Wednesday, May 27, 2015

We Need New Economics for a New Era of History

 by Peter Barnes

Welcome to the Anthropocene, when humans are the dominant geological force on the planet

By Charamelody under a Creative Commons license.
From a talk given at the Schumacher Center for New Economics, Great Barrington, MA, on July 27, 2014. It first appeared in Kosmos Journal, a print magazine focused on global transformation. Barnes is author of the recent book With Liberty and Dividends For All: How to Save Our Middle Class When Jobs Don’t Pay Enough.  He is co-founder of On the Commons and other of numerous books, including Capitalism 3.0: A Guide to Reclaiming the Commons.
Let me tell you about my career in economics. It started when I was ten and my father, a real economist, hired me to crunch numbers for a book he was writing about the stock market. I used an old Friden mechanical calculator, which literally put the crunch in number-crunching. I had no idea what the numbers meant, but I really enjoyed crunching them.

Later, thinking that I had some aptitude with numbers, I decided to major in math at college. Big mistake. It was way over my head. So I wound up majoring in history and became a journalist for 13 years after I graduated.

But then, in my 30’s, I had the inevitable mid-life crisis. Did I want to spend the rest of my life writing about what other people were doing? Or did I want to do something myself?
So I decided to start a worker-owned solar energy business. Now, bear in mind that there was no solar industry at the time. I didn’t know anything about solar energy and I didn’t know anything about running a business either. It was madness. But it turned out to be wonderful madness, and it worked for six years until Ronald Reagan abolished the tax incentives for solar power. I then co-founded Working Assets, which later became Credo Mobile.

In all, I spent 20 years as an entrepreneur, turning interesting ideas into businesses. And the reason I spent 20 years doing this was not to get rich, but to learn from the inside how capitalism worked, and how far its boundaries could be pushed.

During these years, I road-tested a variety of alternatives to the standard capitalist model: worker-ownership, socially responsible investing, and socially responsible spending. Eventually, I concluded that none of these worthy alternatives, or even all of them put together, will save us from capitalism’s two tragic flaws—its relentless destruction of nature and its equally relentless widening of inequality. These flaws are coded and hard-wired into our current capitalist system. If I wanted to learn how to fix them, I had no alternative but to go back to economics, which, after I retired from business in 1995, is what I did.

An Economy That Works For All

Now, 19 years later, I’ve come to some conclusions and I want to share them with you tonight. These conclusions can be summed up in three sentences:
  • We are entering a new era in which the current way we run our economy won’t work.
  • In this new era, our economy must do two things it doesn’t do now: operate in harmony with nature and provide adequate income for all.
  • The best way to achieve these goals—that is, the way that requires the least involvement of government—is to “propertize” some common wealth and share the income from that wealth equally. (I’ll explain what I mean by ‘propertize’ in a minute.)
Why is this important? It’s important because if we do what I’m proposing, we can have a market economy that does what a 21st century economy needs to do. We can have a market that works for all, including our shrinking middle class, nature, and future generations. We can have the kind of locally rooted economies that many of you are working to build in the Berkshires and elsewhere—economies that will flourish once the global corporate economy is made to pay the costs of using common wealth—costs that it’s not paying today. To get from here to there, the key is to think differently about the wealth we own together, and to organize that wealth in new ways.

Let me ask a question now. How many of you have heard the term “Anthropocene” before? That’s impressive. So most of you know that the term refers to the geological era we are now living in, as opposed to earlier geological eras such as the Jurassic, Cenozoic, and so on. The term was coined in 2000 by chemist Paul Crutzen from the Greek root for human, anthropos, and it means the Current Human Age.

What distinguishes the Anthropocene from the Holocene—the era that began when the last Ice Age ended—is that we humans have become a dominant geological force on our planet, if not the dominant geological force. Our impacts on oceans, forests, fresh water, topsoil, biodiversity, and the atmosphere have been devastating, and they continue getting worse at an accelerating rate. In short, the human species is out of control.

I don’t want to diminish our species’ accomplishments during the Holocene; they’ve been momentous. But we can’t continue doing business in the Anthropocene the way we did in the Holocene. What’s normal today—and I’m speaking here of normal economic behavior—can’t be normal tomorrow. We need a “new economic normal” in which, at a minimum, the two tragic flaws of our current economic system are fixed.

Three Visionary Economic Thinkers

I began my post-entrepreneurial explorations by re-reading three economic thinkers that many of you will be familiar with: E.F. Schumacher, Henry George, and Thomas Paine.
Schumacher’s chief concern was harmonizing our human economy with what he called the meta-economy of nature. With this in mind, he encouraged the development of appropriate technologies, worker-owned businesses, and locally-rooted economies. In my view, these activities describe the kind of world we want to get to. The problem is: we can’t get there from here until we stop the juggernaut that’s devouring our planet and turning our society into a plutocracy. That’s why we need to fix those major systemic flaws.

Henry George’s primary concern was the maldistribution of income. Writing in the 1880’s, he asked why poverty continued, and even grew, as America got richer. His answer was land rent. Land rent, George wrote, was like “an immense wedge being forced, not underneath society, but through society. Those who are above the point of separation are elevated, but those who are below are crushed down.”

I’ve never forgotten George’s image of rent as a wedge between rich and poor. It accurately described reality in 1880 and still does today if we expand the scope of rent beyond land. But in thinking about George’s proposed remedy—a single tax on land—I concluded that it’s insufficient. It would recapture some unearned rent from landowners but would channel that money to government rather than to those crushed by the wedge.

Then I re-read Thomas Paine. Amazingly—since he was writing in the 18th century—I found Paine’s thinking more relevant to the Anthropocene than anyone else’s. Paine’s economic thinking is contained in his essay Agrarian Justice, which, despite its title, isn’t about agriculture but about property rights.

“There are two kinds of property,” Paine wrote. “Firstly, natural property, or that which comes to us from the Creator of the universe—such as the earth, air, water. Secondly, artificial or acquired property—the invention of men.” The latter kind of property must necessarily be distributed unequally, but the first kind rightfully belongs to everyone equally. It is the “legitimate birthright” of every man and woman, “not charity but a right.”

Paine’s genius was to invent a practical way to distribute income from shared ownership of natural property. He proposed a National Fund to pay every man and woman roughly $17,000 (in today’s money) at age 21 and roughly $12,000 a year after age 55. Revenue for the fund would come from ground rent paid by landowners. Paine even showed mathematically how this could work.
Presciently, Paine recognized that land, air, and water could be monetized, not just for the benefit of a few but for the good of all. Further, he saw that this could be done at a national level. This was a remarkable feat of analysis and imagining.

Two Less Familiar But Important Economists

I want to jump now to two less familiar economists: Arthur Pigou and Ronald Coase.
Arthur Pigou, a colleague of Maynard Keynes’ at Cambridge, was the first economist to focus on the market’s failure to incorporate external costs such as pollution. This is capitalism’s Tragic Flaw #1 that is responsible for climate change, among other serious ills. The essence of the problem is that, because markets charge nothing for pollution, companies pollute far more than they would if markets charged a substantial price.

Pigou’s remedy was for government to estimate the costs that are externalized—let’s say the costs of pollution—and to tax polluting activities enough to reduce them. Though Pigou’s fix would work through markets, it isn’t entirely a market fix because it requires government to calculate external costs, and impose appropriate taxes and collect them. This supposes an adept and enlightened government, free from the sway of the externalizing industries—a supposition that’s hard to make these days.

Ronald Coase was a colleague of Milton Friedman at the University of Chicago. His breakthrough was to show that markets could set prices for pollution without government. Markets could do this if—and it’s a big if—polluters and pollutees had property rights and could bargain with each other easily. They’d then arrive at an amount and a cost of pollution that was agreeable to both sides. Pollution would cost more and there’d be less of it—with no Environmental Protection Agency needed.

Coase’s model intrigued me, but I saw a few problems. First, pollutees—which is to say, all of us—presently have no property rights with regard to ecosystems being polluted, and thus no way to bargain with polluters. If Coase’s model is to have any practical use in the real world, that problem must be solved.

A second problem is that, while the agreed amount of pollution would be “optimal” for buyers and sellers of pollution rights, it might not be optimal for nature, which isn’t included in the bargaining.
A third problem lies in the distributional impacts of Coase’s model—which, if it were adopted widely, would be huge. One of the key questions Coase avoided was who should pay whom. Should polluters pay pollutees for the right to pollute? Or should pollutees pay polluters to pollute less than they currently do? Coase argued that for the optimal price and quantity of pollution to be reached, it makes no difference who pays whom. This may be true theoretically, but in the real world, who pays whom makes a big difference. If pollutees have to pay higher prices to polluters, polluting corporations would benefit and ordinary people would see their living standards fall.

While thinking about climate change in the early 2000’s, I saw a way to solve all three problems in Coase’s model. A “sky trust” could be created to hold America’s atmospheric pollution rights in trust for future generations and living pollutees equally. Using peer-reviewed science, the trust would decrease its sales of pollution rights over time until a safe level for nature was reached. Meanwhile, revenue from the sales would be distributed equally to every legal US resident with a Social Security number, offsetting—and in many cases, more than offsetting—the impact of higher fuel prices.
The sky trust model was based on the Alaska Permanent Fund, which since 1982 has been sharing oil-based income with every Alaskan equally. In 2009, the sky trust became known as “cap and dividend” and was considered, though not passed, by Congress. It’s still the best climate change solution out there—and one that Congress is starting to re-visit.

A New School of Economic Thinking

Let me end this brisk tour of economics by mentioning a new school of economic thinking based on systems theory. This school is sometimes called “complexity economics,” and one of its leaders is Eric Beinhocker, director of the Institute for New Economic Thinking at Oxford. The basic idea of complexity economics is that an economy, like nature, is a complex adaptive system whose large-scale patterns emerge from the interaction of autonomous agents following simple, internally-coded rules. Another of its tenets is that if a complex system is to remain near equilibrium, its positive and negative feedbacks must be roughly in balance.

Positive feedback is amplifying—i.e., it reacts to an action by doing more of it. The classic example is the screech you get from a sound system when the microphone is too close to the loud speaker. Negative feedback is corrective; the classic example is the thermostat. The danger in any complex system is that amplifying feedback will outweigh corrective feedback. When that happens, the system will flip into runaway mode and eventually crash.

The trouble with our current economic system is that its agent population and its feedback mechanisms are both out of balance. In terms of feedback, amplifying feedback far outweighs the corrective kind—thus, the exponential growth of human economic activity and the accelerating rise in inequality. In terms of agents, we essentially have a monoculture of profit-maximizing corporations. These corporations are coded to externalize as many costs as possible—to take as much from workers, nature, and society as they can, and pay as little as they can get away with. Hence, climate change, wealth concentration, and the decline of our middle class.

It’s time now to pull all of these pieces together. My thinking about how to fix the two giant flaws of capitalism is essentially a mélange of Paine, Coase, and complexity economics. What holds the mélange together and makes it work is common wealth.

The Power of Common Wealth

Common wealth—which is to say, wealth that rightfully belongs to all of us together—comes in tangible and intangible forms. It includes tangible gifts of nature such as our atmosphere and ecosystems, and intangible human creations such as our financial system. It also includes the value added by complex systems within our economy—the “emergent” value that exceeds the summed value of a system’s parts. Consider what would happen if the Internet, our power system, or our monetary system crashed—the parts of these systems would have little value on their own. It’s the whole that creates most of the value of the parts.

All of this common wealth is hugely valuable. We couldn’t live without it, and we certainly couldn’t have the amazingly productive economy we now have without it. The trouble is that the market doesn’t see this common wealth—it’s like the dark matter of the economic universe. And that’s what needs to change.

We need to make invisible common wealth visible.

The way the market ought to see common wealth is as wealth held in trust for future generations, for other species (when appropriate), and for all living persons equally—or, as legal scholar Carol Rose put it, as “property on the outside and commons on the inside.” For this to happen, common wealth must be embodied in legal entities that the market sees and respects. Outwardly, such entities would look like corporations, but inwardly they’d be coded to protect their assets for future generations and to share current income (if there is any) equally.

In my book Capitalism 3.0, I called this process of legally embodying common wealth propertization — which shouldn’t be confused with privatization, which is the giving or selling of common wealth to private owners. Propertization keeps common wealth common, while at the same time protecting it from private takeover. A great example is the community land trust.

My argument then is that propertization of selected pieces of common wealth, if done to scale, can fix capitalism’s two great tragic flaws. By making invisible common wealth visible, it can make the invisible hand of the market smarter and fairer.
Let me walk you through this flaw by flaw.

Flaw #1 (and a solution): The current version of capitalism overuses nature because the price of taking from nature is exactly zero (as is the price of screwing future generations). Hence, despoliation rolls on. The solution, as every economist knows, is to internalize externalities—to make polluters and depleters pay today. To do that, the market must tell large commercial entities, “No externalization without compensation!” The question is how to do that efficiently and economy-wide.
Propertizing common wealth gives us a way to do it. Right now, externalities are invisible to markets because there are no economic actors that turn them into prices that externalizers have to pay. But suppose that the market was populated by what I’ll generically call common wealth trusts. On the outside, these trusts would be to common wealth what corporations are to private wealth—chartered legal entities that represent defined interests. In the case of corporations, the interest is shareholders. In the case of common wealth trusts, it would be a combination of nature, future generations, and members of society as a whole.

If the market were populated by such trusts, corporations couldn’t just shift costs and pay nothing. They’d have to bargain with representatives of nature, future generations, and members of society as a whole. “No externalization without compensation” would become the rule. This would affect prices throughout the economy, and in the process, flip positive feedback to negative. Instead of having an incentive to externalize more, corporations would be forced to externalize less.

Flaw #2 (and a solution): Propertizing common wealth can also fix the second tragic flaw of capitalism, widening inequality.

Remember Henry George’s image of rent as an economic wedge, continuously widening the gap between rich and poor? The reason this happens is that the rich have powerful agents on their side—namely, corporations—while everyone else has weak or no agents on their side. And it’s simply a fact that in a competitive economic system, wealth will flow disproportionately to those who have the most powerful collection agents.

But remember those common wealth trusts we created to solve the problem of externalities? It turns out they can serve a second function: to represent all living members of society in the marketplace, as Paine argued in 1797 and as the Alaska Permanent Fund has been proving since 1980. When corporations are properly charged for using or depreciating common wealth, the trusts can distribute some or all of the proceeds to all members of the community—one person, one share. If this were done, we’d wind up over time with two parallel systems for distributing income: the highly unequal system based on private wealth that we have today, and the exactly equal system based on common wealth that would run alongside it. That second system wouldn’t eliminate economic inequality altogether, but the bigger it got, the more it would level things out.

Liberty and Dividends For All

Finally, let me say a few words about my new book, With Liberty and Dividends for All. It has now become clear that, thanks to globalization, automation, and the decline of labor unions, there won’t again be enough good-paying jobs to sustain a large middle class in America. This is an inconvenient truth, but it is the truth and we have to face it. Though politicians (and most economists) still talk as if jobs and jobs alone are the answer, the fact is that, if we want to have a large middle class in the future, we have to supplement labor income with non-labor income.

Here there are two possible paths. One is to raise taxes on the rich and distribute the revenue to others using some kind of means test. The other is to pay dividends to all from wealth we own together. For reasons you can now understand, I favor the latter approach. The dividends would come from a nationwide fund similar to Alaska’s Permanent Fund. The fund’s revenue would flow from a variety of common assets, starting with our atmosphere and our financial system. Over time, its dividends could grow to about $5,000 per person per year. These dividends would not be welfare but legitimate property income, and they’d provide much-needed security to our shaky middle class.
This form of non-labor income is appealing because it’s
  • Simple
  • Fair
  • Transparent
  • Inclusive of everyone
  • Direct (no trickle down)
  • About ownership, not redistribution
  • Market-based
  • Easy to administer (a mid-sized computer could do it)
  • Transpartisan (appealing to libertarians and progressives)
But this method for distributing non-labor income is also part of the larger vision I outlined earlier—a first step toward an economy fit for the Anthropocene, an economy in which organized common wealth sustains our planet and our middle class simultaneously. My hope is that, over the next 20 years or so, we can put some of the key pieces of such an economy into place.

I want to close by addressing the question of how this can actually happen. We all know that Washington today is incapable of doing anything, much less fixing the fundamental flaws of capitalism. But let me quote the Nobel Prize-winning economist Milton Friedman here: “Only a crisis—actual or perceived—produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around.”
http://www.plancanada.com/capitalism3.pdf
We didn’t respond very well to the crisis of 2008 because, frankly, we didn’t have any ideas lying around. We can’t waste another opportunity like that.

The way to prepare for the next crisis is to spread the idea of common wealth. Talk about it. Tweet about it. Blog about it. Start saying things like “We own the air together” and “Our monetary system belongs to everyone equally.” In other words, start naming common wealth, and start organizing it locally where possible. If you do that, there’s at least a chance that, after the next crisis, we can fix the fundamental flaws of our current capitalist system. And that’s how we can build a new normal for the 21st century.

Source: http://www.onthecommons.org/magazine/we-need-new-economics-for-a-new-era-of-history

The recent rise of the commons and the sharing economy seems to suggest a growing recognition of the fact that our health, happiness, and security depend greatly on the planet and people around us.
On the Commons highlights the many ways, new and old, that people connect and collaborate to advance the common good and develop greater economic autonomy in our new e-book Sharing Revolution: The essential economics of the commons by Jessica Conrad. You can download the free e-book We are witnessing a significant social shift in which people are rediscovering common connections and recognizing the collaborative power we share for strengthening our communities. 

Wednesday, May 20, 2015

Learning and Teaching Sustainability

Sharing sustainability education


Sustainability is making decisions that do not have negative consequences for either current or future generations.  It implies both the preservation of natural resources and a commitment to human and societal wellbeing.   
To do this we need to create communities that can provide for an improved quality of life, protected and healthy ecosystems, social wellbeing and cohesion, and economic equity. Business, government, the professions and wider society all need to contribute to the transformation of our way of life so that we support and preserve the planet upon which we all depend. The transition away from a carbon-based economy is one example of a necessary transformation if we are to move away from our current unsustainable situation.
Such a transformation requires a new approach to education. Education for Sustainability incorporates the principles of sustainable design: “Sustainable design is the careful nesting of human purposes with the larger patterns and flows of the natural world...” (David Orr).
Sustainability impacts on a wide range of ecological and human issues. Click on the issues contained in the following list for news, teaching materials, courses and resources relevant to each.

Sustainability Issues:
  1. Education for Sustainability
  2. Energy Efficiency 
  3. Climate
  4. Community Development
  5. Food
  6. Human Health & Wellbeing
  7. Human Rights and Indigenous Issues
  8. Renewable Energy
  9. Natural Resource Management
  10. Sustainable Design
  11. Air, Land, Water and Waste
  12. Business and Sustainability
  13. Animal Rights
  14. Environmental Politics and Philosophy

New toolkits to help students love food, hate waste

students in lecture hall
Food waste is a complex environmental, social and economic problem. In NSW alone, households are throwing away $2.5 billion worth of edible food each year and businesses in NSW send a staggering amount of food waste to landfill. In Sydney 300,000 tonnes of food waste is thrown away each year. Most of this food could have been sold and eaten.
The problem with food waste going to landfill is that when organic waste (including food waste) breaks down it results in the production of methane – a greenhouse gas 25 times more potent than carbon dioxide. Wasting food also wastes the energy, water and natural resources used to grow, package, transport and market that food.
Food waste is not only a big burden on the environment – the 300,000 tonnes of food waste disposed of at Sydney’s landfills in 2007–2008 cost business approximately $36 million in disposal fees alone.
ISF researchers have been involved with several projects for the Love Food Hate Waste program managed by the NSW Environment Protection Authority (EPA). These include theLove Food Hate Waste short film competition and last year’s Zero food waste masterclass and cook-off.
This month, researchers and lecturers from ISF and the UTS Business School have developed three teaching toolkits to introduce food sustainability into the higher education curriculum.
The teaching toolkits contain all that is required for the development of tutorials/workshops focusing on commercial responses to food waste, food waste as a household issue and global food waste.
“It’s about getting the idea of not wasting food front-and-centre for students,” says ISF senior researcher Jade Herriman.
The teaching toolkits contain: learning objectives; suggested lesson format; some quick statistics; reports; infographics; multimedia; responses to the issue; class discussion questions and interactive activities; assessment questions and other possible assessment tasks; and a suggested reading list for students.
The Business School began a process four years ago to integrate sustainability into every subject, rather than treating the subject as an optional extra so UTS Business School students focus on environmental and social dilemmas as an integral part of their studies. The Business School coordinates the  Learning & Teaching Sustainability website,www.sustainability.edu.au where these new toolkits are located.

Thursday, March 5, 2015

How to Make an Attractive City

"We've grown good at making many things in the modern world - but strangely the art of making attractive cities has been lost. Here are some key principles for how to make attractive cities once again."

Wednesday, February 25, 2015

Wireless Electricity

by
Decades ago, Nikola Tesla dreamed of a world where electricity was free and available to everyone everywhere. How would this be possible? Simple: Wireless electricity. Of course, nothing is truly as simple as it sounds. Even if an idea is plausible, money and fortune often get in the way. Ultimately, many argue that this is what happened to Tesla—That his genius was overshadowed by capitalist driven greed. But regardless of what stopped Tesla from achieving his vision during his own life time, it’s now looking like his dreams will be realized during our lifetime.

We’re going to transfer power without any kind of wires. But, we’re not actually putting electricity in the air. What we’re doing is putting a magnetic field in the air.”  says Dr Hall, now Chief Technology Officer at WiTricity. WiTriity is a startup that is developing wireless “resonance” technology

WiTricity builds a “Source Resonator,” which is a coil of electrical wire that generates a magnetic field when power is attached. If another coil is brought close, an electrical charge can be generated in it. No wires required.  “When you bring a device into that magnetic field, it induces a current in the device, and by that you’re able to transfer power,” explains Dr Hall. And just like that, a phone can be charged, a bulb can be lit…any number of devices can be powered.
Hall sees a bright future for the family without wires: “We just don’t think about it anymore: I’m going to drive my car home and I’m never going to have to go to the gas station and I’m never going to have to plug it in. I can’t even imagine how things will change when we live like that.”
But just how feasible is this technology? Check out the videos below to hear experts conduct interviews and talk about this fascinating new tech.


Source: http://www.fromquarkstoquasars.com/wireless-electricity-arrived-scientists-say-theyve-made-wireless-electricity/

Thursday, January 22, 2015

Sirius - A must see!

"The Earth has been visited by advanced Inter-Stellar Civilizations that can travel through other dimensions faster than the speed of light. They use energy propulsion systems that can bring us to a new era. Humans have also developed these systems but those in power have suppressed them in order to keep us at the mercy of fossil fuels. It is time for you to know…and this documentary will let you in.
Sirius is a feature length documentary that follows Dr. Steven Greer – an emergency room doctor turned UFO researcher – as he struggles to disclose top secret information about classified energy & propulsion techniques."






Sunday, November 16, 2014

Towards a Sustainable Energy Future



My presentation for the ERM Alumni Conference on Energy and Natural Resources Policy, Brandenburg Technical University of Cottbus, Germany, 6-10.10.2008
Abstract: The world of fossil fuel – based economy is eventually coming into crisis as these fuels go exhausted. Moreover, the problem is not only the depletion of these fuels, but also many environmental and social issues related such as environmental pollution, climate change, oil wars… Nuclear power cannot be a favourable alternative because of safety and security challenges of the unsolved nuclear waste problem and the nightmare of nuclear weapon proliferation. For a sustainable energy future, we have abundance of renewable energy potential and we should improve more our energy efficiency in all aspects from technology, manufacturing, building to daily life consuming.  
 1. Introduction

Every living-thing needs energy to maintain their lives on Earth. Everything needs energy to do their works. Every society needs energy to power their social and economic activities. In anytime and anywhere, energy is always essential as a heart of matter. However, most present trends in energy indicate a deteriorating picture.

To some extent, the history of human development has intimately related to the inventions of energy sources. For a long time in human history, people had relied mainly on natural energy sources like sunshine, windmill, water-flow, firewood and animal work. Up until just two recent centuries, along with industrial revolution, fossil fuels have been exploited and have quickly become dominant, accounting for approximately 80% of world primary energy consumption [1]. Pressure of industrialization and population on energy demand has increased dramatically. Within a rather short time of two hundreds years, we human have already burnt out an amount of fossil fuels that nature processes had taken millions of years to form! Obviously, these non-renewable energy sources will run out someday, and according to some estimate, that day will not be so far from now for oil. Actually, we are in the time of Peak Oil, the point when the maximum rate of global petroleum extraction is reached, after which the rate of production enters terminal decline [2]. The time of cheap oil will end soon [3]. Many experts have been warning about the end of our civilization as we know it is today [4], the end of oil age with its catastrophic consequences [5]. The world of fossil fuel – based economy is eventually coming into crisis as these fuels go exhausted. In searching for more energy resources, people even have fought each other in oil wars. The energy matter then has turned into serious political matter. Moreover, the problem is not only the depletion of these fuels, but also many environmental and social issues related to this type of our fossil fuel-based economy, such as too much external-dependent, unsustainable agriculture systems, coal mining risk, offshore oil spillage, pollution from coal-power plants, from transportation and industrial activities…and the most serious one perhaps is the green house effect that leads to global climate change with numerous unpredictable sub-consequences.

Then, recently, the challenge of climate change has brought up again the interest in nuclear energy. But ‘Is nuclear the answer?’ [6], the Sustainable Development Commission in UK conducted eight detailed studies covering safety, waste, economics and climate change and concluded that the advantages of nuclear power as a low-carbon technology are outweighed by disadvantages such as uncertain costs, long-lived radioactive waste and an increased risk that nuclear weapons will proliferate. Also, even when considering nuclear power as an option to meet future energy needs, report from MIT finds: ‘the prospects for nuclear energy as an option are limited by four unresolved problems: high relative costs; perceived adverse safety, environmental, and health effects; potential security risks stemming from proliferation; and unresolved challenges in long-term management of nuclear wastes’ [7]. Another report from Oxford Research Group [8] has raised two main questions ‘How dangerous is nuclear power?’ and ‘Can it help reduce CO2 emissions?’ In the report, the short answer to the first questions is ‘very’ - nuclear power is uniquely dangerous when compared to other energy sources; and for the second question the answer is ‘not enough and not in time’. Therefore, nuclear power is more a problem than a solution. On the other hand, uranium is finite resource; that means ultimately, they will be exhausted someday and thus, like fossil fuels, it can not be a good answer in the long run.

Then, what are the strategies to tackle this global energy crisis, and further, to achieve a sustainable energy future?

2. Saving energy and improving energy efficiency

The first and foremost available solution is energy conservation, through reducing energy waste and increasing energy efficiency. We should recognize the fact that in the mean time alternative energies can not replace fossil fuels at the scale, rate and manner at which the world currently consumes them. Moreover, Fritjof Capra [9] pointed out that the deepest roots of our current energy crisis lie on the patterns of wasteful production and consumption. Therefore, to solve the crisis, what truly matters is not getting more energy, which would only aggravate our problems, but profound changes in our values, attitudes and lifestyle. Energy conservation is our short-term key energy source and will always be a good answer in the long run.

Though Peak Oil can conceive quite catastrophic potential, it also opens some hopeful possibilities, a chance to address many underlying social problems, and the opportunity to return to simpler, healthier and more community oriented lifestyle [3]. The example of Cuba can serve as a positive and instructive model for a world facing Peak Oil on a global scale [10]. Cuba is the only country that has faced such a crisis – the massive reduction of fossil fuels, after the Soviet Union collapsed in 1990. Cuba's transition to a low-energy society has taken place by creating cycling culture, sharing public transportation and turning from a mechanized, industrial agricultural system to one using organic methods of farming and local, urban gardens. Lesson from Cuba’s survival gives us hope in the power of community, and the effectiveness of their strategies, which can be summarize in three words: curtailment, conservation and cooperation [11].

Energy conservation brings many benefits. It is low cost and available at all levels. Using less energy resource also means reducing pollution and environmental degradation, while prolong fossil fuel supplies and buying time to phase in renewable energy. Efficiency improvements efforts include more efficient utilization of both quantity and quality of energy, as well as broader measures such as improved energy management, fuel substitution, and better matching of energy carriers and energy demands [12]. Saving energy can start just right at each individual’s lifestyle. For examples:

- Buy and use energy-efficient devices
- Look for electronics that are rechargeable
- Turn off and unplug lights, TV sets, computers, and other electronic equipment when they are not in use
- Walk or cycle for short trips, consider car-pooling or take public transport for longer ones
- Live as close to work as possible
- Eat lower on the food chains, buy regionally and seasonally produced organic food whenever possible
The list goes on… and every bit can help.

Many measures can also be done on the technical sphere, where there is a lot of space expected for creative innovations. In housing, remarkable energy-saving can be achieved by improved heat insulation or building design which takes advantages of natural elements like sun, wind, plants, trees, green-roofs… instead of using air conditioning. Many intelligent lighting systems with energy-saving sensors have become widely used for hotels, official buildings. In transportation, energy-saving techniques can be attained through increasing fuel efficiency and making vehicles from lighter and stronger materials. Besides, idea of co-generation, producing both heat and electricity from one energy source can be well applied in industry.

In addition, a thoughtful vision is needed for energy policy. Governments should accept a target of phasing out oil and gas use within 50 years, discontinuing all direct and indirect subsidies to the oil and gas industry, at the same time increasing investment in public transport, changing tariff policies to support local consumption of goods produced locally, and encouraging sustainable agriculture [13]. Many policies available to alleviate energy insecurity can also help to mitigate local pollution and climate change, as a “triple-win” outcome [14]. For examples, development in public transportation does not only conserve energy, but also relieve congestion, improve air quality, provide access for all ages, offer mobility for rural areas [15]. On the other hand, organic farming does not only reduce petroleum-based inputs but also improve soil quality, help building healthy land, provide healthy food for community.

3. Developing renewable energies

Eventually, we will use up non-renewable energy resources. From a long-term point of view, renewable ones are what we should rely on. According to the estimation of WBGU (German Advisory Council on Global Change), we have huge potential of renewable energy sources. All together, renewable energy sources can provide 3078 times the current global energy needs, in which solar-power 2850 times, wind-power 200 times, biomass 20 times, geothermal-power 5 times, wave-tidal-power 2 times and hydropower 1 time [16]. Renewable resources, the natural powers that maintain our lives throughout human history, will not run out. The Sun shines for all of us, and the wind blows, free of charge. Although the equipments to collect solar and wind energy, such as solar panels and wind turbines cost money, when considering that the resource is taking for free, the overall cost of using solar and wind energy can make them smart choices. Renewable technology cost trends typically show a steep decline during last decades [17] and that trends will continue to reach reasonable levels in the future as their market’s expansion. Moreover, renewable energy are often clean, such as wind and sunshine, they do not emit smoke or create pollution. Others, such as biomass, almost always cause less pollution than fossil or nuclear alternatives.

Renewable energies would bring a number of benefits to the economy. First, they help increase the diversity of energy supplies, and thus lower the dependency on imported fossil fuels and improve the security of energy supplies. Second, they help make use of local resources to provide a cost-effective energy supply (characterized by mobility, modularity and low operating costs; renewable energies are very flexible in case of upgrade and competitive technologies as decentralized systems) while reducing regional and global greenhouse gas emissions. Since they are often flexible, small-scale designs, which take the advantages of local conditions, they can be located close to the demand. Then, transmission and distribution costs are reduced, as well as losses. Finally, from the social point of view, renewable energies can create more domestic employment. Such benefits have created a strong motivation for pursuing renewable energies in both developed and developing countries. The investment costs of renewable technologies have been reduced remarkably today and this makes renewable energies more attractive, quickly developed and expanded [18].

Solar-power

The Sun has produced energy for billions of years. On average, the energy from the Sun reaches the Earth is about one kilowatt per square meter worldwide. Then, in one day, the sunlight which reaches the Earth produces enough energy to satisfy the world’s current power demands for eight years. Even though only a percentage of that potential is technically accessible, this is still enough to provide just under six times more power than the world currently requires [16]. Unlike other energy technologies, solar energy technologies cause neither noise, nor pollution; hence they are often installed near consumers to reduce construction costs. Solar energy is used for heating water, space, drying agricultural products, and generating electrical energy.

Besides using design features to maximize use of the Sun (passive solar systems), some buildings have active systems to gather and store solar energy as concentrating solar systems (Solar thermal collecting). Solar collectors sit on the rooftops of buildings to collect solar energy for space heating, water heating, and space cooling. Most solar collectors are large flat boxes, painted black on the inside, with glass covers. In the most common design, pipes in the box carry liquids that take the heat from the box and bring it into the building. This heated liquid, usually a water-alcohol mixture to prevent winter freezing, is used to heat water in a tank or is put through radiators to heat the air. Interestingly, because of the cooling effect moist air has when it evaporates, solar heat can also drive a cooling system. By using mirrors and lenses to concentrate the rays of the Sun, solar thermal systems produce high temperatures that can be used to heat water for producing steam to drive an electric turbine or for industrial applications. Additionally, solar power can contribute to domestic water heating, which already requires a lot of electricity.  Hotels, schools and hospitals could be equipped with solar water-heating systems.

Photovoltaic (PV, solar cell) systems convert sunlight directly into electricity. To achieve the desired voltage and current, modules are wired in series and parallel into PV array. The flexibility of modular PV system allows designers to create solar power systems that can meet a wide variety of electrical needs, no matter how large or small. Most of the market for solar electric today is concentrated in off-grid homes. Solar cell system is considered as a way to avoid building long and expensive power lines to remote areas. As the cost of photovoltaic systems continues to decline, they will find increasingly larger niches. No other electrical generator is as easy to install or maintain. As PV prices continue to fall, solar power will become a significant source of electricity in the 21st century.

On the other hand, just very recently, solar-power has turned to a new dawn in history as the nanosolar’s thin film technology has been awarded for “Top Innovation of the Year 2007” by Popular Science magazine [19] and “Best Invention of the Year 2008” by Time magazine [20]. This innovation has marked a revolution in solar energy since it utilizes thin sheets of nonsilicon components that reduce the production costs by over 90% and decrease the thickness by 99%. The nanosolar powersheet is thin enough to be rolled and is printable in many versatile forms. Nanosolar is on track to make solar electricity cost-efficient for ubiquitous deployment and mass produced on a global scale [21].

Wind-power

Wind is air in motion. It is produced by the uneven heating of the Sun on the Earth’s surface. Since the Earth’s surface is made of various land and water formations, it absorbs the Sun’s radiation unevenly. Wind power turns the kinetic energy of the wind into mechanical or electrical power which can be used for a variety of tasks. Windmills have been used for pumping water or grinding grain for hundreds of years. Today, the windmill's modern equivalent, a wind turbine, can use the wind's energy to generate electricity. Whether the task is creating electricity or pumping water, the wind offers an inexpensive, clean and reliable form of power. Wind energy does not produce any air pollution. It is completely renewable, and very efficient. It requires minimal maintenance and has low operating expenses.    

Wind turbines can be used as stand-alone applications, or they can be connected to a utility power grid or even combined with a photovoltaic (solar cell) system. For utility-scale sources of wind energy, a large number of wind turbines are usually built close together to form a wind plant. Small turbines are sometimes connected to diesel/electric generators or sometimes have a battery to store the extra energy they collect when the wind is blowing hard. As wind speed doubles, power generation capability increases eightfold. Wind speed increases with altitude and over open areas with no windbreaks. Good sites for wind plants are the tops of smooth, rounded hills, open plains or shorelines, and mountain gaps that produce wind funneling. Wind energy is growing fast. It has been the world's fastest growing renewable energy source for more than a decade with an average annual growth rate of about 25% along with rapid decline in turbine manufacturing costs. Wind energy is estimated to grow from 60 GW today (0.5% of global power) to 1000 GW (12-18% of global power) by 2020 [22]. Wind is free so wind energy can provide a stable long-term price for power production.

Bio-energy

People have used biomass energy or bio-energy for thousands of years, ever since people started burning wood to cook food or to keep warm. In fact, biomass continues to be a major source of energy in much of the developing world. Biomass is organic material which has stored sunlight in the form of chemical energy thanks to photosynthetic process of plants. When burned, the chemical energy is released as heat. Biomass burning generates about the same amount of carbon dioxide as fossil fuels, but every time a new plant grows, carbon dioxide is actually removed from the atmosphere. The net emission of carbon dioxide will be zero as long as plants continue to be replenished for biomass energy purposes. These energy crops, such as fast-growing trees and grasses, are called biomass feedstocks.

In addition to firewood, biomass can be fermentated into liquid form or extracted from vegetable oils and used in transportation such as ethanol or biodiesels. Brazil is the leader country in production and utilization of ethanol from sugarcane. These biofuels produce fewer emissions than petroleum. However, land use for those energy crops over food crop planting is still a hard issue, particularly for developing countries, where the need for food, as the basic need in fighting poverty, is more predominant.

Biomass fuels include not only wood, straw, plants, residues from agriculture or forestry, but also the organic component of solid wastes. Even the fumes from landfills, a byproduct of the decay process of organic matter in municipal solid waste, comprised of approximately 50% methane, can be used as a biomass energy source. In fact, landfill gas has emerged as an easily available, economically competitive and proven energy source [23]. Reducing landfill methane emission by utilizing it as a fuel helps capturing a major greenhouse gas 25 times more potent than carbon dioxide. Obviously, this is a very beneficial approach which produces energy without competing with food production while simultaneously solves the problems of waste and protects the environment. Similarly, biogas is considered one of the cheapest renewable energies in rural areas in developing countries. Like landfill gas, it is produced by the action of bacteria on vegetable/organic material in anaerobic conditions. The bacteria slowly digest the material (usually animal dung, human wastes and crop residues) and produce a gas which is roughly 60% methane and 40% carbon dioxide. This gas is combustible and thus can replace other fuels like wood, agricultural residues, and kerosene for use in simple gas stoves and lamps. Biogas is used for cooking, lighting, generating electricity…etc. Production of biogas would not only save firewood but also be beneficial for integrated farming systems by converting manure to fertilizer for crops or ponds for fish and water plants. Other benefits of biodigestion include the reduction of manure smell, elimination of smoke when cooking and the alleviation of pathogens and thereby improving hygiene on farms.

Recently, researchers have brought up a very interesting and good news for future of biofuel. It is algae, a promising oil alternative, a big idea for future energy because of its high potential and efficiency [24]. Since they have simple cellular structure, a lipid-rich composition and a rapid reproduction rate, these tiny aquatic organisms can yield 30 times more energy per acre than land crops such as soybeans, according to the US Department of Energy [25]. Many algae species also can grow in salt water or other harsh conditions. In addition, microscopic green algae (pond scum) can split water into hydrogen and oxygen under controlled conditions [26]. Thus, these green algae have hopeful potential to become microscopic power plants for hydrogen, which is considered one of the energy in the future.

Micro-hydropower

Of the renewable energy sources that generate electricity, hydropower is the most often used. Mechanical energy is derived by directing, harnessing, or channelling moving water. The amount of available energy in moving water is determined by its flow or fall. The most common type of hydroelectric power plant uses a dam on a river to store water in a reservoir. Water released from the reservoir flows through a turbine, spinning it, which in turn activates a generator to produce electricity. But hydroelectric power doesn't necessarily require a large dam. Some hydroelectric power plants just use a small canal to channel the river water through a turbine.

Hydropower is almost free, there are no waste products, and hydropower does not pollute the water or the air. However, it is criticized because it does change the environment by affecting natural habitats, especially the ecosystem behind large-scale hydropower dam. So, small-scale micro-hydro system (pico-hydro system), is more favourable. Household-scale micro-hydropower systems have proven particularly important in isolated rural communities that are located far from the national grid but close to suitable water resources. These pico-hydro, with a maximum electrical output of 5 kilowatts (kW), sufficient to power light bulbs, radios, televisions, refrigerators and food processors [27]. Hydro power systems of this size benefit over the larger systems in terms of cost and simplicity of design. Only small water flows are required for pico-hydro systems, meaning that many suitable sites are likely to exist. A small stream or spring often provides enough water. Recent innovations in pico-hydro technology have made it an economic and versatile source of power even in some of the world's most resource-poor and inaccessible places. Well-designed pico-hydro systems have a lower cost per kW than solar or wind power. Pico-hydro equipment is small and compact. The component parts can be easily transported into remote and inaccessible regions. Local manufacture is possible, and the design principles and fabrication processes can be easily learned. The number of houses connected to each scheme is small, usually under 100 households. This eases maintenance and reduces capital requirements. Standard AC electricity can be produced and distributed throughout a village to power electrical appliances, or it can charge large batteries for households.

4. Future Energy Vision

Several years ago, there was a growing interest in developing a hydrogen economy [28], which proposed to solve the problems of our current fossil-fuel-based (hydrocarbon) economy. Hydrogen has been predicted as a clean energy of the future for stationary, mobile and transport applications, especially with the use of fuelcells. The main advantage of hydrogen economy is the elimination of pollution, since the only byproduct from burning hydrogen or combining hydrogen and oxygen gases in fuelcell to produce electricity is water vapor, no harmful gases to environment. In addition, fuelcell-powered vehicles are about twice as efficient as those with internal combustion engine. During last decade, fuelcell-vehicles [29] have been developed by many big players in the world such as Honda, BMW, Huyndai, Toyota, Ford, GM… However, the development of a hydrogen economy has to face up to major barriers [30] of producing, transporting and storing hydrogen. The key fact is that hydrogen is not a source of energy. Like electricity, hydrogen is only an energy carrier. That means, hydrogen is only a way of storing and distributing energy, but hydrogen itself has to be generated from somewhere else. Hydrogen can be produced by electrolysis of water, but we need electricity to do the work. Moreover, hydrogen is not a convenient carrier of energy. Because of its lightness and explosive characteristic, hydrogen containers should be tight enough and quite bulky. Then, for mobile applicants, hydrogen must be liquefied or compressed to increase energy density. Therefore, there are still many difficulties to realize the vision of a hydrogen economy.

On the other hand, since more than fifty years, scientists all over the world have been working to realize the dream of a fusion vision. There are now two remarkable fusion projects, both have been developed under international cooperation: the Joint European Torus (JET) [31] and the International Thermonuclear Experimental Reactor (ITER) [32]. Fusion, which is expected to be abundant, clean and safe, could become the dominant source of electricity on Earth in a century or so. Although it may be a possible source of energy in the distant future, there is still a long way to go.

So, what would be the more realistic and feasible prospect for a sustainable energy future? Lester Brown [33] believes that “the new energy economy will be based much less on energy from combustion and more on the direct harnessing of energy from wind, the Sun and the Earth itself”. Thus, future would belong to the age of Renewable Sources. It is also the scenario described in the Energy [R]evolution report, by the European Renewable Energy Council and Greenpeace [16]. The vision would be made by optimized integration of renewable energy, developing smart consumption, generation and distribution systems and maximizing the efficiency of building through better insulation. Solar façade would be a decorative element on office and apartment buildings. Rooftop wind and solar would be placed so that energy is generated close to the consumer. Clean electricity would also come from offshore wind parks or solar power station in deserts. Electricity would be much more prominent and become the principal source of energy for transportation, replacing gasoline and diesel fuels. Hydrogen can become a way of back-up to store solar, wind energy to use at night or during cloudy days…

Shifting to renewable energy means shifting to more decentralized and diversified systems which maximize the use of locally available, environmental friendly energy sources. “It is encouraging to know that we now have the technologies to build a new energy economy, one that is not climate-disruptive, that does not pollute air and that can last as long as the sun itself” – Lester Brown.

REFERENCES

[1] International Energy Agency (2006) World Energy Outlook 2006 http://www.worldenergyoutlook.org. Accessed October 2008
[2] Wikipedia, Definition of Peak Oil. http://en.wikipedia.org/wiki/Peak_oil.
Accessed October 2008
[3] Kuhlman A (2007) Peak Oil – The End of Oil Age. http://www.oildecline.com. Accessed October 2008
[4] Savinar M Peak Oil - Life After the Oil Crash. http://www.lifeaftertheoilcrash.net.
Accessed September 2008
[5] Leigh J (2008) The Olduvai Theory and Catastrophic Consequences. http://www.energybulletin.net/node/45518. Accessed August 2008
[6] Sustainable Development Commission U.K. (2006) Is Nuclear the Answer? http://www.sd-commission.org.uk/pages/is-nuclear-the-answer.html. Accessed October 2008
[7] MIT report, (2003) The Future of Nuclear Power. http://web.mit.edu/nuclearpower.
Accessed October 2008
[8] Oxford Research Group (2007) Secure Energy, Civil Nuclear Power, Security and Global Warming. http://www.oxfordresearchgroup.org.uk/publications/briefing_papers/secureenergy.php.
Accessed October 2008
[9] Capra F (1983) The Turning Point. Bantam Books, Toronto
[10] Arthur Morgan Institute for Community Solutions (2006) The Power of Community: How Cuba Survived Peak Oil (Documentary). More information see: http://www.communitysolution.org.
[11] Peak Moment TV program (2006) Learning from Cuba response to Peak Oil, interviewing Megan Quinn. http://www.youtube.com/watch?v=f7i6roVB5MI. Accessed September 2008
[12] Rosen MA (2008) Key Energy-Related Steps in Addressing Climate Change, World’s Climate Conference 2008: http://climate2008.net/?a1=pap&cat=2&e=65. Accessed 4 November 2008
[13] The Ecologist (2008) 30 Steps to an oil free world.
http://www.theecologist.org/pages/archive_detail.asp?content_id=432.
Accessed November 2008
[14] International Energy Agency (2007) World Energy Outlook 2007 Executive Summary http://www.iea.org/textbase/npsum/WEO2007SUM.pdf. Accessed November 2008
[15] American Public Transportation Association (2008) Public transportation – Benefits for the 21st century. http://www.apta.com/research/info/online/twenty_first_century.cfm.
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[16] European Renewable Energy Council (EREC), Greenpeace International (2007) Energy [R]evolution – A Sustainable World Energy Outlook http://www.energyblueprint.info/fileadmin/media/documents/energy_revolution.pdf.
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[17] National Renewable Energy Laboratory USA (2002) Energy Analysis Office report http://www.nrel.gov/analysis/docs/cost_curves_2002.ppt. Accessed October 2008
[18] Nguyen QK (2005) Ph.D thesis: Long term optimization of energy supply and demand in Vietnam with special reference to the potential of renewable energy, Oldenburg University
[19] PopSci’s Best of What’s New 2007 (2007) Nanosolar Powersheet
http://www.popsci.com/popsci/flat/bown/2007/index.html. Accessed November 2008
[20] TIME’s Best Invention of 2008 (2008) Thin-Film Solar Panels
http://www.time.com/time/specials/packages/article/0,28804,1852747_1854195_1854153,00.html. Accessed November 2008
[21] Nanosolar Inc. http://www.nanosolar.com. Accessed November 2008
[22] WWF (2007) Climate Solutions – The WWF Vision for 2050.
http://www.wwf.org.uk/filelibrary/pdf/climatesolutionreport.pdf. Accessed November 2008
[23] Energy Business Reports (2006) Landfill gas as an energy source.
http://www.energybusinessreports.com/shop/item.asp?itemid=849. Accessed November 2008
[24] Biello D (2008) Biofuel of the Future: Oil from Algae, Scientific American Earth 3.0
http://www.sciam.com/article.cfm?id=biofuel-of-the-future. Accessed October 2008
[25] Hartman E (2008) A Promising Oil Alternative: Algae Energy. Washingtonpost.
http://www.washingtonpost.com/wp-dyn/content/article/2008/01/03/AR2008010303907.html Accessed November 2008
[26] Gartner J (2008) Algae: Power Plant of the Future? Wired.
http://www.wired.com/science/discoveries/news/2002/08/54456. Accessed November 2008
[27] Quyen NH, Khoi PH, Dan NQ and Minh LT (2003) Renewable Energy for the Developing World – The Power of Water. TWAS Newsletter.
http://www.ictp.trieste.it/~twas/pdf/NL15_1_PDF/05-RenewEnergy_21-28_low.pdf.
Accessed 2005
[28] Wikipedia (2008) Hydrogen Economy.
http://en.wikipedia.org/wiki/Hydrogen_economy. Accessed November 2008
[29] Wikipedia (2008) List of Fuelcell Vehicles.
http://en.wikipedia.org/wiki/List_of_fuel_cell_vehicles. Accessed November 2008
[30] Muller RA (2003) Technology Review Online: A Pollution-Free Hydrogen Economy? Not So Soon. http://www.technologyreview.com/energy/13259/?a=f. Accessed November 2008
[31] Joint European Torus project (JET). http://www.jet.efda.org. Accessed November 2008
[32] International Thermonuclear Experimental Reactor project (ITER).
http://www.iter.org/index.htm. Accessed November 2008
[33] Brown L (2008) Plan B 3.0: Mobilizing to Save Civilization. Earth Policy Institute.
Ebook: http://www.earth-policy.org/Books/PB3/Contents.htm. Accessed November 2008

 

Friday, November 14, 2014

Our Finite World - Exploring how oil limits affect the economy

A PDF version of Gail Tverberg's presentation at the UNED Conference in Barbastro, Spain on October 10, 2014. It was called, "Energy and the Economy: Twelve Basic Principles in a Finite World."

By Gail Tverberg

"We live in a world that is finite. While there are huge amounts of oil, gas, coal, and minerals (such as uranium, gold, silver, copper, and lithium), we tend to extract the easiest to obtain, highest quality resources first. Eventually, we find it is more and more expensive to extract additional quantities of these items. Aquifers that are slow to replenish become more and more depleted. Top soil tends to erode faster than it is replaced. Pollution tends to be a problem too, with the most obvious example being carbon dioxide added to air and water.

Economists have set up their economic models as if we would never reach limits. In fact, we seem to be reaching limits now, especially in the area of oil supply. World oil production has been approximately flat for six years now (since the beginning of 2005), even as producers have strained to raise production. OPEC claims to have a huge amount of spare capacity, but there is little evidence that this is really the case. They also claim to have very high oil reserves, but the reserves have never been audited, and are believed by many to be seriously overstated.

There is great confusion regarding what happens when we reach limits in oil supply. People expect that if oil starts hitting limits, the symptoms will be high prices and shortages. In fact, the symptoms as often as not seem to be recession and an inability of would-be purchasers to afford the goods that are being produced with the high priced oil. This at times looks like an over-supply of oil–the opposite of what people expect.

The issue is not a lack of oil, but a lack of cheap, affordable oil. If oil prices could rise high enough (and people’s pay checks could rise to accommodate this increase in price), there would likely not be a problem–we could just extract more higher priced oil. The fact that things seem to work in this manner helps solve the mystery regarding how there could be a huge amount of oil still in the ground, but oil supply still not be growing.

Research suggests that once oil prices reach a high enough level (estimated by Steven Balogh to be $85 barrel in 2009 $), high oil prices start sending the economy into recession. Eventually, recessionary forces overcome the price rise, and oil prices drop. In time, demand rises again, and oil prices rise again, until the higher price once more leads to recession. This up and down pattern leads to an oscillation of oil prices, never raising prices high enough to really increase production. This failure of oil to reach very high prices also means that “renewables” do not become competitive either.

As noted above, world oil production has been approximately level since the beginning of 2005. It seems to me that peak oil problems started about the time that oil supply first stopped rising, and prices started rising instead. Oil prices began rising as early as 2003, and in 2004, the Federal Reserve started raising target interest rates in response to higher oil and food prices. Eventually, higher oil prices and higher interest rates in response to the higher oil prices helped prick the housing bubble. Thus, the debt defaults and recessionary problems we have been experiencing in the past few years seem to be very much related to limits in oil supply.

A chart I made some time ago. It seems to me that our problems started approximately when oil supply stopped increasing, represented by the departure of the blue line from the green line. I am not convinced the decline in oil production will follow the pattern shown in the graph. This is just one idea.

We don’t know precisely when oil supply will start declining, but, in a sense, it doesn’t matter. Having oil supply that doesn’t increase is already a problem, because countries like China and India and oil exporting nations are taking more and more of the available oil supply, leaving less and less for developed nations like the United States.

Going forward, I expect that the we will see significant debt defaults and more recession. Liebig’s Law of the Minimum (saying in effect, that if we lose an essential input, then a whole process will stop) is likely to mean that oil supply shortfalls are likely to have much wider influences than their magnitude would suggest. One area that is vulnerable is our financial system. It operates much better during periods of economic growth (because it is easier to repay debt with interest), and a reduction in oil supply is likely to result in economic decline. If there are serious financial problems, international trade is likely also to be adversely affected.

Eventually, I expect that collapse is likely. The timing is not certain, but because of Liebig’s Law of the Minimum and the very connected nature of our systems today (oil, electricity, food, financial, international trade, Internet, medicine, etc.), it seems to me that this collapse could take place in as little as 20 years. We cannot of course know with certainty, but it seems to me that we should be at least looking at this possibility, and planning accordingly.

Suggested Posts

I have tagged a number of posts as Introductory Posts. These can be found by clicking the “Introductory Post” tag at the top of the right sidebar, or by clicking Introductory Post here.

I might point out Our Finite World: Is this a Problem. I wrote this back in early 2007, outlining some of my basic views. My views have changed very little. You will note that even back then, I was talking about the likely outcome of peak oil being recession and problems with the financial system.

With respect to oil, one post giving some background with respect to our supply problem is Peak Oil Overview – June 2007. Another related post is Oil Production is Reaching its Limit: The Basics of What This Means.

A very popular post with respect to alternatives has been What are our alternatives, if fossil fuels are a problem? A post showing the relative energy supply from different types of fuels over time is Our Energy Supply: Some Basics.

I have written quite a few posts related to financial issues associated with peak oil, both at The Oil Drum and at Our Finite World. Several of these are listed in at the Financial Implications link near the top of the right sidebar. Others include



One financial post that is on both blogs that should perhaps be mentioned is Delusions of Finance. I correctly predicted many of the problems that took place in 2008, at the beginning of 2008. This is a post explaining what I saw that others did not.

With respect to planning for the future, Oil and the Economy: Why it is important to figure our approximately where we are headed is a good post to start with.

A post which looks at the connection between oil consumption and employment is Part 1 of  The Oil-Employment Link Part 1 and Part 2. Part 2 looks at how this might play out, and what policies might be appropriate. It is on the scary side, and might not be for new readers.

A post giving an idea which may be a partial solution is What we can Learn from Gift Economies.
Also, check out the posts listed on my listing of some of my posts from The Oil Drum."





Converging Crises – PDF of talk at Age of Limits Conference – May 25, 2014



Eight Energy Myths Explained – April 23, 2014
























Oil Supply Limits and the Continuing Financial Crisis – In Energy Volume 37 January 2012