Carbon Order

carbon offsets

 Figure 1: Mean Annual CO2 emissions from all sources by household disposable income decile

 

Figure 1: Mean annual CO2 emissions from all sources by household disposable income decile

SOURCE: The distribution of household CO2 emissions in Great Britian, Katy Hargreaves et al Joseph Rountree Foundation March 2013





 Figure 2: CO2 emissions per capita from fossil-fuel and cement production


Figure 2: CO2 emissions per capita from fossil-fuel and cement production

SOURCE: EDGAR 4.2 FT 2010 (JRC/PBL 2012) UNDP 2014, BP2014, NBC China 2014, USGS 2014, WSA NOAA 2012





 Figure 3: Global carbon footprint 1990-2005 (Gt CO2e)


Figure 3: Global carbon footprint 1990-2005 (Gt CO2e)

SOURCE: shrinkthatfootprint.com/what is a carbon footprint 21.09.15




 Figure 4: Atmospheric CO2 concentration over the last 2000 years


Figure 4: Atmospheric CO2 concentration over the last 2000 years

SOURCE: COand other Greenhouse Gas Emissions, Our World in Data, ourworldindata.org 21.09.15
 




 Figure 5: Global CO2 emissions (in millions metric loss of carbon) since 1751


Figure 5: Global COemissions (in millions metric loss of carbon) since 1751 - Max Roser

SOURCE: COand other Greenhouse Gas Emissions, Our World in Data, ourworldindata.org 21.09.15





 Figure 6: Atmospheric methane and nitrous oxide concentrations over the last 2000 years


Figure 6: Atmospheric methane and nitrous oxide concentrations over the last 2000 years - Max Roser

SOURCE: COand other Greenhouse Gas Emissions, Our World in Data, ourworldindata.org 21.09.15





 Figure 7: Countries by carbon dioxide emissions in thousands of tonnes per annum, via the burning of fossil fuels (blue the highest)


Figure 7: Countries by carbon dioxide emissions in thousands of tonnes per annum, via the burning of fossil fuels (blue the highest)
 
 SOURCE: 








 Figure 8: Global CO2 emissions per capita, since 1752

Figure 8: Global CO2 emissions per capita, since 1752

SOURCE: COand other Greenhouse Gas Emissions, Our World in Data, ourworldindata.org 21.09.15







 Figure 7a

Figure 9a: Annual anthropogenic CO2 emissions

SOURCE: Wg3 AR5 Summary for Policy Makers, IPCC March 2014

 Figure 9b:  Warming versus cumulative CO2 emissions

Figure 9b:  Warming versus cumulative CO2 emissions

SOURCE: Wg3 AR5 Summary for Policy Makers, IPCC March 2014






 Figure 10: Projected world population in millions

Figure 10: Projected world population in millions 

SOURCE: Global population set to hit 9.7billion by 2050, The Guardian 29.07.15







 Figure 11: Fastest-growing populations

Figure 11: Fastest-growing populations

SOURCE: Global population set to hit 9.7billion by 2050, The Guardian 29.07.15






 Figure 12: Estimates of population evolution in different continents between 1950 and 2050, according to the United Nations.  The vertical axis is logarithmic and is in millions of people

Figure 12: Estimates of population evolution in different continents between 1950 and 2050, according to the United Nations.  The vertical axis is logarithmic and is in millions of people

SOURCE: Population growth, en.wikipedia.org/wiki/population_growth 21.09.15






 Figure 13: World map showing global variations in fertility rate per woman

Figure 13: World map showing global variations in fertility rate per woman 

SOURCE: Population growth, en.wikipedia.org/wiki/population_growth 21.09.15







 Figure 14: World population estimates from 1800 to 2100

Figure 14: World population estimates from 1800 to 2100

SOURCE: Population growth, en.wikipedia.org/wiki/population_growth 21.09.15





 Figure 15:  Growth rate of world population (1950 to 2050)


Figure 15:  Growth rate of world population (1950 to 2050)

SOURCE: Population growth, en.wikipedia.org/wiki/population_growth 21.09.15





 figure 16: World population vs Global anthropogenic CO2 emissions

Figure 16: World population vs Global anthropogenic CO2 emissions

SOURCE: www.easterbrook.ca/steve/2009/06/population-growth-vs-emissions-growth/






 Figure 17: Real US GDP per capita 1870-2006


Figure 17: Real US GDP per capita 1870-2006

SOURCE: The emerging middle class in developing countries, Homi Kharas, OECD Development Centre, January 2010






 Figure 18: The four speed world

Figure 18: The four speed world

SOURCE: The emerging middle class in developing countries, Homi Kharas, OECD Development Centre, January 2010






 Figure 19: World economic output over 50 years, 1984-2034 (2005 PPP dollars)

Figure 19: World economic output over 50 years, 1984-2034 (2005 PPP dollars)

SOURCE: The emerging middle class in developing countries, Homi Kharas, OECD Development Centre, January 2010





 Figure 20:  China's middle class is small but quickly rises

Figure 20:  China's middle class is small but quickly rises
 
 SOURCE: The emerging middle class in developing countries, Homi Kharas, OECD Development Centre, January 2010

INTRODUCTION

A carbon offset is a reduction in emissions of carbon dioxide or other GHGs made in order to compensate for or to offset an emission made elsewhere. One carbon offset represents the reduction of one metric ton of carbon dioxide or its equivalent in any of six primary categories of greenhouse gases: carbon dioxide (CO2); methane (CH4); nitrous oxide (N2O); hydrofluorocarbons (HFCs); fully fluorinated species (such as sulphur hexafluoride) (SF6); Ethers and Halogenated Ethers (1).


Carbon Offsets have been described as ‘without scientific legitimacy and dangerously misleading’ (2). Beyond widely publicized market irregularities, more fundamental concerns such as baseline measurement, additionality, permanence and leakage have led many to question their value which, after accounting for rebound effects, may be at best marginal and at worst misleading and diversionary.


The only certain, long-term off-set mechanism is sequestration: CO2 burial in saline aquifers, undersea reservoirs or mineralization. The universal availability of such options would be transformational for the carbon markets: auditable, authentic and for practical purposes limitless, they avoid all of the drawbacks of existing programmes and offer, in effect, a platinum standard for the industry. This is the objective driving Carbon Order’s work in this area.

 

CURRENT EMISSIONS

Global carbon emissions now average around five tonnes of CO2 a year for every man, woman and child on the planet (3). However, this figure masks huge disparities in carbon footprints across different income levels within and between countries, as well as widely varying rates of emissions growth in developed and emerging markets (4) (figures 1-8).


Despite global efforts to contain growth in emissions, GHGs increased from an average 0.4% from 1970-2000 to 2.2% a year over the following decade (5) – until then the highest level in recorded history.  Briefly lower following the global economic crisis, they rapidly resumed their upward trajectory, averaging annual increases of 2.5% to reach 36Gt CO2 in 2013 – 61% higher than the Kyoto reference year of 1990 (6). In 2014, however, growth stalled at 32.5 Gt, despite global economic expansion of 3%, and continued through 2015 and 2016 - potentially indicating some level of decoupling. The IEA attributes this in part to energy consumption shifts in China (7) (figures 9a and 9b).

 

FUTURE EMISSIONS: DRIVERS & GEOGRAPHICAL DISTRIBUTION

Globally, population and economic growth continue to be the most important drivers of rising emissions (figures 10-14).  The decline in annual population growth from 88m in 1989 to currently 75m is expected to continue to 41m by 2050, a function of the trade-off between the slowing rate of increase, and growing population size (figure 15).  The apparent close correlation between global population and emission levels results not from their overall co-dependence, but from the sum of widely disparate regional and country trends in population and emissions aligning to give the impression of global correspondence (figure 16).


EMERGING MIDDLE CLASS

Over the next few decades, developed and rapidly emerging economies will constitute the largest source of emissions growth, reflecting continuing economic development and globalization of a middle-class increasingly defined by ‘a new consumerism: a constant upscaling of lifestyle norms; the pervasiveness of conspicuous status goods and of competition for acquiring them; and the growing disconnect between consumer desires and incomes’.


The continuing shift in the global distribution of the middle class toward emerging markets, particularly in Asia, is well documented. Today, Asia accounts for less than one quarter of the world’s middle class. By 2020, that share could double, and Asian consumers could account for more than 40% of global middle class consumption (8).


A 2010 OECD study (9) of 145 countries representing 98% of the world’s population and 99% of its GDP, estimated the global middle class (defined as those households with daily expenditures of US$10-100 per person in purchasing parity terms) to be 1.8bn comprising: North America 338m; Europe 664m; Asia 525m; Central and South America 181m; the MENA region 105m, and Sub-Saharan Africa, 32m. The report developed separate growth projections for each country, with growth dependent on capital accumulation (an average over the decade 1998-2007), labour force growth (using UN projections for 15-64 year-olds) and technological advance (based on the Goldman Sachs dual component model of rates of innovation and catch-up). For the US, for instance, these yield US labour productivity growth of 1.8% per annum, the average long-run rate observed for the past 125 years (10) (figure 17).


This gives a typology of four groups of countries (Figure 18):

 

  • Affluent, advanced economies with rather low rates of technological progress
  • Converging developing economies closing the income gap with the United States
  • Stalled, middle income developing economies with no convergence trends
  • Poor, low income developing economies with no convergence trends

 

GLOBAL ECONOMIC GROWTH SCENARIO

The model projects that, by 2034, the global economy may be US$200 trillion in PPP dollars. Per capita income averages US$21,300, compared to US$8,000 today. The economic centre of gravity would shift to Asia, with its share of global output increasing from 34% to 57%. The giant economies of China, India and Japan would dominate, but others such as Indonesia and Vietnam would also have significant economic mass. Even Thailand and Malaysia would have larger economies than France today.


The implied level of growth of these projections is 4.7% per annum – significantly higher than that of the last forty years (1977-96, 3.6% p.a. doubling from $20 trillion to $40 trillion; 1996-06, 3.7% p.a.) but the authors argue that such an acceleration would arise from the fact that the share of rapidly growing economies has now risen to almost 50% of global output, and that developing countries will account for more than 95% of global population growth of 1.6bn over the same period (Figure 19).

 

GROWTH IN GLOBAL MIDDLE CLASS

The implications for growth in the size of the middle class are disproportionately larger, due to the impact of small increases in income levels on clusters hovering below the $10/day income threshold. Globally, the size of the middle class could increase from 1.8bn to 3.2bn by 2020, and 4.9bn by 2030, with almost all of this growth (85%) in Asia (figure 20 and tables 1 and 2)


Equally striking is the growth in purchasing power of the middle class: from US$21 trillion to US$56 trillion by 2030. Again, over 80% of the demand comes from Asia, increasing from 10% in 2000 to 40% in 2040, and almost 60% in the longer term - offsetting the stagnant purchasing power most analysts see as likely in the developed world (Table 3).


Many other organizations and researchers have undertaken studies largely consistent with the above report or used it as a basis for their own analyses, including Goldman Sachs, McKinsey & Company, Morgan Stanley, the Asian Development Bank, Ernst & Young, Reuters, The Brookings Institution, the World Bank, the National Intelligence Council, the EU and the ILO (11)  (see side panel for further details).


EMISSIONS GAP

Economic growth and the expansion of the middle class in emerging markets -- and in consequence emissions projections – have been consistently underestimated in climate policy historically, to the point even of charting emissions histories, peak year emissions and trajectories clearly at variance with the historical record (18, 19). The essential question is therefore: to what extent is the projected rise in future emissions implied by this expected growth in consumption likely to be mitigated through the INDCs pledged in the Paris COP 21 agreement?


A May 2015 paper (20) evaluated the implications for global CO2e emissions projections by 2030 of INDC commitments by the EU, US and China – which collectively represent about half of the world’s emissions – combined with IEA emissions estimates for the rest of the world based on existing and planned policies, and compared these with a 2014 UNEP synthesis on emissions pathways consistent with avoiding a rise in global mean surface temperature of more than 2oC (20). The analysis allowed for an EU reduction of 40% relative to 1990, a US reduction of 28% compared to 2005, and an emissions peak in China under two scenarios of 2030 and 2025, reducing thereafter. The projected emissions are presented below (tables 4 to 6):


Using the New Policies Scenario published by the IEA, the authors estimate that annual emissions from the rest of the world will increase from 26.2 Gt CO2e in 2010 to 35.4 GT CO2e in 2030.


The UNEP synthesis is based on model projections from the IPCC WG III database for the 5th Assessment Report (22). These include scenarios embodying net negative carbon dioxide emissions during the 21st century, and without this, UNEP pointed out that in the case of limited global action to reduce emissions to 2020, followed by cost-optimal reductions afterwards, there are no models that offer a 50-60% chance of limiting warming to 2oC.


However, when net negative emissions are assumed, four published model pathways suggest that the rise in global average temperature could be limited to less than 2oC. These pathways have a median value of 53 Gt CO2e in 2020, reducing to 47 Gt CO2e in 2030, 28 Gt CO2e in 2050 and -1 GtCO2e by 2100. The four model pathways show a range of values for global emissions in 2030 between 46 and 48 Gt CO2e, with a median value of 47 Gt CO2e - much lower than the authors’ projected estimates of 57 to 59 Gt CO2e for global annual emissions in 2030.


Similarly, as reported elsewhere on this site, the IEA World Energy Outlook Special Report ‘Energy  and Climate Change’ released in June 2015 (23) notes that as at May 14th, ‘with INDCs submitted so far (representing 34% of energy-related global CO2 emissions), and the planned energy policies in countries which have yet to submit the world’s estimated remaining carbon budget consistent with a 50% chance of keeping the rise in temperature below 2oC is consumed by around 2040 – eight months later than is projected in the absence of INDCs’.  Whilst IEA projections show a weakening link between economic output and energy-related GHG emissions, economic growth of 88% by 2030 ensures that emissions still increase 8% over the same period.  There is no emissions peak by 2030.  Absent stronger commitments, the current INDC path would be consistent with an average temperature increase of 2.6oC by 2100.  This equates to an atmospheric CO2e  level in excess of 650ppm, and an trajectory between RCP4.5 and RCP 6.0 on the IPCC pathways (24).


In other words, adhering to the 2oC limit will only be possible with net negative carbon emissions and, even then, assuming an emissions outcome for 2030 aligned with the more optimistic UNEP projections.  


In any scenario in which climate policy has failed to reduce CO2  emissions below the range 47-57 Gt by 2030, the question arises: what options are there for consumers to go ‘off grid’ in the sense of assuming control of their own carbon footprint independently of prevailing policy-led decarbonisation efforts?


The answer is that, whilst it is of course possible to substantially reduce personal carbon emissions through lower-carbon choices, these generally involve lifestyle changes which few are willing, or can afford, to make.   Arguably, such changes will ultimately prevail through a wider cultural transformation but, in the meantime, the ability to opt for a zero-carbon lifestyle without the associated capital costs must be attractive – particularly to those wishing to exercise such choices in the face of an inadequate global policy response, and whilst other low or zero-carbon alternatives are coming on line.


In theory, carbon offsets offer such a possibility – but not as presently conceived.  In order to appreciate this potential, it is necessary to consider the difficulties with the present model.


There are two markets for carbon offsets: 

 

  • In the larger, compliance market, for obligations of Annex 1 Parties under the Kyoto Protocol, and of liable entities under the EU Emission Trading Scheme, companies, governments, or other entities buy carbon offsets in order to comply with caps on the total amount of carbon dioxide they are allowed to emit. The value of the global carbon market is estimated at EUR 46bn for 2014, a 15% increase on 2013, but well below the historical high of EUR 98bn in 2011. It is  expected to reach EUR 180bn by 2016. In 2013, the value of the UN offset market as a whole fell to its lowest level ever, at just EUR $0.4 billion. (25).

 

  • In the much smaller voluntary market, individuals, companies, or governments purchase carbon offsets to mitigate their own greenhouse gas emissions from transportation, electricity use, and other sources. Many companies offer carbon offsets to customers for mitigation of emissions relating to purchased goods or services. Market size in 2012 was about $583 million, representing 101 million metric tons of CO2e offsets, a decline of 11% on 2011 levels. Suppliers predict that market value could reach $1.6-2.3bn in 2020 (26).


Offsets are typically derived from financial support of projects that reduce the emission of greenhouse gases in the short- or long-term. These include renewable energy, energy efficiency, the destruction of industrial pollutants or agricultural byproducts, reduction of landfill methane, and forestry projects. Due to their indirect nature, many types of offset are difficult to verify, and rely on independent certification based on industry-agreed standards, including the Voluntary Carbon Standard, Green-e Climate, Chicago Climate Exchange, as well as the CDM Gold Standard, an expanded version of the Clean Development Mechanism of the Kyoto Protocol.


Accounting systems differ on precisely what constitutes a valid offset for voluntary reduction systems and for mandatory reduction systems, but seek to address the following:

 

  • Baseline and Measurement: what reduction in emissions results from the proposed project?
  • Additionality: would the emissions reduction occur anyway without the carbon finance?
  • Permanence: are any of the reductions reversible (eg through dieback in forestry)?
  • Leakage: does the project cause higher emissions outside the project boundary?
     

These and other certification-related issues have resulted in growing criticism of the offset market (27). In March 2010, the UN suspended the then second largest certifier in the world, TuvSud, responsible for nearly a quarter of carbon offsets on the market, following their approval of projects of dubious additionality and this, together with other previous suspensions called into question the validity of some two-thirds of projects available in compliance with the Kyoto Protocol. In July that year, two EPA lawyers argued in a whistleblower paper that major bills before congress based on these markets suffer from ‘multiple unfixable flaws’ that undermine their effectiveness and ensure that the legislation will be ineffective, deceptive, and wasteful.


Specifically, they claimed:

 

  • The complexity and subjectivity of carbon offsets renders them impossible to certify, regulate or enforce;
  • There is no reliable way to distinguish offset projects which will occur because of the offset incentive from those which would have happened anyway;
  • In some cases, such as in the context of forestry projects, the offsets will fail to appreciably mitigate demand and the polluting activity (such as logging) will simply shift elsewhere; and
  • The offsets will create perverse incentives to keep polluting activities legal so they can keep being sold as offsets.
     

Professor Kevin Anderson, Deputy Director of the Tyndall Centre and Professor of Energy and Climate Change at the University of Manchester, has referred to carbon offsetting as ’without scientific legitimacy, and dangerously misleading’ (28). Former NASA scientist, James Hansen, has said that ‘there is no equivalence to fossil fuel CO2’ (26, op. cit.). Many other leading climate scientists support these views.


Perhaps most fundamentally, however, is the issue of leakage. The rebound effect, originally referred to in economic theory as the Jevons Paradox and more recently as the Khazzoom-Brookes Postulate (29), describes the counter-intuitive increase in consumption that follows the introduction of efficiency improvements. Brookes’ analysis of energy-efficient solutions to GHG emissions showed that any economically justified improvements in energy efficiency would in fact stimulate economic growth and increase total energy use. David Hone, Climate Change Advisor to Shell, has recently argued similarly in his piece ‘Revisiting Kaya’ (30).


This phenomenon arises from three factors:

  1. the substitution effect from the lower cost of use
  2. the income effect as decreased cost allows increased consumption of other goods and services, and
  3. economy-wide effects from innovation and economic growth.


In the example of improved vehicle fuel efficiency, the direct effect would be the increased fuel use from more driving as driving becomes cheaper.  The indirect effect would incorporate the increased consumption of other goods enabled by household cost savings from increased fuel efficiency.  Since consumption of other goods increase, the embodied fuel used in the production of those goods would increase as well. Finally, the economy wide effect would include the long term impact on production and consumption throughout the economy, including any effects on economic growth rates. Research has found that in developed countries, the direct rebound effect is usually small to moderate, ranging from roughly 5% to 40% 31(-35). However, the rebound effect may be more significant in the context of undeveloped markets in developing economies (36, 37) (for further detail on Rebound efects, see note in side panel).


Even if the direct and indirect rebound effects add up to less than 100%, technological improvements that increase efficiency may still result in economy wide effects that generate increased resource use for the economy as a whole. In particular, this would happen if resource efficiency enables an expansion of production in the economy, and an increase in the rate of economic growth. For example, for the case of energy use, more efficient technology is equivalent to a lower price for energy resources. It is well known that changes in energy costs have a large impact on economic growth rates. In the 1970s sharp increases in petroleum prices led to stagflation (recession and inflation) in the developed countries, whereas in the 1990s lower petroleum prices contributed to higher economic growth.


The implications of the foregoing are significant. Not only are carbon offset markets at best ineffective, but the high income-elasticity of, for instance, aviation demand growth at the margin – particularly for low-cost carriers and emerging markets, where much of the future growth lies – means that increased expenditure on high carbon travel is likely to feature strongly in associated rebound effects from efficiency improvements both within the aviation market itself and in the wider global economy, whether through offset mechanisms or, indeed, more generally.  Because a DAC plant exists solely to capture and purify atmospheric CO2, if the CO2 is injected underground it is trivial to verify, monitor, and establish additionality. Its emissions-reduction performance is therefore fully auditable.


Additionality is less an issue (ie more easily verifiable) where emissions-reduction is otherwise difficult or impossible with existing technology. There are no issues of permanence, most particularly where this involves sequestration through mineralisation. And, economic multipliers are constrained by the cost-premium attached to carbon-reduction through the DAC process.


Sequestration represents a holy grail for carbon offsetting: a platinum standard emissions-reduction offset pathway which is 100% authentic.


The demand for future deployment of DAC for carbon offset purposes will depend on emission trajectories, climate policy context and perceptions in potential carbon offset markets of the value of such offsets in relation to emission levels and their mitigation. Interestingly, however, whilst outcomes could range from the low-carbon 450 Scenario suggested in the IEA 2015 Climate and Energy Report to a 650ppm peak CO2 in a low-intervention alternative, the potential for DAC carbon offset programmes could be substantial in either. In the former, an envisaged global price on carbon, if translated into carbon credits for COsequestration, could, at minimum, subsidise its costs encouraging offset market uptake to achieve the equivalent of full zero-carbon status or, in circumstances where the carbon price reached $125/tonne, DAC sequestration could be funded entirely from this source.  In a 650ppm scenario, especially in the (unlikely) event that global carbon pricing had not yet been implemented, the appetite for carbon offsets to address what would undoubtedly be perceived as a serious policy failure could be equally substantial.


In either scenario, demand for DAC carbon offsets will be generated from corporate, government and personal sectors. Whilst individual emissions represent the largest of these three categories, corporate and government sources constitute the major users to date of carbon offsets. For personal emissions, the market will be confined to the largest emitters. Globally, this translates to the wealthiest: the top 500m by income, comprising 8 per cent of the world population, are responsible for 50% of all emissions.  Table 7 sets out DAC plant requirements for take-up levels of 1% and 10% of this market.


An alternative calculation based on the average annual per capita emissions of 17.6 tonnes CO2 from the top 10% of the global population (746m), and market uptake of 3% of this decile, equates to a market of nearly $50bn/year at $120/tonne.

 

If the projections referred to in the introductory part of this section prove correct,  the compliance market could be around a hundred times larger than the voluntary market by 2020. In the event that such a ratio held for the much higher levels of market uptake envisaged for fully auditable DAC offsets, total demand would require the deployment of around 500 plants/year. In this context, a projection at 20% of this level, i.e. 100 plants a year, would seem conservative.

Offsetting is worse than doing nothing. It is without scientific legitimacy, is dangerously misleading and almost certainly contributes to a net increase in the absolute rate of global emissions growth.

Kevin Anderson, Deputy Director of the Tyndall Centre for Climate Change, quoted in 'Inconvenient truth of carbon offsets’, Judith Curry, Climate Etc. 28.03.15

'Even if all of the national pledges to the UN are implemented, the institute’s figures suggest they will reach 55 bn to 60 bn  by 2030…. to put that figure in context, the world will have to cut emissions to 36 bn tonnes of carbon to have a 50:50 chance of keeping temperatures below 2C’

The Guardian, quoting the Grantham Research Institute’s latest analysis of INDC pledges to the UN, 11.10.15

It is very misleading to discuss responsibility for GHG emissions per person using national averages because of the very large differences in per capita emissions within each nation between the highest-income and lowest income groups – perhaps a 100-fold or more difference between GHG emissions per person if we could compare the wealthiest 1 per cent and the poorest 1 per cent in many nations …

If GHG emissions were allocated to people (not nations) on the basis of the contribution of their consumption to GHG emissions, it is likely that the wealthiest one-fifth of the world’s population would account for more than 80% of all GHG emissions (they have more than 80% of the world’s income) and an even higher proportion of historical contributions to GHG emissions. The consumption of the one fifth of the world’s population with the lowest income levels may account for only around 1 per cent of all GHG emissions.'

The implications of population growth and urbanisation for climate change. Environment and urbanisation. September 2009 Vol. 21(2):545-567 DOE: 10.117/0956247809344361

Global inequality is growing, with half the world’s wealth now in the hands of just 1% of the population, according to a new report. About 3.4 bn people – just over 70% of the global adult population – have wealth of less than $10,000. A further 1bn – a fifth of the world population – are in the $10,000-$100,000 range. Each of the remaining 383m adults – 8% of the population – has wealth of more than $100,000. This number includes some 34m US dollar millionaires. About 123,800 individuals of these have more than $50m, and nearly 45,000 have more than $100m. The UK has the third-highest number of these “ultra-high net worth” individuals.

SOURCE: James Davies, Rodrigo liuberas and Anthony Shorrocks, Credit Suisse Global Wealth Databook 2015


 The Global Wealth Pyramid

The Global Wealth Pyramind



 Ultra High Net Worth Individuals 2015, Top 20 Countries

Ultra high net worth individuals 2015:  Top 20 Countries


Today, China has around 150 million people earning between US$10 and US$100 per day. As long as China continues to grow, and necessary economic reforms are made, we expect as many as 500 million Chinese could enter the global middle class over the next decade.  By 2030 around one billion people in China could be middle class — as much as 70% of its projected population.


 China: total income by band 2010 and 2020


China: total income by band 2010 and 2020


India’s global middle class, meanwhile, at around 50 million people, or 5% of the population, is much smaller. We expect this to grow steadily over the next decade, reaching 200 million by 2020.

After this, we expect growth to really accelerate, reaching 475 million by 2030 and adding more people than the Chinese to the global middle class worldwide after 2027.

Middle class growth in emerging markets: China and India: tomorrow’s middle classes. Ernst & Young Client Portal. Winter 2013




The economist Branko Milanovic compared households across the world, tracking their trajectories over the last couple of decades (12). His dramatic conclusion suggests ‘the profoundest global reshuffle of people’s economic positions since the Industrial Revolution’. He notes real income rises per capita of 3% annually from 1988 to 2008, with Western middle classes stagnating, but the top 1% and, to a lesser extent the top 5%, continuing to fare well. Some estimates see middle-class consumption in North America and Europe rising by only 0.6% a year over the next couple of decades, whilst spending by middle-class Asian consumers could rise by 9% a year through to 2030. The Asian Development Bank sees ‘explosive’ growth in China’s middle class to 2030, with by then 75% of the population representing the world’s largest single middle class market (13).

The International Futures Model used in the National Intelligence Council study, Global Trends to 2030 (14), projected an increase in the global middle class (defined by per capita household expenditure of $10-50 per day at PPP rates) from 1.5bn in 2010 to over 2.0bn by 2030. The World Bank’s 2007 report, Global Economic Prospects (15), saw an increase from 456m in 2000 to between 1.4 and 1.6bn in 2030. Goldman Sachs projected growth from 1.9bn in 2008 to 4.25bn in 2030 – about half of the expected world population by that time, a proportion similarly estimated by an EU report (16) which claimed that over the last decade the global middle class has been expanding by over 70m a year.

Some of the projections have since been revised. McKinsey Global Institute, in their 2010 study on Africa’s emerging economies  (17), stated that roughly 85m African households earn $5,000 or more -- nearly three times the OECD estimate and projected to increase some 50% by 2030 to 128m Africans with significant disposable income.

 

 Table 1: The global middle class, 2009: People and Spending

Table 1: The global middle class, 2009: People and Spending

SOURCE: The emerging middle class in developing countries, Homi Kharas, OECD Development Centre, January 2010

 Table 2: Numbers (millions) and Share (percent) of the Global Middle Class


Table 2: Numbers (millions) and Share (percent) of the Global Middle Class

SOURCE: The emerging middle class in developing countries, Homi Kharas, OECD Development Centre, January 2010

 Table 3: Spending by the Global Middle Class, 2009 to 2030 (millions of 2005 PPP dollars)

Table 3: Spending by the Global Middle Class, 2009 to 2030 (millions of 2005 PPP dollars)

SOURCE: The emerging middle class in developing countries, Homi Kharas, OECD Development Centre, January 2010

 Table 4: Annual Emissions to 2030 for the EU, US and China

Table 4: Annual Emissions to 2030 for the EU, US and China

SOURCE: The emerging middle class in developing countries, Homi Kharas, OECD Development Centre, January 2010

 Table 5:  Annual Emissions to 2030 for the rest of the world (ie not including EU, US, China)

Table 5:  Annual Emissions to 2030 for the rest of the world (ie not including EU, US, China)

SOURCE: The emerging middle class in developing countries, Homi Kharas, OECD Development Centre, January 2010

 Table 6: Annual Emissions to 2030

Table 6: Annual Emissions to 2030

By 2030, the global middle class will have grown to nearly 5bn people and carbon emissions will exceed 50GtCO2/year -  50% higher than at present, despite decarbonisation efforts.

SOURCE: The emerging middle class in developing countries, Homi Kharas, OECD Development Centre, January 2010

MEASURING THE REBOUND EFFECT

To model the scale of the rebound effect, economists use computational general equilibrium (CGE) models. While CGE methodology is by no means perfect, results indicate that economy wide rebound effects are likely to be very high, with estimates above 100% rather common (38).

Research has shown that the direct rebound effect for energy services is lower at high income levels, due to less price sensitivity. Studies have found that the price elasticity of gas consumption by UK households was twice as large for households in the lowest income decile compared to the highest decile. Studies have also observed higher rebounds in low income houses for improvements in heating technology (39, 40). Research in the UK found that direct rebound effects are close to 100% in many cases (41). High income households in developed countries are likely to set the temperature at the optimum comfort level, regardless of the cost – therefore any cost reduction does not result in increased heating, for it was already optimal. But low-income households are more price sensitive, and have made thermal sacrifices due to the cost of heating. In this case, a high direct rebound is likely. This analogy can be extended to most household energy consumption.

The size of the rebound effect is likely to be higher in developing countries according to macro-level assessments (42) and case studies. One case study undertaken in rural India evaluated the impact of an alternative energy scheme (43). Households were given solar powered lighting in an attempt to reduce the use of kerosene for lighting to zero except for seasons with insufficient sunshine. The scheme was also designed to encourage a future willingness to pay for efficient lighting. The results were surprising, with high direct rebounds between 50 and 80%, and total direct and indirect rebound impacts above 100%. Because the new lighting source was essentially zero cost, operating hours for lighting went up from an average of 2 to 6 per day, with new lighting consisting of a combination of both the no-cost solar lamps and also kerosene lamps. Also, more cooking was undertaken which enabled increased trade in food with neighbouring villages.

In order to avoid the rebound effect, environmental economists have suggested that any cost savings from efficiency gains be taxed away or otherwise removed from further economic circulation (44).
 

DAC scaling

Assuming 50% of the world’s anthropogenic emissions are generated by the top 500m by income, and that emissions increase to 50 GtCO2/year by 2060, then this top 8% of the world’s population (by carbon emissions) will be responsible by then for around 25 GtCO2 (if, of course, the ratio continues to hold). Offsetting this via DAC would require 25,000 one-million tonne plants. 1-10% of this market would therefore generate a need for 250-2,500 plants by 2060, equating to a build rate of 6.25-62.5 plants/year. Adopting the median of this range of 1,375 plants translates to just over 34 plants/year (say 35) (see Table 6 below).

 

% UPTAKE

1 10

No. of People
(Millions)

10 50

GTCO2

0.25 2.5

1M TONNE
DAC PLANTS

250 2,500

DAC Plants/yr
OVER 30 years

6.25 62.5

Table 6

Virtual Zero-Carbon Fuels


Carbon offsetting can be employed to compensate for carbon emissions generally in relation to individual, corporate or government activities, or more specifically to targeted products or services, such as for instance life-cycle offsets for consumer goods, or fuel purchases.

Sequestering CO2 generates carbon negative offset potential which can be used to render conventional fuels carbon-neutral - creating in effect 'virtual' zero carbon fuels.

The LCA well-to-pump GHG emissions for petrol are 11.8KG/Gallon.  At $120/tonne CO2 zero-carbon designation would add £1.13 per gallon to UK pump prices - a  premium of just 22%.

Such a premium is immaterial in the context of existing and impending efficiency improvements in vehicular transport.  Audi's dual-mode hybrid powered range,  for instance, achieves 45GM CO2/KM for their TTQ compact suV, or 150MPG. Assuming an annual mileage of 12,000, 100% carbon neutrality adds a mere £93 per annum - less per week than the price of an espresso.

Zero-carbon jet fuel - excluding allowance for a 2.7 multiple for emissions impact on radiative forcing at high altitude - would add 15% to ticket prices.

 

% UPTAKE

1 10

No. of People
(Millions)

10 50

GTCO2

0.165 1.65

1M TONNE
DAC PLANTS

165 1650

DAC Plants/yr
OVER 30 years

5.5 55

Table 7