Cooling China And Then Some.

Since my dissertation writing days I have been interested in forecasts of China’s greenhouse gas emissions. I am clearly not the only person interested in this topic, yet we environmental/energy economists have something to contribute on top of the excellent on the ground coverage by the likes of Tom Friedman. Chinese and global emissions are growing rapidly – despite a major global financial crisis. Both parts of this last sentence are bad news. What is driving this increase in emissions? Arguably a large part of this increase stems from growing energy consumption for manufacturing, steel production and a rapidly growing middle class. One thing you want badly during one of those hot summer days in Shanghai is an air conditioner – if you can afford it.

I was recently asked to survey the literature on air conditioner adoption across countries and was shocked by two things: The dearth of empirical studies on this topic and the dearth of available data. I went out and collected some data based on the rural and urban household survey in China.

What the above picture shows is impressive. For example: Urban households in Shanghai owned 0.33 air conditioners per household in 1995 and in 2009 that number had changed to 1.96. This number can be greater than one since most air conditioners are split design room air conditioners and not central air. The figure above also shows that wealthier provinces saw a more rapid growth in adoption compared to their less wealthy counterparts. This is not surprising. We know that rising incomes, dropping prices of air conditioners and lower operating costs will lead more people to adopt. In the case of air conditioning there is, however, one additional major factor: Climate. And climate is changing.

We know that areas with hotter climates have a higher household penetration of air conditioning. But if places that are currently not hot (e.g., San Francisco) get climates that are hot (e.g., Fresno) households in the formerly cool place will start installing air conditioners. Recent data from the US EIA is consistent with this. The area experiencing the most rapid growth is the West. Much of this is of course due to many people moving to very hot places like Phoenix.

Why should we worry about this?

1) If we project future adoption of air conditioners merely based on income and price changes, we are missing the important fact that climate change will directly lead to higher levels of saturation than we would otherwise anticipate. Call it a climate penalty. Or a double whammy.

2) The price ain’t right. The coolants in most air conditioners are very powerful greenhouse gases and the majority of them may end up in the atmosphere. The consumer does not pay for this. In addition, electricity does not currently contain a “carbon tax”. Therefore the operating cost of these devices is inefficiently low.

3) Can your grid take the heat? With the rapid deployment of these peak operated devices,  grid planners will have to be forward looking (into those living room window frames).

4) The air conditioner adopted 5 years from now will be much more efficient, cheaper and not have been used for 5 years. This matters when we talk about a stock pollutant like CO2.

There are of course massive benefits from this broad adoption of cooling technology . Recent work by Michael Greenstone and others has shown that mortality rates in India (with a much lower penetration of air conditioners) are much higher during hot days than in the US. While I would not dare to calculate a benefit cost ratio here, I am afraid that once we do this, it may spell even worse news for the global climate.


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