Saturday, March 07, 2009

The GDP Energy Ratio

The list below shows the Top-11 GDPs in the world in 2007 (including the EU as a complete unit). Added up they account for $48.4 trillion, an astounding 89% of the world’s production. That means the rest of the world put together produces just 11% of GDP. You will also notice that none of the OPEC and related oil-producing nations are on the list. Commodity sales do not create large GDPs – productive peoples do.

As we begin the discussion regarding a brand new tax on American business, the Carbon Cap-and-Trade Tax introduced by President Obama in his 2009 budget, we might keep this in mind. Energy consumption discussions are only relevant when compared to a country’s GDP. In other words, the more efficient a country is in using energy to produce GDP, the less it should be penalized.

For example the US uses roughly 25% of the world’s energy, but contributes 25% of total GDP – a very efficient GDP/Energy Ratio of 1:1. China by contrast just passed the US as the biggest pollution emitter in the world, but contributes just 6% of total world GDP – China uses about 9.2% of the world’s oil for example; a GDP/Oil ratio of 1:1.6 – so clearly China has a far worse record than the US, as one might expect in a newly industrialized country. [This analysis ignores coal consumption in China, the world’s largest user of coal and by far the worst producer of coal pollution.]

Introducing a Carbon Cap-and-Trade Tax on US businesses will make us less competitive with less efficient countries like China and India. That will cause our 1:1 energy efficiency to decrease, the opposite of what we would like to happen, because energy costs are always reduced by scale – less GDP – less scale. The Tax is wrong-headed and counterproductive. The true cost of energy, as always, will drive efficiencies and innovation.

Fine graining even further, one should discount energy consumption by the percentage GDP value of goods exported minus the energy cost of shipping. This is because those goods are sent to countries that do not use energy to produce them; effectively representing an energy credit. The United States is a major exporting country. In 2007 the US exported approximately 11.7% of its GDP. If we count the energy cost of shipping as 1.7%, then the net adjustment to the US GDP/Energy Ration would be 10%, or 1:.9, a very efficient usage of energy indeed.

Richard L. Wottrich

2007 GDP (millions of USD)

World - 54,347,038

1 United States - 13,811,200
Eurozone - 12,179,250
2 Japan - 4,376,705
3 Germany - 3,297,233
4 China (PRC) - 3,280,053
5 United Kingdom - 2,727,806
6 France - 2,562,288
7 Italy - 2,107,481
8 Spain - 1,429,226
9 Canada - 1,326,376
10 Brazil - 1,314,170
(China passed Germany in GDP in 2008.)

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