4%, 11%, Who the Hell Cares?
Posted by Stuart Staniford on September 6, 2005 - 10:30am
Topic: Economics/Finance
Wrong, I say. Once we are post-peak, the depletion rate is going to be the single most important variable by far. I argue it controls whether peak oil is minor unpleasantness, or Overshoot-style die-off. If we understand these issues, I think it can help to clarify exactly why one might choose to live at one or other end of the peak-oil spectrum - complacency or panic.
I'm going to argue that there are three rough regimes that we can distinguish. If the depletion rate is below the contraction threshold, then the economy can continue to grow despite depletion (green zone above). If depletion goes above this threshold, then we will have sustained economic contraction, but still in a mostly orderly manner (yellow zone). Finally, I argue there's a collapse threshold - if the depletion rate goes above this for a sustained period of time, then society will not be able to adjust and will go into collapse (red zone) until some new form of society can be constructed from the ashes of the old (much as happened to the Soviet Union, the Mayans, the Roman Empire, and Easter Island in various guises).
The picture assumes a near-term 2.5% annual growth in all-source, quality weighted, liquid hydrocarbon supply. This culminates in a peak in 2008, for the sake of illustration, followed by various depletion regimes. The boundary between the green zone and the yellow zone is constant 4% depletion (my estimate of the US contraction threshold). The boundary between the yellow and the red is constant 11% depletion (my guess at the collapse threshold).
Of course, I'm not saying I know the date of peak oil, or that the true curve of supply is going to be neat and constant depletion as shown here. There could very well be a bumpy peak, and there's likely to be a somewhat fluctuating fall that starts off slow and then speeds up. It will probably be punctuated by various kinds of shocks induced by conflict, hurricane, or earthquake. Nor am I saying there are absolutely hard lines between the varying regimes of adaptation, contraction, and collapse. I don't exclude scenarios where society lives in one zone for a while and then crosses into another. What I'm proposing here is a a very idealized and simplified view, but I think it helps us gain greater insight into the basic dynamics of a post-peak economy.
The Contraction Threshold
As a rough approximation, good to 10% or so, the following things are true of the US economy:- All transportation runs on oil
- The economy is entirely about the creation and use of material goods.
- All material goods are transported from creator to user via oil-powered transport
- Everyone gets to work by oil.
- Oil is not used to power making stuff, electricity is (ie coal, nuclear, hydro, natural gas).
So, since if goods can't be moved there's no point in making them, the simplest possible model of the oil economy is that GDP is directly proportional to oil usage. More GDP means more oil usage, and if oil supply shrinks, GDP shrinks proportionately. I think this model is probably correct to first order on short time scales (months to a year or two). If this model were absolutely true, then with an oil depletion rate of X%, we would have X% annual economic contraction.
However, by now, the free market economists are champing at the bit and Schumpeter is spinning in his grave. Adaptation, substitution, creative destruction, they cry. Yes, yes, and yes. Up to a point. We can replace oil with coal or natural gas. We can switch to plugin hybrids. But only so fast. And that switching speed is what sets the contraction threshold - which by definition is the amount of oil depletion required to make economic growth be zero.
The nice thing is, there's data that will allow us to get somewhere at estimating the contraction threshold, at least very roughly. The excellent Transportation Energy Data Book, on page 3 reveals that the average increase in the size of the US vehicle fleet is 3.6% from 1992 to 2002. Since this corresponds fairly well with the 3.2% average increase in real GDP over the same period, our approximate "GDP is proportional to oil usage" in the short term is not looking too wrong.
Now page 9 reveals that the average age of a car on the road is 9 years, and a truck is 7.9 years. Let's split the difference and say the average age is 8.5 years, and thus about 70/8.5 = 8.2% per year of them per year are new - about 3.6% being growth, and about 4.6% being fleet replacement. I'm going to assume that in a somewhat but not horrendously stressed zero growth economy, people buy the same number of cars, but they buy smaller much more efficient vehicles. I'm going to assume the fleet stops growing, and the full 8.2% goes into replacement.
Now, what gets replaced with what? I'm going to assume that the best that can be done is to replace vehicles with ones that are twice as efficient. Eg, in the near term, that corresponds with replacing a 27.5mpg CAFE average passenger car, with a 55mpg Toyota Prius. In a decade or so, we'd need to be replacing Prius's with 110mpg plug-in hybrid hypercars, but that seems long enough for the auto companies to get with that program (or go out of business in some cases). Obviously, the factor 2 is an approximation. Hypercars might very well become available sooner, but also some people could afford to keep guzzling away in big conventional SUV's and would do exactly that. Let's assume those effects wash out to the factor 2 overall.
The situation with trucks is probably roughly similar. Semi-truck fuel efficiency can be about doubled by cleaning up their aerodynamics, and beyond that we'd be moving increasingly to railroads to get the next doubling in energy efficiency (which would require significant investment in the decayed railroad infrastructure).
There are a whole pile of second order effects which we will proceed to assume are smaller and roughly cancel each other out. These include:
- People might try to use their vehicles more efficiently. However, this basically requires rearranging the the building stock (or at least the use of it), which is extremely long lived (decades) and has been sprawling as average household size has gone down and population has gone up. We assume zero economic growth is only enough to arrest these trends, not reverse them.
- More economically inefficient uses of oil might be eliminated first. It's true that low income households (ie ones that don't create much value in an economic sense) will have to conserve more. However, it's also true that high income households use a lot of gasoline for purpose that have no economic significance and would not stop. We'll assume these effects cancel.
- Electricity might be substituted for oil to some degree. This can only happen slowly since the lifetime of the electricity generating equipment is extremely long (decades), and we assume it just helps us to make that factor of 2 average reduction when we replace a vehicle.
- People could telecommute. But telecommuting has been an option for a decade at least, and hasn't reached much penetration, presumably for good reason. I assume zero economic growth is not enough to radically change this picture.
The Collapse Threshold
The reasoning about collapse is going to be a bit fuzzier. In fact my estimate of the collapse threshold is going to be what we scientists know by the technical term SWAG (scientific wild-assed guess). But I think I have something to offer in the way of insight on the dynamics of collapse. I define the collapse threshold to be the depletion rate at which society collectively loses enough faith in the future that they are no longer willing to risk investments to preserve that future. This appears to be one of the fundamental characteristics in past societies that collapsed. The Easter Islanders gave up their intensive rock gardens, the Chaco Canyon people stopped building new Great Houses, the Mayans even stopped keeping track of their Long Calendar. (See Jared Diamond's excellent book Collapse, or Joseph Tainter's slightly more academic but also excellent The Collapse of Complex Societies for more detail.)In our case, consider a potential investor in a company that is raising capital to open a lead mine to make batteries for anticipated future demand for plug-in hybrids. Let's say it takes five years to get the thing producing, and then the initial capital will take five more years to repay before it starts to really make money. So this investor has to believe society will hold together well enough over that time for his investment to really be worth it. Otherwise he's investing in gold instead (or vodka!).
Obviously, if our hypothetical investors do not feel enough confidence to make this investment, now society is in real trouble - the batteries needed to power the plugin hybrids are not going to be there when they are needed. And so on, across a thousand similar decisions across the economy.
Not only that, but the point at which wealthy investors are giving up hope about the future is also probably similar to the point at which the rest of society gives up hope too, and starts looking for alternative ways to survive. One of the leading effects of that is likely to be a loss of law-and-order. Things go downhill very rapidly from there as we have seen in the last week in New Orleans. We also know conflict was a major factor in the decline of Easter Island, Rome, and the Chaco Canyon Anasazi. Human beings can turn into bands of looters, and even cannibals (as at Chaco Canyon), with amazing speed once they lose faith in society.
I don't really know how to estimate this threshold with precision. But I note that each percentage point of depletion over and above the 4% contraction threshold results in a percentage point of annual economic contraction. By that reason, 11% oil depletion is 7% annual economic contraction which is halving the economy in a decade. That would sure scare the hell out of me from making any investments in anything except fruit trees and vegetable gardens. So my SWAG is the collapse threshold is eleven percent oil depletion.
Remember, I defined that depletion rate to be the depletion in all-source liquid fuels, quality-weighted (ie after we've included whatever can be gotten from slowly ramping up oil sands, coal-to-liquids, etc, but discounted by the increasing mix of less useful heavier sourer oils).
Summing It Up
I stress that I know all of this is a crude approximation. I'm not claiming my numbers are any more than rough guides to the general neighborhood. But I hope it helps us move the debate forward. I think the hoariest die-off proponent would have to agree that evil earth-destroying capitalism could probably adapt for quite some time if depletion was only 1% a year. I think even Julian Simon would have had a hard time arguing that human ingenuity could overcome 50% annual depletion in oil supply. I think since we've survived oil-shock induced recessions in the past, it's clear there must be some survivable middle zone of modest contraction.So given the zones must exist, now we're just arguing about the numbers. The peak-oil-is-a-non-issue crowd need to either argue that depletion will be slow (which is an argument that kind of needs to be based in geology and reservoir engineering), or that the contraction threshold is high (in which case they need to explain how the relevant infrastructure could be turned over much faster than today under conditions of economic stress.
Alternatively, die-off types need to explain either why the total depletion rate will be very high, or that the collapse threshold is low (society will lose the confidence to invest in the future even at depletion rates that are quite modest).
I'll offer my own best guesses for the depletion rate in a future post, but in the meantime, let the debate begin!
First, the date at which the peak occurs is important in terms of looking at society's response. A peak in 2008 as you assume is very different in its effects from one in 2018. The reason is that the latter date gives us 13 years of high oil prices to begin to adjust to a potential decline.
And that points to the second issue, which is that society in general and markets in particular are forward looking. The peak isn't necessarily going to be a surprise, and hopefully it will not be. There is enormous attention and analysis going into the question now. At this point the analysts don't agree, but hopefully with more research and perhaps an improvement in transparency among oil exporters, a consensus will be reached in a few years.
Once people know when the peak will occur and can anticipate its effects, including the depletion rate, that will allow society to adjust and adapt in advance. In particular it may allow even relatively large depletion rates to be handled without leading to chaos and disaster.
If a consensus grew that we were going to be facing, say, a 12% depletion rate, which Stuart predicts would lead to social collapse, I think that society would instead take drastic measures in advance to adjust to that. We'd see massive investments in coal to liquids and tar sands, which are known to produce replacements for oil, it's just that scaling them up in time seems infeasible under current circumstances. Well, under an emergency situation things would be different. We would see a crash program to develop these technologies, which are proven and known to work.
The point is that an anticipated decline is far different in its effects than one that comes as a surprise. My POV with regard to peak oil is that I don't know when it will happen or what its impacts will be, but that we should pressure oil exporters to provide more transparency so that society can know what it's getting into and prepare in advance. That could make the difference between a successful adaptation and Stuart's collapse scenario.
Also, it seems pretty clear to me that the powers-that-be won't admit we've peaked until well afterwards, when they can't deny it. So some people might not be surprised, but most will.
As you say, a lot depends on transparency, and accurate information. Looking at the photo-ops and back-slapping in the aftermath of Katrina, I'd say we are being pushed, blindfolded, into the abyss.
Overall, I sort of assumed the warning of the decline rate is enough to set in place those 2x improvements in transportation efficiency, but not more. If we were to start constant decline next year, we obviously would not achieve 2x for some years because manufacturors would need to design new models (except Toyota and Honda), and rejig factories (in all cases).
I'm also very dubious about whether effective warning signals will actually occur. The classic economic assumption that markets receive perfect information, including warnings, can't possibly be correct under these circumstances because:
- We don't have good information on production and reserves now.
- We will not have good information on the timing of the peak: it can only be verified some time (2 years?) after the fact.
- Oil companies, as we've seen already, are unlikely to tell their investors that they are in a long-term decline.
- Governments aren't talking either. The Jimmy Carter experiment in telling the truth about oil was intellectually and ethically correct, and politically disastrous. It won't be repeated anytime soon.
This means that the warnings will come primarily from third party commentators in the peak oil community. This group has brains and passion. Unfortunately, we have no significant communication budgets. And we compete for credibility with a shadow--"they," as in "They who will find a solution."We need to keep getting the message out, but most are not ready to really take it on board. So the warnings will be weak.
I sure hope that will only be a small part of the solution, because otherwise we're just heading for peak coal and peak tar sands, and more global warming and air pollution.
I'd hope that massive investments would happen in solar, wave and wind technologies along with the extremely important efficiency and conservation sectors.
For instance, suppose you've got an oil crunch that starts in 2005. By 2010, depletion is running at 5% per year but conversion has been averaging 2% a year and 10% are already converted away from petroleum. Further productivity crunches will only affect the other 90%, so a 5% contraction in the oil-dependent sector is only 4.5% overall. By 2020, 30% are converted and a 5% contraction is only 3.5% overall; if the converted are growing at 5% per year (likely if they are much better investments) the overall contraction is just 2%. Eventually the converted are out-growing the dependent-and-contracting and the economy goes forward again.
The only way we'll have real problems with peak oil is if government tries to maintain the economy on it instead of getting it to switch, e.g. what the Republicans have been doing since cancelling the PNGV in 2001.
The problems with Li-ion batteries will be overcome. The expensive and runaway-prone cobalt oxide cathodes are eliminated by Saphion technology, and nano-fine structures by Altair Nanomaterials and Toshiba have radically increased the cycle life and charge/discharge rates.
For those who aren't aware of Toshiba's breakthrough in battery technology, here's the link:
http://www.toshiba.co.jp/about/press/2005_03/pr2901.htm
1) A switch from gas/diesel to natural gas. Well, hopefully it's obvious how one isn't immune to price increases in this case. For the record, it's a limited resource, it's peaked in North America and it's price is also increasing.
2) Any liquid/fuel cell fuel source. How well does it scale? Yes you can get waste oil to run your car from a restaurant down the street, but what happens when 5% of the population find out about the great savings? Suddenly the reataurant realizes that waste oil is a resource that s/he can sell for far more. And now you effectively have to buy the bio diesel (or algae oil) from a station. Growing demand, but will supply ramp up quickly enough? Sure, in the long term price should/might go down but when it's just becoming popular there could be wild price adjustments. Sure, some could be down, but some could be up.
3) electrical power. Whether compressed air or a battery is used for the energy storage mechanism, have you looked at your electrical bill? I'm getting yearly adjustments to the bill twice yearly for the last two years (better than the quarterly I seem to be getting from the natural gas company). How many new nuclear plants are being built in your area? Does your bill show what percentage of your energy comes from what sources? Odds are you'll see 50% from coal, some from gas, and then some from renewables. Coal will get more expensive to ship, and gas is going up. And without breeder reactors nuclear will also rise. When a lot of people are plugging their cars into the grid, there's going to need to be a lot more electricity produced.
I'm unsure what other categories there are, but one won't be immune from price increases. But hopefully the price increases will be less than the petroleum bound competitors.
Waste-derived fuels (both crop wastes and post-consumer wastes) will come into play, but I don't think they're going to be very big over the next 5 years. There's too much groundwork that's not done yet.
For the most part, the conversion is going to be to electricity. Electricity can be generated by a host of things and co-generated from many processes which currently just eat the entropy increase in conversion to low-grade heat; if we moved aggressively to make more electricity for less fuel, the amount of low-hanging fruit would allow it with relative ease.
That is the whole point isn't it. How steep is the back side going to be and what will be the effect on civilization. I'm still digesting your data.
This illustrates the lag between the supply shocks of the 70's and early 80's, and the the resulting increased economic efficiencies.
From 1978 to 1985, the U.S. economy averaged a reduction of crude consumption per unit GDP of about 5% year-over-year.
http://www.flickr.com/photos/29681333@N00/33914633/
ahhh... but have they? What percent of homeowners use compact fluorescents that can afford to do so? What's the fuel efficiency of new cars purchased today? How many homeowners haven't replaced windows or upgraded insulation in the last few years? How many businesses haven't looked into conservation to control electricity costs?
In truth, there are still lots of low-hanging fruit to grasp. All we need is incentives - and rising costs (or profits) are the best incentives.
The fact of the matter, we use essentially the same amount of total energy per capita as we always have. It is down less than 5% from levels of the early 70s. We reduced our oil usage in the late 70's because we switched from oil fired boilers to gas/coal. Our total energy usage did not change.
As far as energy usage per GDP, that is simply because much of the goods production has been sent offshore. The value of the product is still applied to the GDP, but the energy cost is now hidden.
We are no more energy efficient than we ever were, and I don't believe that we can reduce energy usage by any amount without significantly and adversely effecting our economy. Thinking that we can reduce oil usage 5%/year without causing a serious recession is foolish.
Michael Robbinson's graph is misleading, because it leaves the impression that we are using fewer actual molecules of crude than we were 30 years ago. We all know that this is demonstrably false. We use more crude than ever before.
Moreover, while we rely on crude less as a % of total energy consumed, we rely on natural gas much more (with its own peak and depletion curves).
So as far as I can see, sustained economic growth means sustained growth in energy consumption. That is unless someone can tell me how to repeal the second law of thermodynamics as it applies to complex and growing societies.
We were supposed to have them by MY 2009. They would have been perfect for conversion to GO-HEV's, too. The Republican majority which came in with Bush killed PNGV in 2001.
Thanks for this thoughtfull discussion. I wonder
how much we're missing by discussing "society"
in the singular. We don't even need depletion -
merely price rises - to throw some coutries
into economic and social chaos. At say 4% depletion
what would the global effects be and how would
that disruption reflect into wealthier countries
like the US? Even leveling is very sobering to
me on a global scale (let alone depletion).
Again,
Thanks for an illuminating post.
Roy
But there are a lot of things which still are not unconstrained.
Land. With infinite energy/food breeding could be unrestrained, but everyone has to live somewhere.
Mindshare. Memes want to spread, but some memes (a) innoculate their human host from other memes (b). Thus, meme A is a threat to meme B, and the only way for meme B to have an ensured future is to eradicate meme A. Jihad, crusade, civilizing the natives. Whatever you want to call it.
Creative works. Intellectual property. This is a combination of Land and Mindshare in some respects. With infinite energy and ostensibly peace, there will still only be so much main stream creative content. And in many countries that it rigourously controlled. Now it could be some "rogue" nation will weaken their intellectual property laws and others will flock to it, or at least flock to their websites. This could provoke outright war. At the very least, just as there was a (failed) war on poverty, and a (failed) war on drugs, there will be a (failed) war on filetraders.
"If you want a vision of the future, imagine a boot stamping on a human face - forever." - George Orwell.
Given that you've defined depletion to be net of coal-to-liquids, the peak-oil-is-a-non-issue crowd may alternatively argue that ramp up of coal-to-liquids production capacity will be fast (which is an argument that needs to be based in economics and politics).
- You've neglected the energy cost that it takes to construct vehicles. While there may be improvements in manufacturing, I don't forsee a 50% drop in the amount of energy to produce a car with each generation. Indeed, one of the beefs that I have with the hypercar is that the materials proposed are extremely expensive (forgetting about the dubious projections for hydrogen fuel cells) - for example, it's hard to find a carbon fiber bike frame for under $1000, which on a per pound basis makes its use in cars uncompetitive. While some of this energy may be in the form of natural gas, that commodity should at best trade at parity with oil going forward.
- Gains in transport efficiency will not be as large as in automotive efficiency. It is difficult to improve the efficiency of these beasts, as they weigh alot and necessarily have a large wind profile. The alternative would be rail, but the coal transport problems of this summer and overall decay of the rail infrastructure make this unlikely.
- Agriculture - for much the same reasons as semis - heavy equipment is simply difficult to make much more efficient, and the use of fossil fuels in fertilizers, etc. will outstrip the growth of the population.
Further, your fleet replacement level of 8.2% seems way high. A car dies after someone decides to junk it, not necessarily when a new one is purchased. By assuming the 8.2% number, you are effectively assuming people will junk cars at a rate roughly twice what it currently is. How do you justify this? If people were buying efficient cars at this rate, it would drive down the used price for less efficient vehicles to the point where it would make sense for folks to buy the less efficient vehicle and eat the fuel cost. If you keep the current rate of 4.6%, that cuts your threshold down to the 7% range, and with the inflexibility outlined above, I can see 5-6% as being possible for a collapse.This could be explained by people retrofitting existing vehicles instead of scrapping them. I'm thinking mostly along the lines of DIY conversions of gasoline vehicles into EVs. Might happen, or it might not, but it's a possibility. GDP doesn't take DIY into account so it's often misleading. Today there is a lot of wasteful economic activity associated with car conversions (teenagers "souping up" their clunkers) which may become useful (teenagers "souping up" their clunkers to use less gasoline).
--Cars: average age 9 years, 10 to 15 years to replace half the fleet
--Light trucks: average age 7 years, 9-14 years to replace half the fleet
This implicitly assumes there is capacity to build enough efficient cars, and that people can afford to buy them. Both of those assumptions get shaky in a deep recession.
Think of the public works programs that FDR started, except it would be private works, and private companies would certainly get a penny or two. And while it might seem wrong to allow those who've helped get us into this pickle to make out like bandits to get us out, 1) it would help us get out, and 2) wrong or not, the republicans and democrats both love big business. One party is a bit less blatant about it, but until the populace realizes that we've got a new class or royalty and they bloodlines are now corporations they're likely to continue to consolidate power.
Sorry for the mini rant, but the point being that even in a recession, the government could invest if individuals no longer were willing.
The only way to approach what you'd like is a massive restructuring of taxation (more) and spending (huge cuts in the military). Then you have the question: do you want to spend the limited funds you have left on rebates for private vehicles, or on public transport, or on education and health care ...
It's going to be an intractable situation. Market forces, unassisted by government, won't solve it.
I think (gut feel mostly) that the collapse is most likely to be triggered by large numbers of home owners losing their homes. Reposession of one's home is one of the most traumatic experiences, short of death within immediate family or serious illness. I believe that the economy contraction rate which causes a significant percentage of citizens to lose their homes due to insolvency, will trigger the loss of confidence of which you speak.
Now, as for the percentage of reposessions vs all mortgaged properties? I would imagine that 15% reposession rate would cause a confidence breakdown. 15% is high enough that you're virtually guaranteed to know someone who had their place reposessed and this will have a tremendous impact on your own confidence in economic stability.
Now, the next question that needs to be answered is "what sort of economic burden caused by increasing energy prices will result in a 15% reposession/bankuptcy rate"? In order to figure that out we must look at households that are barely making it and calculate what sort of oil/food prices are going to drive 15% of them into involuntary bankruptcy or force them to panic sell their places. This is the oil price point that triggers a societal collapse.
With that number in hand, we might be able to extrapolate the depletion rates necessary to sustain the long term oil price at that level... that or I'm totally out on a limb here.
*It's a Wonderful Life
Halfin makes a very point above: it really does matter when the peak occurs. Stuart, look at the scenarios for Figure 1 in Mitigating a long-term shortfall of world oil production by Robert L. Hirsch et. al. (a nice summary of the Hirsch report).Scenario I entails a collapse. Scenario II can be seen as an orderly contraction. Scenario III amounts to adaptation and continued economic success.
On another point, by tradition going back to Hubbert, the peak is strictly a subsurface, geological event globally expressed as an average depletion rate (4%, 11%) of all the world's production source (including so-called "non-conventional" sources like CTL, oil sands). So you and Duffeyes consider the decline percentage as the single most important determinant telling us when the peak occurs, not just what our future looks like in the post-peak world. However, I am beginning to question this simple idealized model. Decline rates are constantly changing as the mix of oil sources changes, meaning that new fields coming online are not declining yet -- this constantly changes the overall percentage. But perhaps more importantly, we might just consider this simple definition of "peak oil"All of these factors are important to consider vis-a-vis both when the peak will occur and what will happen afterwards in the post-peak world.
Having said that I am somewhat more pessimistic about the ranges than you because, as I see it, this economy depends so much on growth. We expect GDP to grow based on increased population, and increased productivity (and consumption) per person. The whole economic and social structure would seem to depend on this. We need more output, every year, even though that would seem to become impossible -- are we really going to have an "infinite" GDP at some date, whatever that means?
Of course at some point we may have to reach a sustainable, steady state, where we limit economic (or at least, phsyical economic inputs) inputs to that which can be recycled. On the other hand, that makes life much more difficult for investors who assume that the economy as a whole is growing. They take for granted the wind at their back.
Zero economic growth would also impinge on the optimism and growth psychology which leads investors to invest and those without capital to aspire to wealth. Without a growth society all this becomes problematic. I can't see how we could avoid major psychological and social adjustments even at a steady peak, let alone a decline with a negative slope of any magnitude. After the oil shocks of the 1970s, our oil consumption continued to grow, it's just that for awhile we used less per unit of GDP. Are we really prepared to have our oil consumption level off, much less decline? I think not.
I understand that the hope is that with declining oil extraction we find ways to reduce oil consumption through greater efficiencny, and then replace oil consumption with sustainable sources of energy.That would also allow us to continue in our experience of expanding prosperity, with continuing economic growth. In that happy scenario, zero or negative oil consumption growth -- or even negative energy consumption growth -- would not lead to zero or negative economic growth.
I just don't know if we are well and truly prepared for the transition to lower oil consumption. I mean, are we Americans going to tell the Chinese that they can't have the kind of economic development they want? Are we willing to cut our oil consumption somewhat to buy them off or are we going to fight the Chinese (economically or militarily) to secure supply?
And if economic growth is limited by energy consumption growth (I don't know if it will be but that possibility must be considered) what will America's (and Europe's) legions of investors going to do if their retirement funds will no longer be expected to double every 10-14 years in real terms -- or increase at all unless they become truly astute investors? I hope the answers to my questions don't become necessary, but the issues might best be explored before the peak and not after. Because I don't want to see the disorder and collapse scenario any more than you do.
An ever growing economy is a myth and Peak Oil is going to demistify it!
IMO, the critical details are 1) when PO arrives, 2) the rate of depletion (especially in the first few years post-peak), 3) how we prepare pre-peak, and 4) how we respond post-peak, particularly in terms of oil consumption. Notice that none of those things are easily predicted, which is why I think it's so critical that we work together to educate people NOW.
Interesting times, indeed.
In the context of todays events surrounding New Orlands, it is very apparent that the Government reacts to events instead of planing ahead. I think it is completely unreasonable to assume that their is going to be a pre-planned wide spread cordinated effort to managed Peak Oil. Something of that scale may come about as a reaction to peak oil, but it will not likely emerge before the peak, and probably not until after the peak when true crisis start to demand massive action.
I think the best thing you can ask yourself is which one of these tracks you are going to take for yourself? Controled, or Collasp? If you buy an Hummer SUV, well, then,,, I guess we know which way you are choosing. Which will it be for you personally? I think society as a whole, along with Governments will take collasp road. Lets be real about that, is there anything that demonstrates that they will not? However, as individuals and even small communities, controled is possible. I think there is a lot individuals can do to prepare themselves for the inevitble future.
As to the date? Probably sooner than later, and from my prespective of personal planning, get started today. Don't wait, get a plan, make goals, and start acting on it. Procrastination is going to be what leads to the eventual collasp of Governments, business and finance. They simply do not react until they have a problem, and that is like not treating cancer until you have organ failure. So, bet on sooner for Peak Oil, and if you are wrong, you still win in the scope of things.
David Tribble
I think you need to justify this statement. Not the consumer part of it, but the assertion that most household budgets are spent on stuff rather than services. The Economist's World in Figures (2004) says 78.3% of US GDP is services. They include utilities, which probably should be counted as stuff for the most part. Guessing utilities at 8.3% of GDP, and our current net imports at 6% of GDP and mostly stuff, then all the spending on "stuff" is only 36% of GDP. Even if none of business spending is on stuff, this would still require nearly half of household spending to be on "pure" services. Since we know that businesses do indeed buy stuff, it seems likely that more than half of household spending is going for services. Assuming the business and household spending percentages are roughly the same, the services:stuff spending ratio for households would be about 64:36, about 1.78.
What effect does this have on your analysis?
I've just printed it for detailed analysis later.
Thank you very much.
Fernando
Intuitively, it seems to me that you may be right, that a large decrease in vehicle availability, because of a large decrease in liquid fuels, will lead to a GDP collapse. But I don't see where you have shown or in way justified the causal connection to a skeptic.
If a large percent is for transportation than I do think we can make large gains in efficiency under duress by ramping up carpooling and not using cars for short trips. These could really lower consumption and allow enough high milage vehicles (cars and trucks) to get to market and follow the depletion curve down.
But, if too much oil is used for non transportation uses than I'm skeptical efficiency of industrial processes can be ramped up fast enough to stay ahead of depletion. All bets are off then on what is too rapid a depletion rate.
Great post and discussion!
- What would be the costs for the US to replace the entire transportation system that is used for commuting to and from work, replacing the current automobiles with those that, similar to the honda insight, but with further effiencies, with perhaps two diesel cylinders, two seats, a small seat in the back to stuff kids, and a hatch for throwing some junk. Set the national speed limit to 55 mph. I can get 70mpg easily in my current insight at 50 mph tooling down the freeway. With improvements, I think they could easily hit 100mpg. But we can use 70 mpg as a figure. Also consider replacing part of the transportation system with scooters. Let's also throw into the equation a 50% dropoff in plane travel, with only the wealthy and businesses using that route. No more daughters flying to Aruba for absolutely no reason at all so I have to watch damn reports that's she missing every single night on the evening news.
- How much energy would this require to produce the efficient transport fleet? I always hear the argument that producing cars requires energy. Yeah, I know. How much. Suppose we had a national effort to replace 100% of the transportation system. Not saying it's wise. But suppose we did.
- Let's suppose we have a great depression type economic setback. GDP drops by 25%. Unemployment goes to 25%. Kids living with parents much longer. Grandparents living with their kids. God forbid we'd have to do that (end of the world, end of the world, we'll all be eating dollars sky is falling sky is falling). Let's also say that oil consumption drops by 25%. What does that do to your depletion? To the depletion of existing wells?
In the above scenarios, is the world going to end? Will people run out into the streets hunting down their neighbors to cook them for dinner on an open pit? I'm really sick of hearing people in the peak oil community use Katrina as an example of anything. It was a tragedy. The coast of the US was hit with the energy of untold nuclear warheads. And then the doomers and gloomers are saying "hah, told you so." Told us what? That most of the people got out? That the poor suffered more than anyone else?So to those who want to talk about post-peak survival stuff, please please go somewhere else. Find a survivalist site that allows you to prepare for every untold disaster. Hurricances. Peak Oil. Bird flu. Volcanoes. Global warming. Hoards of insects. Strange silicon based creates from another planet. Just please let's not waste time discussing how to composte one's shit to grow vegetables. Not the place for it.
As for the core of your argument, people moving back into parents' basements wouldn't solve the problem in the long run and would be an indicator of exacly the type of depression all of us fear. Why? Because regardless of your middle class, suburbanite view of the world, a lot of people around the world would suffer tremendously, as well as many of your suburbanite friends whose jobs would be lost as a result of reduced economic activity.
Of course there are ways of downscaling the economy, it has happened before and may happen again. It's called recession or depression. And peak oil promises us this will be the one that isn't going away for a generation or two. How would you like to get caught up in that type of economic climate?
I'm feel I'm feeding a troll here but your other points are equally nonsensical. So what if we can reduce our fuel consumption by 20 or maybe even 30 percent by optimized driving and better fuel economy? If we face depletion rates of 10% a year, your fix will give us three whopping years of runway before we get to the cliff. You gonna turn down your thermostat? Sure, you can go from 20C down to 18, and down to 15C and to 13C... and then what? Can you bear constant temperature of say 13C through an entire Northeast winter? At which point is your body simply going to refuse to endure the progressively harsher conditions with progressively less medication? Can you see how energy literally keeps hundreds of millions of us alive?
I won't even mention how all those hurdles are going to affect poorer nations with far more vulnerable economies.
That said, I've read Tanter and all those like him. And having read him, I fall more in line with what David Burn from the Talking Heads said: "Say something once, why say it again." Tanter said all of this very well.
It does make sense to model complex systems because modeling means reducing the immense complexity of the system to some manageable data trends so we can estimate our next moves as a society. Case in point, if based on such models, we discover we're well within the green zone of oil depletion, we can focus on improving vehicle efficiency, reducing wasteful consumption etc. If however, the red band is more likely to be in our near future then things like fuel rationing and other drastic measures aimed at providing the bare food and shelter necessities may be what is called for.
Economists do modeling all the time and make hugely important decisions based on simulated models. They are often wrong, but it's still a heck of a lot better than just walking into the future completely oblivious to the consequences of your actions.
Ironically, people in countries with less developed economies might be better off in some ways. They generally live in much more localised economies where people know how to, and have space to, grow their own food.
I should stress that I'm not saying oil depletion is going to be fast enough to cause collapse - I think the evidence is rather unclear due to the lack of transparency in the oil markets. I'm trying to point out that the depletion rate is the number one thing to think about, and there must be some depletion that is too much for society to cope with (feel free to present better ways of estimating what that is).
As to your first point (couldn't we replace all the vehicles much faster?) - the evidence of the great depression exactly makes clear what the problem with that is: investment in the future collapses during heavy contractions, which means that adaptive responses will be reduced, not increased if we end up towards the bottom of the yellow zone.
Here are some links on the increasing worsening of law-and-order during the great depression, and the improvement afterwards:
http://www.waco-texas.com/city_depts/police/policehistory.htm
http://www.economics.ucr.edu/seminars/spring05/ped/04-06-05ShawnKantor.pdf
I think modeling depletion, collecting data to substantiate depletion, and modeling possible economic effects and capital investments to adapt is useful. Talking about restructuring society, though interesting, isn't that useful in my opinion because I have no clue how to make something like that happen. Nobody does--the complex system problem mentioned above. But even modeling the idea of sustainable communties, and tying that into depletion models, is useful.
But if someone thinks society is going to collapse, they should look at the models and data to tell them if it's going to happen, then just plain and simple bug out. Do it. Or if they want to hypothesize future scenarios for society, science fiction is probably a good route. Though much has already been written.
So in summary, I see a couple options: (1) Focus on the geophysics and economics; (2) Bug out. The latter can best be achieved by studying survivalist or self-sustaining community information. Which I claim has nothing to do with peak oil. They can largely be considered separate topics.
I agree with some of your argument in principle but not in practice.
Right now Toyota, Honda and Ford are having a very hard time obtaining all the components for hybrid vehicles that they need based on current sales. Ford in particular is having problems getting regenerative braking systems and battery packs because Toyota and Honda were there first and are sucking up almost all supply. Scan the archives at Greencarcongress.com for details.
This is at a time when only a small fraction of cars are hybrids. I think currently <5% for all makes and models, but it is changing so fast I'm not sure of numbers. Imagine the inability to meet demand if 25% or 50% wanted Priuses, Insights and Escapes. Car companies don't make all these parts. They outsource a lot to specialized manufacturers. It will take years for suppliers to ramp up all the components to meet demand. And all the suppliers that make a conventional car part (that is now not needed) have to go out of business or retool. It takes years for this transition and it is not painless for everyone involved.
Unless there is a consumption model, we're just not saying much. And a start is to take a few SWAGs, for example, making an unreal assumption on what would happen if the US transportation sector, or the consumption associated with commuting, were to be significantly reduced. First assume it switches over by magic. Devote the energy required to produce that capital (cars), but forget about all the other shortages. Just to see what you get. One can define policies (or regulations) and see how they pan out in the model. E.g. enforced used of public transportation, e.g. buses. Enforced carpooling. I realize, there are practical side to all of these. But right now, we're looking at a model that has no consumption component at all. It's completely sucking up everything that is produced. That's not realistic. Yeah, I know, we've got Andrew McKillop sayig that the economy will keep chugging along at $100 a barrel. Or something to that effect. And it's true we've not seen a lot of demand destruction yet. And we've seen a slew of SUVs going out the door--at a loss to automakers. But there are large enough imbalances in the world economy, and enough debt, that a recession is most likely out there and high enough energy prices will likely bring it on quicker.
The world has not yet--recently--seen consumption run into a production constraint such that the market must be cleared (through price or some form of rationing). Right now, we are simply seeing speculation driving up the price of oil (for good reason, I'm not saying it shouldn't happen). But it is only when consumption runs into production, and in particular in the US, that we will see behaviors change. Katrina may be the event that leads to that shortfall. It's not clear yet.
If the consumption side of the equation is not considered, we can speculate all we want, but a paragraph description of "collapse" and then a guess at a depletion rate is not telling us very much at all. That's my point when I say that the response of a complex society to energy shortfalls is described by a single number: depletion rate. I don't think it's possible to acquire much understanding without more complex models.
What TRE seems to be asking is for a model of what would happen if the government mandated that ASAP all cars are moving to higher mileage. Something like "Next month no new cars will be legal to sell if they don't get 70mpg and in three years no vehicles will be allowed on the road if they don't get 70mpg." (TRE: these are of course not your words, but I can't think of anything short of a direct order of this magnitude which would get the conversion that you seem to be after).
And I don't think that such a strategy would work out well. I've heard it often quipped that vehicles could be made to get 90-100 mpg with today's technology. Well, that's probably for 2 person 40 horsepower cars with a $30-40K price tag. It might be possible, but I have yet to see the implementation sitting on a car lot ready for sale. Without a government mandate when there are more comfortable 4-5 person cars which get 30-40 mpg in the 20-30k price range people will buy the 20-30 k bigger car.
Without mandating that low mileage cars will not be street legal in the future I find it hard to believe that people in north America would buy a 70mpg car. And if it is mandated that low mileage cars won't be street legal, what happens to the people currently owning the low mileage cars? If they have to eat the loss, they won't have money to buy a new car. If they get a giant rebate, where's the money going to come from. The government probably had to spend/invest a lot in the auto industry to help them retool so quickly, (as well as to help the automaker's parts suppliers retool so quickly).
Am I correct that you are asking for the models for how to essentially retool all the parts suppliers and auto makers all at once? While we're rebuilding New Orleans? And in a war with Iraq, Iran, China and Eurasia? My WAG at the model is a flat out, "No."
I don't have the knowledge to inch to a SWAG, but I would also be quite interested to see someone's attempt at a SWAG for this. I'd like to maybe even consider this more myself, but I have a lot of library books, which I just got from interlibrary loan and I have to finish in three weeks. Damn I wish I read faster.
But not really. What I'm really asking is: what is the response of the economy and energy consumption to repeated shocks. Not to malign, but this is barely a model. It's a production curve with several depletion scenarios. It has no consumption side, other than some words in support of the consumption side, and without a consumption side, I'm not convinced that second order effects can be ignored, as Stuart says they can be. We're dealing with a complex economic system here. Second order effects may have significant effects. Saying that consumption will ride down the prodution curve, as this model does, does not take into account the nonlinearities of the consumption response. Perhaps second order effects are minimal. I'm just not convinced that they are.
So now the govt has mandated limits to per capita energy use. In addition, there is a crash program to