The BRIC Economies, Industrialization and the Environment

Posted by advanceconsultingforeducation under Developing Economies

A key component of the global environmental discussion over the last 20 years has been how to allocate responsibility for both reducing the amount of ongoing environmental contamination and for cleaning up the existing contamination.  There is little question that the current state of the environment is largely due to the activities of the economies that are already heavily industrialized and developed.  Debate is ongoing however, about economies that are still in development and that are therefore rapidly increasing their negative impact on the environment.  Should the industrialization of these developing economies be limited somehow? Or should they be ‘allowed’ to reach the same level of industrialization as the developed economies, even though the environmental impacts of this industrialization would be enormous?  Should fully industrialized economies themselves be ‘allowed’ to continue to grow?  Should full industrialized economies be required to scale back on their industrialization?

The second world summit on the status of the environment in Rio de Janeiro, Brazil in 1992, attempted to address this issue. The principle of the dual nature of environmental politics was established. Namely, this principle said that increased environmentalism, or concern for the environment, did not mean limiting the growth of either developed or developing economies. At Rio, the industrialized nations (as in the United States and Western Europe) articulated that limiting the industrial capacities of other countries would be a blatant double standard on the part of the countries whose economies were already industrialized.  Nor were these industrialized nations willing to consider scaling back their own level of industrialization.  This principle, recognizing concern for the environment within continued industrialization and economic growth, was, in large part, a reason many countries agreed to go along with agendas concerning global environmental regulation.

Almost two decades later we see, as a global community, the impact of this principle in the development of what is now call the BRIC economies:  Brazil, Russia, India and China.

The rapid growth of the BRIC economies, which account for nearly half the world’s population (some 2.8 billion people), has lead to concerns about energy consumption and other serious environmental impacts.  In their push for economic growth the BRIC economies are also striving to have the same standard of living as that enjoyed in fully industrialized economies. It is common knowledge that if everyone on the planet were to live the lifestyle to which the average American, Canadian or Western European is accustomed, the resources of 5.3 planets would be required. This is a dramatic statistic, which makes it clear that the industrial practices of the so-called ‘developed’ economies cannot be sustained on a global scale.

The Example of China

Let’s look at one of the BRIC economies to get a better idea of what is happening. In July of this year China surpassed the United States as the world’s largest energy user. Eric Reguly from the Globe and Mail stated that, “according to the International Energy Agency, China consumed 2.5 billion tonnes of ‘oil equivalent’ last year (the measure translates all forms of energy, from coal to solar, into the equivalent oil energy value).  That’s about 4 per cent more than the United States, although U.S. per capita energy use is still five times higher.” Furthermore China’s energy consumption has more that doubled from 2000-2009 due to double-digit economic growth and rising birth rates.

China’s developing automotive sector shows us this trend in even greater detail.  The Chinese automotive sector put 8.26 million new motor vehicles on the road in 2009. (www.treehugger.com ).  The big question today is, in regards to China’s automotive sector is how will they meet consumer demand for automobiles with the world’s available energy resources?  One answer is the integration of the nascent hybrid vehicle. The New York Times reported on Friday (September 16) that China, despite its efforts to be the world leader in energy efficiency, is putting itself under enormous pressure to meet energy efficiency and energy conservation targets for its automotive sector and other sectors. To meet the requirements, “Beijing has aimed at 16 major areas for increased efficiency and has channeled more than $300 million into electric cars. Over all, China has invested $1.5 billion in green technologies over the last five years [Zhang Laiwu, Deputy Minister for Science and Technology] said.”  But although China is investing in the development of Electric Cars (also called EV’s), they will not meet current or even short term consumer demand for automobiles. Thus the domestic issues of an increasing population, increasing consumer demands and increasing energy consumption, and the  repercussions (i.e. carbon emissions) of these three trends will likely go somewhat unchecked in the Chinese market. As Mr. Reguly writes in the Globe and Mail, “If the car penetration rate [in China] were to reach simply the South Korean levels, it would imply a 1,125-per-cent growth rate in the number of cars in China and India, UBS says. That would boost global auto sales, in dollars, 5.7 times. Imagine if penetration rates were to reach American or Japanese levels? Now you know why every auto maker CEO on the planet would sell his mother, grandmother and spouse to get into the Chinese market. You can assume most of the new Chinese cars will be powered by gasoline or diesel.”

August 24th 2010, Chinese Traffic Jam lasts 9 days — 62 miles in Length

Questions to Consider

The principle of concern for the environment, along with continued industrialization and economic growth of all the world’s economies, presents all of us with a challenge:  how do we either maintain or raise our standard of living, and maintain or raise our level of industrialization, without overwhelming our environment?

Given the global environmental challenges we face today, should the developing countries be ‘permitted’ to industrialize in the same manner the currently industrialized economies did over a hundred years ago? Or should the currently industrialized economies be ‘required’ to downsize, so to speak?

Thinking specifically about the automotive sector, do you believe international competition for a share of the Chinese automotive business will win out over the development of ‘greener’ technologies such as EVs? If it does not, then how do you foresee the global community dealing with the depletion of resources and increased variance in climate due to carbon emissions from industrializing economies that approach the same car penetration rate as currently industrialized nations?