Vice President’ Xi Jinping’s visit to the United States last week focused attention on the Chinese economy. NPR’s Talk of the Nation, for instance, featured Rob Gifford, the China editor for The Economist Magazine yesterday.
Gifford highlighted several interesting facts:
- The Chinese economy is growing at a robust rate of 8 percent a year. To put this in perspective, thanks to compounding, their economy will double every 9 years, while at 3 percent growth, which the U.S. is inching towards, an economy will double every 23-24 years.
- Robust growth has helped lift 300-400 million people into the middle class, a process which Xi Jinping apparently would like to see continue for the remaining 700-800 million Chinese still just out of reach of the middle class.
So, why raise this on an energy blog? The rising Chinese middle class are probably the single most important drivers of energy demand over the next ten years. Decisions they make will largely determine the pace of global warming and the path of oil prices.
In research with several colleagues, I have shown that as households come out of poverty and join the middle class, their energy consumption increases dramatically, as does the energy needed to manufacture goods that they buy. We have found a distinctive nonlinear relationship between household income and energy use. This means that doubling the income of a very poor family leads to a small increase in energy consumption, as does doubling the income of an already well-off family. But, doubling the incomes of moderately poor households, as is likely to occur in China on an enormous scale, could have dramatic implications for energy use, energy prices, and greenhouse gas emissions.
Unfortunately, we have also shown that the current energy forecasts, such as those produced by the Energy Information Administration and the International Energy Agency, do not recognize this asymmetry. As a result, they may seriously underestimate medium term growth in world energy demand.
Catherine Wolfram is the Cora Jane Flood Professor of Business Administration at the Haas School of Business, Co-Director of the Energy Institute at Haas, and a Faculty Director of The E2e Project. Her research analyzes the impact of environmental regulation on energy markets and the effects of electricity industry privatization and restructuring around the world. She is currently implementing several randomized control trials to evaluate energy efficiency programs.