Energy in 2050 - EV WORLD.COM : The 'Future In Motion...

*Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations.

En

erg

y in

2050

By Karen Ward, Zoe Knight, Nick Robins, Paul Spedding and Charanjit Singh

Anyone who drives a car, heats a home, or runs a factory has every reason to be concerned

about the strains on global energy resources in the next four decades. Either the world is going

to deplete its supplies at an unacceptably fast rate – and overheat the planet in doing so – or it

is going to have to make massive investments in energy efficiency, renewables and carbon

capture. As things stand, the world simply doesn’t have the luxury of turning its back on

nuclear power, despite the recent disaster in Japan

We follow up our World in 2050 report by arguing that the rise of emerging markets will impose

new strains on energy supply. We conclude the world can grow and without excessive

environmental damage – but it will need a change in human behaviour and massive collective

government foresight

Disclosures and Disclaimer This report must be read with the disclosures and analyst

certifications in the Disclosure appendix, and with the Disclaimer, which forms part of it

Glo

bal E

co

no

mic

s &

Clim

ate

Ch

an

ge

Zoe Knight

Analyst

HSBC Bank plc

+44 20 7991 6715

[email protected]

Zoe Knight joined HSBC in 2010 as a senior analyst. She has been an investment analyst at global financial institutions since 1997,

initially focusing on Pan European small-cap strategy and subsequently moving into socially responsible investing, covering climate

change issues. Throughout her career she has been ranked in Extel and II. She holds a BSc (Hons) Economics from the University

of Bath.

March

2011

Energy in 2050Will fuel constraints thwart our growth projections?

Global Economics & Climate Change

March 2011

Nick Robins

Head of HSBC Climate Change Centre of Excellence

HSBC Bank plc

+44 20 7991 6778

[email protected]

Nick Robins, head of the HSBC Climate Change Centre of Excellence, joined the bank in 2007. He has extensive experience in the

policy, business and investment dimensions of climate change and sustainable development.

Karen Ward

Senior Global Economist

HSBC Bank plc

+44 20 7991 3692

[email protected]

Karen joined HSBC in 2006 as UK economist. In 2010 she was appointed Senior Global Economist with responsibility for monitoring

challenges facing the global economy and their implications for financial markets. Before joining HSBC in 2006 Karen worked at the

Bank of England where she provided supporting analysis for the Monetary Policy Committee. She has an MSc Economics from

University College London.

Paul Spedding*

Global Head of Oil & Gas Research

HSBC Bank plc

+44 20 7991 6787

[email protected]

Paul Spedding is HSBC’s Global Head of Oil & Gas Research. He joined HSBC in early 2005 and has nearly 30 years of experience in

oil research.

Charanjit Singh*

Analyst

HSBC Bank plc

+91 80 3001 3776

[email protected]

Charanjit Singh joined HSBC in 2006 and is a member of the Alternative Energy team and Climate Change Centre of Excellence.

He has been a financial and policy analyst since 2000. Prior to joining HSBC, he worked with an energy major and a top-notch rating

company. Charanjit is a Chevening fellow from the University of Edinburgh. He holds a bachelor’s degree in engineering and a

master’s degree in management.

1

Global Economics & Climate Change Energy in 2050 22 March 2011

abc

Even before the recent upheaval in the Middle East, oil prices were approaching USD100 a barrel.

And now the future of nuclear energy is being questioned following the tragic earthquake and

tsunami in Japan. Energy markets are under stress. So how would they cope with an emerging-market

led trebling in world output as we highlighted in our recent research The World in 2050?

‘If only’ energy resources weren’t a constraint and we could continue using energy the way we use it

today, our World in 2050 would require:

A 110% increase in oil demand to more than 190 million barrels a day to fuel the extra billion

cars that are likely to be on the road as emerging world incomes increase.

A doubling in total energy demand as emerging market growth powers ahead.

A doubling in the amount of carbon in the atmosphere, more than three and a half times the

amount recommended to keep temperatures at a safe level.

This can’t happen. In reality:

Energy resources are scarce. Even if demand doesn’t increase, there could be as little as 49 years

of oil left. Gas is less of a constraint, but transporting it and using it to meet transport demand is a

major issue. Coal is the most abundant with 176 years left, but this is the worst carbon culprit.

Energy security – defined in this instance as domestic energy production per head of population – will

be an increasing concern. Diversifying to natural gas to ease the pressure on the oil market won’t

overcome it since its supply is as geographically dense as oil. The most ‘energy insecure’ regions will

be Europe, LATAM and India. However, LATAM and India are trying to address this issue. Europe’s

situation gets worse. In our original report, Europe was the big loser with many countries falling down

or out of the league table of economic size. They could be losing their influence on the world stage

just at the time when they are most vulnerable.

The threat of global warming is not going away. If we fail to meet this challenge, the impact will fall

disproportionately on the emerging world.

The ‘solution’ requires greater energy efficiency and a switch in the mix of energy as well as using

‘carbon capture’ technology to limit the damage of fossil fuel use.

We have become terribly complacent in the way in which we use energy. We highlight a number of

channels where output could increase with significantly lower energy use. The lowest hanging fruit is in

the transport sector. Smaller, more efficient cars will get you from A to B, just not as quickly. Similarly,

Powering 2050

2


abc

buildings can be powered much more efficiently, with the cost of alterations coming down quickly as

technology evolves.

To come anywhere near to meeting the climate change targets, non-fossil fuels must play a significantly

greater role in energy use. Renewables are becoming more cost competitive but need to be even more so to

make a significant contribution to total energy supply. New generation biofuels – using agricultural food

waste – could ease the pressure on oil without passing the problem on to the food chain.

Many governments have been looking to nuclear as a significant alternative, although events in Japan may

alter this course. To meet climate targets, we estimate that nuclear will have to play a bigger role. If

Fukushima results in a two-decade freeze on plans, as we saw following the Chernobyl disaster in 1986,

then renewables will have to play an even larger role, or efficiency improvements would have to accelerate

further. A reduced role for nuclear energy would make meeting carbon limits even more challenging.

We emphasise four key points:

A solution is possible, but further efficiency gains and the deployment of low-carbon energy sources

are unlikely to materialise without further upward pressure on fossil fuel prices.

The lead times we highlight on the measures in ‘the solution’ are often long. Therefore the squeeze

on fossil fuels in the interim could be both persistent and painful as oil prices are so sensitive to

minor imbalances between energy demand and supply.

Meeting growth targets will be easier than meeting climate targets. It remains to be seen whether

growth targets and climate targets can be disentangled.

For the transition to our World in 2050 to be smooth, governments will have to work together and

be pre-emptive in driving change, before the commodity crunch really begins to bite.

We acknowledge the efforts of Jeff Davis, Niels Fehre, Andrew Keen and James Pomeroy (HSBC Bank

plc) in the production of this report

3


abc

One billion more cars on the road Temptation will be to move to coal to meet higher energy

demands

0

400

800

1200

1600

2000

Today 2050

0

400

800

1200

1600

2000

million million

0

50

100150

200

250

Europe* North

America

South &

Central

America

Middle

East &

Africa

Asia-

PacificYe

ars

Coal Gas Oil

Source: HSBC estimates Source: BP Energy Review. * Europe and the FSU

Energy security will be a major issue if the way we use energy doesn’t change

0 1000 2000 3000 4000 5000 6000 7000 8000

BelgiumColombia

NetherlandsVenezuela

PolandArgentina

ItalySpain

ThailandAustraliaTurkey

Norw aySouth Africa

Malay siaEgy pt

UKIran

South KoreaFrance

GermanyMex ico

JapanSaudi Arabia

CanadaBrazil

IndonesiaRussia

IndiaUS

China

Today 2050 on the 'if only ' scenario'

Total energy use (Million tonnes of oil equiv alent)

Source: World Bank and HSBC calculations

4


abc

Energy needs can be met with a little forward planning

0

5000

10000

15000

20000

25000

2010 2050 'If Only ' 2050 'Solution'

Coal Oil Gas Hy dro & other renew ables Nuclear Biomass and w aste

m

Source: HSBC estimates

Energy mix today Energy mix in 2050 required to meet growth and climate targets

28%

32%

21%

6%

10%3%

Coal OilGas NuclearHy dro & other renew ables Biomass & Waste

Total Primary Energy

Demand (Mtoe)

13%

16%

13%

23%

21% 14%

Coal incl. CCS OilGas incl. CCS NuclearHy dro & other renew ables Biomass and w aste


Demand (Mtoe)

I

Source: IEA Source: HSBC estimates

5


abc

With the rapid growth of the emerging markets,

the global economy is experiencing a seismic shift.

In a recent report – The World in 2050:

Quantifying the change in the Global Economy,

we provided a framework for understanding why

this was happening and projecting it forward over

the coming decades. Taking into account both the

productivity and expected growth of the workforce

we compiled a list of the Top 30 economies

ranked by size of GDP in 2050 (Chart 1).

We concluded that world output could treble, as

growth accelerates on the back of the strength of

growth in the emerging economies (Chart 2).

Indeed, by 2050, GDP in the emerging world will

have increased five-fold and will be larger than the

developed world. In this piece we consider the

pressure these forecasts will place on global

energy supply and the environment.

We start in this chapter by mapping our GDP

forecasts into demand for energy, for now

assuming there aren’t any resource constraints. We

call this the ‘if only’ scenario.

In Chapter 2 we examine the constraints both in

terms of physical resources, and the impact on

the environment. This shows our ‘if only’

scenario is a dream. In reality we cannot reach

the world we envisage for 2050 in the way we

are using energy today.

To get around this energy constraint – and it is

possible – we need to start using natural resources

more wisely. This has two elements:

The first is energy efficiency, which we tackle in

Chapter 3. The second is changing the mix of

energy inputs, which we discuss in Chapter 4. This

includes a greater role for renewables and, if

sticking with the old fossil fuels, ‘capturing the

carbon’ to limit its harm.

The methodology in this report differs from many

others which start with the fuel supply or climate

constraint and work backwards to find the energy

solution, imposing an ‘assumed’ energy price. By

beginning with an ‘if only’ scenario we can get a

true sense of the pressure on energy markets.

We demonstrate how, even in a fossil-fuel

constrained world, we can both treble world

output, and meet carbon targets. There are two

ways of facilitating the transition; governments

could play a major role, making it smooth and pre-

emptive. If instead it’s left to market forces, long

lead times in delivering extra fossil fuel supply and

more efficient technology will make the journey

from A to B much more volatile.

1. Energy hungry

Emerging markets will power the global economy in next few

decades

This will lead to an enormous increase in energy demand

There will be intense pressure on oil because of the need to power

an extra billion cars

http://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=ej73gSSJVj&n=282364.PDF

http://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=ej73gSSJVj&n=282364.PDF

6


abc

1. The Top 30 economies by GDP in 2050

Order in 2050 by size

Size of economy in 2050 (constant 2000

USD in billions)

Rank change between now and 2050

_______Income per capita (Constant 2000 USD)_______

Population (Mn)

2050 2010

1 China 24617 2 17372 2396 1417 2 US 22270 -1 55134 36354 404 3 India 8165 5 5060 790 1614 4 Japan 6429 -2 63244 39435 102 5 Germany 3714 -1 52683 25083 71 6 UK 3576 -1 49412 27646 72 7 Brazil 2960 2 13547 4711 219 8 Mexico 2810 5 21793 6217 129 9 France 2750 -3 40643 23881 68 10 Canada 2287 0 51485 26335 44 11 Italy 2194 -4 38445 18703 57 12 Turkey 2149 6 22063 5088 97 13 S. Korea 2056 -2 46657 16463 44 14 Spain 1954 -2 38111 15699 51 15 Russia 1878 2 16174 2934 116 16 Indonesia 1502 5 5215 1178 288 17 Australia 1480 -3 51523 26244 29 18 Argentina 1477 -2 29001 10517 51 19 Egypt 1165 16 8996 3002 130 20 Malaysia 1160 17 29247 5224 40 21 Saudi Arabia 1128 2 25845 9833 44 22 Thailand 856 7 11674 2744 73 23 Netherlands 798 -8 45839 26376 17 24 Poland 786 0 24547 6563 32 25 Iran 732 9 7547 2138 97 26 Colombia 725 13 11530 3052 63 27 Switzerland 711 -7 83559 38739 9 28 Hong Kong 657 -3 76153 35203 9 29 Venezuela 558 7 13268 5438 42 30 South Africa 529 -2 9308 3710 57

Source World Bank, HSBC estimates

2. Growth in the emerging markets will boost global growth

0.0

1.0

2.0

3.0

4.0

1970s 1980s 1990s 2000s 2010s 2020s 2030s 2040s

0.0

1.0

2.0

3.0

4.0

Dev eloped Markets Emerging markets Globa l

% % Contributions to global growth

Source: World Bank, HSBC calculations

Global E

con

om

ics & C

limate C

han

ge

En

ergy in

2050 22 M

arch 2011

7

ab

c3. The energy system

Source: IEA

38%

24%

29%

9%

Industry TransportBuildings & Agriculture Non Energy Use

Total final consumption28%

32%

21%

6%

10%3%



Demand (Mtoe)

TransformationPowerHeatFuels

Energy inputs Energy outputs

38%

24%

29%

9%



32%

21%

6%

10%3%



Demand (Mtoe)


Energy inputs

38%

24%

29%

9%



32%

21%

6%

10%3%



Demand (Mtoe)



Energy inputs Energy outputs

8


abc

Changing needs Let’s start by taking a look at the current energy

system for which Chart 3 provides an illustration.

Fossil fuels account for the majority of the energy

consumed. This is decreasing but extremely

slowly. In 1980 fossil fuels accounted for 85% of

the total energy mix. This has fallen to 81%.

Buildings are the main consumer of energy,

taking up more than a third of energy, and the

transport sector accounts for one quarter.

How will this change through time? Before we get

going it’s worth pointing out that our forecasts for

world energy demand and CO2 are based on our

projections for the 40 countries we considered to

reach our Top 30 in 2050. These countries

represent 93% of world GDP today.

We can’t however take our forecasts for GDP for

each country and map them one-for-one into

energy demand because as economies develop

their energy needs change.

Less industry intensive…

For a start, as economies become wealthier, and

once the basic infrastructure has been built,

additional units of output tend to be more service-

sector orientated as incremental growth is focused

on meeting the needs of an increasingly wealthy

domestic population.

In addition, as each economy become wealthier,

some of its manufacturing will be outsourced to

some of the lower-cost countries further down our

Top 30 list.

And so manufacturing as a share of GDP tends to

decline as economies become wealthier (see Chart

4 as an example for the UK).

Manufacturing production uses much more energy

to produce a unit of GDP, a concept we know as

‘energy intensity’ (Chart 5). So at higher levels of

income, additional units of growth tend not to lead

to such large increases in energy consumption.

In addition, the existing manufacturing base tends to

become more energy efficient. Chart 5 shows that

Switzerland has a manufacturing sector that accounts

for 20% of GDP yet its energy intensity, the amount

of energy it needs to consume to produce its output,

was just 0.09 (900,000 tonnes of oil equivalent to

produce a million dollars of output) in 2007,

considerably lower than that of India (0.84) where

manufacturing is only 15% of GDP.

The result is that as economies become less

manufacturing oriented and as more energy

efficient technologies are adopted, the amount of

energy required to produce an additional unit of

GDP is be reduced.

4. As this UK example shows, as economies develop they tend to be less manufacturing intensive

5. And unsurprisingly, manufacturing production uses more energy than service production

10

15

20

25

30

35

10000 15000 20000 25000 30000

GDP per C apita

% G

DP

Man

ufac

turin

g

Aust ralia

China

Germany

India

ItalyJapan

S. Korea

Poland

SpainTurkey

Indonesia

Brazil

France

M exicoNetherlands

Switzerland

US

0.0

0.2

0.4

0.6

0.8

1.0

10 15 20 25 30 35

% GDP Manufacturing

Ene

rgy

Inte

nsity

Source: World Bank Source: World Bank, HSBC calculations

9


abc

…but demand for bigger, comfier homes increases…

However, on the flip side, as economic wealth

increases, so does demand for larger, more

comfortable homes and the appliances to go in them.

Today buildings account for more than a third of

total energy use so this will have a significant

impact on final energy demand.

Chart 6 shows that more than half of China’s

population still live in rural housing. This has fallen

dramatically over the past two decades and will

continue as the process of urbanisation proceeds.

7. Chart of average home size by region

0

50

100

150

200

250

US India

0

50

100

150

200

250

m2 m2Av erage home size (square metres )

Source: World Business Council for Sustainable Development

Chart 7 shows that as countries become larger,

average home size increases.

6. As the Chinese rural population moves to towns, energy demand will rise

Rural population as % of total

0102030405060708090

100

1840 1850 1860 1870 1880 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010f

1950 1960 1970 1980 1990 2000 2010f

US China (upper scale)

%

Source: US Census Bureau, CEIC

10


abc

and demand for cars increases 8. Higher per-capita income means more cars

0

100

200

300

400

500

600

700

0 20000 40000

GDP per Capita

Num

ber o

f Car

s pe

r 100

0


At present in China there are 22 cars per 1,000

people. This compares to 450 in the US which is

the level that appears roughly the peak number

per thousand people. Based on the relationship

between cars and income per capita, our forecasts

for income per capita suggest that the number of

cars in China will increase to 350 per thousand by

2050 (Chart 8). This means that the total number

of cars in China will rise from roughly 30 million

passenger vehicles today to almost 500 million. In

India we estimate there to be fewer than 50 cars

per thousand people today. This is likely to rise to

more than 200. This is an increase in cars on the

road of almost 300mn (Chart 9).

Taking our top 30 countries together, the number of

cars on the roads rises by 1 billion from 700mn cars

to 1.7bn (Chart 10)!

10. The number of cars on the road looks set to rise by 1bn

0

400

800

1200

1600

2000

Today 2050

0

400

800

1200

1600

2000

million million

Source: HSBC estimates

9. The emerging world will see a significant rise in car ownership

0

100

200

300

400

500

Japa

n

US

Eur

ope

Sin

gapo

re

Hon

g

S. K

orea

Aus

tralia

Gre

ece

Isra

el

Pola

nd

Arg

entin

a

Mal

aysi

a

Sau

di

Turk

ey

Mex

ico

Chi

na

Russ

ia

Bra

zil

Egy

pt

Thai

land

Ven

ezue

la

Col

ombi

a

Sou

th

Iran

Indo

nesi

a

Indi

a

0

100

200

300

400

500

Today 2050

millionmillion Number of cars

Source: World Bank, HSBC estimates

11


abc

The rise in demand for consumer durables as the

economies develop to some extent offsets the

reduction in energy intensity from the changing

‘structure’ of the economy – but not entirely.

Energy intensity – the amount of energy needed to

deliver an additional increment of GDP – clearly

declines as income levels rise (Chart 11).

But we must also account for the fact that the

changing structure will impact the type of energy

input required. Charts 12 to 14 show how

different types of energy demand are met by the

fuels available. So moving from demand for

industrial use towards transport use can lead to

more oil being required and less coal.

12. The transport sector is still primarily dependent on oil inputs

93%

4% 3%

Oil Gas Biomass & Waste

Transportation (Mtoe)

Source: IEA and HSBC calculations

11. Energy intensity declines as economies develop, despite the extra demand for consumer durables

China

ItalyJapan

M ex icoSpain US

Aus traliaBraz il C anada

FranceGerm any

India

S. Korea

Netherlands

Poland

Sw itzerland

Turkey

U K0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

0 5000 10000 15000 20000 25000 30000 35000 40000 45000

GDP per capita

Ener

gy In

tens

ity


13. Buildings and agriculture use a variety of energy sources…

14. …as does industrial use

19.5%

5.1%3.1%

27.3%

28.4%

16.5%

Coal OilGas Biomas s & WasteOther Renew ables Nuclear

Buildings & Agriculture

(Mtoe)

42%

16%

26%

5%2%9%

Coal OilGas Biomass & WasteOther Renew ables Nuclear

Industry (Mtoe)

Source: IEA, HSBC calculations Source: IEA, HSBC calculations

12


abc

Chart 15 shows how our forecasts for economic

development in the Top 30 economies translate into

energy demand in 2050 in this ‘if only’ world.

To be clear, here we assume that countries

improve their efficiency, but no quicker than

those that have developed before them.

The increases in the demands from China and

India are most eye-catching but there are

significant gains in the demand of most the

emerging economies.

15. ‘If only’ energy weren’t a constraint, the emerging markets would dominate energy demand in 2050…

0 1000 2000 3000 4000 5000 6000 7000 8000

BelgiumColombia

NetherlandsVenezuela

PolandArgentina

ItalySpain

ThailandAustraliaTurkey

Norw aySouth Africa

Malay siaEgy pt

UKIran

South KoreaFrance

GermanyMex ico

JapanSaudi Arabia

CanadaBrazil

IndonesiaRussia

IndiaUS

China

Today 2050 on the 'if only ' scenario'

Total energy use (Million tonnes of oil equiv alent)

Source: World Bank, HSBC Calculations

13


abc

Chart 16 shows the forecasts for global energy

broken down by sector. The biggest growth is in

transport, as rising incomes lead to many more

vehicles on the road. This explains why the largest

rise in energy type is oil (Chart 17) because this, at

present, is the main power behind cars. To put this

into context, this increase in oil demand is equivalent

to a rise from 90 million barrels a day to more than

190 million barrels a day. Coal demand rises by

72%, and natural gas demand increases by 87%.

Biomass and waste grows by 103% and renewables

and nuclear both grow by just under 90% but from

low levels.

The growth in energy demand is not as large as

the increase in GDP (Chart 18). GDP in real

constant dollars trebles, whereas growth in energy

demand doubles. We should highlight again that

this is the ‘if only’ scenario where we assume

present trends continue, ie there is no significant

shift towards electric vehicles from the

combustion engine. This provides us with a

benchmark for considering, at today’s norms,

what pressure this will place on different energy

sources if change doesn’t materialise.

16. As economies develop, more energy is required to power transport and heat buildings…

17. …which on today’s standard technologies leads to a big pick up in demand for oil

0 50 100 150

Total

Transport

Buildings

Industry

0 50 100 150

%'If only ' grow th in energy demand 2010- 2050

020

40

60

80

100

120

Tota

l

ener

gy u

se Oil

Biom

ass

&

Was

teO

ther

rene

wab

les

Gas

Nuc

lear

Coa

l

020

40

60

80

100

120% % 'If only' growth in energy input 2010-2050

Source: HSBC Source: HSBC

18. In the ‘if only’ scenario, energy demand doubles

0

5000

10000

15000

20000

25000

2010 'If only ' 2050

Coal Oil Gas Renew ables Nuclear

m toe

Source: HSBC

14


abc

Back to reality Of course, our ‘if only’ scenario is merely a

fantasy. In reality:

Fossil fuels aren’t abundant.

They aren’t evenly spread across the global

population, which gives rise to issues of

energy security and geopolitical tension.

There are worrying signs of climate change.

In this chapter we consider how binding these

constraints are, before we start to consider ways

around them.

Fossil fuels – what’s left? Estimates differ as to the size of the world’s

remaining resources depending on how confident

authorities are over their existence. ‘Proven reserves’

are just that, ‘resource’ is a high degree of certainty

and potential is little more than a good guess. Table

19 shows all these figures. Most worryingly, we can

only be confident that is 49 years of oil left even if

we don’t demand more through time. The recent

discovery of shale gas has significantly lifted the

estimates of proven gas and again ‘potentially’ there

is much more. Coal, which has seen lower demand

since the arrival of the combustion engine, is now by

far the most abundant resource.

2. The strain on global energy resources

Oil is most scarce and set to see the biggest demand

Gas and coal, which are more abundant than oil, will feel the effects

of the oil market squeeze

Left to market forces, elevated fossil fuel prices seem inevitable

19. Fossil fuels – what’s left?

________________ Reserves _________________ ______ Years left at current production _______ Proven Resource Potential Proven Resource Potential

Oil (bn barrels) Conventional 1333 1351 3322 43 44 108 Unconventional 143 150 6829 5 5 223 Total 1476 1500 10151 48 49 331 Gas (bn barrels of oil equivalent) Conventional 942 942 1759 53 53 98 Unconventional 200 1007 5716 11 56 320 Total 1142 1949 7475 64 109 418 Coal (bn tonnes) 826 176

Source: HSBC estimates based on BP, USGS, Rogner ‘An Assessment of World Hydrocarbon Resources, 1997’

15


abc

20. Even as more is taken out of the ground, reserve estimates have been revised up through time

0

500

1000

1500

1989 1999 2009

0

50

100

150

200

Oil (LHS) Gas (RHS)

thousand million barrels tn cubic metresReserv e estimates

Source: BP Statistical Review

These reserve numbers are prone to revision

(Chart 20). However, recently the world has been

failing to deliver sufficient new discoveries to

replace production. The IEA estimates that since

1990, each year new discoveries have only been

sufficient to offset half of production (Chart 21).

Equally worrying, the size of fields discovered

has been falling and is currently around one tenth

of the size of discoveries made in the 1960s. And

of course, considerable doubt remains about the

accuracy of reserve data from the Middle East.

According to BP, the Middle East accounts for

nearly 60% of remaining proven reserves and so

any restatement would have a material impact on

the global estimate.

21. New oil discoveries have been disappointing in size

0

20

40

60

1960-69 1970-79 1980-89 1990-99 2000-09

0

50

100

150

200

250

Disc over ies Production Av g size (mb)

Source: IEA

Getting new supply on stream – pinchpoints and prices

In theory, we simply need to work out the

economic cost of getting this energy out of the

ground to work out how demand pressures will

impinge upon prices. Reality is complicated by

two things: lead times and OPEC.

Let’s deal with the economics first. The economic

cost of satisfying the next couple of decades with

oil are low, much lower than today’s oil price

(Chart 22). As we get beyond this oil is harder to

reach and the cost of extraction is greater. At

more than USD100 dollars per barrel, substitutes

for crude such as tar sands and synthetic liquids

become more viable. Towards USD150/barrel

22. Today’s estimate of the prices required to get new ‘oil’ supply on stream

0

50

100

150

52 103 155 206 258

Produced Middle East

Other

conv

EOR

Deep w ater Heav y Oil

inc tar

sands

Shale Sy nthetic liquids

(GTL, CTL, BTL -

from gas & coal)

Ethano l (biofuels)USD/ barrel

Years of energy left at current demand of $85mn/ day

Source: HSBC estimates based on IEA data, GTL = Gas to liquids, CTL = Coal to liquids, BTL = Biomass to liquids , EOR = Enhanced Oil Recovery

16


abc

biofuels come into their own (we’ll discuss in

more detail shortly).

OPEC therefore tries to manage oil prices to

maximise revenue while at the same time keeping

prices below the level that might encourage

investment in long-term, unconventional supplies

of liquid fuels (such as tar sands and biofuels) or

promote efficiency improvements. After all, some

members have many years of reserves left and

need to ensure that oil has a long-term role in the

energy equation.

Chart 22 doesn’t, however, provide us with a

ceiling for oil prices. This is because high prices

might spur the investment but it takes many years

to get the supply on tap. For example, a deepwater

field can take more than five years from discovery

until it starts production. Large complex projects

can take even longer. The huge Kashagan field in

Kazakhstan, one of the largest recent discoveries

in the world, was discovered in 2000 and is due to

start production in late 2012 or early 2013.

The incremental cost increases needed to deliver

additional gas and coal are not as extreme as they

are for oil. Quite simply, they don’t get

progressively harder to find. Most conventional

gas fields are commercial at gas prices over

USD3-5/Mcf. This is the same as the US gas price

in 2010 and half the contracted gas price in

Europe and Asia.

Similarly, coal extraction prices have remained

largely unchanged. Truck and shovel operations

have improved in scale, but the basic technology of

digging, washing, railing and shipping coal is, from

a technology viewpoint, relatively static.

Underground mining via larger long-wall extraction

technology is also a well-established technique.

Therefore despite the fact coal and gas can be

substituted for oil (for power generation if not

transport needs) movements and pressures in the

oil market don’t necessarily translate one for one

into coal and gas prices (Chart 23).

23. There can be significant divergences in gas prices by region and the relationship with oil is not tight but nevertheless evident

0

30

60

90

120

150

1985 1990 1995 2000 2005 2010

0

30

60

90

120

150

Euro gas US Gas UK Gas Coal Brent

USD per barrel USD per barrel

Source: Thomson Reuters Datastream and HSBC calculations.

17


abc

Energy security So on aggregate, pressures in the oil market could

be in part relieved by increased use of coal and

gas. However, the supply of these alternatives

isn’t necessarily in the right place.

Clearly the problem with gas is that most of it is in

areas that are remote from market, including Siberia

and the Middle East (Iran, Iraq and Qatar). Getting it

to the final user is restricted by the ability to lay a

pipe, or liquefy it and treat it like oil. Both are

expensive and for this reason there can be marked

differences in gas price across regions (Chart 23).

24. There is a lot more coal left than other fuel types, and it’s spread by region

0

50

100150

200

250

Europe* North

America

South &

Central

America

Middle

East &

Africa

Asia-

Pacific

Year

s

Coal Gas Oil

Source: World Energy Council and HSBC analysis * Europe and the FSU

Moreover, Chart 24 shows that the world’s gas

supplies are almost as densely concentrated in

Russia and the Middle East as oil is. Therefore

substituting gas for oil may give you an

alternative, perhaps cheaper, energy source but

the problem of energy security still exists.

Coal is more widely distributed geographically,

with strong reserve bases and existing production

either close to end-demand or in politically stable

regions. In the medium to longer term, therefore,

coal is likely to be less volatile in price and under

less upward pressure from a changing resource

base in comparison to other hydrocarbons.

Chart 25 shows how much of each energy type is

available today, and how much per head of

population. Looking on an energy production per

person basis, the areas which look to be most

‘energy insecure’ are Europe, LATAM and India

by 2035. However, LATAM and India are making

strides in addressing this shortfall by increasing

their energy production faster than their

populations. Europe by contrast is doing the

opposite; suggesting a large strain on energy

security in the region by 2035. Africa has a

similar problem, but energy demand in the region

is far lower.

At the other end of the spectrum, Australia’s vast

gas and coal reserves, coupled with a relatively

small population, place it alongside Russia and

the Middle East among those who are best placed.

The appendix at the back of this report provides a

more detailed analysis on the energy use of each

individual country.

18


abc

25. The fossil fuel producers – numbers in parentheses show amount of energy produced per head of population.

589(1.55)

828(2.61)

COAL (Mtce)

606(1.59)

575(1.81)

GAS (bcm)

7.1(0.019)

7.4(0.023)

OIL (mb/d)

20352009US

589(1.55)

828(2.61)

COAL (Mtce)

606(1.59)

575(1.81)

GAS (bcm)

7.1(0.019)

7.4(0.023)

OIL (mb/d)

20352009US

32(0.19)

55(0.38)

COAL (Mtce)

240(1.41)

223(1.54)GAS (bcm)

7.8(0.046)

6.2(0.043)

OIL (mb/d)

20352009N. America (ex US)

32(0.19)

55(0.38)

COAL (Mtce)

240(1.41)

223(1.54)GAS (bcm)

7.8(0.046)

6.2(0.043)

OIL (mb/d)

20352009N. America (ex US)

226(0.14)

208(0.18)

COAL (Mtce)

435(0.26)

207(0.18)

GAS (bcm)

10.3(0.006)

10(0.009)

OIL (mb/d)

20352009Africa

226(0.14)

208(0.18)

COAL (Mtce)

435(0.26)

207(0.18)

GAS (bcm)

10.3(0.006)

10(0.009)

OIL (mb/d)

20352009Africa

99(0.40)

79(0.40)

COAL (Mtce)

195(0.78)

134(0.68)

GAS (bcm)

5.2(0.021)

4.8(0.024)

OIL (mb/d)

20352009LATAM (ex Brazil)

99(0.40)

79(0.40)

COAL (Mtce)

195(0.78)

134(0.68)

GAS (bcm)

5.2(0.021)

4.8(0.024)

OIL (mb/d)

20352009LATAM (ex Brazil)

--COAL (Mtce)

85(0.39)

14(0.07)

GAS (bcm)

5.2(0.073)

2(0.010)

OIL (mb/d)

20352009Brazil

--COAL (Mtce)

85(0.39)

14(0.07)

GAS (bcm)

5.2(0.073)

2(0.010)

OIL (mb/d)

20352009Brazil

221(0.31)

420(0.57)

COAL (Mtce)

569(0.79)

531(0.72)GAS (bcm)

7.5(0.010)

7.7(0.011)OIL (mb/d)

20352009Europe

221(0.31)

420(0.57)

COAL (Mtce)

569(0.79)

531(0.72)GAS (bcm)

7.5(0.010)

7.7(0.011)OIL (mb/d)

20352009Europe

Source: BP Statistical Review and HSBC

19


abc

500(0.33)

332(0.27)

COAL (Mtce)

101(0.07)

32(0.03)

GAS (bcm)

0.8(0.001)

0.8(0.001)

OIL (mb/d)

20352009India

500(0.33)

332(0.27)

COAL (Mtce)

101(0.07)

32(0.03)

GAS (bcm)

0.8(0.001)

0.8(0.001)

OIL (mb/d)

20352009India

393(14.82)

331(15.39)

COAL (Mtce)

134(5.05)

45(2.09)

GAS (bcm)

--OIL (mb/d)

20352009Australia

393(14.82)

331(15.39)

COAL (Mtce)

134(5.05)

45(2.09)

GAS (bcm)

--OIL (mb/d)

20352009Australia

540 (0.26)

310 (0.19)

COAL (Mtce)

369 (0.18)

272 (0.17)

GAS (bcm)

2.3 (0.001)

3.5 (0.002)

OIL (mb/d)

20352009Asia (ex China, India)

540 (0.26)

310 (0.19)

COAL (Mtce)

369 (0.18)

272 (0.17)

GAS (bcm)

2.3 (0.001)

3.5 (0.002)

OIL (mb/d)

20352009Asia (ex China, India)

2825(1.93)

2076(1.53)

COAL (Mtce)

185(0.13)

80(0.06)

GAS (bcm)

2.4(0.002)

3.8(0.003)

OIL (mb/d)

20352009China

2825(1.93)

2076(1.53)

COAL (Mtce)

185(0.13)

80(0.06)

GAS (bcm)

2.4(0.002)

3.8(0.003)

OIL (mb/d)

20352009China

193(1.54)

239(1.70)

COAL (Mtce)

814 (6.49)

662 (4.72)GAS (bcm)

9.1 (0.073)

10.2 (0.073)

OIL (mb/d)

20352009Russia

193(1.54)

239(1.70)

COAL (Mtce)

814 (6.49)

662 (4.72)GAS (bcm)

9.1 (0.073)

10.2 (0.073)

OIL (mb/d)

20352009Russia

2(0.01)

2(0.01)

COAL (Mtce)

801(3.10)

393(2.26)GAS (bcm)

38.1(0.147)

24.8(0.142)

OIL (mb/d)

20352009Middle East

2(0.01)

2(0.01)

COAL (Mtce)

801(3.10)

393(2.26)GAS (bcm)

38.1(0.147)

24.8(0.142)

OIL (mb/d)

20352009Middle East

Source: BP Statistical Review and HSBC

20


abc

Carbon constraints So oil is too limited in supply and gas often too

hard to transport, leaving coal as the natural

option to meet all the increased demand. That

takes us nicely to the other constraint we’re up

against – climate change – since coal is by far the

most polluting fuel.

26. Increasing carbon emissions….

0100020003000400050006000700080009000

1800

1810

1820

1830

1840

1850

1860

1870

1880

1890

1900

1910

1920

1930

1940

1950

1960

1970

1980

1990

2000

2010

mt CO2

Source: Boden, T.A., G. Marland, and R.J. Andres, 2010. Global, Regional, and National Fossil-Fuel CO2 Emissions. Carbon Dioxide Information Analysis Center, Oak Ridge National Laboratory, U.S. Department of Energy, Oak Ridge, Tenn., U.S.A. doi 10.3334/CDIAC/00001_V2010

After all, the scarcity of fossil fuels isn’t the only

constraint we’re facing. Significant environmental

damage has already been done. Carbon emissions

have increased the carbon stock in the atmosphere

to 8.4 billion metric tonnes since the first

recordings in 1751.

This has coincided with an alarming increase in

global temperatures. Indeed 2010 was the

warmest year since records began in 1880, with a

global average temperature of 14.6˚C (Chart 27).

27. …are resulting in rising temperatures

13.013.213.413.613.814.014.214.414.6

188

0

189

0

190

0

191

0

192

0

193

0

194

019

50

196

0

197

0

198

0

199

0

200

0

201

0

º C

Global long run av erage temperature

Source: National Oceanic and Atmospheric Administration

The outcome of global climate negotiations in

2010 was that warming should be kept to less than

2°C. Temperature rises above this would result in

a reduction in water availability of 20-30% in

some areas, sharp declines in crop yields in

tropical regions and increased incidence of wind

FoodFood

Atlantic Atlantic circulationcirculation

Greenland /Greenland /AntarcticAntarctic

Sea LevelSea Level

Atlantic thermohaline circulation starts to weaken3

Global temperature change (relative to 1900 baseline)1º C 2º C 5º C4º C3º CSector Observed 0.7º C

Modest increases incereal yields intemperate region11

Sharp declines in crop yield in tropical regions3

EcosystemEcosystem

HealthHealth

PermafrostPermafrost 14-80% increase in thawedpockets of soils7

An excess of 1,13,000 diarrhoea,3,000 Malnutrition and 17,000 incidents of Malaria projected per year by 20306

Severe species loss over central Brazil projected if deforestation and fires are not controlled4

WHO attributes150,000 deaths per year to CC5

Melting of permafrost causes damage to Building & infrastructures3

Rising risk of the collapse of Atlantic thermohaline circulation3

Rising risk of Greenland melting irreversibly & collapseof West Antarctic Ice sheet3

Collapse of Greenland may lead to 7 m sea level riset3Rate of sea level rise increased from 1.8 mm/yr to 3.5 mm/ yr (1993-2008)8

The global surface affected by drought doubled since 19709

Amazon might reach a tipping point10

<400 450 >750650550CO2 –eq. 430

FoodFood

Atlantic Atlantic circulationcirculation

Greenland /Greenland /AntarcticAntarctic

Sea LevelSea Level

Atlantic thermohaline circulation starts to weaken3

Global temperature change (relative to 1900 baseline)1º C 2º C 5º C4º C3º CSector Observed 0.7º C

Modest increases incereal yields intemperate region11

Sharp declines in crop yield in tropical regions3

EcosystemEcosystem

HealthHealth

PermafrostPermafrost 14-80% increase in thawedpockets of soils7

An excess of 1,13,000 diarrhoea,3,000 Malnutrition and 17,000 incidents of Malaria projected per year by 20306

Severe species loss over central Brazil projected if deforestation and fires are not controlled4

WHO attributes150,000 deaths per year to CC5

Melting of permafrost causes damage to Building & infrastructures3

Rising risk of the collapse of Atlantic thermohaline circulation3

Rising risk of Greenland melting irreversibly & collapseof West Antarctic Ice sheet3

Collapse of Greenland may lead to 7 m sea level riset3Rate of sea level rise increased from 1.8 mm/yr to 3.5 mm/ yr (1993-2008)8

The global surface affected by drought doubled since 19709

Amazon might reach a tipping point10

<400 450 >750650550CO2 –eq. 430 Source: HSBC’ Too Close for Comfort’, Nick Robins & Zoe Knight, December 2009

21


abc

borne disease such as malaria. Increasing resource

shortages and productivity declines come against

a growing, wealthier population whose changing

demands also put pressure on the agricultural

framework.

We also at this juncture need to consider water

availability because water and energy are so

entwined. The feedback loop of declining water

availability also impacts the energy sector, which

can be water intensive. Water is mainly used in

two stages of the energy value chain process,

during production of energy raw materials, and

during the transformation of the raw source into a

form useable by consumers.

Localised water stress has already resulted in power

cuts. In 2003, Electricité de France had to shut down

a quarter of its 58 nuclear plants due to inadequate

water supplies for cooling caused by a record heat

wave. More recently, in 2010, the Chandrapur

thermal power plant in India was closed for a month

as a result of water stress, and in Pakistan, the

hydroelectic industry is suffering from lower levels

of water in reservoirs; hydro power generation was

6000MW in 2009 and has now reduced to 2000MW.

In addition, new power sources are being built in

areas of resource shortage. In India, 79% of new

capacity plants will be built in areas that are already

water scarce or stressed. The table below shows how

much water is withdrawn during the production and

transformation processes for different energy

sources. Using these withdrawal rates 0.46% of

water was withdrawn for electricity in 2010. This is

forecast to increase to 1.61% by 2050. Currently in

India, c90% of water use is for agriculture. As we

progress through the coming decades we expect

water considerations to play a greater role in

power generation planning.

28. Water and energy are intrinsically entwined

Gas and liquid fuels value chain-water consumption

Raw materials - Litres per GJ Transformation - Litres per GJ

Traditional Oil 3-7 25-65 Enhanced Oil Recovery 50-9,000 25-65 Oil sands* 70-1,800 25-65 Corn 9,000-100,000 47-50 Soy 50,000-270,000 Sugar N/A 14 Coal 5-70 Coal-to-liquids: 140-220 Gas Traditional Gas Minimal Natural gas processing: 7 Shale Gas 36-54 Electricity industry value chain-water consumption – thermoelectric fuels

Raw Materials – litres per MWh

Transformation litres per MWh

Coal 20-270 Thermoelectric generation with closed-loop cooling: 720-2,700 Oil, Natural Gas Wide Variance Uranium (nuclear) 170-570 Hydroelectric Evaporative loss:Averages:17,000 Geothermal 5,300 Solar Concentrating solar: 2,800-3,500

Photovoltaic: Minimal Wind Minimal

Source: World Economic Forum

22


abc

An enormous challenge…

On our ‘if only’ forecasts of energy use, CO2

stock in the atmosphere would rise by 100% to

56Gt CO2 by 2050 (Chart 29). However, to

contain global warming to below 2°C by 2050 the

global consensus is that world emissions have to

fall by 50% from 1990 levels, which implies a

carbon stock from energy of just c10GtCO2. On

this basis, we could only use the amount of fossil

fuels that we used in 1969!

…which if we fail to meet will impact the emerging world disproportionately Globally we face a major challenge. If we fail to

meet that challenge the effects will fall

disproportionately on the emerging world.

Chart 30 shows that the parts of the world that we

estimate would be most affected by climate change

in 2020 (whereby a scale of 1 represents most

affected). China, India, South East Asia and Brazil –

some of the economies for which we forecast the

strongest energy demand – would be most affected.

This suggests that as the energy hungry emerging

world builds their economic infrastructure, it has

every incentive to do so in a way which is least

energy intensive, in order to minimise their carbon

footprint. In other words, climate change will act as a

‘threat multiplier’ in reducing carbon damage. Of

course that is not to say that the developed world

should not pull its weight given energy use per

capita is so much higher in the US than China.

Overall, it’s quite clear that on our current way of

producing goods and services, trebling world output

by 2050 would place too much pressure on both the

global energy markets, and the environment.

In what follows we consider how the constraints can

be overcome. These are split into improving energy

efficiency, using less energy to produce the goods

and services (improving energy efficiency) and

moving the mix of energy towards more abundant

and less carbon polluting alternatives.

29. We’re way off target in meeting emissions promises

0

10,000

20,000

30,000

40,000

50,000

60,000

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

2010

2015

2020

2025

2030

2035

2040

2045

2050

World BAU CO2 Emissions World CO2 @ 50% reduction from 1990

mtCO2

Source: HSBC, CDIAC

Global E

con

om

ics & C

limate C

han

ge

En

ergy in

2050 22 M

arch 2011

23

ab

c30. The economies most vulnerable to the impact of climate change (index where 1 equals most affected)

0.74

0.62

0.18

0.45

0.41

0.310.32

0.34

0.54

0.54

0.69

0.40

0.62

First quartile - Highly vulnerable

Third quartile - Less vulnerable

Second Quartile - Moderately vulnerable

Fourth quartile - Marginally Vulnerable

Not investigated

0.53

0.26

0.16

0.55

0.53

0.70

0.43

0.45

0.74

0.62

0.18

0.45

0.41

0.310.32

0.34

0.54

0.54

0.69

0.40

0.62

First quartile - Highly vulnerable

Third quartile - Less vulnerable

Second Quartile - Moderately vulnerable

Fourth quartile - Marginally Vulnerable

Not investigated

0.53

0.26

0.16

0.55

0.53

0.70

0.43

0.45

Source: HSBC

24


abc

Getting more out of energy Our forecasts for economic growth will not

materialise if we continue with the way we use

energy today and will place the energy resources

under too much stress. The best way to bypass

this constraint is to work out how to increase

production without as much energy.

Transport

The lowest hanging fruit are in the transport sector.

This is one of the few areas where the ‘less energy

options’ are actually cheaper and therefore most

likely to happen quickly without disrupting growth.

31. Cars account for more than half the demand for transport energy

Road

passenger

53%

Road

freight

23%

Rail freight

3%

Sea freight

10%

-Air

passenger

9%

Source: HSBC, IEA

Passenger vehicles (which represent more than half

of total transport – Chart 31) could be made

significantly more efficient. For a start, engine sizes

could be smaller. Cars will still get you from A to B

and having less acceleration at the traffic lights is

unlikely to hinder economic growth (Chart 32).

32. Smaller engine sizes would make for a more efficient car fleet

0 10 20 30 40

2.0

3.0

M PG

Engi

ne S

ize

(L)

BMW Z4

Source: BMW

33. Consumers are already moving to smaller engine sizes as oil prices rise

1,500

1,600

1,700

1,800

1,900

2,000

2,100

1996

1998

2000

2002

2004

2006

2008

Gasoline engine Diesel engine

Size of engine (cc)

Source: Global Insight, HSBC calculations

Indeed, Chart 33 shows that as oil prices have

crept up in recent years, consumers are already

3. Solution: Efficiency

When energy was cheap, we were using it inefficiently

There are some easy, cheap ways to reduce energy use

Transport offers greatest opportunity for reducing fuel demand

25


abc

moving towards smaller engine sizes in response

to higher oil prices.

And Chart 34 really drives home the point that

energy use in transport is a ‘choice variable’.

Areas of the developed world where the

population is just as widely spread as towns in the

US still use considerable less energy for transport.

Australia provides a clear example. It is entirely

clear why this is the case although the social

‘acceptability’ of public transport probably plays

an important role. It might be a little less

comfortable, but it is absolutely possible.

There is also the possibility of moving away from

the combustion engine and electrifying the car

fleet. Electric vehicles (EVs) themselves are more

energy efficient than traditional cars. Of 100 units

of energy put into a car, only 14 of them are used

to propel the car in motion. For electric vehicles

this doubles to 28.

By using power rather than fuel in cars we could

also switch from oil to other energy sources. So

electrifying the car fleet actually spans our two

solutions of efficiency and energy mix.

We expect EVs to play a major role in decarbonising

the economy but at present there are two major

problems with widespread implementation of EVs –

cost and network infrastructure.

An EV costs twice as much as a car with a

standard internal combustion engine. The cost of

the battery – at 50% of the total cost of the vehicle

– plays a significant role. For a significant drop in

EV costs, manufacturers need to produce larger

batches to benefit from economies of scale.

And the life of the battery still means that the

distance that can be travelled before topping up is

too short for it not to be supported by a charging

station network. Such investment requires a larger

take-up of vehicles.

34. Transport energy consumption is a ‘choice’

Tran

spor

t-rel

ated

ene

rgy

cons

umpt

ion

giga

joul

espe

r cap

ita p

er y

ear

0 25 50 75 100 125 150 200 250 3000

10

20

30

40

50

60

70

Houston

PhoenixDetroitDenver

Los AngelesSan Francisco

BostonWashington

ChicagoNew York

TorontoPerthBrisbaneMelbourneSydney

HamburgStockholm

FrankfurtZurichBrusselsMunichWest BerlinVienna

ParisLondon

CopenhagenAmsterdam

SingaporeTokyo

MoscowHong Kong

Urban density inhabitants per hectare

80

North American cities Australian cities European cities Asian cities

Tran

spor

t-rel

ated

ene

rgy

cons

umpt

ion

giga

joul

espe

r cap

ita p

er y

ear

0 25 50 75 100 125 150 200 250 3000

10

20

30

40

50

60

70

Houston

PhoenixDetroitDenver

Los AngelesSan Francisco

BostonWashington

ChicagoNew York

TorontoPerthBrisbaneMelbourneSydney

HamburgStockholm

FrankfurtZurichBrusselsMunichWest BerlinVienna

ParisLondon

CopenhagenAmsterdam

SingaporeTokyo

MoscowHong Kong

Urban density inhabitants per hectare

80

North American cities Australian cities European cities Asian citiesNorth American cities Australian cities European cities Asian cities Source: Newman et Kenworthy, 1989; Atlas Environnement du Monde Diplomatique 2007.

26


abc

As such the electric vehicle is somewhat stuck in

a Catch 22. Governments could play a major role

in resolving this.

In parts of the developed world, governments

don’t have much incentive at present to make a

major push in this direction. For example, in the

UK, consumer incentives to encourage lower

petrol consumption might eliminate GBP7bn of

tax revenue by 2030. Indeed, the UK Treasury

looks to have conceded to postponing fuel duty

increases because of the pressure rising fuel prices

are having on people’s discretionary income. This

shows how difficult it is to push consumers to

change habits.

But as we have already highlighted, the potential

for oil prices and energy security to cause a more

significant political disruption could change this.

Governments have been increasingly

implementing exhaust CO2 legislation. Indeed, the

CO2 emission target for passenger cars in Europe

is 130g/km by 2015 and this will be reduced to

95g/km by 2020. Given the high cost of

implementing further significant emission cuts in

the internal combustion engine (especially for

larger cars); we believe that ongoing electrification

of the car fleet (from micro hybrids to full electric

vehicles) will be the only technology to reduce

carbon emission at the right cost.

The emerging world, where the infrastructure is yet

to be established, is making greater strides making

the switch seem more likely and straight forward.

China, with a lot of coal and therefore potential

electricity on its doorstep, is currently subsidising

electric vehicles to increase the production line to

the levels required to spur R&D and larger take

up. Sales of electric vehicles and hybrids

increased by 30% in the US last year compared to

143% in China.

The Global Fuel Initiative, a consortium of

international government regulators, has a target

of increasing the efficiency of the global car fleet

by 50% by 2050. Interestingly this doesn’t hinge

on a complete roll-out of electric vehicles but on

incremental change to the conventional internal

combustion engines and drive systems, along with

weight reductions and better aerodynamics. The

move to electric vehicles, however, will make it

easier to meet climate targets.

Industry

There are also significant efficiency

improvements that could be made in industry. The

new power plants that are being established in the

emerging world are 8-10% more efficient than the

dinosaurs in the western world.

Significant progress has also been made in

primary industry which is expected to continue. In

the last 20 years steel has posted a 29% reduction

in energy consumption per unit of product,

cement a 23% reduction and paper a 12%

reduction, and the implementation of best

available technologies will accelerate efficiency

gains. For example, in the cement industry alone,

converting a ‘wet process’ cement plant to an ‘air

dry’ process can cut energy use by almost 50%.

27


abc

Buildings

Buildings account for 38% of the total energy use

and again there are significant improvements that

can be made here since buildings are also

extremely energy inefficient. It is perfectly feasible

to have zero energy homes, which is the direct

target for homebuilders set by some European

governments (Chart 35). Indeed, a new European

directive1 has set that by 2020 all new buildings

are almost zero-energy.

Again this comes at a cost. UK homebuilders

estimate that meeting these criteria can increase the

cost of building a house by around 12%. But these

costs are falling quickly as builders are finding ways

of meeting the standards more efficiently. Indeed by

2016 they estimate these costs will have roughly

halved. Again this is another example whereby the

solutions are there, it’s just while energy has been

cheap, things haven’t been done.

Improving the existing stock is more of a

challenge. After all, at current building rates it

would take 140 years to replace these with new

energy efficient homes. But the existing stock can

still be made more energy efficient. Thermal

1 Directive 2010/31EU of the European Parliament on the Energy Performance of Buildings (May 2010)

renovation work can save the energy used in

buildings by 78%. This can be quick and in the

case of insulating the loft reasonably cheap.

Governments can make a considerable difference

to moving the system in the right direction. This

might simply involve better regulation to ensure

that consumers make rational choices about energy

consumption. For example, a global shift to energy

efficient lighting (CFLs) will cut global electricity

demand by c409TWh per year equivalent,

equivalent to the combined yearly electricity

consumption of the United Kingdom and Denmark.

The resulting cost saving would be cUSD47bn,

paying back the CFL investment within one year.

But the larger benefit would be the avoided energy

infrastructure investment by cUSD112bn.

The World Business Council for Sustainable

Development has put together a proposal to

achieve the necessary transformation in a way that

is realistic given cost and other economic

pressures. They look for a 60% reduction in

energy use by buildings by 2050.

All in all, energy efficiency is the most effective way

of reducing our dependence on energy. Higher fossil

prices will speed up the transition but government

regulation can and will continue to play a role.

35. Government emissions targets on new builds will make a difference but changing the efficiency of the existing stock is a problem

0

20

40

60

80

100

120

France Belgium Denmark Germany

kWh/

Sq.m

per a

nnum

2007 2010 2012 2014 2015 2016 2020

-50%

-99%

-77%

-67%

-30%

-30%

0

20

40

60

80

100

120

France Belgium Denmark Germany

kWh/

Sq.m

per a

nnum

2007 2010 2012 2014 2015 2016 2020

-50%

-99%

-77%

-67%

-30%

-30%

Source: Company data and HSBC estimates

28


abc

This page has been left blank intentionally.

29


abc

Changing the mix Efficiency will take us some of the way, but

thinking about the type of energy we use is also

important, particularly if pressures on one source

– oil – become more intense.

36. Carbon culprits (gCO2e/kWh)

0

200

400

600

800

1000

Coal Oil Shale

gas

Nat

Gas

Nat

Gas

(CCS)

IEA

2050*

PV WindNuclear

Indirect emissionsCombistion emissions

Source: IEA, HSBC calculations

We have already talked about how moving to

electric vehicles allows us to use other fuel

sources to power vehicles, reducing our

dependence on oil. However, if we move to the

most abundant source – coal – this will have serious

implications for the environment since coal is by far

the worst polluter (Chart 36).

We’ll start by thinking about the alternatives to fossil

fuels. These are renewables, biomass, and nuclear.

We’ll then turn to fossil fuels and how we can limit

their damage to the environment.

Renewables

Renewables are the ultimate fix. They are almost

endless in supply, remove problems of energy

security, and have a limited impact on the

environment.

Chart 37 shows who, given their geographic

location, are best placed to generate renewable

energy. Unsurprisingly, those nearest the equator

– Africa, South America and Asia, have

significant potential for harnessing solar energy

while Russia and North America can increase

biomass production. As such, renewable energy is

not so contingent on location, but instead ‘free’

land use.

4. Solution: changing the mix

Low carbon sources of energy are more costly but prices of

renewables are falling

Second-generation biofuels will help meet transport demand without

damaging the food chain

If nuclear energy is avoided following recent events in Japan,

meeting climate targets will be even more difficult

30


abc

37. Renewable energy potential

31000 TWh

N. America

31000 TWh

N. America

42000 TWh

Africa

42000 TWh

Africa

25000 TWh

South America

25000 TWh

South America

11000 TWh

Europe

11000 TWh

Europe

Source: WWF

31


abc

5000 TWh

India

5000 TWh

India

12000 TWh

Pacific

12000 TWh

Pacific

7000 TWh

Rest of Asia

7000 TWh

Rest of Asia

15000 TWh

China

15000 TWh

China

30000 TWh

Russia

30000 TWh

Russia

8000 TWh

Middle East

8000 TWh

Middle East

32


abc

38. Oil price requirement (USD/barrel) for cost competitiveness of renewable sources with gas and coal

Technology Breakeven with gas

Breakeven with coal

Wind Turbines on shore 192 136 Wind Turbines offshore 404 358 Solar PV 639 603 Solar Thermal 591 554 Fuel Cell 282 230 Biomass 198 142 Geothermal 73 11 Nuclear 101 41

Source: HSBC

The problem with many of the non-fossil fuel

options is the price. Fossil fuel prices would have

to rise significantly from here for many of these to

be a better option (Chart 38). This would explain

why renewables are currently just 1% of the total

energy inputs at present.

39. Renewable energies have become considerably more cost competitive in recent years

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

2010

$ / kWh

Coal costGas costNuclear costSolar costWind cost

Source: US Energy Information Administration

However, as Chart 39 shows, costs have improved

dramatically in the past decade. Electricity

generated by hydropower will remain an

important part of the renewables mix but there is

limited scope for extra capacity as most feasible

hydro sources are already exploited. We see more

opportunities for the use of wind and solar.

Wind

Onshore wind is now reasonably cost compelling

particularly when one considers the added

benefits of energy security. It is also the most

utility scale renewable technology with 100+MW

wind farms frequently being built onshore and

500+MW wind farms offshore.

So by mid-2020 wind could be a mainstream

power generation technology. It is already the

most popular new power generation choice in

Europe, accounting for almost 40% of new

installations in 2008 and 2009. Similarly, in the

US in 2009, wind accounted for nearly 40% of

new installations, only marginally beaten by gas,

which accounted for 43%. China has quickly

grown into the largest wind market in the world. It

has championed a number of domestic wind

turbine manufacturers, which are now looking to

expand internationally. This is helping to push

down the cost of wind energy. The EU is the

birthplace of the wind industry and is still one of

the most supportive regions. Member states have

specific binding wind installation targets for 2020,

which also give targets for other renewables. But

government intervention has played a key role in

this development.

Solar

Solar is attractive as a decentralised form of

electricity generation on roof-tops, since

distribution and grid connection costs as well as

land-related expenses do not have to be

incorporated into electricity generation costs.

Currently solar requires substantial government

incentives to drive deployment. But prices are

steadily falling. The pivotal point comes when the

delivered cost of solar is the same for the

consumer as conventional alternatives – so-called

‘retail grid parity’. Some regions are already cost

competitive for solar, ie those where there is a

high rate of sun isolation, and where retail prices

for electricity are high. This is already the case in

California and Italy. This offers the potential for a

more decentralised energy system avoiding the

inefficiencies in centralised grid networks which

waste large proportions of energy between

generation and use.

33


abc

Biofuels

The first generation of biofuels were primarily

produced from food crops such as grains, sugar,

beets and oilseeds.

But this has two problems. The US drive for bio-

ethanol earlier this decade led to a material increase

in arable land dedicated to corn and a consequent

reduction in wheat. As a result this merely shifted

the ‘shortage’ problem onto the food chain leading

to rising corn prices (Charts 40 and 41).

41. …and putting upward pressure on prices

-100

-50

0

50

100

150

200

96 00 04 08

-100

-50

0

50

100

150

200

Oil Corn

%Yr %Yr

Source: Thomson Reuters Datastream

Moreover, biofuels weren’t even obviously better

for the environment since they fell well below the

minimum Green House Gas (GHG) emissions

reductions required by the new EU biofuel rules.

But as ‘food’ to power cars became a major, not

to mention moral, issue technology has already

started evolving.

Now the second generation of biofuels are

evolving which are produced from agriculture and

forestry residues, essentially the waste products

from agriculture (the husks rather than the corn).

These, in theory, do not affect the food chain.

They do, however, need far more processing and

costs need to be cut for the process to be

economic. However, prototype plants for this new

generation of ‘cellulosic ethanol’ are already in

operation and there are several large scale projects

planned. For example, Novozyme of Denmark, a

manufacturer of the enzymes needed for the

process, believes that the first commercial scale

plant could be in operation in 2013.

40. The first generation of biofuels were sucking resources away from the food market…

0

5

10

15

20

25

30

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

Shar

e (%

) of G

rain

use

d fo

r fue

l eth

anol

in U

S

Source: US Department of Agriculture

34


abc

Nuclear

Currently nuclear energy contributes 6% to total

energy production. For many economies nuclear

energy has been the main way of improving energy

security, and nowhere more so than in France. In

1974, France began an intensive programme to build

nuclear power plants to limit its dependence on

imported oil. It now relies on nuclear power for

more than 75% of total electricity production (Chart

42). The same is also true of South Korea, although

it has also diversified into renewables. Since 1980,

the share of oil in South Korea’s electricity

generation has fallen from c80% to c6% in 2008,

while the share of nuclear power generation has

increased to c40%.

Chart 43, which shows current proposals for new

nuclear reactors, shows that many governments had

been counting on nuclear to play a major role in

meeting future energy needs. Recent events in Japan

will undoubtedly cause a rethink of the role nuclear

can play in the energy mix. The average age of the

operating nuclear fleet is currently more than 25

years old. It’s perhaps no surprise then that many

governments have ordered temporary closures of at

least some of their nuclear plants (US, Switzerland,

the UK, Spain, Germany).

42. Many countries see nuclear energy as a way of securing energy supply

0 20 40 60 80 100

ChinaIndia

BrazilMex ico

Netherlands

South AfricaArgentina

CanadaRussia

UKSpain

US

GermanyJapan

S. Korea

Sw itzerlandFrance

% Energy production from nuclear sources

Source: World Bank

Many are also reconsidering their plans for new

installations. China has announced a suspension of

new plant approvals, which was expected to account

for 40% of new installations over the next decade.

After the Chernobyl disaster, there was a two decade

freeze in nuclear expansion. Given current energy

needs, could the same occur again?

43. Nuclear plants are clearly playing a major role in governments plans to meet energy requirements

0

50

100

150

200

Argentina

Belgium

Brazil

Canada

China

Egypt

France

Germ

any

India

Indonesia

Iran

Italy

Japan

South Korea

Mexico

Poland

Russia

South Africa

Spain

Thailand

Turkey

UK

US

A

World (R

HS)

0

200

400

600

800

1000

Operable Under construction Planned Proposed

No No

Source: World Nuclear Association, 2 March 2011

35


abc

It is unclear as yet whether this is merely a

temporary reaction at the height of a crisis. Nuclear

industry experts are quick to highlight that design

and safety standards have come a long way since

1967 when the Fukushima plant was constructed

(Chart 44). In particular, new plants have passive

safety systems that rely on gravity and convection to

cool them down. New designs are therefore

apparently ‘fail safe’ compared to the manual

intervention required at Fukushima.

Even if we could be sure this was the case (it seems

likely that in the 1970s engineers would have

described Fukushima in a similar vein) the public

reaction is likely to be intense, with NIMBYism (not

in my back yard) likely to be a persistent restraint on

development.

Nuclear energy has many other problems. First, how

to dispose of nuclear waste? Spent fuel from reactors

will stay above the radioactive level of natural

uranium for more than 100,000 years. Roughly,

270,000 tonnes of spent fuel are in storage today and

some 10,000-12,000 tonnes are added each year,

3,000 of which are reprocessed. Site selection for

final geological repositories has proved to be a long

process and may pose as a significant risk for

nuclear power plant operations.

Uranium enrichment and reprocessing of spent fuel

can also be used to produce nuclear weapons. While

there are international treaties to monitor and curtail

the trade in nuclear material, proliferation risks exist.

Nuclear plants use water to cool the reactor

equipment. Nuclear plants consume larger amounts

of water per unit of electricity produced than IGCC

(coal) and NGCC (natural gas) based plants (Chart

44). However nuclear plants consume less water per

unit of electricity produced than geothermal and

solar thermal power plants.

44. Now on generation III+ of reactor

Source: Http://www.gen-4.org

36


abc

Carbon capture and storage As well as shifting to renewables, fossil fuels can

still be used in 2050 but only with carbon capture

and storage technology (CCS).

In essence, CCS captures the CO2 emissions from

exhaust gases at the power plants and stores it, so

that gases are not released into the atmosphere.

The possible storage options include geological

storage, ocean storage, mineral carbonation or

industrial use of CO2.

Typically, applying CCS to a modern

conventional power plant would reduce CO2

emissions by c80-90% compared to a plant

without CCS.

There are currently around 234 CCS projects

globally, with around 42% of these at an

operational stage and 47% in at initial planning.

However, it is expensive – the latest estimates

from the Global CCS Institute increase capex for

IGCC (coal into gas) by 30%, and for other coal

and gas technologies by 80-100%. Even more

worryingly, as more assessment of CCS options

have been undertaken, costs have risen by an

estimated 15-30% compared with three years ago.

In addition, CCS reduces the energy efficiency of

combustion (ie you need energy to pump the gas

into storage), further increasing the cost.

As with nuclear, water is also a constraint with CCS.

CCS is estimated to be 40-60% more water intensive

(per KWh) than conventional coal and gas.

But if fossil fuels are to remain a significant part of

the mix in 2050, CCS is the only way to deliver

fossil fuel energy and meet carbon targets. Of course

this does raise the possibility that growth targets are

met but without the right regulatory framework and

pricing systems climate targets are not.

37


abc

Fuelling growth, limiting climate change Essentially we’re trying to work out which is most

likely of the following five scenarios:

Growth projections and CO2 targets are met.

Growth projections are met, CO2 targets aren’t.

Growth projections aren’t met, CO2 targets are.

Targets can only be met for some countries,

due to the uneven geographical impact of

climate change.

No targets are met.

Of course, even these scenarios aren’t clear cut. It

is still uncertain whether missing the CO2 targets

will, within our timeframe, deliver devastating

climate change that significantly limits growth.

The only safe way of being confident about our

growth targets is to meet both the ‘reasonable

energy demand’ target and the CO2 target.

But let’s consider overcoming the fossil fuel

constraint first. Energy intensity has improved

(Chart 45), but by adopting the following efficiency

improvements we can reduce the demand for total

energy by 37% from our ‘if only’ scenario.

45. Energy intensity must improve much further

150

170

190

210

230

250

1980 1983 1986 1989 1992 1995 1998 2001 2004 2007

kg of oil equiv alent to produce $1000 GDP

World energy intensity

Source: World Bank

Efficiency of passenger transport improves in line

with global fuel economy initiatives. This leads to

a 50% improvement in the global vehicle stock’s

average engine efficiency by 2050.

Buildings energy efficiency is improved by

60% by 2050, in line with the World Business

Council for Sustainable Development

projections.

Industrial efficiency is improved by 20% by

2020, in part due to improvements in process

industries (steel and cement).

We have considered efficiency savings from a top

down perspective but they are consistent with

goals of governments that have released long term

energy plans. The Chinese aim to improve energy

intensity by 40-45% in the next five-year plan.

5. Putting it all together

A solution is possible, but the energy system in 2050 would be very

different to today

Meeting growth targets will be easier than meeting climate targets

Governments must deliver pre-emptive policy to avoid a significant

commodity crunch

38


abc

Chart 46 is a graphical representation of our

solution. The efficiency gains effectively make

the bar smaller.

This demand could be accommodated by fossil

fuels. But if this is the route we take then we will

dramatically miss climate targets; global CO2

emissions will rise rather than fall by the 50%

needed to prevent damaging climate change. As

such, growing global growth is possible with

some concerted efforts to improve intensity.

Meeting the CO2 constraint is a significantly

greater challenge. Chart 48 – a sobering

illustration – describes our estimate of the energy

mix required to meet the carbon constraint and

limit temperature gains.

Fossil fuels represent less than half the total

energy mix, and even here we have a significant

use of carbon capture storage technology with

only 10% of coal use unabated, and 20% of gas.

The share of energy mix met by renewables rises

from 3% to 23%. The fastest growth is seen in

wind and solar. Biomass and waste rises from

10% of the mix to 21%.

Reaching this target is clearly an enormous task

and that assumes that nuclear can play an even

greater role. If events at Fukushima hinder

governments’ desires to build nuclear plants this

will place even greater weight on improving

efficiency or expanding renewables. This will be

difficult to achieve, but greater use of fossil fuels

will make meeting the climate target impossible.

46. Delivering energy in a carbon constrained world

0

5000

10000

15000

20000

25000

2010 2050 'If Only ' 2050 'Solution'

Coal Oil Gas Hy dro & other renew ables Nuclear Biomass and w aste

m toe

Source: HSBC

47. Energy mix today 48. Energy mix in 2050

28%

32%

21%

6%

3%10%

Coal OilGas NuclearHy dro & other renewables Biomass & Waste

Total Primary Energy Demand (Mtoe)

16%23%

13%

14%21%

13%

Coal incl. CCS OilGas incl. CCS NuclearHydro & other renewables Biomass and waste

Total Primary Energy Demand (Mtoe)

Source: IEA Source: HSBC

39


abc

Facilitating the change

A bumpy ride if left to market forces

If left to market forces, higher energy prices are

the only way in which efficiency gains or a move

to low-carbon energy sources will occur because

we have demonstrated that many of the alternative

energy sources are not competitive with fossil

fuels prices.

We haven’t given a precise roadmap of how high

oil prices will go and therefore how quickly such

change will occur or how disruptive to growth

along the way, because it is virtually impossible to

forecast. This is because oil prices are extremely

sensitive to small imbalances between supply and

demand. Chart 49 shows that just a one million

barrel shortfall in supply results in a USD20

dollar rise in prices in this simulation. And as we

have discussed, while there is no reason for oil

prices to head materially above USD150 per

barrel before biofuels start making a major

contribution to supply, the length of lead times in

getting new supply on stream could mean very

significant price rises in the meantime.

What we can say is that leaving the change to market

forces could be extremely disruptive, making the

transition to our 2050 world very bumpy.

49. Oil prices are so sensitive to minor fluctuations in supply…

0

20

40

60

80

100

120

140

2005 2007 2009 2011 2013 2015

0

20

40

60

80

100

120

140Lower Pro duction

Feb base

USDUSD World oil price

Source: Oxford Economics

40


abc

The role of governments in managing a smooth transition

Governments could play a role in making the

transition significantly smoother. Where institutional

and behavioural barriers prevent consumers making

rational decisions about energy consumption,

product standards enforced through regulation are

also an effective way of raising efficiency levels,

saving consumers money in the process.

There are many ways of making the alternatives

cost compelling starting with pricing the carbon in

fossil fuels or subsidising the non-fossil fuels.

Subsidising

Where do governments get the money from? It is

worth bearing in mind how heavily fossil fuels are

currently subsidised. According to the IEA, in 2009

USD321bn in subsidies were provided for coal, oil,

gas and electricity (Chart 50). Indirect subsidies are

many times greater, for example, through artificially

low royalty payments for the depletion of fossil

fuels. In the US, for example, federal subsidies

estimated at USD2.7bn annually support the oil

industry. There is now growing international

agreement that fossil fuel subsidies should be

removed: the G-20 agreed in 2009 to “rationalize

and phase out over the medium term inefficient

fossil fuel subsidies that encourage wasteful

consumption.” A recent report reveals large gaps in

the reporting of subsidies by G20 countries and no

new action since 2009 have been taken by G20

nations to phase out fossil fuel subsidies.

Compare this USD321bn to the USD45bn that

Bloomberg New Energy Finance currently

estimates as the amount the governments of the

world are providing in support for renewable

energy and biofuels in 2009.

If governments are struggling, public finance

through development banks can also help to

crowd in private capital, for example, through the

provision of loan guarantees, co-lending and

construction guarantees. Equity investments by

multilateral development banks can leverage

about 1:8 to 1:10 times private debt and equity.

This is particularly needed for key pieces of

infrastructure in the clean energy generation

sector (like electric grids for offshore wind) and in

sustainable transport sector (like charging points

for electric vehicles).

Pricing

Getting policymakers to stop doing the wrong thing

is clearly a first step. Addressing market failures is

the next, most notably by reflecting the damage done

by carbon pollution in the price of energy.

50. Fossil fuel subsidies are enormous in the emerging world, accounting for USD321bn

0

10

20

30

40

50

60

70

Iran

Saud

i Ara

bia

Rus

sia

Indi

a

Chi

na

Egy

pt

Vene

zuel

a

Indo

nesi

a

Viet

nam

UAE

Uzb

ekis

tan

Iraq

Kuw

ait

Paki

stan

Arge

ntin

a

Ukr

aine

Alge

ria

Mal

aysi

a

Thai

land

Bang

lade

sh

Mex

ico

Turk

men

ista

n

Sout

h Af

rica

Qat

ar

Kaza

kist

an

Liby

a

Ecua

dor

Taiw

an

Oil subsidy Gas Coal Electricity

Source: IEA Energy Subsidy Database 2009

41


abc

The difficulty of applying the carbon price lever

however, is the issue it raises on industrial

competitiveness. Companies argue that if they

have to pay for carbon in one jurisdiction but not

another, companies in the non carbon price

targeted regions are advantaged, resulting in

‘carbon leakage’ so that the net effect is of a shift

of emissions, not a reduction. The carbon leakage

argument can hamper the ability of the mechanism

to function properly. For example, in the first

period of the EU emissions trading scheme, an

over-allocation of allowances in response to the

carbon leakage debate resulted in significant price

declines due to an excess supply of credits.

Of course nobody likes to pay for something that

has historically been free. But experience with

carbon pricing has grown by leaps and bounds

over the past decade. In spite of current political

setbacks in the US and criminal hacking in the EU

system, carbon trading is now an established

feature of the global energy system. Carbon

taxation is also gaining ground (for example in

India and South Africa).

Indeed, carbon pricing has a dual benefit – not

just sending a market signal to curb pollution, but

also raising revenues which could then be used to

cut other taxes, or accelerate clean energy

innovation and deployment. For example, in the

EU, the auctioning of emissions permits could

raise EUR190bn between 2013 and 2020 and in

India, a simple USD1/tonne cess on coal is set to

raise USD700mn a year for clean energy. With

natural capital increasingly the scarce factor of

production and labour in surplus, a tax shift away

from income and onto carbon would serve both

energy and wider job creation goals.

And we have already shown that there are

significant energy improvements that can be made

relatively quickly and relatively simply so higher

prices for corporates and consumers are likely to

speed up the efficiency gains keeping cost

pressure to a minimum.

Regulation

Beyond price, regulation will still be needed. Clean

energy portfolio standards provide investment

certainty, particularly if complemented with feed-in

tariffs or tradeable certificate schemes. To curb

carbon from fossil fuels, emission performance

standards provide a clear signal that fossil fuel

facilities should not emit more than a specified

level. And product standards on the demand-side

(eg fuel efficiency norms for cars, for example)

provide clarity to consumers with positive returns in

terms of fuel savings.

But there are significant challenges in government’s taking pre-emptive action

We do concede that reaching a global consensus

is often challenging, even when the environmental

crisis is so clearly pressing, as the case of global

fish stocks demonstrated only too well. We also

recognise this is a major generational problem.

Will the world’s ageing population concede to

higher ‘green’ taxes to secure the natural

environment for future generations?

42


abc

Reasons for optimism Technology will evolve

One reason for optimism is that we are looking at a

40-year time horizon and have found a solution

without having resorted to the ‘technology will

change to find a way’ argument. Our solution is

based on technologies that we know already exist

today even if not yet widely deployed.

But just as the era of stable and cheap energy

prices has made us lazy with efficiency, so too

have we been with energy R&D (Chart 48), but

this changing.

Globally, the relative share of energy in total R&D

has declined significantly, from 12% in 1981 to 4%

in 2008. In absolute terms, the US spends some

USD30bn per year on public sector health care

R&D, while the energy sector only attracts

cUSD5bn per year. The same trend is also evident in

the US corporate sector. For example,

pharmaceutical companies invest 20% of revenues

in RD&D, information technology (15%) and

semiconductors (16%). By contrast, energy firms

invest only 0.23% of revenues in RD&D (National

Science Board, 2010).

And public investment in R&D does make a

difference. The US Department of Energy found that

the investment of USD17.5bn between 1978 and

2000 – primarily in RD&D for energy efficiency and

fossil energy – yielded returns of USD41bn.

Accelerated patent activity is another indicator of the

success of public funding. According to the OECD,

a 10% increase in public R&D spending for

transport efficiency improvements resulted in a 1.8%

increase in high-value patents for hybrid vehicle

technologies and a 0.7% increase for electric

vehicles (OECD, 2010).

Nuclear power R&D has the highest share in

allocations, accounting for c37% in 2008.Getting on

to a low-carbon energy future will mean a 2 to 5

times increase in public R&D spending. But this

would only take energy R&D to 7-16% of 2008

fossil fuel subsidies.

A key feature of China’s 12th Five Year Plan,

launched in March 2011, is a goal to increase the

overall rate of R&D spending as a proportion of

GDP from the current level of 1.7% to 2.2-2.5%,

with a focus on seven Strategic Emerging

Industries, including non-fossil energy, electric

vehicles, new materials, energy efficiency, high

end manufacturing, ICT and biotechnology – all

of which have a low-carbon dimension.

51. Global R&D spending has been abysmally low in recent decades

0

5,000

10,000

15,000

20,000

25,000

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

0.00%

0.05%

0.10%

0.15%

0.20%

0.25%

0.30%

0.35%

0.40%North America Europe Pacific % GDP (RHS)USDm

Source: IEA RD&D database (*IEA member countries excluding Czech Republic, Poland and the Slovak Republic)

43


abc

It has been done before

This solution may seem forbidding, but there are

examples of how it has been achieved without

hindering economic growth.

52. Denmark setting a fine example

0

50

100

150

200

250

1970

1973

1976

1979

1982

1985

1988

1991

1994

1997

2000

2003

2006

2009

GDP Energy Cons. CO2 Emission

Source: Thomson Reuters Datastream, HSBC (Data rebased to 100)

Until the late 1970s Denmark was almost

exclusively dependent on fossil fuels. Since then,

the Danes have managed to sustain consistent

economic growth while keeping energy

consumption broadly flat. Chart 52 shows that

since 1970 the Danish economy has more than

doubled, while energy consumption has barely

increased. In addition, CO2 emissions were

reduced by c30%.

This decoupling has come about through a number

of changes: government incentive schemes,

including both sticks and carrots promoting

renewable energy and cleantech innovations. On

the supply side renewable power has been

promoted since 1980, growing from almost zero to

c30% of total electricity generation by 2009.

On the demand side the Danish society has been

the beneficiary of efficient lighting and better

insulation initiatives, and more importantly

switching to high efficiency district heating. In

2007, 61% of all Danish homes were supplied

with district heating. Energy intensity in Denmark

improved from 0.23 in 1970 to 0.11 in 2006.

Conclusion The era of cheap fuel that has now unambiguously

ended has resulted in a low innovation, somewhat

complacent energy system. Technological and

political inertia often still block the long-term

options that intrinsically cut resource, carbon and

energy risks. Government foresight on a scale not

seen for 40 years will be needed to chart the route

for the next 40 – at a time when the public sector

in the OECD has perhaps the least capacity in

decades to make strategic investments in new

infrastructure. The repeated shocks of economic

turbulence from an unsustainable energy system

may be the only way to push policy in the right

direction.

So as we return to our potential five scenarios:

Growth and CO2 targets are met

Growth targets are met, CO2 aren’t

Growth targets aren’t met, CO2 targets are

Targets can only be met for some countries,

due to the uneven geographical impact of

climate change

No targets are met.

It seems most likely that from an energy

availability perspective growth targets could be

met. Meeting CO2 targets is a more formidable

challenge which requires unprecedented change.

44


abc

Country detail

45


abc

China Energy input

0%

20%

40%

60%

80%

100%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

0%

20%

40%

60%

80%

100%

Oil Gas Coal Nuclear Hydroelectricity

China

Source: BP Statistical Review of World Energy, June 2010

Energy imports Inputs to electricity generation

-4%

-3%

-2%

-1%

0%

1%

1995 2008

-200

-150

-100

-50

0

50

%GDP (LHS) $bn (RHS)

China

0%

20%

40%

60%

80%

100%

1970

1980

1990

2000

Coal Hy dro Nat Gas Nuclear Oil Other

Source: WTO, HSBC calculations Source: World Bank

Carbon emissions and carbon productivity Carbon intensity of energy consumption

0

2,000

4,000

6,000

8,000

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

0.0

0.1

0.2

0.3

0.4

Emissions USDm GDP per Kt CO2 (RHS)

ktCO2 USDm/ktCO2

1.8

2.3

2.8

3.3

3.8

1970

1975

1980

1985

1990

1995

2000

2005

1.8

2.3

2.8

3.3

3.8

tCO2/toe tCO2/toe

Source: World Bank Source: World Bank

46


abc

US Energy input

0%

20%

40%

60%

80%

100%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

0%

20%

40%

60%

80%

100%


US



-3.0%

-2.5%

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

1995 2008

-500

-400

-300

-200

-100

0


US

0%

20%

40%

60%

80%

100%

1970

1980

1990

2000




0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

0.0

0.5

1.0

1.5

2.0

2.5


ktCO2 USDm/ktCO2

2.0

2.2

2.4

2.6

2.8

3.0

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

2.0

2.2

2.4

2.6

2.8

3.0tCO2/toe tCO2/toe


47


abc

India Energy input

0%

20%

40%

60%

80%

100%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

0%

20%

40%

60%

80%

100%

Oil Gas Coal Nuclear Hydroelectricity Series6

India



-8%

-6%

-4%

-2%

0%

1995 2008

-100

-80

-60

-40

-20

0


India

0%

20%

40%

60%

80%

100%

1970

1980

1990

2000




0

500

1,000

1,500

2,000

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

Emissions U SDm GDP per Kt CO2 (RHS)

ktCO2 USDm/ktCO2

1.0

1.5

2.0

2.5

3.0

1970

1975

1980

1985

1990

1995

2000

2005

1.0

1.5

2.0

2.5

3.0

tCO2/toe tCO2/toe


48


abc

Japan Energy input

0%

20%

40%

60%

80%

100%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

0%

20%

40%

60%

80%

100%

Oil Gas Coa l Nuclear Hydroelectricity

Japan



-6%

-5%

-4%

-3%

-2%

-1%

0%

1995 2008

-300

-250

-200

-150

-100

-50

0


Japan

0%

20%

40%

60%

80%

100%

1970

1980

1990

2000




0

400

800

1,200

1,600

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

0

1

2

3

4

5


ktCO2 USDm/ktCO

2.0

2.2

2.4

2.6

2.8

3.0

3.2

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

2.0

2.2

2.4

2.6

2.8

3.0

3.2

tCO2/toe tCO2/toe


49


abc

Germany Energy input

0%

20%

40%

60%

80%

100%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

0%

20%

40%

60%

80%

100%


Germany



-4%

-3%

-2%

-1%

0%

1995 2008

-150

-100

-50

0


Germany

0%

20%

40%

60%

80%

100%

1970

1980

1990

2000




0

200

400600

800

1,000

1,200

1970

1975

1980

1985

1990

1995

2000

2005

0.0

0.5

1.01.5

2.0

2.5

3.0


ktCO2 USDm/ktCO2

2.0

2.2

2.4

2.6

2.8

3.0

3.2

3.4

3.6

1970

1975

1980

1985

1990

1995

2000

2005

2.0

2.2

2.4

2.6

2.8

3.0

3.2

3.4



50


abc

UK Energy input

0%

20%

40%

60%

80%

100%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

0%

20%

40%

60%

80%

100%


UK



-1.0%

-0.5%

0.0%

0.5%

1995 2008

-25

-20

-15

-10

-5

0

5


UK

0%

20%

40%

60%

80%

100%

1970

1980

1990

2000




0

100

200

300

400

500

600

700

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5


USDm/ktCO2ktCO2

2.0

2.5

3.0

3.5

4.0

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

2.0

2.5

3.0

3.5



51


abc

Brazil Energy input

0%

20%

40%

60%

80%

100%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

0%

20%

40%

60%

80%

100%


Brazil



-1.5%

-1.0%

-0.5%

0.0%

1995 2008

-20

-15

-10

-5

0


Braz il

0%

20%

40%

60%

80%

100%

1970

1980

1990

2000




0

100

200

300

400

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

0.0

0.5

1.0

1.5

2.0

2.5

3.0


ktCO2 USDm/ktCO2

1.0

1.2

1.4

1.6

1.8

2.0

1970

1975

1980

1985

1990

1995

2000

2005

1.0

1.2

1.4

1.6

1.8



52


abc

Mexico Energy input

0%

20%

40%

60%

80%

100%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

0%

20%

40%

60%

80%

100%


Mexico



0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

1995 2008

0

5

10

15

20


Mex ic o

0%

20%

40%

60%

80%

100%

1970

1980

1990

2000




0

100

200

300

400

500

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

0.0

0.5

1.0

1.5

2.0


ktCO2 USDm/ktCO2

2.4

2.6

2.8

3.0

3.2

3.4

1970

1975

1980

1985

1990

1995

2000

2005

2.4

2.6

2.8

3.0

3.2



53


abc

France Energy input

0%

20%

40%

60%

80%

100%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

0%

20%

40%

60%

80%

100%


France



-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1995 2008

-100

-80

-60

-40

-20

0


Franc e

0%

20%

40%

60%

80%

100%

1970

1980

1990

2000




0

100

200

300

400

500

600

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

0

1

2

3

4


USDm/ktCktCO2

1.0

1.5

2.0

2.5

3.0

3.5

4.0

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

1.0

1.5

2.0

2.5

3.0

3.5



54


abc

Canada Energy input

0%

20%

40%

60%

80%

100%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

0%

20%

40%

60%

80%

100%


Canada



0%

1%

2%

3%

4%

5%

6%

1995 2008

0

20

40

60

80

100


Canada

0%

20%

40%

60%

80%

100%

1970

1980

1990

2000




0

100

200

300

400

500

600

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

0.0

0.5

1.0

1.5

2.0


ktCO2 USDm/ktCO2

1.8

1.9

2.0

2.1

2.2

2.3

2.4

2.5

2.6

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

1.8

1.9

2.0

2.1

2.2

2.3

2.4

2.5

2.6

tCO2/toe tCO2/toe


55


abc

Italy Energy input

0%

20%

40%

60%

80%

100%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

0%

20%

40%

60%

80%

100%


Italy



-2.5%

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

1995 2008

-60

-50

-40

-30

-20

-10

0


Italy

0%

20%

40%

60%

80%

100%

1970

1980

1990

2000




0

100

200

300

400

500

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

0.0

0.5

1.0

1.5

2.0

2.5

3.0


ktCO2 USDm/ktCO2

2.5

2.6

2.7

2.8

2.9

3.0

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

2.5

2.6

2.7

2.8

2.9



56


abc

Turkey Energy input

0%

20%

40%

60%

80%

100%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

0%

20%

40%

60%

80%

100%


Turkey



-4%

-3%

-2%

-1%

0%

1995 2008

-30

-25

-20

-15

-10

-5

0


Turkey

0%

20%

40%

60%

80%

100%

1970

1980

1990

2000




0

50

100

150

200

250

300

350

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

0.0

0.5

1.0

1.5

2.0

2.5

3.0


ktCO2 USDm/ktCO2

1.0

1.5

2.0

2.5

3.0

3.5

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

1.0

1.5

2.0

2.5

3.0



57


abc

South Korea Energy input

0%

20%

40%

60%

80%

100%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

0%

20%

40%

60%

80%

100%


South Korea



-10%

-8%

-6%

-4%

-2%

0%

1995 2008

-100

-80

-60

-40

-20

0


South Korea

0%

20%

40%

60%

80%

100%

1970

1980

1990

2000




0

100

200

300

400

500

600

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

0.0

0.5

1.0

1.5

2.0

2.5


ktCO2 USDm/ktCO2

2.0

2.4

2.8

3.2

3.6

1970

1975

1980

1985

1990

1995

2000

2005

2.0

2.4

2.8

3.2

3.6

tCO2/toe tCO2/toe


58


abc

Spain Energy input

0%

20%

40%

60%

80%

100%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

0%

20%

40%

60%

80%

100%


Spain



-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1995 2008

-50

-40

-30

-20

-10

0


Spain

0%

20%

40%

60%

80%

100%

1970

1980

1990

2000




0

100

200

300

400

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

0.0

0.5

1.0

1.5

2.0

2.5


ktCO2 USDm/ktCO2

2.0

2.2

2.4

2.6

2.8

3.0

3.2

3.4

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

2.0

2.2

2.4

2.6

2.8

3.0

3.2



59


abc

Russia Energy input

0%

20%

40%

60%

80%

100%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

0%

20%

40%

60%

80%

100%


Russia



0%

5%

10%

15%

20%

1995 2008

0

100

200

300

400


Russ ia

0%

20%

40%

60%

80%

100%

1970

1980

1990

2000




0

500

1,000

1,500

2,000

2,500

1989

1991

1993

1995

1997

1999

2001

2003

2005

0.00

0.05

0.10

0.15

0.20

0.25

0.30


ktCO2 USDm/ktCO2

2.2

2.3

2.4

2.5

2.6

2.7

2.8

1989

1991

1993

1995

1997

1999

2001

2003

2005

2.0

2.1

2.2

2.3

2.4

2.5

2.6

2.7

2.8

tCO2/toe tCO2/toe


60


abc

Indonesia Energy input

0%

20%

40%

60%

80%

100%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

0%

20%

40%

60%

80%

100%


Indonesia



0%

1%

2%

3%

4%

5%

1995 2008

0

2

4

6

8

10

12


Indonesia

0%

20%

40%

60%

80%

100%

1970

1980

1990

2000




0

100

200

300

400

500

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

0.0

0.2

0.4

0.6

0.8

1.0


ktCO2 USDm/ktCO2

1.0

1.2

1.4

1.6

1.8

2.0

2.2

1970

1975

1980

1985

1990

1995

2000

2005

1.0

1.2

1.4

1.6

1.8

2.0

2.2

tCO2/toe tCO2/toe


61


abc

Australia Energy input

0%

20%

40%

60%

80%

100%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

0%

20%

40%

60%

80%

100%


Australia



0.0%

1.0%

2.0%

3.0%

4.0%

1995 2008

0

10

20

30

40


Austra lia

0%

20%

40%

60%

80%

100%

1970

1980

1990

2000




100

150

200

250

300

350

400

1965

1970

1975

1980

1985

1990

1995

2000

2005

0.5

0.7

0.9

1.1

1.3

1.5


ktCO2 USDm/ktCO2

2.5

2.7

2.9

3.1

3.3

3.5

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

2.5

2.7

2.9

3.1

3.3

3.5tCO2/toe tCO2/to


62


abc

Argentina Energy input

0%

20%

40%

60%

80%

100%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

0%

20%

40%

60%

80%

100%


A rgentina



0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1995 2008

0.00.5

1.01.52.02.53.03.5


Argentina

0%

20%

40%

60%

80%

100%

1970

1980

1990

2000




0

50

100

150

200

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

1.5

1.7

1.9

2.1

2.3

2.5


USDm/ktCO2ktCO2

2.2

2.3

2.4

2.5

2.6

2.7

2.8

1970

1975

1980

1985

1990

1995

2000

2005

2.2

2.3

2.4

2.5

2.6

2.7

2.8

tCO2/toe tCO2/toe


63


abc

Egypt Energy input

0%

20%

40%

60%

80%

100%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

0%

20%

40%

60%

80%

100%


Egypt



0.0%

1.0%

2.0%

3.0%

4.0%

1995 2008

0

1

2

3

4

5

6


Egy pt

0%

20%

40%

60%

80%

100%

1970

1980

1990

2000




0

50

100

150

200

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

0.0

0.2

0.4

0.6

0.8

1.0


ktCO2 USDm/ktCO2

2.2

2.4

2.6

2.8

3.0

3.2

3.4

1970

1975

1980

1985

1990

1995

2000

2005

2.2

2.4

2.6

2.8

3.0

3.2

3.4

tCO2/toe tCO2/toe


64


abc

Malaysia Energy input

0%

20%

40%

60%

80%

100%

2000 2001 2002 2003 2004 2005 2006 2007 2008 20090%

20%

40%

60%

80%

100%


Malaysia



0%

2%

4%

6%

8%

10%

1995 2008

0

5

10

15

20


Malay s ia

0%

20%

40%

60%

80%

100%

1970

1980

1990

2000




0

50

100

150

200

250

1969

1974

1979

1984

1989

1994

1999

2004

0.0

0.2

0.4

0.6

0.8

1.0


ktCO2 USDm/ktCO2

2.0

2.2

2.4

2.6

2.8

3.0

3.2

3.4

1970

1975

1980

1985

1990

1995

2000

2005

2.0

2.2

2.4

2.6

2.8

3.0

3.2



65


abc

Saudi Arabia Energy input

0%

20%

40%

60%

80%

100%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

0%

20%

40%

60%

80%

100%


Suadi Arabia



0%

20%

40%

60%

80%

1995 2008

0

100

200

300

400


Saudi Arabia

0%

20%

40%

60%

80%

100%

1970

1980

1990

2000




0

100

200

300

400

500

1968

1973

1978

1983

1988

1993

1998

2003

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4


ktCO2 USDm/ktCO2

0

2

4

6

8

10

12

14

1970

1975

1980

1985

1990

1995

2000

2005

0

2

4

6

8

10

12

14tCO2/toe tCO2/to

e


66


abc

Thailand Energy input

0%

20%

40%

60%

80%

100%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

0%

20%

40%

60%

80%

100%


Thailand



-12%

-10%

-8%

-6%

-4%

-2%

0%

1995 2008

-30

-25

-20

-15

-10

-5

0


Thailand

0%

20%

40%

60%

80%

100%

1970

1980

1990

2000




0

50

100

150

200

250

300

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

0.0

0.5

1.0

1.5

2.0

2.5


ktCO2 USDm/ktCO2

1.0

1.5

2.0

2.5

3.0

3.5

1970

1975

1980

1985

1990

1995

2000

2005

1.0

1.5

2.0

2.5

3.0

3.5tCO2/toe tCO2/to

e


67


abc

Netherlands Energy input

0%

20%

40%

60%

80%

100%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

0%

20%

40%

60%

80%

100%


Netherlands



-2.0%

-1.5%

-1.0%

-0.5%

0.0%

1995 2008

-20

-15

-10

-5

0


Netherlands

0%

20%

40%

60%

80%

100%

1970

1980

1990

2000




0

50

100

150

200

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

0.0

0.5

1.0

1.5

2.0

2.5

3.0


ktCO2 USDm/ktCO2

2.0

2.2

2.42.6

2.8

3.03.2

3.4

3.6

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

2.0

2.2

2.42.6

2.8

3.03.2

3.4

3.6

tCO2/toe tCO2/toe


68


abc

Poland Energy input

0%

20%

40%

60%

80%

100%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

0%

20%

40%

60%

80%

100%


Poland



-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1995 2008

-20

-15

-10

-5

0


Poland

0%

20%

40%

60%

80%

100%

1970

1980

1990

2000




0

100

200

300

400

1990

1992

1994

1996

1998

2000

2002

2004

2006

0.0

0.2

0.4

0.6

0.8


ktCO2 USDm/ktCO2

3.2

3.3

3.4

3.5

3.6

1990

1992

1994

1996

1998

2000

2002

2004

2006

3.2

3.3

3.4

3.5

3.6

tCO2/toe tCO2/toe


69


abc

Iran Energy input

0%

20%

40%

60%

80%

100%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

0%

20%

40%

60%

80%

100%


Iran



0%

5%

10%

15%

20%

25%

30%

1995 2008

0

20

40

60

80

100


Iran

0%

20%

40%

60%

80%

100%

1970

1980

1990

2000




0

100

200

300

400

500

600

1965

1970

1975

1980

1985

1990

1995

2000

2005

0.0

0.1

0.2

0.3

0.4

0.5

0.6


ktCO2 USDm/ktCO

1

2

3

4

5

6

7

1970

1975

1980

1985

1990

1995

2000

2005

1

2

3

4

5

6

7

tCO2/toe tCO2/toe


70


abc

Colombia Energy input

0%

20%

40%

60%

80%

100%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

0%

20%

40%

60%

80%

100%


Colombia



0%

2%

4%

6%

8%

1995 2008

0

5

10

15

20


Colom bia

0%

20%

40%

60%

80%

100%

1970

1980

1990

2000




0

20

40

60

80

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

0.0

0.5

1.0

1.5

2.0

2.5


ktCO2 USDm/ktCO2

1.8

2.0

2.2

2.4

2.6

2.8

1970

1975

1980

1985

1990

1995

2000

2005

1.8

2.0

2.2

2.4

2.6

2.8

tCO2/toe tCO2/toe


71


abc

Switzerland Energy input

0%

20%

40%

60%

80%

100%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

0%

20%

40%

60%

80%

100%


Switzerland



-2.5%

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

1995 2008

-12

-10

-8

-6

-4

-2

0


Sw itzerland

0%

20%

40%

60%

80%

100%

1970

1980

1990

2000




0

10

20

30

40

50

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

0

1

2

3

4

5

6

7

8


ktCO2 USDm/ktC

1.0

1.5

2.0

2.5

3.0

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

1.0

1.5

2.0

2.5



72


abc

Hong Kong Energy input

0%

20%

40%

60%

80%

100%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

0%

20%

40%

60%

80%

100%


Hong Kong



-3.0%

-2.5%

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

1995 2008

-4.8-4.6-4.4-4.2-4.0-3.8-3.6-3.4


Hong Kong

0%

20%

40%

60%

80%

100%

1970

1980

1990

2000




0

10

20

30

40

50

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

0

1

2

3

4

5

6


ktCO2 USDm/ktCO

2.5

2.7

2.9

3.1

3.3

3.5

3.7

1970

1975

1980

1985

1990

1995

2000

2005

2.5

2.7

2.9

3.1

3.3

3.5



73


abc

Venezuela Energy input

0%

20%

40%

60%

80%

100%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

0%

20%

40%

60%

80%

100%

Oil Gas Coal Nuclear Hy droelectricity

Venezuela



0%

5%

10%

15%

20%

25%

30%

1995 2008

0

20

40

60

80

100


Venezuela

0%

20%

40%

60%

80%

100%

1970

1980

1990

2000




0

50

100

150

200

250

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6


ktCO2 USDm/ktCO2

2.0

2.5

3.0

3.5

4.0

1970

1975

1980

1985

1990

1995

2000

2005

2.0

2.5

3.0

3.5



74


abc

South Africa Energy input

0%

20%

40%

60%

80%

100%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

0%

20%

40%

60%

80%

100%


South A frica



-6%

-5%

-4%

-3%

-2%

-1%

0%

1995 2008

-20

-15

-10

-5

0


South Africa

0%

20%

40%

60%

80%

100%

1970

1980

1990

2000




0

100

200

300

400

500

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

0.0

0.1

0.2

0.3

0.4

0.5


ktCO2 USDm/ktCO2

3.0

3.1

3.2

3.3

3.4

3.5

3.6

3.7

3.8

1970

1975

1980

1985

1990

1995

2000

2005

3.0

3.1

3.2

3.3

3.4

3.5

3.6

3.7



75


abc

Disclosure appendix Analyst Certification The following analyst(s), economist(s), and/or strategist(s) who is(are) primarily responsible for this report, certifies(y) that the opinion(s) on the subject security(ies) or issuer(s) and/or any other views or forecasts expressed herein accurately reflect their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report: Karen Ward, Zoe Knight, Nick Robins, Paul Spedding and Charanjit Singh.

Important Disclosures This document has been prepared and is being distributed by the Research Department of HSBC and is intended solely for the clients of HSBC and is not for publication to other persons, whether through the press or by other means.

This document is for information purposes only and it should not be regarded as an offer to sell or as a solicitation of an offer to buy the securities or other investment products mentioned in it and/or to participate in any trading strategy. Advice in this document is general and should not be construed as personal advice, given it has been prepared without taking account of the objectives, financial situation or needs of any particular investor. Accordingly, investors should, before acting on the advice, consider the appropriateness of the advice, having regard to their objectives, financial situation and needs. If necessary, seek professional investment and tax advice.

Certain investment products mentioned in this document may not be eligible for sale in some states or countries, and they may not be suitable for all types of investors. Investors should consult with their HSBC representative regarding the suitability of the investment products mentioned in this document and take into account their specific investment objectives, financial situation or particular needs before making a commitment to purchase investment products.

The value of and the income produced by the investment products mentioned in this document may fluctuate, so that an investor may get back less than originally invested. Certain high-volatility investments can be subject to sudden and large falls in value that could equal or exceed the amount invested. Value and income from investment products may be adversely affected by exchange rates, interest rates, or other factors. Past performance of a particular investment product is not indicative of future results.

Analysts, economists, and strategists are paid in part by reference to the profitability of HSBC which includes investment banking revenues.

For disclosures in respect of any company mentioned in this report, please see the most recently published report on that company available at www.hsbcnet.com/research.

* HSBC Legal Entities are listed in the Disclaimer below.

Additional disclosures 1 This report is dated as at 22 March 2011. 2 All market data included in this report are dated as at close 18 March 2011, unless otherwise indicated in the report. 3 HSBC has procedures in place to identify and manage any potential conflicts of interest that arise in connection with its

Research business. HSBC's analysts and its other staff who are involved in the preparation and dissemination of Research operate and have a management reporting line independent of HSBC's Investment Banking business. Information Barrier procedures are in place between the Investment Banking and Research businesses to ensure that any confidential and/or price sensitive information is handled in an appropriate manner.

76


abc

Disclaimer * Legal entities as at 31 January 2010 'UAE' HSBC Bank Middle East Limited, Dubai; 'HK' The Hongkong and Shanghai Banking Corporation Limited, Hong Kong; 'TW' HSBC Securities (Taiwan) Corporation Limited; 'CA' HSBC Securities (Canada) Inc, Toronto; HSBC Bank, Paris branch; HSBC France; 'DE' HSBC Trinkaus & Burkhardt AG, Dusseldorf; 000 HSBC Bank (RR), Moscow; 'IN' HSBC Securities and Capital Markets (India) Private Limited, Mumbai; 'JP' HSBC Securities (Japan) Limited, Tokyo; 'EG' HSBC Securities Egypt S.A.E., Cairo; 'CN' HSBC Investment Bank Asia Limited, Beijing Representative Office; The Hongkong and Shanghai Banking Corporation Limited, Singapore branch; The Hongkong and Shanghai Banking Corporation Limited, Seoul Securities Branch; The Hongkong and Shanghai Banking Corporation Limited, Seoul Branch; HSBC Securities (South Africa) (Pty) Ltd, Johannesburg; 'GR' HSBC Pantelakis Securities S.A., Athens; HSBC Bank plc, London, Madrid, Milan, Stockholm, Tel Aviv, 'US' HSBC Securities (USA) Inc, New York; HSBC Yatirim Menkul Degerler A.S., Istanbul; HSBC México, S.A., Institución de Banca Múltiple, Grupo Financiero HSBC, HSBC Bank Brasil S.A. - Banco Múltiplo, HSBC Bank Australia Limited, HSBC Bank Argentina S.A., HSBC Saudi Arabia Limited., The Hongkong and Shanghai Banking Corporation Limited, New Zealand Branch.

Issuer of report HSBC Bank plc 8 Canada Square, London

E14 5HQ, United Kingdom

Telephone: +44 20 7991 8888 Fax: +44 20 7992 4880

Website: www.research.hsbc.com

This document is issued and approved in the United Kingdom by HSBC Bank plc for the information of its Clients (as defined in the Rules of FSA) and those of its affiliates only. If this research is received by a customer of an affiliate of HSBC, its provision to the recipient is subject to the terms of business in place between the recipient and such affiliate. In Australia, this publication has been distributed by The Hongkong and Shanghai Banking Corporation Limited (ABN 65 117 925 970, AFSL 301737) for the general information of its “wholesale” customers (as defined in the Corporations Act 2001). Where distributed to retail customers, this research is distributed by HSBC Bank Australia Limited (AFSL No. 232595). These respective entities make no representations that the products or services mentioned in this document are available to persons in Australia or are necessarily suitable for any particular person or appropriate in accordance with local law. No consideration has been given to the particular investment objectives, financial situation or particular needs of any recipient. The document is distributed in Hong Kong by The Hongkong and Shanghai Banking Corporation Limited and in Japan by HSBC Securities (Japan) Limited. Each of the companies listed above (the “Participating Companies”) is a member of the HSBC Group of Companies, any member of which may trade for its own account as Principal, may have underwritten an issue within the last 36 months or, together with its Directors, officers and employees, may have a long or short position in securities or instruments or in any related instrument mentioned in the document. Brokerage or fees may be earned by the Participating Companies or persons associated with them in respect of any business transacted by them in all or any of the securities or instruments referred to in this document. In Korea, this publication is distributed by either The Hongkong and Shanghai Banking Corporation Limited, Seoul Securities Branch ("HBAP SLS") or The Hongkong and Shanghai Banking Corporation Limited, Seoul Branch ("HBAP SEL") for the general information of professional investors specified in Article 9 of the Financial Investment Services and Capital Markets Act (“FSCMA”). This publication is not a prospectus as defined in the FSCMA. It may not be further distributed in whole or in part for any purpose. Both HBAP SLS and HBAP SEL are regulated by the Financial Services Commission and the Financial Supervisory Service of Korea. This publication is distributed in New Zealand by The Hongkong and Shanghai Banking Corporation Limited, New Zealand Branch. The information in this document is derived from sources the Participating Companies believe to be reliable but which have not been independently verified. The Participating Companies make no guarantee of its accuracy and completeness and are not responsible for errors of transmission of factual or analytical data, nor shall the Participating Companies be liable for damages arising out of any person’s reliance upon this information. All charts and graphs are from publicly available sources or proprietary data. The opinions in this document constitute the present judgement of the Participating Companies, which is subject to change without notice. This document is neither an offer to sell, purchase or subscribe for any investment nor a solicitation of such an offer. HSBC Securities (USA) Inc. accepts responsibility for the content of this research report prepared by its non-US foreign affiliate. All US persons receiving and/or accessing this report and intending to effect transactions in any security discussed herein should do so with HSBC Securities (USA) Inc. in the United States and not with its non-US foreign affiliate, the issuer of this report. In Singapore, this publication is distributed by The Hongkong and Shanghai Banking Corporation Limited, Singapore Branch for the general information of institutional investors or other persons specified in Sections 274 and 304 of the Securities and Futures Act (Chapter 289) (“SFA”) and accredited investors and other persons in accordance with the conditions specified in Sections 275 and 305 of the SFA. This publication is not a prospectus as defined in the SFA. It may not be further distributed in whole or in part for any purpose. The Hongkong and Shanghai Banking Corporation Limited Singapore Branch is regulated by the Monetary Authority of Singapore. Recipients in Singapore should contact a "Hongkong and Shanghai Banking Corporation Limited, Singapore Branch" representative in respect of any matters arising from, or in connection with this report. HSBC México, S.A., Institución de Banca Múltiple, Grupo Financiero HSBC is authorized and regulated by Secretaría de Hacienda y Crédito Público and Comisión Nacional Bancaria y de Valores (CNBV). HSBC Bank (Panama) S.A. is regulated by Superintendencia de Bancos de Panama. Banco HSBC Honduras S.A. is regulated by Comisión Nacional de Bancos y Seguros (CNBS). Banco HSBC Salvadoreño, S.A. is regulated by Superintendencia del Sistema Financiero (SSF). HSBC Colombia S.A. is regulated by Superintendencia Financiera de Colombia. Banco HSBC Costa Rica S.A. is supervised by Superintendencia General de Entidades Financieras (SUGEF). Banistmo Nicaragua, S.A. is authorized and regulated by Superintendencia de Bancos y de Otras Instituciones Financieras (SIBOIF). The document is intended to be distributed in its entirety. Unless governing law permits otherwise, you must contact a HSBC Group member in your home jurisdiction if you wish to use HSBC Group services in effecting a transaction in any investment mentioned in this document. HSBC Bank plc is registered in England No 14259, is authorised and regulated by the Financial Services Authority and is a member of the London Stock Exchange. (070905) © Copyright. HSBC Bank plc 2011, ALL RIGHTS RESERVED. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, on any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of HSBC Bank plc. MICA (P) 142/06/2010 and MICA (P) 193/04/2010

[293253]

*Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations.

En

erg

y in

2050

By Karen Ward, Zoe Knight, Nick Robins, Paul Spedding and Charanjit Singh

Anyone who drives a car, heats a home, or runs a factory has every reason to be concerned

about the strains on global energy resources in the next four decades. Either the world is going

to deplete its supplies at an unacceptably fast rate – and overheat the planet in doing so – or it

is going to have to make massive investments in energy efficiency, renewables and carbon

capture. As things stand, the world simply doesn’t have the luxury of turning its back on

nuclear power, despite the recent disaster in Japan

We follow up our World in 2050 report by arguing that the rise of emerging markets will impose

new strains on energy supply. We conclude the world can grow and without excessive

environmental damage – but it will need a change in human behaviour and massive collective

government foresight

Disclosures and Disclaimer This report must be read with the disclosures and analyst

certifications in the Disclosure appendix, and with the Disclaimer, which forms part of it

Glo

bal E

co

no

mic

s &

Clim

ate

Ch

an

ge

Zoe Knight

Analyst

HSBC Bank plc

+44 20 7991 6715

[email protected]

Zoe Knight joined HSBC in 2010 as a senior analyst. She has been an investment analyst at global financial institutions since 1997,

initially focusing on Pan European small-cap strategy and subsequently moving into socially responsible investing, covering climate

change issues. Throughout her career she has been ranked in Extel and II. She holds a BSc (Hons) Economics from the University

of Bath.

March

2011

Energy in 2050Will fuel constraints thwart our growth projections?

Global Economics & Climate Change

March 2011

Nick Robins

Head of HSBC Climate Change Centre of Excellence

HSBC Bank plc

+44 20 7991 6778

[email protected]

Nick Robins, head of the HSBC Climate Change Centre of Excellence, joined the bank in 2007. He has extensive experience in the

policy, business and investment dimensions of climate change and sustainable development.

Karen Ward

Senior Global Economist

HSBC Bank plc

+44 20 7991 3692

[email protected]

Karen joined HSBC in 2006 as UK economist. In 2010 she was appointed Senior Global Economist with responsibility for monitoring

challenges facing the global economy and their implications for financial markets. Before joining HSBC in 2006 Karen worked at the

Bank of England where she provided supporting analysis for the Monetary Policy Committee. She has an MSc Economics from

University College London.

Paul Spedding*

Global Head of Oil & Gas Research

HSBC Bank plc

+44 20 7991 6787

[email protected]

Paul Spedding is HSBC’s Global Head of Oil & Gas Research. He joined HSBC in early 2005 and has nearly 30 years of experience in

oil research.

Charanjit Singh*

Analyst

HSBC Bank plc

+91 80 3001 3776

[email protected]

Charanjit Singh joined HSBC in 2006 and is a member of the Alternative Energy team and Climate Change Centre of Excellence.

He has been a financial and policy analyst since 2000. Prior to joining HSBC, he worked with an energy major and a top-notch rating

company. Charanjit is a Chevening fellow from the University of Edinburgh. He holds a bachelor’s degree in engineering and a

master’s degree in management.

Date post:	16-Mar-2018
Category:	Documents
Upload:	haphuc
View:	215 times
Download:	1 times

Energy in 2050 - EV WORLD.COM : The 'Future In Motion...

Documents