Despite all climate change talk, global energy consumption continues to rise

30 May 2018 Consultancy.uk

Global energy consumption has more than tripled in the past 50 years, driven by unprecedented economic and population growth in the Asia Pacific region. A new analysis from specialist energy consultancy UMS Group examines the reasons behind this dramatic upsurge in consumption, and outlines its projections for future demand.

Calculating the production, supply and consumption of energy on a global scale is an immensely complex challenge. Yet it is possible. Accurate data stretching from 1965 to 2016 is available and has been investigated by analysts from boutique consultancy UMS Group. With its specialist focus on the global energy and utilities industries, the consulting firm can offer distinctive insights into the past, present and future trends surrounding one of the world’s most urgent issues.

The numbers involved are astronomical given the technological advances and population surge that has occurred since the Industrial Revolution. But, as outlined by Mart Vos, Consultant at UMS Group, changes in both production and consumption have been especially remarkable in the past five decades. To properly assess this paradigm shift, the researchers work with figures based on Total Primary Energy Supply (TPES) and gauge energy in Mtoe (Millions tonne of oil equivalent). 

Global energy consumption

Global TPES, says Vos, can be calculated by taking the sum of production and imports for each country, or region, then subtracting exports and storage changes. “Energy losses throughout this process means that the global annual TPES is always higher than the total final consumption”, notes Vos, but the measurement remains the most accurate indication of global production and supply that can be used with confidence. 

The most recent data acquired by UMS Group relates to the year 2016 when the global TPES stood at more than 13,000 Mtoe. In layman’s terms this equates to the burning of almost 13 billion tonnes of crude oil in one year alone. The annual volume of tonnes of crude oil burned has risen by almost 10 billion since 1965 when the global TPES was 3,731 Mtoe. Roughly speaking, TPES worldwide has increased by a factor of 3.5 in the past 50 years, and almost doubled since 1985. 

Aside from the sharp increase in TPES, the most eye-catching statistic is the enormous rise in Asia Pacific region’s contribution to global energy supply. The region was responsible for 12% of total Mtoe in 1965, which almost quadrupled to 42% in 2016. By contrast the Eurasia region has halved its share of worldwide Mtoe from 44% in 1965 to 22% in 2016. North America too has seen a substantial decline in its share – from 38% in 1965 to 21% in 2016. Although the Middle East has seen its share of the energy pie rise slightly, and Africa’s is expected to shoot up in the coming decades, Asia Pacific is the undoubted driver of global TPES increases.

Asia’s rise in energy consumption can be chiefly explained by China’s singular transformation from sleeping giant to economic superpower. “China’s share of total energy consumption went up from 10.5% in 1990 to 27.7% in 2016”, says Vos, while “Europe’s share in the same period fell from 20.8% to 13.5%”. Although India is also on the rise and is in terms of population size about as big as China (both around 1.3 billion), China today accounts for 63% of Asia’s energy consumption.

global energy mix

India is however expected to play catch-up, remarks Vos, with energy demand expected to grow exponentially in the near future. Interestingly, China may play a key role in lifting India – “China’s transformation to an economic powerhouse led to a steep increase in China’s GDP per capita, from $2.695 in 2007 to $8.123 in 2016. As a result, China is now no longer attractive for the cheapest labor processes, such as plastic recycling or cloth manufacturing. India and other countries in South-East Asia are likely to take over these processes, since their GPD per capita is significantly lower than China’s.” By comparison, India’s GDP per capita stood at $1.709 in 2016.

“The prediction is therefore that energy demand in Southeast Asia will grow at twice the pace of China.”

Fossil fuels

China and India are at the forefront of developing new solar energy technology but the big three fossil fuels – coal, gas, and oil – together provide most of the planet’s energy. In 2016 oil (32.7%) was the single largest source of energy, followed by coal (28%), and gas (22.4%). Nuclear, biofuels, hydro, and other renewables together made up around 18% of TPES. 

The United States, Russia, and Saudi Arabia are the world’s three leading oil producers. Russia and the US lead the rankings on total natural gas production, while China dominates global coal production, accounting for 44.6% of the total while India comes a distant second with 9.7%. Together the Asian giant produce more than half the world’s coal and, because of huge internal demand, they export less than 1% of it. 

Global energy consumption by region

Saved by the Sahara?

In contrast to the dramatic rise in energy consumption over the past five decades, UMS Group anticipates the annual rise to slow down to just 2.3% per year, a cumulative increase of 28% by 2040. Vos cites the enhanced focus on energy efficiency in the US, Europe and Japan, as well as a growing energy and environmental consciousness in China, as major reasons for the slower consumption growth.

While the global giants reevaluate their energy sources and consumption, Vos identifies future energy demand hotspots such as India and South East Asia are set to follow a completely different trajectory. “The way how this region will generate the energy needed for their predicted energy consumption boom, will be one of the most important levers in the energy transition mix.” 

UMS Group’s forecasts for Africa (which has 13% of the world’s population but accounts for just 4% of energy demand) project a rapid surge in consumption due to increasing population, urbanisation and economic productivity. Solar could play an important role in Africa’s energy demand”, concludes Vos, “if just 0.4% of the Sahara desert was used for solar panels...the entire continent could be supplied with energy.”

More news on

×

Private equity firms ramp up sustainability focus

19 April 2019 Consultancy.uk

In line with business leaders across the industrial gamut, private equity firms are increasingly on board with sustainability projects. According to a new study, the investment arms for major funds are implementing a number of strategies aimed at supporting sustainable economic development in line with global goals.

While the business world has finally begun to acknowledge the danger of climate change, effective action plans remain difficult to achieve. The Paris Agreement has stipulated a clear target for the decades leading up to 2100, although massively reducing emissions while not crashing the economy could be a tall order.

Businesses that are able to acquire capital can use it to boost productivity and output, thereby creating a virtuous cycle of development. However, some businesses are better able to utilise resources than others, both in terms of their relative productivity, as well as the value of the respective outcomes relative to costs (including environmental harms). Financing can therefore provide an avenue to select businesses that are aligned with various global sustainability goals, while shunning those that drive little or unsustainable social value creation.

Top moves made by investment arms towards responsible investment

Profit has for the longest time been the central criterion for investment decisions. Yet profit at any cost is increasingly seen as creating considerable social harms, while often delivering only marginal value. As a result, the private equity sector, which was initially sluggish to change its ways with regards to sustainability, has started to see the topic as an opportunity as much as a challenge.

A new study from PwC has explored how far sustainability goals have become part of the wider investment strategy for private equity (PE) firms. The report is based on analysis of a survey of 162 firms and includes responses from 145 general partners and 38 limited partners.

Maturing sustainability

Top-line results show that responsible investment has become an issue for 91% of respondents. For 81% of respondents, ESG (environmental, social, and corporate governance) was a board matter at least once a year, while 60% said that they already have implemented measures to address human rights issues. Two-thirds have identified and prioritised Sustainable Development goals that are relevant to their investment segments.

Change in concern and action on climate-related topics over time

While there is increasing concern around key issues, from human rights protections to environmental and biodiversity protection, the study finds there are mismatches between concern and action. For instance, concern among investment vehicles around climate change has increased since 2016.

In terms of risks to the PE firm itself, concern has increased from 46% of respondents in 2016 to 58% in the latest survey. However, the number who have taken action remains far below those concerned, at 9% in 2016 and 20% in 2019. Given the relatively broader scope of investment opportunities, portfolio companies face higher risks – and more concern – from PE professionals, at 83% in the latest survey. However, action is less than half of those concerned, at 31%.

Changing climate

In terms of the climate footprint of the portfolio companies, 77% of respondents state concern in the latest survey. 28% of respondents are taking action through the implementation of measures to mitigate their concerns.

Concern and action taken on ESG issues

In terms of the more pressing issues for emerging responsible investment or ESG issues, governance concern of portfolio companies comes in at number one (92% of respondents), while 60% have taken action on it. Firms have focused on improving awareness – setting up policies and a range of training modules for their professionals around responsible investment decision making. Cybersecurity takes the number two spot, with 89% concerned and 41% implementing strategies to mitigate risks.

Climate risks take the number three spot in terms of concern for portfolio companies (83%), but falls behind in terms of action (31%). Health and safety track records are a key concern at 80% of businesses, with 49% implementing action. Gender imbalance within PE firms themselves ranks at 78%, which is being dealt with by 31%. A recent survey from Oliver Wyman showed that there is gender balance at 13% of GP teams in developed countries.

Biodiversity is also an increasingly pertinent topic, with risks from pollution and chemical use increasingly driving wider systematic risks around environmental outcomes. It featured at number eight on the ranking of most likely global risks for the coming decade, with its impact at number six. As it stands, biodiversity is noted as an issue at 57% of firms, with 15% implementing action.