17 July 2005
Who's really to blame for high oil prices?
With a rapidly developing economy and emerging trend similar to that of America's great love affair for cars, China's appetite for oil has been growing briskly. Compared to the rest of the world, the country's consumption of oil grew by 14% in 2004 over 2003. Similar growth rates have been reported for 2005.
Consequently, many commentators say that this is the prime reason for the spike in oil prices. While that may be true, it is also true that were it not for US oil consumption crowding out everyone else in the first place, and if Iraqi oil was available (whatever you think of Saddam Hussein), it's likely oil prices wouldn't be as high they are today.
For people in already industrialised countries to complain China's growing demand for oil is adversely affecting their lifestyle, is quite frankly, hypocritical. They forget that China supplies the very goods that industrialised countries consume - goods such as plasma TVs, DVD players, laptop computers, clothes etc. Producing these goods for us does require energy - derived from oil, gas, coal and water (hydro-electricity).
Now if I remember correctly, our self-proclaimed world leader, Dubya, refuses to sign the Kyoto Protocol because it doesn't impose emission targets that are as stringent as those for the US, on developing countries like China and India. Yet the US is the biggest buyer of modern life's toys and conveniences produced by China at the lowest possible prices, as demanded by the American consumer.
Dubya is really trying to have it every which way he can, isn't he? We are trying it on like Bush as well, when we complain about China being the cause of our woes with high oil prices. What right do we have to blame China for high oil prices when we are one of the reasons for their developing economy?
Now, I know some people will point out that all of China's oil demand growth isn't just due to economic production. There is also the issue of their growing love affair with cars. We too, can complain about their growing love affair being the reason for us paying ever higher prices for oil here. But we can only do so after we cut our use of cars to the same level as what we want them to do. What's good for the goose must be good for the gander too. Anything less is sheer hypocrisy.
Speaking about hypocrisy, let's examine this phenomenon a little more deeply.
Earlier, I alluded to US oil consumption crowding out everyone else, including newcomers. Using data again sourced from British Petroleum's excellent publication, Statistical Review of World Energy 2005, some interesting findings emerge.
The top three regions in terms of oil consumption today, are Europe & Eurasia, North America and Asia Pacific. Back in 1965, only Europe & Eurasia and North America dominated. This is unsurprising, as back in 1965, both these regions were so far ahead in terms of industrialisation. Asia Pacific's oil consumption really took off about the mid-1980s onwards to overtake that of Europe & Eurasia about 2000, and approach that of North America in 2004.
Source: BP p.l.c.
Looking at individual countries within Asia Pacific, you can see that Japan drove regional consumption until the mid-1970s; afterwhich that country's demand flattened. It is only from the mid-1980s that China combined with Other Asia Pacific (ie principally South-East Asia and Australia) and until about 1998, South Korea, that drove regional demand to higher levels. From about 2000 onwards, China's consumption became the region's largest, surpassing that of Japan and Other Asia Pacific.
Source: BP p.l.c.
All the consumption figures so far, are really nothing when they are compared against the world's largest consumer of oil, the USA. Long before 1965, it has consistently consumed much more oil than any other country. By the way, this also means that the US has consistently produced more greenhouse gases than any other country (also taking into account other fossil fuels like coal and gas).
Source: BP p.l.c.
A major reason for Bush's rejection of the Kyoto Protocol is that reduction targets imposed upon the US would be more stringent than those imposed China and India. Instead, since China's oil consumption growth rate is far higher than anyone else's, the US argues it is countries like China that must have stringent targets! Anything else, they claim, is giving China a free ride. Such logic is summed up by a post on this issue on the BBC website:
"Even if Global Warming does turn out to be something more substantial, than this generation's politically correct, junk-science-based, cause celeb', why should President Bush sign on to something like Kyoto, that gives China a free pass, and puts the American economy at a competitive disadvantage. Europeans may accept policies that result in 10-12% unemployment rates and a persistent weak economic growth, but the American people will not stand for such policies and President Bush is wise enough to recognize that fact.
Allen Helton, Fredericksburg, VA, USA"
Let's use a little simple arithmetic to prove how vacuous and dishonest this logic is.
In 2004, according to BP statistics, the US consumed 937.6 million tonnes of oil while China consumed 366.9 million tonnes. In the prior year, the US consumed 912.3 million tonnes versus China's 321.7 million tonnes. So observers love to claim that US consumption grew by a "responsible" 2.8% while China's consumption grew by a "profligate" 14%.
What's the problem? The problem is that a percentage calculation is simply a relative measure not an absolute measure. A particular increase that is relatively large compared to a low base, is smaller when compared to a much higher base.
Specifically, even though China's consumption grew by 14%, in absolute terms, this translated into 45.2 million tonnes versus the US' growth of 25.3 million tonnes. A difference of 1.8 times (ie 45.3 compared to 25.3) compared to the difference of 5 times (ie 14% compared to 2.8%) implied by using percentage growth rates.
With a population of 1.306 billion needing to use energy to go about their daily lives, why wouldn't China's oil consumption be larger in absolute terms, than that of the US with a population of 295.7 million? In fact, we're fortunate that China's total consumption isn't proportionately larger. They simply don't use oil in any where near the same manner as America.
Another important point is that consumption of oil is measured in barrels or tonnes consumed per unit time (eg barrels per day or tonnes per day) not percentage per unit time. Clearly, the more you consume per unit time and the longer you consume it, the more total oil you consume.
If you follow the logic above about consumption per unit time and the length of time consumption occurs, then obviously, the country that consumes more per unit time over a longer period must be responsible for depleting more of the oil reserves. And we find that this is indeed the case for the US.
Since at least 1965 (where BP's data begins), the US has been singularly responsible for consuming the greatest proportion of oil in the world. And if you accept that oil reserves are finite and greenhouse gases are produced by burning oil (among other fossil fuels), then the US bears the greatest burden for reducing emissions, conserving oil and should pay higher prices for derivative products like petrol. After all, this is the purest form of the capitalist user pays principle.
China has a very long way to go before consuming as much as the US has over time. In fact, even at its current accelerating consumption growth rate, it will take China another 40 years to consume the same cumulative amount of oil the US has consumed SINCE 1965 to 2004 inclusive. If you included US consumption prior to 1965, the closure period will most certainly be much greater than 40 years!
Source: BP p.l.c.
So the true reality is that the US does indeed bear a particular responsibility for reducing emissions since it profited the most and the earliest (in terms of economic development) from consuming a finite resource in the first place.
Instead, just before the recent G8 meeting in Scotland, Bush told the rest of the world, no emission reduction targets for him, thank you very much. This is because we're an exceptional nation and we'll continue to get the free ride that is our birth right. So you can all get stuffed!
But I digress.
If we really want lower oil prices in the future, then I suggest we, in the industrialised countries and especially the US, get off the horse called Rank Hypocrisy, and stop driving petrol guzzling 4-wheel drive vehicles to our supermarkets and weekend football games, close down car companies that insist on producing oversized and uneconomical cars, ban jet-skis, off-road moto-cross bikes, car racing, and oh, especially for America, introduce a fuel tax to force world parity pricing upon a populace addicted to the cheapest petrol in the industrialised world.
All these things need to happen before we have the moral right and standing to go to the Chinese masses and tell them they cannot trade in their bicycles for shiny new cars.
Like we did some 70 years ago.
Consequently, many commentators say that this is the prime reason for the spike in oil prices. While that may be true, it is also true that were it not for US oil consumption crowding out everyone else in the first place, and if Iraqi oil was available (whatever you think of Saddam Hussein), it's likely oil prices wouldn't be as high they are today.
For people in already industrialised countries to complain China's growing demand for oil is adversely affecting their lifestyle, is quite frankly, hypocritical. They forget that China supplies the very goods that industrialised countries consume - goods such as plasma TVs, DVD players, laptop computers, clothes etc. Producing these goods for us does require energy - derived from oil, gas, coal and water (hydro-electricity).
Now if I remember correctly, our self-proclaimed world leader, Dubya, refuses to sign the Kyoto Protocol because it doesn't impose emission targets that are as stringent as those for the US, on developing countries like China and India. Yet the US is the biggest buyer of modern life's toys and conveniences produced by China at the lowest possible prices, as demanded by the American consumer.
Dubya is really trying to have it every which way he can, isn't he? We are trying it on like Bush as well, when we complain about China being the cause of our woes with high oil prices. What right do we have to blame China for high oil prices when we are one of the reasons for their developing economy?
Now, I know some people will point out that all of China's oil demand growth isn't just due to economic production. There is also the issue of their growing love affair with cars. We too, can complain about their growing love affair being the reason for us paying ever higher prices for oil here. But we can only do so after we cut our use of cars to the same level as what we want them to do. What's good for the goose must be good for the gander too. Anything less is sheer hypocrisy.
Speaking about hypocrisy, let's examine this phenomenon a little more deeply.
Earlier, I alluded to US oil consumption crowding out everyone else, including newcomers. Using data again sourced from British Petroleum's excellent publication, Statistical Review of World Energy 2005, some interesting findings emerge.
The top three regions in terms of oil consumption today, are Europe & Eurasia, North America and Asia Pacific. Back in 1965, only Europe & Eurasia and North America dominated. This is unsurprising, as back in 1965, both these regions were so far ahead in terms of industrialisation. Asia Pacific's oil consumption really took off about the mid-1980s onwards to overtake that of Europe & Eurasia about 2000, and approach that of North America in 2004.
Source: BP p.l.c.
Looking at individual countries within Asia Pacific, you can see that Japan drove regional consumption until the mid-1970s; afterwhich that country's demand flattened. It is only from the mid-1980s that China combined with Other Asia Pacific (ie principally South-East Asia and Australia) and until about 1998, South Korea, that drove regional demand to higher levels. From about 2000 onwards, China's consumption became the region's largest, surpassing that of Japan and Other Asia Pacific.
Source: BP p.l.c.
All the consumption figures so far, are really nothing when they are compared against the world's largest consumer of oil, the USA. Long before 1965, it has consistently consumed much more oil than any other country. By the way, this also means that the US has consistently produced more greenhouse gases than any other country (also taking into account other fossil fuels like coal and gas).
Source: BP p.l.c.
A major reason for Bush's rejection of the Kyoto Protocol is that reduction targets imposed upon the US would be more stringent than those imposed China and India. Instead, since China's oil consumption growth rate is far higher than anyone else's, the US argues it is countries like China that must have stringent targets! Anything else, they claim, is giving China a free ride. Such logic is summed up by a post on this issue on the BBC website:
"Even if Global Warming does turn out to be something more substantial, than this generation's politically correct, junk-science-based, cause celeb', why should President Bush sign on to something like Kyoto, that gives China a free pass, and puts the American economy at a competitive disadvantage. Europeans may accept policies that result in 10-12% unemployment rates and a persistent weak economic growth, but the American people will not stand for such policies and President Bush is wise enough to recognize that fact.
Allen Helton, Fredericksburg, VA, USA"
Let's use a little simple arithmetic to prove how vacuous and dishonest this logic is.
In 2004, according to BP statistics, the US consumed 937.6 million tonnes of oil while China consumed 366.9 million tonnes. In the prior year, the US consumed 912.3 million tonnes versus China's 321.7 million tonnes. So observers love to claim that US consumption grew by a "responsible" 2.8% while China's consumption grew by a "profligate" 14%.
What's the problem? The problem is that a percentage calculation is simply a relative measure not an absolute measure. A particular increase that is relatively large compared to a low base, is smaller when compared to a much higher base.
Specifically, even though China's consumption grew by 14%, in absolute terms, this translated into 45.2 million tonnes versus the US' growth of 25.3 million tonnes. A difference of 1.8 times (ie 45.3 compared to 25.3) compared to the difference of 5 times (ie 14% compared to 2.8%) implied by using percentage growth rates.
With a population of 1.306 billion needing to use energy to go about their daily lives, why wouldn't China's oil consumption be larger in absolute terms, than that of the US with a population of 295.7 million? In fact, we're fortunate that China's total consumption isn't proportionately larger. They simply don't use oil in any where near the same manner as America.
Another important point is that consumption of oil is measured in barrels or tonnes consumed per unit time (eg barrels per day or tonnes per day) not percentage per unit time. Clearly, the more you consume per unit time and the longer you consume it, the more total oil you consume.
If you follow the logic above about consumption per unit time and the length of time consumption occurs, then obviously, the country that consumes more per unit time over a longer period must be responsible for depleting more of the oil reserves. And we find that this is indeed the case for the US.
Since at least 1965 (where BP's data begins), the US has been singularly responsible for consuming the greatest proportion of oil in the world. And if you accept that oil reserves are finite and greenhouse gases are produced by burning oil (among other fossil fuels), then the US bears the greatest burden for reducing emissions, conserving oil and should pay higher prices for derivative products like petrol. After all, this is the purest form of the capitalist user pays principle.
China has a very long way to go before consuming as much as the US has over time. In fact, even at its current accelerating consumption growth rate, it will take China another 40 years to consume the same cumulative amount of oil the US has consumed SINCE 1965 to 2004 inclusive. If you included US consumption prior to 1965, the closure period will most certainly be much greater than 40 years!
Source: BP p.l.c.
So the true reality is that the US does indeed bear a particular responsibility for reducing emissions since it profited the most and the earliest (in terms of economic development) from consuming a finite resource in the first place.
Instead, just before the recent G8 meeting in Scotland, Bush told the rest of the world, no emission reduction targets for him, thank you very much. This is because we're an exceptional nation and we'll continue to get the free ride that is our birth right. So you can all get stuffed!
But I digress.
If we really want lower oil prices in the future, then I suggest we, in the industrialised countries and especially the US, get off the horse called Rank Hypocrisy, and stop driving petrol guzzling 4-wheel drive vehicles to our supermarkets and weekend football games, close down car companies that insist on producing oversized and uneconomical cars, ban jet-skis, off-road moto-cross bikes, car racing, and oh, especially for America, introduce a fuel tax to force world parity pricing upon a populace addicted to the cheapest petrol in the industrialised world.
All these things need to happen before we have the moral right and standing to go to the Chinese masses and tell them they cannot trade in their bicycles for shiny new cars.
Like we did some 70 years ago.
