RIYADH — KAPSARC and ERI estimate that in 2016 around $5 trillion, or around 23 percent, has been added to China’s GDP than what might have been the case if its economy still functioned with its 2010 energy intensity. In Saudi Arabia, the economy is around $140 billion, or 8 percent better off then what might have been the case if energy intensity had stayed at its 2010 levels.

Energy consumption is creating more value in the economy than ever, say researchers from the King Abdullah Petroleum Studies and Research Center (KAPSARC) and the Energy Research Institute (ERI) in a joint report on industrial energy productivity released at the recent G20 Energy Efficiency and Renewable Energy Forum in Buenos Aires.

The report reviews how China and Saudi Arabia are working to boost energy efficiency, achieve industrial upgrading, and diversify their economies. It also aims to encourage investment through greater understanding and cooperation around these issues as part of Saudi Arabia’s Vision 2030 reforms and China’s Belt and Road Initiative.

“Energy efficiency and structural economic reform are combining to boost the amount of gross domestic product (GDP) produced per ton of oil equivalent on a massive scale,” the researchers reveal. “Declining energy intensity, or increasing energy productivity, is one of the most important energy trends affecting the global economy and CO2 emissions.”

Driving this change is China’s system of energy intensity targets, energy efficiency standards, industrial upgrading and energy price reforms. These have helped China achieve one of the highest rates of energy intensity reduction in the world at about 5 percent per annum.

Saudi Arabia’s energy intensity is declining at a slower rate of about 1 percent per annum. However, the Kingdom still produces more GDP per ton of oil equivalent at around $8,000, which is around the G20 average. This compares with around $7,000 in China.

“Energy productivity is a new policy paradigm which is increasingly being used in the G20,” the researchers explain. Energy efficiency focuses on minimizing the amount of energy required to produce a ton of output, like steel or cement. Energy productivity incorporates energy efficiency, but goes beyond to look at maximizing the value created.”

Increasing energy efficiency will improve the competitiveness of energy intensive industry. However, moving up the value chain of production from basic commodities, like ethylene, towards higher value finished products, such as plastics and its applications, is also critical.

China is the world’s largest net importer of polymers and Saudi Arabia is the world’s largest net exporter. There is an excellent opportunity to work together to improve both the energy efficiency of petrochemical production and develop downstream industries in both countries.

When countries collaborate benefits are increased for all. Trade and development is not a zero sum game. Enhancing energy productivity as a goal, rather than taking purely an energy efficiency perspective, can help make this clearer. Creating energy efficient supply chains and building higher value opportunities in markets is critical.

The King Abdullah Petroleum Studies and Research Center (KAPSARC) is a non-profit global institution dedicated to independent research into energy economics, policy, technology and the environment, across all types of energy. — SG