Wednesday, February 29, 2012

Carbon Efficiency vs Oil Efficiency

The above graph contrasts global oil efficiency with global carbon efficiency.  The former is measured in $2005 (PPP) per barrel of oil consumed (blue curve, left scale).  Carbon efficiency is measured as $2005 (PPP) per tonne of carbon emitted (red curve, right scale).  Prior to the mid 2000s the two were increasing at similar moderate paces.  However, since then oil efficiency has accelerated whereas overall fossil fuel efficiency has if anything slowed down.

I interpret this as an illustration of the power of market forces in driving change.  Oil is in somewhat tight supply and so prices have been high and this is driving the global economy to get oil efficient faster.  However, coal and natural gas are not in particularly tight supply and so there is no corresponding pressure, and indeed in the face of high oil prices the world is tending to shift to more use of coal - particularly the Chinese miracle is being powered by enormous amounts of cheap coal.

This would be the benefit of a global carbon trading scheme.  At the moment, climate change is an unpriced externality of fossil fuel usage, and so there is not much of a market signal to drive the economy to use coal and natural gas more efficiently.

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