Steven Fries: Emerging countries as drivers for global growth

Emerging markets such as India and China will want their fair share of all forms of energy, including the traditional fossil fuels and renewables.

These podcasts are part of a special series on scenario planning, made possible in part by Shell.

Scenarios are stories – created using scientific tools – suggesting how the world might unfold in the coming decades from existing patterns, new developments, and human choices. Companies and governments use scenarios to help with decision-making. Shell has been using scenario planning since the 1970s. Learn what scenario analysis suggests about the world’s energy system, with respect to the recent global economic downturn and ongoing economic recovery. To learn more, LISTEN, WATCH, OR READ: audio podcasts above, video and text below.

Steven Fries has been chief economist for Shell since 2006. He spoke in early 2011 about the big picture of the global economy and energy with EarthSky’s Jorge Salazar.

What does the current economic recovery mean for energy demand?

We’ve had a very strong bounce back from the global economy in 2010, perhaps stronger than people would’ve anticipated a year ago. The implications for energy are actually quite large.

What matters most for energy is the strength of growth in emerging markets, such as China, India and the Middle East. It’s in those countries where demand growth for energy is highest, and those are also the regions of the world where the recovery and economic activity impact have been strongest. And so the parts of the global economy that have been relatively resilient to the stresses in the global economy are indeed those parts of the world that are contributing most to energy demand growth.

That’s why we saw the energy markets turn quite quickly during the course of 2010, as it became clear that the emerging markets – the main centers for demand growth in the energy systems – were bouncing back quite strongly.

And so the key implication here for energy markets is – as long as growth and emerging markets remain relatively resilient and robust, as we’ve seen throughout much of the past decade – then demand for energy is likely to remain quite firm and strong going forward.

How has the economic recession changed the outlook for CO2 emissions, which are causing global warming?

The recession has had the effect of depressing emissions and lowering them by the equivalent of about one to two years of economic growth.

And so that’s created a bit of breathing space.

But it’s only a temporary breathing space, as the recovery returns and economic activity picks up and exceeds previous levels. Then CO2 emissions will be on their upward path again.

What is the bottom line here, on the global economy and the energy future?

The global economy has significant potential, but also significant risks, associated with it. What we’ve seen in the current recovery is the very strong potential of the major emerging market such as China and India and Brazil. These countries have performed very strongly through the recession and have bounced back over the course of the past year.

These countries are in the process of closing the gap in living standards with the richer countries in Europe and the United States. And looking forward, these countries are likely to be the drivers of global growth for the next decade to two.

And as these countries close the gap in living standards, they’re going to use more and more energy. In fact, their growth is going to be very tightly linked to the use of additional energy.

Going forward, the emerging markets are going to put a stress and a strain on the global energy systems that is going to have to be met with increased supplies of all forms of energy, including the traditional fossil fuels and renewable sources of energy.

To help meet these unfolding energy challenges for example, Shell is in the process of stepping up its production of natural gas, which is the cleanest of fossil fuels that can be used in electric power generation. At the same time, we’re investing heavily in research and development on carbon dioxide capture and storage, which can help improve the environmental footprint of natural gas over the long run.

Shell is also investing heavily in biofuels – not only in sustainable first generation biofuels such as sugarcane – but also in advanced biofuels. By advanced biofuels, I mean those fuels based on feed stock that don’t complete food and have a relatively limited impact on land use.

And so Shell is working hard to meet these unfolding energy challenges that arise both from strong growth in emerging markets as well as from the climate challenges that we all face.

Our thanks today to Shell – encouraging dialogue on the energy challenge. EarthSky is a clear voice for science.

Deborah Byrd