How population growth impacts energy consumption in Guangdong in China

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  • Many studies have explored the nexus between energy consumption and economic growth in countries across the world, although individual countries have produced different results in terms of causality and the direction of any causality. In this study, Dr Yiming He from South China Agriculture University introduces industrialisation and urbanisation as additional factors that may also evidence a nexus in the exploration of energy consumption and economic performance.

    The complexity of the relationship between the size of a population and its energy consumption has attracted a lot of attention in recent years. International agencies forecast that global population size will continue to grow. They estimate that by 2050 the number of people in the world will have reached nine billion, which is two billion more people than at the time of writing, equivalent to a nearly 30% increase.

    People need energy
    As the size of a population increases, so does its energy consumption. It has been suggested that the size of the population the planet is able to sustain depends on the amount of energy sources available. With most traditional sources of fuel already used to their maximum capacity and while the search for scalable and sustainable alternatives continues, the question of how population growth affects demand for energy is important to consider. Economics scholars around the world, including Dr Yiming He and colleagues from South China Agriculture University, have been examining this question. They hope to understand whether more people indeed equals higher energy consumption. If so, they ask, what are the consequences for energy production and real prices?

    This consideration is especially important for countries like China where energy consumption has grown rapidly in the last thirty years, challenging the sustainability of the country’s energy supplies and the country’s self-sufficiency. As this rapid increase has put China at the top of the list of greenhouse producers attracting international criticism, increased demand for energy has raised concerns over its effects on the environment. As China is the world’s leading economy and exporter of goods, and as the population in its key industrial regions is expected to grow, concerns over energy supplies and prices are justified.

    More people, not necessarily more energy
    Research published to date examining the relationship between population growth and energy consumption has produced mixed results. For example, some studies suggest that increased population density may lead to lower energy demand, which, though seemingly counterintuitive, is caused by the increased energy efficiency often observed in densely populated cities. At the same time, other research has shown that the demographic makeup of populations might determine how and how much energy is being used. As such, ageing populations in countries like Australia lead to increased demand for small-scale household energy use, resulting in an overall lower consumption.

    The Zhujiang river flows past Guangzhou’s modern financial district.

    Relevance for China
    These reports notwithstanding, it remains unclear how China’s Guangdong region’s demand for energy will behave in the coming years. Although the general expectation is for the demand to continue to increase – following population and industry growth – some empirical findings presented to date suggest that an increase in population density in the Guangzhou region would in fact lead to a decrease in overall energy consumption. Although these projections might be reassuring from the point of view of the country’s energy sustainability, the question of the impact of energy consumption on the environment remains and depends primarily on the type of pollutants involved.

    Aiming to provide insights into the likely developments on the Guangzhou region energy market, Dr Yiming He and colleagues from the South China Agriculture University looked to understand how population growth might affect energy supply and prices in the Guangdong region. Guangdong is a globally important industrial and trading base where the energy sector isn’t traditionally strong and only accounts for 6.45% of the industry output. As the region has high economic value to the world economy, its energy sustainability warrants due consideration.

    Energy production includes natural gas as well as renewable sources such as wind and solar.

    Building a model
    In their work, Dr He used a computable general equilibrium model (CGM), which is a model that economists use to estimate how the overall economy might react to changes in policy, technology or any other external factors. A CGM requires a set of clearly defined variables and a detailed dataset that covers the whole economy of a country and distinguishes a number of sectors, commodities and factors, like type of household. The model also includes parameters known as elasticities that account for behavioural responses, that is, likely changes in one variable as a result of a change in another variable. In other words, elasticity is a way to capture the degree to which consumer demand for a particular commodity might change in response to the change in the commodity’s price.

    The energy supply to the Guangdong region is largely external.

    Dr He constructed an eight-part model that included: overall production, added value production, intermediate input during production, export function, import function, consumer utility maximisation, government behaviour and investment function. Overall, 43 items of industry were grouped into 11 terms based on energy consumption ranging from agriculture and forestry, through construction (among others), to energy-related industries. Data was extracted from the statistical yearbook of Guangzhou and adjusted using information from the annual output table.

    More people use more energy
    The analysis showed that population size, while it affects energy consumption, has no significant impact on energy production or real energy prices in the Guangzhou region. In this study, variation in population size corresponded to variation in energy consumption at double the rate. That is, for a 20% increase in population size, energy consumption increased by 43.6%; conversely, for a 20% decrease in population size, demand for energy decreased by 44.6%.

    The fact that such a significant effect of population growth on energy demand does not affect energy production or real prices might be surprising. Nevertheless, as Guangdong is an industrial centre of international importance, it should be noted that the energy supply to this region is largely ensured by external sources. This means that if local production fails to keep up with demand, any shortcomings are covered by an influx of foreign energy, which guarantees the stability of the market supply and real prices.

    The population in Guangdong is growing, leading to an increased energy demand.

    Paradox of stable pricing
    While real price stability is important, it is not the only consideration relevant to the debate. As such, the scale of impact of the population size change on energy consumption shouldn’t be dismissed. Even though any current shortcomings in supply might be counteracted by energy imports, in the long-term, population growth significantly diminishes the energy self-sufficiency of the area. In this study, population increase of 20% corresponded to a 5.62% decrease in the energy self-sufficiency rate. Conversely, for a 20% decrease in population, the energy self-sufficiency rate for the region increased by 8.44%.

    As the population grows, the region will become increasingly dependent on external energy supplies to keep up with demand unless policy solutions are introduced to ensure Canton’s energy independence. Dr He and colleague’s study suggests that, with external conditions remaining unchanged, the expansion of population in the Guangdong region of China will significantly expand energy consumption at a double rate. While in the short term this increase will be covered by an influx of foreign fuel, in the long-term, this poses a challenge for local authorities to ensure the region’s energy self-sufficiency.

    What policy measures do you think should be introduced to support energy self-sufficiency of the Canton region? Do you think this should be a priority for the authorities?

    The policy implication of this paper is that decision makers should control population size to reduce energy consumption and improve energy efficiency.

    References

    • Huang H, Du Z, He Y. (2018). The Effect of Population Expansion on Energy Consumption in Canton of China: A Simulation from Computable General Equilibrium Approach. International Journal of Engineering Sciences & Management Research, 5(1): 19-26.
  • Research Objectives
    Dr Yiming He’s research examines the relationship between population growth and energy demand.

    Funding
    This work was supported by National Ten Thousand Outstanding Young Scholar Program (Grant Number: W02070352) as well as Key Project of National Natural Science Foundation in China (Grant Number: 71742003)

    Collaborators

    • Yiming He and Meng Chen

    Bio
    Dr He is a South China Agriculture University PhD, Professor and PhD Advisor, who won the Ten Thousand Program of the national youth talent support project, national natural science twice, national social science three times, and China Scholarship Council visiting scholar program. He has published more than one hundred papers on Man and the Economy and Energy Economics. Dr Yiming He is also the Ronald Coase Institute Young Fellow, Hong Kong Baptism University Adjunct Researcher and The University of Texas Visiting Professor.

    Contact
    Prof Yiming He
    2760 Anise Dr,
    El Paso,
    TX 79936,
    US

    E: hym0509@scau.edu.cn
    T: +13802415862
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  • How population growth impacts energy consumption in Guangdong in China

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