. The second is the relationship between the increase in per capita GDP and the increase in per capita emissions at different levels of per capita income.

And the third is the distribution of population across countries with different levels and rates of growth of per capita income that determines the current volume and the rate of change of aggregate GHG emission.

Ignoring differences in population and focusing on the role of energy consumption and supply in releasing CO{-2}, the first two of these can be decomposed further, as for example, through what has been termed the “Kaya identity”. That identity decomposes the contribution to emissions growth to that due to changes in economic growth, higher energy intensity (of GDP), and higher carbon intensity (of energy):

CO{-2} = GDP * (Energy/GDP) * (CO{-2}/Energy).

Using such a relationship to measure the relative contributions at the margin of OECD (developed) and non-OECD (developing and transition) countries, it emerges that the non-OECD countries, which were responsible for roughly one-third of global emissions, energy, and output in the early 1970s, had increased their shares to just over half of global energy use and emissions, and 45 per cent of global output by 2005. There were signs of acceleration of this trend as well. Between 2000 and 2005, non-OECD emissions had risen almost six times as fast as OECD emissions, accounting for 85 per cent of the growth in emissions.

This was because the rate of growth in all three influences on emissions had increased significantly. On the other hand, the OECD countries have shown a slowdown in growth in emissions, GDP, and energy during 2000–05, when compared with the previous decade.

Energy-intensive growth

What is significant from the point of view of the mitigation effort is the evidence of a significant reduction among developing countries as a group in the rate of decline of the energy intensity of economic activity and the carbon intensity of energy use.

During the 1990s, energy intensity in the non-OECD countries registered a rapid decline, with energy consumption growing at a quarter of the rate of growth of GDP, and emissions growing slightly slower than energy production. This changed after 2000, with a turn to more energy-intensive and carbon-intensive growth in the developing and transition world. As a result, energy use has grown at three-quarters the rate of GDP, and carbon emissions about a fifth faster than energy use.

As for carbon intensity, it has remained stable despite rising oil prices in recent years because of the increasing reliance on coal, which is more carbon-intensive than oil and gas. In the 1980s and 1990s, a reduction in the share of oil in total energy demand was made up for by a corresponding increase in gas. But since 2000, the share of gas has remained constant, and the share of coal has increased.

The same trends with regard to coal are visible in both developed and developing regions, though in much more dramatic terms in the latter. Between 2000 and 2005, coal use increased in developing countries on average by 9.5 per cent a year, and by 11.7 per cent in China. In 2005, 61 per cent of the world's coal was consumed in developing countries, up from 51 per cent just 5 years earlier, with coal providing 63 per cent of China's energy, 39 per cent of India's energy, and only 17 per cent of the rest of the world's energy.

Thus, the acceleration of emissions this decade appear to have been caused by three factors: the rapid acceleration of growth in the developing world; the end of a period of rapid decline in energy intensity in China; and an end to the decarbonisation of energy supply in both the developed and (especially) the developing world.

Accounting for population

However, the exclusion of population variations and focus on aggregate as opposed to per capita GDP in this decomposition does conceal some other features of recent trends. What needs to be noted is that it is not the average CO{-2} intensity, but the level of per capita emissions that is at issue.

Given the historically given trajectory of technology, the similarities in consumption patterns at similar income levels because of the international demonstration effect and the dominant pattern of development, there is a strong relationship between the level of per capita income and the level of per capita emissions of countries.

This comes through from Table 1 which shows that as we go up the incomes scale in terms of country groupings, the rise in per capita income is accompanied by a rather sharp increase in per capita emissions.

What is striking about these figures is the huge discrepancy in per capita incomes and emissions between the high income countries and the middle income countries and the significant difference between the upper middle and lower middle income countries both in terms of per capita income (however measured) and in terms of per capita emissions. These differences obviously impinge on the relative contributions of different countries to the rate of CO{-2} emission and the stock of CO{-2} in the atmosphere.

The end result is that even though there are signs that technological improvement at higher levels of income do serve to reduce CO{-2} emissions per unit of GDP, the differences in development and the limited impact of the improved emission efficiency has meant that high income countries in 2007 accounted for 45 per cent of total emissions even though they were home to less than 17 per cent of the world's population.

What mattered far more is that they accounted for 59 per cent of the world's income. Lower middle income countries, on the other hand, had 56 per cent of the world's population, but accounted for only 33.9 per cent of CO{-2} emissions, even though they were less emission efficient, because they contributed only 23 per cent of global incomes.

Significant differential

The implications of this differential come through starkly when we examine the country-wise evidence pertaining to the top 10 countries in terms of total emission. In this restricted league table too, the top two countries account for more than 40 per cent of the CO{-2} emissions in the world, whereas the remaining eight are responsible for just 24 per cent. The two are China and the United States. But the difference between the two is obvious. While China's high contribution was because it accounted for a fifth of the world's population, the United States with less than a twentieth of the world's population emerged a leader in emissions because of its high share in GDP and its high per capita income and emission rate.

However, when we compare China with India (which too accounts for as much as 17 per cent of the world's population), the assessment changes substantially. China's high per capita income and manufactures-dependent growth results in a much higher emission intensity (0.95 kg per 2005 PPP $) that is almost double that of India's (0.53 kg).

This makes its CO{-2} emission almost 5 tonnes a person as compared with India's low 1.43. So even though India has a population close to China's, its share in emissions is just 5.26 per cent as compared with China's 21.32 per cent. This, despite the fact that India is the world's third largest emitter.

The implication is that if India does catch up in terms of per capita GDP with China, pursuing a similar development trajectory (as some speculate it would), the implications for global atmospheric CO{-2} levels can indeed be grave.

The close relationship between growth and development, on the one hand, and emissions, on the other has two implications.

First, it implies that countries that are currently developed are responsible for the historical accumulation of GHG gasses in the atmosphere. Second, it implies that even if mitigation efforts start early, current-day developing countries are likely to be major contributors to GHG emissions in the foreseeable future.

This creates a major problem because the total carbon space available is limited, inasmuch as the stock of carbon dioxide in the atmosphere cannot be allowed to exceed an indentified level without risking extremely grave climate consequences.

So a combination of a roll-back in emissions by the developed and a deceleration in emissions by the developing seems to be required. This, in a world of national governments, makes the problem seemingly intractable.