The revised model includes variables for capital and human capital inputs. This has important effects on the estimated relative energy efficiency of China and India. Both now seem less energy efficient at each point in time than they seemed under the previous approach. India actually has relatively low energy intensity (energy/GDP) when this is measured using PPP exchange rates that adjust for the differences in purchasing power between countries:
While China was very energy intensive 20 or 30 years ago, it too has now reached similar levels to the developed economies. The new model says that these countries partly achieve their low energy intensity by using labor intensive processes instead of energy intensive processes. Once we take this into account they are in fact less energy efficient than most developed economies:
I say "most developed economies" because the model finds that China and India have similar levels of underlying energy (in)efficiency. Underlying energy efficiency tells us what energy intensity would be if variables such as labor and capital intensity, temperature, and economic structure were the same in all countries and over all time periods.
We use the model to project underlying energy efficiency and using projections of other variables from a variety of sources we come with BAU scenarios for China and India. Under these scenarios, China's emissions intensity would fall by 24% between 2005 and 2020 and India's by 29%. Yet China is targeting a 40-45% cut and India a 20-25% cut. Hence we conclude that China will require very strong policy actions to meet its target while India's target is likely close to business as usual.
Full details are in the paper. A second working paper covering Frank's analysis of other developing country targets will be up on the EERH Website soon.
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