Energy and Economic Growth - Literature review Example

Energy & Natural Resources s Submitted by s: Historical Perspectives on Energy The gas industry has grown significantto become a global industry while essentially differing from the oil industry, which is a relatively cheaper commodity. The industry has experienced major transitions in regards to its ownership from private to municipality ownerships and consequently to becoming centralized under ownership by governments before it underwent privatization all over again. Presently, although the main gas distributors in the west remain privately owned, the global suppliers are predominantly state owned entities in the Middle East and Russia and this has greatly contributed to state capitalism. Conversely, the gas business has also fundamentally developed without any form of considerable conflict, needing a high level of cooperation between the suppliers and the distributors. In part, this is the result of the intricacy associated with its technology as well as the mutual reliance of the buyer and the seller. Gas requires pipelines in a manner that oil does not, thus without distribution networks, gases can be regarded as valueless and dangerous when viewed from a climate change perspective. Gas lines have grown in length and they can only be constructed and filled based on mutual consent usually through large deals between governments after which free competitive markets can be developed through smaller agreements (Dannreuther and Ostrowski, 2013, p. 59). In most of the cases oil companies have been under the support of their own national governments from the time they were established or soon after their establishment. This has remained the situation as far as discovery and exploration of oil in the Middle East is concerned, however, there was little involvement by the government of the US in the establishment of its domestic oil companies. In the oil producing nations such as Mexico and Russia that started the exploration early prior to the Bolshevik revolution, there was less evidence of active government involvement from the country of origin. This creates an thought-provoking historical issue on the reasons as to why governments of the key industrial powers of the time had acute and direct interest in the oil that was being produced in the Middle East (Dannreuther and Ostrowski, 2013, p. 120). Direct involvement by the parent governments could be seen in the support provided to the private companies in the events that they clashed with the host governments or had some disagreements on some key aspects. Understanding Energy Markets The energy sector is the most capital intensive in the entire globe while having critical ramifications for relations concerned with energy resources. A fifty-year perspective often governs investments in energy and projects often gather more than ten billion dollars for a specific project with the major endeavors earning more than one hundred billion dollars. Turning natural deposits as well as natural forces such as the wind and solar into actual energy and distributing this energy to consumers in different markets can be an extremely expensive endeavor. The International Energy Agency states that cumulative investment direct at the infrastructure meant to supply energy will be approximately thirty-eight trillion dollars between 2011-2035 which is equal to ten percent of the GDP of the US every year (Goldthau, 2013, p. 1978). While capital, labor and technology as well as raw material are easily mobile through general-purpose infrastructure, numerous types of energy can only reach their markets by constructing dedicated and expensive pipelines and distribution networks that often demonstrate natural monopoly aspects. They also experience stronger forms of regulation from respective governments compared to other industries that operate in the same environment. There is no other industry that possesses this form of clearly identified midstream that introduces an extra layer of connection between territory and energy resources and consequently political control. Most states are directly interested in the manner in which energy is consumed as a condition of maintaining support from constituencies that are green-minded or the consumers with purse-constraints, where the former is more evident in Europe and Japan while the latter is seen predominantly in the US and the Middle East. International Oil Companies and National Oil Companies There were fears by host governments that private enterprises were not delivering sufficient revenues and other benefits to governments. Certainly, outside the Western democracies, the locals considered the oil industry’s history up to the sixties as some form of foreign exploitation. The main producers of oil including those associated with colonial powers and others that were anchored to the US were able to control almost all the production since they had almost cornered the largest markets that dealt with oil commodities. A monopolistic control meant that the producers themselves amassed majority of the revenues from the projects that produced oil and as the host governments became more aware of the actual costs of production, they automatically demanded a bigger share for themselves. With the erosion of the monopolistic goals, the host governments were able to achieve some of the goals especially as a result of the numerous smaller oil producers that entered the market in the sixties. However, numerous governments considered a shift to a state-owned oil industry as the best approach to obtaining the information concerning the costs of production and markets along with the control required to make the most of their fraction of revenues (Hults, Thurber and Victor, 2012, p. 891). A core issue concerns the manner in which the nationalism of resources is defined and considering the recent revival of interest, there are numerous differing definitions and elucidations. It has been defined by the International Energy Forum as nations seeking to maximize their endowment while others have considered it as a circumstance where the producing nations have moved towards the maximization of revenues from the current oil and gas production will making alterations to the terms of the investment in regards to future outputs. A different version considers it as an expression whereby after the discovery of oil and investments directed at its development, the relative bargaining power favors the host government, which consequently attempts to increase its fiscal take through changing the terms that exist in the initial contract. Global Energy Use Patterns and the Energy Trilemma Since energy is the key fuel for both economic and social development and activities that are associated with energy have considerable effects on the environment, it is imperative that decision-makers have access to dependable and precise data that is presented in a manner that is user friendly. The energy industry is characterized by long lead times and thus any kind of long-term plans should be founded on dependable information and data. Comprehensive resource data and selected cost data as well as an overview of technology provide an exceptional basis for assessment of various energy options on the basis of factual information. The world has gone through significant changes over the past two decades with technology being the core driver of social and economic development. The speedy development of information technology in the entire globe has changed the manner in which people thinks and act. All the areas of human life have been impacted by IT as well as the internet with almost all forms of technology being powered by electricity therefore increasing the share of electricity at a much faster rate compared to the Total Primary Energy Supply. Changes in the energy industry in the last two decades have been considerable and there are more energy resources in the world presently than any other time in history. This considerable increase in resources can be attributed to the advanced and more efficient technologies (World Energy Resources, 2013 Survey, 2013, p. 9). The supply and consumption of energy have influential social, economic and environmental effects even though not all the energy is supplied commercially. Fuels like firewood or biomass are predominantly non-commercial with firewood playing a critical part in the developing nations where it is extensively utilized for heating and cooking purposes. Universal accessibility to commercial energy continues to remain the target for the future and in numerous nations, particularly in Africa and parts of Asia; the rate of electrification is slower compared to the increasing demand. It is thus important to address this critical challenge without any more delays. Energy Security Oil was the indispensable commodity of the Second World War and it proved to be critical to the rebuilding of economies after the war. The efforts of Roosevelt towards wooing King Abdulaziz demonstrated the increasing globalization of the supply of oil. While the US had provided a huge part of the oil that was used by the allied war machines, production started to shift towards the Middle East with the intensification of exploration subsequent to the restrictions of the war era. Ghawar remained the most important oil field in the world after its discovery in 1948 after which production began three years later. Erosion the formations of OPEC by various nations including Kuwait and Saudi Arabia among others crystallized the erosion of the US’s leadership in the sixties as well as the peak of its oil production in the seventies. Currently, there are transformations to the global energy landscape in progress and the US id posed to surpass Saudi Arabia along with Russia as the largest producer of oil in the globe. This is a stunning change and together with the new developments seen in natural gas, the US is on its way to becoming the dominant player in the international energy market (Jones, Steven and OBrien, 2014, p. 2). On the other hand, China beat the US in 2013 as far as its scale of imports were concerned while the India’s reliance on imports continues to rise with those of Japan and Korea remaining high. Therefore, energy occupies a modest position in the debates concerned with the foreign policy of the US in the past few years in comparison to terrorism or China’s development; it is not the same for evolving Asian powers where energy is the main growth driver. Energy and Economic Growth Most of the nations in the developing world are associated with a high degree of population growth with their total global populations increasing to approximately thirty percent while the rest of the world especially the developed nations are either stagnating or declining. Populations is considered as the main driver of energy-related GHG emissions since if there are more people on the planet, then there will be increased demand for resources as well as energy. In the fifties, the economies characterized by less development accounted for sixty eight percent of the population of the entire planet but by 2050, it is projected that this population will have increased to about 85.6 percent particularly in Asia and Africa. Currently, the populations of the forty-eight nations with the least developed economies are experiencing the fasted growth. The size of the population, along with various dynamics plays an important role in determining how much energy is required. Additionally, it is not the size of the population that is most significant determinant of the level of demand for energy, but their degree of consumption. Urbanization is considered as the main driver for increased energy demands as well as GHG emissions, however, this is a complicated relationship since cities have more efficiency in the delivery of these services while being the center of economic growth which is a dynamic that increases future demands (Bradshaw, 2013, p. 152). Through urbanization, there is increased productivity, rapid economic growth as well as increased emissions and since a huge majority of the population of growth in the future will be in the urban areas, it is imperative to consider this aspect when modeling energy demands of the future. It is projected that the size of the world’s middle class will rise from approximately two billion in 2009 to more than three billion in 2020 and may reach approximately five billion in 2030. The low income groups that represents the poorer section of the population consumes relatively less energy compared to the high income groups that represent the more wealthy sections of the population (McNeill, 2000). Resource Governance Oil and natural gas are sources of energy as well as the main sources of income for the nations, which are rich in resources. Between 2006 and 2010, gas and oil accounted for more than half of the revenues realized by governments in export earnings in twenty-seven producing nations (Goldthau, 2013, p. 248). Additionally, uncollected resources as well as those that have not yet been discovered provide numerous nations with the probability of becoming rich in minerals, particularly in the African continent and Asia. This extensive resources can provide an opportunity for increased development and growth but in most cases, this potential continues to be unrealized. The nations that produce oil remain less democratic and more secretive compared to those that do not have oil with most of them growing very quickly. However, instability, uncertainty and violence that develops from the frustrations linked to the mismanagement of resources have led to increased costs and volatility in prices for consumers of energy all over the globe. Appreciating the values of good resource governance is not sufficient to guarantee that resources will be properly governed. Public policy is supposed to demonstrate the complicated and exceptional political realities of the nations that are rich in resources (Goldthau, 2013, p. 250). The nations that rely on oil are susceptible to failures in their policies since the institutional setting is usually unable to deal with the economic manifestations of the resource curse, therefore, it ends up reinforcing them in a rancorous development cycle. Through the distribution and utilization of resources by regimes in order to keep themselves in power, the political distribution of rents leads to more economic distortions while depressing the efficiency of investments and entrenching oppositions to economic reforms. Foreign borrowing may lengthen this trap but ultimately, there is likelihood of a growth collapse. There is increased likelihood of oil dependent nations to experience civil wars compared to the nations that are poor in resources and the wars are likely to be secessionist and of an increased duration and intensity (Karl, 2005, p. 25). Energy Conservation, Sustainability, and Global Justice Energy security as well as climatic changes is issues that are faced by the entire planet and their interconnected and uneven characteristics means that there is no nation or region that is singly responsible for causing them. Even though there are those, which are obviously more important than others, there is no single nations that has the ability to resolve this issues on its own. Presently, the world faces an energy dilemma on how to satisfy the increasing demand for energy without irreparably damaging the ecosystem of the planet. There is wide awareness that the present energy system based on hydrocarbons is unsustainable since it is becoming more and more difficult and expensive to match the energy demands dependably and affordably. This challenge needs a low carbon energy revolution that will be on a scale bigger than the first industrial revolution but in a much shorter period. This is discouraging but it may essentially reshape the interconnection between energy and the environment as well as the economy (Bradshaw, 2013, p. 287). One significant effect of development of urban cities is loss of biodiversity as a consequence of the destruction of habitats and ecosystems. The areas in the world with high degree of biological diversity are also the ones that are inhabited by the indigenous populations and their culture is a good example of the manner in which elements of the eco-system can co-exist through co-evolution. Presently, the indigenous communities together with the areas rich in biodiversity are at risk, and thus the protection of ecological and social values needs to understand the numerous faceted and diverse connections between culture and ecology. Bibliography Bradshaw, M. 2013, Global Energy Dilemmas, Polity Press, Cambridge. Dannreuther, R. and Ostrowski, W. 2013, Global resources, Palgrave Macmillan, Houndmills, Basingstoke, Hampshire. Goldthau, A. 2013, The Handbook of Global Energy Policy, John Wiley & Sons. Hults, D., Thurber, M. and Victor, D. 2012, Oil and governance, Cambridge University Press, Cambridge, UK. Jones, B., Steven, D. and OBrien, E. 2014, Fueling a New Order: The New Geopolitical and Security Consequences of Energy, Project on International Order and Strategy, [online] p.2. Available at: http://www.ourenergypolicy.org/wp-content/uploads/2014/04/geopolitics-security.pdf [Accessed 8 Apr. 2015]. Karl, T. 2005, Understanding the Resource Curse, Covering Oil. Open Society Institute, New York, [online] pp.21-26. Available at: http://openoil.net/wp/wp-content/uploads/2011/12/Chapter-2-reading-material.pdf. McNeill, J. 2000, Something new under the sun,: W.W. Norton & Company, New York. World Energy Resources, 2013 Survey, 2013, World Energy Council, p.9. Read More