Posts tagged consumption

China’s Skyrocketing Oil Consupmtion

China’s Astonishing Rate of Oil Consumption

BBC News: Click Here

The Heat Zone: Click Here

According to BBC News, China’s demand for oil jumped by an ‘astonishing’ 28% in January compared with the same month a year earlier. As the headline tells us, China’s consumption of oil is skyrocketing as it tries to fulfill the energy hunger engendered by rapid economic growth. There are many concerned voices that this ‘astonishing’ (for some, ‘horrifying’) consumption of oil could stir up several ecological and economcial problems.

First off, many are concerned that this incredible rate of oil consumption will eventually result in depletion of oil. The concern for the depletion of oil was an old issue for industrial countries, however, this issue recently became an hot potato because of China’s increasing consumption of  oil. Some analystist say that as China’s consumption of oil increases tremendously the world supply of oil can be depleted earlier than expected. It would certaintly stir up sever problems if the supply of oil depletes. It might be difficult for both developing and developed countries to even sustain itself.

Secondly, China’s tremendous consumption of oil has several negative externalities. For example, it could emit tons and tons of CO2 in the atmoshpere which in turn will aggravate the global warming. In the graph above, the external cost to the society is not reflected in the current oil market price. It is at the curve of MPB, which should be at MSB. In my opinion, even though the market price for oil reflects the external cost and the curve on MSB, China’s consumption of oil is so high that it will do no good.

As you see in the graph above, the demand for oil is much higher than the supply. The demand is always higher than the supply and that is why market price of oil is high (about 80$ or above for a barrel). However, with higher demand by China, the price for the oil will increase significantly. Therefore, with extremely high market price for oil, many developing countries (other than China) will have a great difficulty in their economic growth and development. It will also affect the developed countries by some extent. In my opinion, the countries importing oil, like Japan, will be hurt the most.

In conclusion, China’s increase in consumption of oil could stir up many problems such as depletion of oil, global warming, and high market price for oil.

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Data Response: Clean Coal

(a) (i) Negative externality occurs when the production or the consumption of a product creates external cost to the society. For example, consumption of cigarettes can result in high possibility of cancer and air pollution.

(ii) Welfare loss occurs when there is a negative externality in the market. There is a loss of welfare when this negative externality is not reflected in the price mechanism.

(b) Graph 1:

Coal fired power stations produce negative externalities such as air pollution and acid rain. As you see in the graph, external costs of air pollution and acid rain are not reflected on the price. The production of electricity by usage of coal should be on the curve MSC, which rightfully reflects the negative externalities of the production. Instead, the curve is on MPC, which does not reflect the negative externaltities. Therefore, this engenders the welfare loss which is colored black in the middle of the graph.

(c) Graph 2:

In order to solve this problem, the government must intervene to overcome this market failure. The best solution to overcome this problem is for the demand for such polluting energy to go down. As you see in the graph 2, as demand goes down, the product becomes much cheaper and the consumption lowers down lessening the negative externalities of air pollution. The government could advertise not to excessively use the energy produced by the coal. However, this sometimes this method would not work. If this method does not work, government should use the last method of taxation on the production of the electricity by coal. This method is less-desirable than the first method. Although the consumption goes down, the price for the electricity goes up. So this would hurt the consumers.

(d) If the government taxes on the power stations producing electricity by coal, it will raise the price up from P1 to P* in the graph 1. This method will hurt the consumers. However, if the government tries to persuade the consumers to lower their consumption of electricity by advertisement, it will both lower the price of the electricity and the consumption. The best way for the government is to persuade the consumers not to consume electricity too much. The method of taxation should be considered as a last resort.

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