The Big Pivot: Interest Rates and Emissions as Global Population Growth Hits a Turning Point

It remains a curiosity that during a time of slow growth and exceedingly low interest rates—two persistent conditions which reliably perplex economists—that more attention is not drawn towards population trends, and fertility rates. Sanjeev Sanyal, who was at one time head global strategist at Deutsche Bank but who has since departed to embark on a writing career, was one of the few in the financial community giving credence to the imminent, and inexorable pull of our approaching demographic tipping point. In 2013, Sanyal released an appropriately titled research note, Predictions of a Rogue Demographer (PDF), wherein he declared UN Population Division forecasts for both mid-century (2050) and the end of the century (2100) to be wildly pessimistic. Indeed, since that note was released, the UN in their 2015 Population Revision dialed back some of their higher-end forecasts, and came to terms with the continued descent of global fertility rates.

The tipping point in question, which now approaches—no really, right now—is the product of the long-term decline in fertility rates and their cumulative effect on the annual population increase, between now and mid-century. We just passed a high point in this measure, in 2013, when the world added 84.21 million people. But this natural rate of increase is now due to decline steadily, falling to 74.65 million by 2025, 62.02 million by 2040, and 52.9 million by 2050. | see:  Annual Global Population Change in Millions 1970-2014 | UN Medium Variant Forecast 2015-2050

Annual Global Population Change in Millions 1970-2014 | UN Medium Variant Forecast 2015-2050

Now, the reason to think about yearly markers like 2025, and 2040, is that these targets appear in just about every forecast for deployment of renewable energy, fossil fuel and natural resource consumption, water availability, equity market performance and pension obligations, and global CO2 emissions. And although this is not happening yet, the above chart really should  be much more influential in all discussions of economic growth, and in particular interest rates. Indeed, in a more recent study published in early 2016 by Paul F. Robbins and Sarah H. Smith, Baby bust – Towards political demography, the authors—who clearly understand this tipping point in population growth just ahead of us—make the point that much of our contemporary economic and intellectual history was produced during a time of high growth rates, primarily during the latter part of the 18th C and of course into the following two centuries.

The implications are of course quite profound, and two areas of contention are worth following. The first is economic growth itself, and its associated interest rate regime. Perhaps it would be a better use of time within the financial community to prepare for a long, rarely interrupted phase of slow growth and low interest rates instead of decrying the system’s failure to return to higher rates of growth. Data across the entirety of the OECD suggests strongly, for example, that Europe and the United States are in the process of joining Japan in a secular era of this type. Energy use, fertility rates, GDP, all point in this direction.

Second, is the the very real possibility that future projections of global emissions from fossil fuel combustion are currently more consistent with a growth rate of fossil fuel use that is simply not going to unfold. While it would be foolish to declare a peak of global emissions based simply on the shape of the recent curve, the fact that global emissions have started to flatten out just as wind and solar costs plunge through key, competitive thresholds really does obligate one to consider how much more fossil fuel consumption growth lays ahead of us. Last year—and you can’t make a forecast based on one year, to be sure–coal’s decline was so severe that even after the increase in global oil and natural gas use, exactly half (50.9%) of all the new, marginal demand growth for energy came from sources outside the oil-coal-natural gas complex. | see: Contribution to Total Global Energy Consumption Growth in 2015 by Source

Contribution to Total Global Energy Consumption Growth in 2015 by Source

Normally, you would assign the words anomaly, or curiosity to such a single year’s performance but to do so would be to ignore trends in global energy use, demographics, and growth rates that have been developing for seven years now. China is literally conducting a war against air pollution, cancelling coal projects, building nuclear, and will deploy more solar this year than even existed globally in 2009; coal retirements in the US will roll onward to the end of this decade; but most important of all is that global solar costs and the learning rate of solar have killed, and will continue to kill, new fossil-fuel power generation projects. More broadly, with the exception of Africa and India, most of the world has now entered a long period where the task is not to build vast new infrastructure, but to replace, enhance, and upgrade existing infrastructure. Water, and transport infrastructure in the US is in dire need of remedy, for example.

Accordingly, it’s now clear that emissions have peaked in the OECD. What are the risks that economies from Japan to Europe to North America will enter a new fossil fuel adoption phase, reversing current trends and once again reach for coal and oil in particular? The risk is remote. OECD economies have long since completed their adoption phase of fossil fuels. What now remains is the dependency phase. You don’t even need to be told that OECD oil consumption, for example, has been in long-term stagnation when you see the following chart of OECD emissions. | see: OECD CO2 Emissions from Fossil Fuel Combustion in Million Tonnes 1975-2015

OECD CO2 Emissions from Fossil Fuel Combustion in Million Tonnes 1975-2015

19th and 20th century growth and development was so transformative that it now constitutes our only available inventory of intellectual history, and (understandably) dominates our expectations. When will interest rates return to normal? Why are central banks not letting interest rates rise? And, look at all these awful policy decisions preventing growth? These sentiments are artifacts; signatures of recency bias and the availability heuristic. In an excellent post last year by Neil Irwin at the New York Time’s Upshot blog, Why Very Low Interest Rates May Stick Around, it’s gently pointed out that high interest rates, not low interest rates, are history’s anomaly.

While upside risk to further fossil growth consumption growth remains in India and Africa, it’s important to understand that the OECD, and China, now act as a restraint on the global rate. For those who continue to predict a breakout of interest rates, global growth, and emissions to the upside, it is now necessary to explain such forecasts not as discrete phenomenon, but rather, to address the associated reversals in population growth trends, and new fossil fuel adoption revolutions required to produce such outcomes.

–Gregor Macdonald

Combined Wind and Solar Reach 7.2% of Total US Electricity in 1H 2016

The transition to renewables, wind and solar power in particular, has typically run ahead of expectations this decade and fresh data from the United States illustrates this phenomenon nicely. In the first half of this year, combined wind and solar provided 140.97 TWh of the 1959.20 TWh generated in the country. At the start of the year, the forecast was that combined wind and solar would contribute 6.5%. But in the first six months of the year, the combined share is already at 7.2%.

Share of US Electricity Generation in 1H 2016 by Source

When we look over the most recent projections for coal retirements—and conversely new natural gas, wind, and solar capacity additions—for the 2H of 2016, it seems clear that combined wind+solar generation will now be a minimum of 7.2% for the entire year, and, will likely advance further. Previously, considered it aggressive to project that combined wind and solar would reach 10% of US electricity generation by 2020. But that forecast is now looking easily achievable. At current rates, by the time we are into the year 2020, combined wind+solar is likely to provide 12-13% of total generation.

A final note on coal: it’s hard to believe but just five years ago, coal was holding on to more than a 40% share of US power generation. That share has now fallen to 28% in the 1H of 2016, and will decline further. However, because the great wave of recent coal retirements is slowing down, coal’s share of US electricity generation will retain a firm 20-25% as we head into the end of the decade. Coal growth in the United States has now fully terminated—and that may also be the case globally. The relentless cost declines and capacity factor increases for both wind and solar are now very much a part of coal’s current troubles, and the learning rate of renewables is set to bear down further on coal.

It used to be the case that the outlook for coal in the United States was not a good predictor for coal’s fortunes in the rest of the world. However, we may now have reached a turning point where the competitiveness of wind and solar is a global phenomenon, and, just as in the United States, spells the demise of further coal growth everywhere.

–Gregor Macdonald

Peak Coal, They Said: Questions Persist about Fossil Fuel Scarcity, and the Economics of Natural Resource Extraction

Are you excited at the prospect that Coal’s Second Coming, largely driven by China over the past 20 years, has now come to a halt? You should be. Coal retirements in the United States have been aggressive, and China is increasingly meeting marginal growth for electricity through solar, wind, and hydropower. Maybe future coal growth is now, and forever, blunted. The trickier analytical problem this presents, however, is the lingering idea that coal consumption should have peaked already. You see, starting about 100 years ago, global coal consumption growth slowed materially. The reason? A new energy source, coming up from very low consumption levels, started to appear on the scene: oil. | see: Global Oil and Coal Consumption 1899-1949 in Mtoe

Global Oil and Coal Consumption 1899-1949 in Mtoe

Starting in the 1930s—and especially during the acceleration brought on by World War II—20th Century oil started competing with 19th century coal. Thus, one energy era ended and another began. By the early 1960’s, global oil consumption triumphantly soared—high enough to cross over coal, establishing itself successfully as the master commodity. | see: Global Oil and Coal Consumption 1950-1999 in Mtoe

Global Oil and Coal Consumption 1950-1999 in Mtoe

While coal consumption continued to grow, its advance shifted into low gear. Global coal consumption reached the 750 Mtoe level for the first time in 1912. It would take another 60 years, to the year 1972, to (securely) double to 1500 Mtoe. In that same time period, global oil consumption grew 60X! Oil consumption in 1912 was a mere 43 Mtoe, but had exploded to 2562 Mtoe by 1972. Master commodity, indeed.

Unfortunately, the slowdown in global coal consumption during the 20th century had an unexpected outcome: coal became cheap, and a great deal of coal resources, untapped for decades, were left in the ground—available to extract. Coal’s losses to oil would eventually convert to coal’s advantage, when it came time for the Non-OECD, and China especially, to industrialize.

Starting in 1980, global coal consumption started to lift again. First to 2250 Mtoe by 1990. Then 2500 Mtoe by 2002. Then 3500 by 2008. Led by China, global coal consumption made such a large, new advance that as of 2014, it was challenging oil once again, for top energy source in the world’s energy mix. As of the 2014, global coal consumption nearly reached 3900 Mtoe | see: Global Oil and Coal Consumption 2001-2014 in Mtoe

Global Oil and Coal Consumption 2001-2014 in Mtoe

That 19th century coal could make such a large comeback in the 21st century raises important questions about fossil fuel scarcity, and the economics of natural resource extraction. Two phenomenon that should be in the forefront of our thinking, in this regard, are worth citing.

First, technology has a habit of solving the problem of declining profitability in energy production. Geology initially drives increasing costs, creating production standstills. Then technology, working with a lag, offers solutions to the higher cost environment. We’ve witnessed this effect in coal, natural gas, and also oil.

Second, energy transitions discard one energy resource for another. But in doing so, the discarded energy resource falls enough in price to be utilized again. The age of biomass gave way in the late 1700’s to the age of coal. But today, biomass has returned as growth area, in energy consumption. The same is now true of coal.

Let’s speculate here: a core theme of is the current transition from liquid fossil fuels to the powergrid. This has clearly disrupted oil’s previous growth path, and already oil is cheaper. Moreover, there is every reason to be positive about the future electrification of transport, and even the willingness of countries like China and India to head off future oil-based transport growth, directing demand into trains, and electric vehicles.

But if the world is indeed successful at cutting off oil’s normal growth path, will the world simply rediscover oil a decade or two from now, at cheaper prices, with its very handy, energy-dense versatility?

–Gregor Macdonald

Wind and Solar Reach 5.6% of Total US Electricity in 2015

US electricity generation has been slightly oscillating around a flatline, near 4000 TWh per year, for the last decade. However, with the great wave of coal retirements now beginning to land and with the US beginning to take a leadership role in wind and solar deployment, the country’s energy mix–underneath that flatline–is rapidly changing. In 2010, combined wind and solar generation provided just 2.3% of total power generation. But as of last year, those two energy sources alone provided 230 TWh, or 5.6%, out of a total 4100 TWh generated. | see: Wind and Solar Generation Combined in Total US Electricity Generation – TWh 2005-2015.

Wind and Solar Generation Combined in Total US Electricity Generation - TWh 2005-2015

2016 will of course see substantial growth (once again) in new wind and solar in the United States. As John Raymond Hangar, a former policy advisor to the Governor of Pennsylvania, observed on Twitter recently: it’s likely that by the end of this year, combined wind and solar will provide a quantity of electricity generation equal to a third of the country’s nuclear fleet. If so, that would imply total wind and solar will reach 6.5% of US power generation. At the current pace of growth, the twin renewable energy sources are starting to add a full percentage point per year. Indeed, is projecting that combined wind and solar will provide at least 11% of total US electricity by the year 2020.

–Gregor Macdonald

Transition Show Interview and Podcast

I was very pleased to have an opportunity to share my current market views on the Transition Show Podcast, this past week. Energy transition is of course the primary focus of my publication,, and it appears that changes in how the world economy uses energy has finally caught up to oil. Now that prices of all energy sources have travelled backwards to multi-decade lows, the global economy should derive some stimulus from these dramatic changes. But those effects may take until 2017 to be fully realized.

–Gregor Macdonald

Volatility Will Eventually Descend on US Natural Gas Prices

A natural gas adoption cycle is underway in the United States, as the country increasingly sources and consumes its own very cheap production. That natural gas (NG) prices have remained weak in the face of so much supply is no surprise. Rather, it’s the expansionary integration of natural gas into the US economy, and in particular the advent of LNG exports, that continues to amaze with an absence of any effect on price.

Natural gas has been rising steadily in the total US energy mix. And oil’s share—as in the rest of the world—has been declining. Just a decade ago oil held a commanding 40% share of US energy consumption. Today that share has nearly fallen to 35%. Given the share gains in natural gas, now pushing towards a 29% share, it’s reasonable to foresee a time when NG, not oil, becomes the primary energy source of the US economy. | see: Share of Oil vs NG in US Total Energy Consumption 2004-2015.

There is little doubt the continuing downward pressure on North American NG prices are due to the rate of production growth. Dry production has leapt by 12% in just the past 24 months alone, from 66.3 to 74.4 bcf/day (billion cubic feet per day). Some producing regions like the Marcellus have actually managed to grow production by an order of magnitude: output is up ten-fold, since 2009. That’s just crazy.

But how about demand? Exports by pipeline to Mexico are also up strongly, and will continue to grow. And US demand, driven by cheap supply and fresh deployment of NG-fired power generation, is on track to have now advanced 14% over 2010 levels. US demand will keep rising.

Most important of all, the really big new demand-pull on supply—LNG exports—is just now starting to hit. The US has now approved over 12 bcf/day of LNG exports, which is to be fully realized on a rolling basis between now and the year 2021. In a market that’s currently producing around 75 bcf/day, that is a significant volume of energy to be exporting. At, I’ve discussed more fully how this will play into the energy trade balance of the United States. The question remains: when will prices finally move?

It’s becoming exceedingly difficult, given the supply response already underway in North American oil production to low prices, to envision how the same supply response will not also get underway in NG production. Indeed, 2016 year-over-year NG production is likely to be zero. So again, the question: when will natural gas prices makes a move?

The only answer that’s possible now, given such low visibility currently into overall energy demand in the global economy, is that natural gas prices can’t possibly stay both low, and stable, over the next five years. Too many users, from the US to Mexico to Asia have started to catch on to the value proposition of exceedingly cheap North American NG. The unusual equilibrium in supply and demand is precisely the kind of stability that will inevitably generate instability. Volatility will come to the price of natural gas.

–Gregor Macdonald

The Peak in OECD Emissions is Starting to Look More Secure

There’s a pattern of energy usage, wind and solar deployment, and economic growth that’s started to show up more consistently across domains in the OECD. Essentially, over the past decade, a long period of fossil fuel based economic growth has increasingly converted to fossil fuel demand stagnation. Wherever new growth has been able to gain traction–whether in new infrastructure, new transportation, or new energy demand–these needs have largely been served by a re-drawing of live-work patterns, public rail transit, and new electricity from wind and solar. And in select cities, we’ve also seen the rollout of bikes, electric vehicles, and new behavior around cars.

I saw this for myself in Los Angeles, in the research I conducted for my case study of that city, published last year in Talking Points Memo. It just so happens I know Los Angeles quite well, having lived there when the advent of LA Metro’s subway lines was just an idea, and a point of contention. No city more perfectly illustrates the dependency on oil-based transport that came to infect the West over the 20th century. Yet, equally, Los Angeles also mirrors the new condition now guiding fossil-fuel based emissions in the OECD, because in effect the growth of LA’s auto complex has essentially been halted.

It’s common to see confusion over this point. Dependency, to the casual observer, looks alot like growth. But it’s not. The US oil adoption phase ended over a decade ago. Today, US oil consumption remains below levels seen in the year 2000 (in fact it’s barely above 1995 levels). In Japan and Europe, the classic cycle of economic growth begetting more oil consumption terminated even further back in time. But as you fly into London or Paris, you will still see strong evidence of the terrible dependency on oil the West has never fully shaken off, as the great motorway circulars pulse with vehicle lights.

A supertheme of my publication,, is that the next unit of global GDP is far likelier to be built on the back of the powergrid–electricity–rather than liquid fossil fuels. This concept may also sound confusing until you are introduced to the facts: oil has lost market share to all other energy sources for 15 straight years, and will do so again this year. Meanwhile, coal growth too has essentially gone quiet in the global powergrid as wind and solar storm into the gap, dominating marginal additions to new power supply. In domains like the US, however, the utter collapse of coal-fired generation is even more severe–and still underway. That’s why the Global Grid DeCarb Monitor is forecasting that an incredible 34% of all new generation globally this year will come from combined wind and solar.

While data is not available yet for 2015’s emissions in the OECD, it’s a certainty they will have fallen once again–possibly to 2009’s levels. For wonks who carefully inspect the future power capacity addition plans of Japan, Europe, and the US, the near future is pretty clear as well. Now that oil-based growth has halted in the OECD, and given that renewables now dominate marginal additions, you really have to ask yourself: how will the trend of declining OECD emissions be reversed? Indeed, the 2007 peak in OECD emissions is starting to look increasingly secure. | see: OECD CO2 Emissions in Million Tonnes 1994-2014.

OECD CO2 Emissions in Million Tonnes 1994-2014

–Gregor Macdonald

After Great Pain, a Formal Feeling Comes for Coal

The blog, highly active from 2008-2013, has largely been dormant during the time over the past few years as I’ve pursued other opportunities in journalism. However, in 2016 postings will appear again several times per month as addressable issues arise in our ongoing energy transition. My monthly publication–expanded with new writers and features in 2016–will be also sounding out similar themes.  More specifically, the rate at which the global energy system is suppressing, or failing to suppress, the growth of fossil fuel consumption: that is the question now in need of constant monitoring.

To understand coal’s unusual position in the global energy system today it is necessary to hold two seemingly incompatible views in the mind, at the same time. The first is that coal is now fully resurrected as the equal of crude oil, in the energy content it provides to the industrial economy. That this happened so quickly, and that it it was doubted so consistently, is itself astonishing. But just as with the Emily Dickinson poem, from which this post robs its title, the effects of coal’s return are indeed those of a sudden collision. Only now, and stunned, have we started to process the scale of coal’s second coming.

Which leads us to the second, difficult-to-accept notion: global coal growth on a net basis has now mostly halted. No longer advancing, but as important, not declining much either, the world is now stuck with a newly embedded coal dependency. This great lump of coal consumption will not easily be dislodged. Combined wind and solar deployment globally and cheap natural gas likely ensure the lump will not grow. However,  the new set of coal capacity additions slated for India, and sprinkled across the rest of the Non-OECD, equally ensure that even great coal-retirement waves, seen currently in the United States, will largely be negated.

Let’s briefly review the past decade, in which 19th Century coal rose once again to compete for the title of master commodity, against oil. In the chart below, we record the production of coal and the production of crude oil using an energy content unit known as Mtoe (million tonnes oil equivalent). Per the latest data (and yes, the revisions you may have heard so much about) the global production of oil and coal have equalled each other several times in the past several years, each dancing around 3900 Mtoe. At least as amazing, however, is that coal production nearly doubled from the start of the new millenium. |see: Global Oil Production vs Coal Production – Mtoe 2000-2014.

Crude Oil Production vs Coal Production - Mtoe 2000-2014

One might reasonably conclude the global coal industry was in decent shape, based on the above chart. But alas, the great leap forward and now the sudden stop have been devastating for the industry. Like the oil market, the coal market is almost tragically sensitive at the margin. Having now rapidly converted to zero growth, there’s absolutely no pricing pressure whatsoever. And none of the coming coal-fired capacity additions, or even the prospect of stabilization in the market, will lend much help to producers–many of which will be bankrupt by the time any (small) relief appears.

In truth, the global coal situation offers little good news for anyone. Not for those concerned with climate; not for those involved in coal production, or coal combustion. Much of the capacity in Asia, especially China, is quite young and will be steadily augmented, rather than supplanted, by deployment of wind and solar power. Indeed, it is now possible to be wildly bullish on the global growth of wind and solar power (and you should be) while still having to face up to the intractable problem of existing coal capacity. You can try to console yourself that capacity is in outright decline in the OECD. But you won’t get very far before realizing that across Asia, and in India, capacity expansions are coming. India offers a uniquely grim equation for further carbon output from coal, and, the dire fortunes of coal exporters, because India’s current production upswing will not only increase domestic coal combustion, but will lower the call on the global seaborne market.

For these reasons, the forecast is that after a four year decline–with 2015 being the steepest–global coal production is slated to stabilize again starting in 2018. New production, like new capacity, is at the ready to counter production and capacity declines elsewhere. | see: Annual Global Coal Production in Mtoe 2010-2014 | 2015-2020 Forecast.

Annual Global Coal Production in Mtoe 2010-2014 | 2015-2020 Forecast

The crucial question to ask: how far away precisely is the time when marginal additions to global power generation from renewables, combined with efficiency gains, will become so overwhelming that we actually start to eat away at existing coal capacity? In this framing, the news is slightly better than one might have expected just 24-36 months ago. With the global coal complex now halted earlier, the prospect for outright declines has come into sharper focus in the period between 2020 and 2025. But there’s a catch. And that comes from another player in the energy system, not yet discussed: natural gas. Will the coming age of ample seaborne LNG, from Australia and the US, mean that future coal retirements in the Non-OECD will be supplanted by natural gas, combined wind+solar, or both? If today’s changing energy mix in the US is a model, then combined wind+solar, working in tandem with natural gas, is the force that will begin to replace existing Non-OECD coal. In the future, that is.

Coming back to the present, coal-fired generation in the US is in the midst of a spectacular decline, and by estimates, coal’s share of US power generation will eventually fall by 50% from the highs of last decade. The signals in global coal production from Australia and Indonesia are crystal clear as well, as are the bankruptcies and liquidations. The world has permanently lost the US as a source of coal demand; and China’s demand growth too is headed towards zero. However, a good portion of this demand collapse has already expressed itself. The end of coal is not a moment, but a process. Or, as Emily Dickinson wrote: First – Chill – then Stupor – then the letting go –

–Gregor Macdonald

Further Reading:

China to Halt New Coal Mine Approvals Amid Pollution Fight, December 2015.

Inside the War on Coal, Michael Grunwald, Politico, May 2015.

Remaking the Map of US Energy Production – Part II of a V Part Series, Gregor Macdonald, Talking Points Memo, April 2015.

Further Listening: Bonnie Prince Billy, selection from his album The Letting Go.

Transition Rates: November Issue of

Each issue of contains: a Main Essay, the Model Portfolio, the Data Brief, and a link to a Downloadable Podcast. Gregor Macdonald, Editor.

Readers may purchase each issue individually, through Purchase.

Or, readers may also take a 12 month subscription through Monthly eBook  Annual Subscription.

Podcast: This month’s podcast is open only to subscribers and purchasers of the issue.

Model Portfolio: There are no changes to the model portfolio this month.

“ eBook – Transition Rates – November 2015” by by Gregor Macdonald – Editor on Ganxy

Solar the Dangerous: October Issue of

Each issue of contains: a Main Essay, the Model Portfolio, the Data Brief, and a link to a Downloadable Podcast. Gregor Macdonald, Editor.

Readers may purchase each issue individually, through Purchase.

Or, readers may also take a 12 month subscription through Monthly eBook  Annual Subscription.

Podcast: This month’s podcast is open to the public. Listen freely here at SoundCloud.

Model Portfolio: There are no changes to the model portfolio this month.

“ eBook – Solar the Dangerous – October 2015” by Gregor Macdonald – Editor on Ganxy