It wasn’t sheer coincidence that last year marked two pivotal events in the world’s vehicle industry. In 2009, China became the largest car market in the world, while in the same year there were four million fewer vehicles on the road in the United States. In a world where the supply of economically viable oil has peaked, or is, at best, growing marginally, driving has suddenly become a zero-sum game.

That means that if millions of new drivers are about to get on the road in China, then somehow millions of other drivers will have to get off somewhere else. Last year, that’s exactly what happened in America for the first time since World War II. And unless Boone Pickens is miraculously able to convert the American vehicle stock to natural gas–powered engines, some 40 million other vehicles in the US will similarly be taking the exit lane over the next decade. But more on that later.

That’s not news to the auto companies. General Motors is busily expanding its production capacity in China, thanks to bailouts from American and Canadian taxpayers. Nor is it news to Canadian tar patch producers, who are quickly recognizing that China, with one tenth the per-capita oil consumption of the US, will be the real market for the billions of barrels of oil they hope to extract. And belatedly, even the International Energy Agency (IEA), long fixated on shrinking oil demand in its own member OECD countries, has finally recognized what carbon emissions have been saying for the last three years: that China is the world’s largest consumer of energy.

And that energy, for the most part, is carbon-based. China may lead the world in energy from renewable sources such as solar and wind, but it’s good ol’ fashioned King Coal that’s powering that country’s industrial revolution, just as it powered the Industrial Revolutions centuries ago in the west. China may still only consume half the oil America does, but it’s long since passed the US when it comes to coal consumption, which provides China with 80 per cent of its power. Unless abated by cuts elsewhere, the planned expansion of coal-fired generating plants in China and India will almost double world coal consumption over the next two decades.

As with oil, the more coal China burns, the less coal North America can use. If world carbon emissions are to be capped, or even if global emissions growth is to be slowed, there must be an offsetting decarbonization of economies elsewhere. And that means coal plants must be shut down in places like North America if new plants are built in China.

Not only is China the world’s largest consumer of energy, but the more carbon-based fuel it burns to power its economic growth, the more our economies will have to make do with burning less.

  • Johan

    All focus right now on BPs oil debacle in the Gulf. Unfortunately this is not the only place severely damaged by oil leaks. Shell in Nigeria sure has some environmental really, really big issues to deal with.

  • Laurent H

    I fully agree with you. When the oil demand/supply will be reached, how will countries fight for their share will become a new game.

    However, I won’t directly blame oil to be the reason Chinese bought more cars than the Americans in 2009. Since the 2008 crisis, the oil supply has been more than sufficient, its price is relatively low and we still have room for the months to come.

    You may have to look for other causes such as unemployment, financial problems, etc. in the USA and a continuous 9% growth in China to explain this change.

    Today, your explanation may be too early. But no doubt you will be able to use it again in months or years to come, when the demand will reach the supply.

    At least we start to see who will be the biggest players.

    Thanks for posting interesting thoughts every week (even during the summer holidays).

  • Denny

    In his book, “The Dollar Crisis”, Richard Duncan cites the flood of cheap imported goods from China into the United States as a significant cause of deflation. Also, the 2005 book accurately predicts the housing and financial crises which have shaken the United States and the world. However, there is no mention of the impact of higher oil prices on globalization. It seems that economists rarely consider the supply constraints on oil production. Instead, the focus is on demand. Jeff Rubin's research into both supply and demand is what separates him from mainstream economists and will ultimately prove him correct.

  • Johan

    All focus right now on BPs oil debacle in the Gulf. Unfortunately this is not the only place severely damaged by oil leaks.

    Shell in Nigeria sure has some environmental really, really big issues to deal with.

    As does right now also the Chineese.…

  • Claudio

    Even if I know this is not strictly correlated with your posts, I'd like focus the attention on social consequences of the incresing oil prices: according to Jeff's thoughts, the likely “return to home” of US and EU companies.
    According to this, increased logistic costs (due to the increased oil prices) will compensate saving coming from the low costs of the labour; as a consequence, companies that transferred manifacturing in emerging markets like China and India to take advantage of the labour low cost, will come back to US and Europe.
    Personally, I was not fully convinced about what the theory says but, as you maybe know, FIAT decided to invest lots of money in an italian factory (Pomigliano d'Arco, near Napoli) to produce a type of car (FIAT Panda) which is at the moment produced in Poland; this means that production of Panda will come back to Italy with the condition, imposed by FIAT, that the work organisation in the factory should change in the direction to have shorter breaks and more availability to the overtime exceeding limit forecast by italian legislation; furthermore, in CHINDIA, some strike to claim higher salaries has been made.
    These two events led me thinking that companies will try to impose the poor labour conditions of the countries they come back from, making these impositions as a crucial and fondamental condition to re-transfer production in Italy, US, UK, ecc. (remember what I reported above about FIAT did). What do You think?

    apologise for my very poor english

    an italian thinking citizen

  • Gielsj

    What we need to do is bring Chairman Moa back with his little red book and change siut of cloths. “Two wheel good…four wheel bad” should be the national policy.
    We, in the West, create a monster when we wanted cheap imported consumer goods…now the true price needs to be paid….these folks aren't going to work for slave wages much longer and not live the “good life” of modern society.

  • littleplanet

    “Chindia” – poses an interesting look at possible future entitlements…regardless of which financial adventures have lobbed the um, “illusion” of an actual “middle” class into this region, the numbers are truly staggering:

    I can understand that globalist neo-con mercantile bandit bunnies have been foaming in their pocketbooks over the thought of such a huge potential market, able to provide them with profits hitherto unheard of…(half the population of the planet, don'tcha know)

    but realistically, as fat a middle class balloon as they can probably ever blow –

    will leave something well over 2 billion people out in the cold.

    I don't know about India (but I can imagine) but certainly – China's history would strongly suggest that the losers will not stand idly by waving flags and yelling yay for us (them.)

    Which leads me to believe, that long before they displace North America as suburban motorized commuters, something will seriously give, and it probably won't be very politically pretty.

    Just a thought………….

  • Mushalik

    12 million Australian motorists will have to compete with 70 million additional Chinese motorists by 2015.

    Totally ignorant of these facts, Sydney is now widening its M2 tollway to 6 lanes

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