ONE TOWN SQUARE: at the intersection of peak oil, climate change, and land use

The proposals for bailouts, regulations and government spending sprees - and, indeed, James Hansen’s recommendations for addressing climate change - all share one tragic flaw: they assume no physical or biological limits to human growth.

Rex Wyler at The Tyee writes that most of today’s economists cling to an 18th century mechanical universe governed by an “invisible hand” of God that magically converts private greed into public utopia. But look at the empirical results of this economic experiment:

Indeed, a few got rich, but the meek inherit an earth featuring child slavery, sweatshops, a billion starving people, toxic garbage heaps, dead rivers, exhausted aquifers, disappearing forests, depleted energy stores, lopped-off mountain tops, acid seas, melting glaciers and an atmosphere heating up like a flambé.

We an economics that accepts the limits and laws of nature. Dr. Albert Bartlett reminds us that you can’t have exponential growth (at least not for long) within a finite, closed system:

“Growth in population or rates of consumption cannot be sustained. Smart growth is better than dumb growth - but both destroy the environment.”

Economist Herman Daly points out that the economy is but a subset of a larger system:

“The larger system is the biosphere, and the subsystem is the human economy. We can develop qualitatively, but we cannot grow beyond the biosphere’s limits.”

Tyler warns that technology will not save us. Every technical efficiency in history has resulted in more consumption of energy and resources, not less. Technology costs energy. Even advanced energy technology - such as the 4th generation nuclear and CCS that James Hansen thinks is necessary to bail us out of our predicament - requires huge investments capital and material to put in place.

The energy requirements to mine, process, and transport the raw materials that go into the plants; manufacture the components and build, maintain, and eventually decommission the plants; mine, process, transport, and store the fuel; and handle, transport, store, and dispose of the wastes;  make it questionable whether such energy sources will ever yield net energy.

It’s net energy that’s important - and the depletion of high-quality energy is what makes our situation intractable to business-as-usual type solutions. Oil in its early days had an EROEI of more than 100:1 but is now probably in the 18:1 range. Even so, that’s still enormously profitable , (in energy terms) compared to other sources.

Before gambling our future on massive, speculative roles of the dice like CCS or nuclear, we need to do a rigorous and thorough life-cycle energy analysis. A life-cycle EROEI analysis is a necessary analytical tool before we jump onto any energy bandwagon. But I’m willing to bet: concentrated solar power (CSP) technology will prove to be far simpler, cheaper and more efficient than either CCS or nuclear, 4th generation or whatever. Not to mention safer and “cleaner” in more ways than just carbon emissions.

Bill Rees, who developed “ecological footprint” analysis at the University of British Columbia, set out the challenge for economists:

“We must account for the environment, reduce total consumption, and then address equitable distribution.”

Telling people they can have it all - fix the climate and solve the energy crisis while continuing business-as-usual - is not the way to motivate people to insist on action. Instead, it sends out the message, “relax, everything’s going to be okay.”

Joseph Romm in a blog post lauds a McKinsey Global Institute report - “The carbon productivity challenge: Curbing climate change and sustaining economic growth” - for taking on the “myth” that addressing climate change “will hurt economic growth and force consumers to make unwanted changes in their lifestyle.”

The McKinsey Global Institute insists that “any successful program of action on climate change must support two objectives - stabilizing atmospheric greenhouse gases (GHGs) and maintaining economic growth.” Joseph Romm, by agreeing, is harming rather than advancing the mission of his blog undertaking, which is to foment prompt and effective action to stop climate change.

Since the beginning of the industrial revolution, economic growth has rested and continues to rest on increased energy consumption.  We are now seeing the results of that endeavor. As the size of the human economy has increased to take up and dominate an ever larger portion of the global ecosystem, it is bumping up against limits to both resource sources and sinks. Infinite exponential growth within a closed system is an absurd idea. Pursuing it will inevitably lead to collapse from one or a collection of system failures.

As Jim Kunstler warns, a campaign to sustain the unsustainable will amount to a tragic squandering of our dwindling resources.

Romm is not unaware of our fossil fuel predicament.  He’s outlined a road to a carbon-free future, so understands the scale of the problem.

Can we use energy more efficiently? Of course. Most of the energy we use is wasted, largely because of the unsustainable way we live now. We need more than a technological fix. We need to take a holistic approach to thinking about how society as a whole should be organized to achieve our goals. And where we live has more to do with the amount of energy we use - and the amount of energy we could save - than almost any other factor.

Can we transition to a way of living that is decent and satisfying while not dependent on fossil fuels? Yes - but not if we squander precious resources and time trying to hang on to the status quo.

The biggest myth in the way of adjusting to our new reality is that economic growth is necessary for and leads to increased human happiness. GDP was initially to serve as a proxy yardstick, an indirect measure of human well being. But like the broomstick in the story of the sorcerer’s apprentice, the yardstick has taken over and is out of control.

We have become blinded by growth to the extent that in pursuing it, the ability of Earth to sustain humans and countless other species is being radically disturbed. It’s past time for the master to return, break the spell, and save the day - before it’s too late.

Herman Daly was Senior Economist at the World Bank before leaving to teach Ecological Economics at University of Maryland’s School for Public Policy. He argues at The Oil Drum that the current global economic crisis is a symptom of an economic system based on exponential growth running up against the reality of a finite ecological system with finite resources. Growth is restrained by increasing scarcity of natural resources, both at the source end (i.e., oil depletion), and the sink end (i.e., absorptive capacity of the atmosphere for CO2).

The current financial debacle is really not a “liquidity” crisis as it is often euphemistically called. It is a crisis of overgrowth of financial assets relative to growth of real wealth—pretty much the opposite of too little liquidity.

Real wealth is concrete. Financial assets are abstractions - claims to future real wealth, or debt. Financial assets have grown to become an overly large multiple of the real economy. Consequently the debt is being devalued in terms of existing wealth.

Daly explains:

The value of present real wealth is no longer sufficient to serve as a lien to guarantee the exploding debt. Consequently the debt is being devalued in terms of existing wealth. No one any longer is eager to trade real present wealth for debt even at high interest rates. This is because the debt is worth much less, not because there is not enough money or credit, or because “banks are not lending to each other” as commentators often say.

Daly warns that the next shoe to drop will be repudiation of unredeemable debt either directly by bankruptcy and confiscation, or indirectly by inflation.

The reality is that growth has become uneconomic. We will, whether we like it or not, transition to an economic system oriented to survival rather than growth. Nate Hagens, noting Professor Daly’s association with John Holdren, holds out the hope that Daly’s heretical economic ideas will reach Obama’s ear.

World demand for oil will end the year at an average of 85.83 million barrels per day (bpd), a year-on-year decline of 700,000 bpd, according to figures from Organization of Petroleum Exporting Countries (Opec).

Japanese crude imports crashed, falling 17% to 3.71 million barrels a day last month. South Korean imports also declined, dropping 12.4% in November.

China’s exports fell for the first time in seven years in November. Imports - including oil imports - plunged and output contracted by a record.

The EIA projects that total U.S. petroleum products consumption in 2008 will fall by 1.2 million bbl/d, or 5.8%, from the 2007 average, and that crude imports will fall by 2.7%. The trend is projected to continue in 2009, with consumption falling by another 1% and imports by 6.1%.

Japan is the world’s third-biggest oil importer after the U.S. and Germany, according to the U.S. Energy Department. South Korea is the fifth-biggest importer.

This piece - “All infrastructure is not created equal” - by Devilstower at Daily Kos is a must read. Here’s an excerpt:

[S]ince the end of World War II, we’ve embroidered the nation that WPA built with more than 45,000 miles of multilane interstate and raised the total amount of paved roads in the country to over 4 million miles.  The last thing, the absolutely last thing, that America needs now is more miles of highway. Pave another half a million miles of road, and you end up repaving up to fifty thousand miles of that a year. And the costs of infrastructure go up sharply when that new highway starts to attract housing development.

A hundred billion dollars invested in new highways is no investment at all. It’s a commitment to spend another ten billion a year [on road maintenance]. Forever. Recreating the employment and energy of the WPA is a great idea. Replicating the outcome is begging for a white elephant we can’t afford.

When those infrastructure projects start to come in from the states, the administration should focus on three areas: repair, replace, and remove.

First priority should go to those projects that flat out eliminate the majority of costs associated with a piece of infrastructure. Nothing costs less in the future than a mile of highway that’s been removed.  Next should come those projects that offer the chance to upgrade existing infrastructure with an alternative whose future upkeep is less costly.  This can include tearing out highways and adding more light rail. It should also include replacing older bridges and structures with newer designs that meet safety concerns while requiring less upkeep. Dead last on the list should come any project whose goal is to add more lanes for automobile traffic.

If we spend a hundred billion, employ a million people, and don’t get a mile of new highway out of it, we should count ourselves lucky. Our goal should be to come out of this construction with a need for less maintenance in the future, not more.

Oil prices slipped below $40/barrel, back to where they were more than four years ago.

Luis de Souza at The Oil Drum: Europe applies queuing theory to the oil price gyrations, to explain how resources’ prices go through chaotic periods in face of scarce supply. Queuing theory predicts that if the load on a system goes above a certain threshold, it becomes impossible to predict queue lengths or waiting times, and the system goes into chaos. In the international oil market, prices substitute for waiting times, and dropping out of the oil market substitutes for quitting the queue.

Gulfnews reports that is OPEC, out of options because no member nations can afford to have crude prices this low, is leaning heavily towards another production cut, this time of 2 million barrels per day. OPEC is meeting this week in Oran, Algeria. OPEC is struggling to cut enough production to deal with slowing demand - demand that it predicting will continue to shrink next year. Bloomberg reports that analysts believe a 2 million bpd cut won’t be enough to halt the slide in oil prices.

The New York Times reports that dozens of major oil and gas projects have been suspended or canceled in recent weeks as companies scramble to adjust to the collapse in energy markets. The project delays are likely to reduce future energy supplies - and may set the stage for another surge in oil prices “once the global economy recovers.”

It’s not only oil investment that is being curtailed. Investment in alternative energy sources is also drying up. The financial meltdown isn’t helping. Banks have become reluctant lenders, especially to renewable energy projects that may prove unprofitable in an era of low oil and gas prices.

Matthew Simmons has a new PowerPoint presentation at his website titled “The Risk of Misjudging Peak Oil: A Real Physical Crisis.” He looks at the recent IEA report and sees, below the gloss, that it recognizes that crude oil has peaked, and is cautioning:

• Its future decline could be swift
• We lack the resources and tools to offset decline
• We are still highly dependent on old and unaudited super-giant oil fields.

Simmons warns that only ultra high oil and gas prices can foot the bill of rebuilding our energy infrastructure.

Unless the global economy never recovers.

Kurt Cobb at Resource Insights says our current financial crisis is rooted in our “growth” economy itself, which is nothing more than a Ponzi scheme: each new wave of lending is made based on the faith that future flows of energy will increase sufficiently to create enough economic growth to pay off the new loans. And you can’t bail out a Ponzi scheme, no matter how infatuated we are with the promised returns. The more we continue to invest, the greater the inevitable crash.

Cobb’s analysis draws on the work of systems ecologist and energy researcher Charlie Hall. Hall’s paper “The Need for a New, Biophysical-based Paradigm in Economics for the Second Half of the Age of Oil” explored what a more reality-based economics might look like and its place within the history of the economic discipline.

The major failing of “mainstream” economics is that it fails to recognize that energy does the work of producing and distributing wealth. Wealth is generated by the application of energy by human society to the exploitation of natural resources. Nature generates the raw materials with solar and geological energies, and human-directed “work processes” are used to bring those materials into the economy as goods and services.

Biophysical economics begins with the recognition that an economy must live within, and is completely dependent upon, the resources and constraints of the local and ultimately global ecosystem. Unlike most of ecological economics, biophysical economics does not merely attach a dollar value to nature, moving nature within the boundaries of the economic system, but insists that economies be thought of as living within the global ecosystem, as that is the necessity and the reality. Biophysical economics says “start with the essential process, value it on its own terms and on its contribution to the welfare of all creatures on this planet (including humans) and think about money only much later”.

Hall’s article includes this indictment of market economics:

. . . which marginalizes the most important parts of our economy using a value system that has little to do with real value to our children, which uses positive discount rates when we should be insisting upon negative ones, also in deference to our children, which worships the false god of growth as providing solutions to the very problems that growth generates, and which assumes the worse in us as a basis for guiding us along the road to the future. If there ever was a recipe for disaster this is it. Future economists will not forgive us.

Cobb’s great insight is this that we have confused wealth with money. The source of wealth is not the financial markets or the banks, but rather the very earth, air and sea around us. The tragedy of our times is that while we strive to turn Earth’s resources into money, we are destroying the Earth itself.

Aesop millennia ago wrote the fable The Goose That Laid the Golden Eggs. Have we, and economists, learned so little?

Richard Heinberg writes at Post Carbon Institute that what we’re now seeing is another round in the battle between Keynesian and “free-market” economics - a battle that has gone on since the onset of the Great Depression. Although Keynesianism emerged ascendent coming out of the Depression and World War II and dominated the post-war world until, “free market” economists including Ludwig von Mises and Milton Friedman never let up and free-market fundamentalism finally triumped with the election of Margeret Thatcher and Ronald Reagan.

Now, with the bankruptcy of free-market ideology finally becoming apparant with the global economic collapse, economists and politicians alike are rushing to embrace a Neo-Keynesianism. But as Heinberg says, today’s world is a far different place than the world of 1930, when the global population was only two billion, energy resources were virtually untapped, and the world’s ecosystems were still pretty much intact.

Sadly, this time the tracks have been moved, maybe dismantled altogether. The two great economic paradigms of our age simply took too much for granted. They assumed that economies run on money and labor, whereas real economies also need energy and natural resources. They assumed that because population, resource extraction, and available energy had grown throughout the 19th and 20th centuries, they would continue to grow in perpetuity; all that was necessary was to properly adjust the relations between money, market forces, and government regulation. No one (within the economics profession) stopped to think that limits to Earth’s supplies of fossil fuels, topsoil, water, and other resources might impose ultimate limits on economic activity.

Heinberg cautions that neither camp has the answer this time around.

Humanity has reached a significant physical limit to growth—Peak Oil—that will spell ruin to all economic philosophies that fail to take such limits into account.

Peak oil is not the only physical limit to growth that we have bumped up against. We are witnessing collapsing fisheries, overdrawn fresh water sources, eroding and depleting soils. Even more importantly, we are witnessing the exhaustion of sinks - of the natural ability of the Earth’s systems to absorb our wastes - with global warming and climate change as the dire consequences.

An economics for our time would require that we create a society that can shrink gracefully, with human well-being as the goal rather than economic growth.

Why aren’t any ecological economists on Obama’s economics team? How about Robert Costanza?

The Energy Information Administration has just released its final report for 2007. Guess what? Greenhouse gas emissions are up.

Total U.S. greenhouse gas emissions in 2007 were 1.4 percent above the 2006 total. . .

Total emissions growth . . was largely the result of a[n] . . . increase in carbon dioxide (CO2) emissions. There were larger percentage increases in emissions of other greenhouse gases, but their absolute contributions to total emissions growth were relatively small . . .

The increase in U.S. carbon dioxide emissions in 2007 resulted primarily from two factors: unfavorable weather conditions, which increased demand for heating and cooling in buildings; and a drop in hydropower availability that led to greater reliance
on fossil energy sources (coal and natural gas) for electricity generation, increasing the carbon intensity of the power supply.

U.S. emissions were about 21 percent of the world total. OECD country emissions - the developed countries of North America, Europe, Japan, and Australia/New Zealand - are estimated at 48 percent of the world total.

The report projects that U.S. energy-related carbon dioxide emissions will continue to increase at an average annual rate of 0.5 percent from 2005 to 2030, with emissions from the non-OECD economies growing by 2.5 percent per year.

That’s not good news for those of us concerned about global warming. We need to cut greenhouse gas emissions, steeply and beginning immediately. But it’s not happening.

Ralph Nader is calling for a global carbon tax. Nader argues a tax on CO2 emissions - not a cap-and-trade system - offers “the best prospect of meaningfully engaging China and the U.S., while avoiding the prospect of unhinged environmental protectionism.” Nader argues that cap-and-trade proposals won’t work in the real world, comparing them to “Swiss cheese”; and that we need the same price on carbon everywhere, or schemes to control carbon won’t work anywhere.

Both carbon tax and cap-and-trade schemes aim to put a price on the externalities of fossil fuel use. Underlying this approach is the faith that market-based mechanisms are superior to any regulatory approach. You’d think our faith in free markets would be wavering a bit by now.

What’s really needed if we are to minimize the danger of dangerous and irreversible climate change is to leave coal (and unconventional oil) in the ground. This requires that we stop building coal plants and phase out the use of coal within a time certain. This situation is tailor made for a regulatory, not a market-based, solution. Tax or cap-and trade policies can be effective, not to bring the use of coal and unconventional oil to a halt, but to make room for and encourage the development of alternative, renewable sources of energy.

Gail Tverberg at The Oil Drum takes a look at how energy sectors are being affected by the credit crisis and finds that the impacts are widespread and devastating.

Tverberg points out there are really two closely related problems. One is reduced access to credit, making new borrowing difficult. The second is falling commodity prices.

After analyzing sectors including oil and natural gas; coal; ethanol and other biofuels; renewables including wind, solar, and geothermal; and nuclear, Tverberg concludes the credit crisis will cause the production of virtually all fuels to be in decline relative to what they otherwise would have been.

Tverberg’s conclusion regarding impacts on global oil production could have come right out of our earlier post Economic crisis leads straight to peak oil:

Since oil production was already on a plateau, this decline is expected to bring about “peak oil. . .  oil production has already started to decline. Plans for future investment have been cut back, so it is likely that oil production will stay low for quite some time. Even if prices should rebound, lack of credit will limit the ability of the oil supply chain to increase production. For these reasons, world oil production is likely past its peak.

From Bloomberg:

The U.S. government is prepared to lend more than $7.4 trillion on behalf of American taxpayers, or half the value of everything produced in the nation last year, to rescue the financial system since the credit markets seized up 15 months ago. . .

The commitment dwarfs the only plan approved by lawmakers, the Treasury Department’s $700 billion Troubled Asset Relief Program.

$7.4 trillion - on behalf of American taxpayers? I’m so glad Wall Street’s “masters of the universe” and their cohorts in the lame-duck Bush administration are looking out for me.

Then Citibank got $300+ billion over the weekend (here is the Summary of Terms) in a deal Paul Krugman describes as an outrage:

. . . a lousy deal for the taxpayers, no accountability for management, and just to make things perfect, quite possibly inadequate, so that Citi will be back for more.

So make that $7.7 trillion -for a bailout that can not, will not, and should not work.Jim Kunstler calls this the campaign to sustain the unsustainable and says it’s worse than futile: it represents a squandering of our remaining scant resources. These failing things have to get out of the way before new productive activities can get underway. The housing and car industries - the two major ingredients of an economy based on building suburban sprawl - are over. But no political leader is yet willing to tell the public the hard truth.

At Alternet, Orion Kriegman and Richard Rosen point out that the over-consumption of material goods, such as cars, is in large measure the cause of our environmental problems. The collapse of the consumer society is both good and necessary. We need to become responsible citizens instead of heedless consumers and give up GDP growth as our prime indicator of success.$7.7 trillion would buy a lot of clean, renewable energy. Maybe we should stop worrying so much about the financial system and start paying more attention to real things. We’re treating the symptoms rather than the causes.

The U.S. Department of Transportation reports that travel on all roads and streets continued down in September and is down overall so far in 2008.

Driving is down 4.4% (-10.7 billion vehicle miles) for September 2008 as compared with September 2007. Travel for the month is estimated to be 232.8 billion vehicle miles. Cumulatively, travel for 2008 is down 3.5% (-79.2 billion vehicle miles).

Calculated Risk has posted a graph of change in VMT since 1972:

and also a graph using EIA data showing weekly gasoline prices in 2008:

The current decline in miles driven is more precipitous than during the early ’70s oil crisis and about the same as the 1979-1980 decline.

Gasoline prices plunged in October. The October vehicle miles report will show whether lower gas prices are prompting people to return to their old driving habits.

The absolute quantities of renewable energy needed to replace a significant share of the wold’s fossil fuel energy are huge because the scale of the coming global energy transition is of an unprecedented magnitude. Vaclav Smil at The American points out that replacing only half of worldwide annual fossil fuel use with renewable energies would require the equivalent of about 4.5 billion tons of oil. That’s a task equal to creating de novo an energy industry with an output surpassing that of the entire world oil industry - an industry that has taken more than a century to build.

Al Gore described his July 2008 proposal to “repower” America - to produce 100% of our electricity from renewable energy and truly clean carbon-free sources within 10 years - as “achievable, affordable, and transformative.”

Achieving Gore’s goal would require an enormous capacity addition - in excess of 1,000 GW - in a single decade. Since the year 2000, actual additions in all plants have averaged less than 30 GW/year.

The financial cost would be enormous: Smil estimates at least $2.5 trillion to build the new capacity {but then again, we’re approaching that amount in bailouts, within a single year). It would also mean writing off the entire fossil-fuel and nuclear generation industry, an enterprise whose power plants alone have a replacement value of at least $1.5 trillion (assuming at least $1,700/installed kW). It would also rewiring the nation, at a cost of close to $100 billion.

We’re not off to a good start. The financial crisis - which has resulted in “demand destruction” and the collapse of oil prices - has resulted in the delay or cancellation of myriad energy projects and, counterintuitively, may have caused the peak of global oil production to occur earlier than it otherwise would have.

Reuters has compiled a list of energy projects that have been scaled back or delayed projects. Fortunately for Earth’s climate, expensive ventures in the Canadian oil sands hardest hit.

The list is far from exhaustive, but it gives some idea of the scope and scale of the cutbacks. For example, the Gulf Times reports that Saudi Arabia is making a much more extensive review of its energy investment plans than the Reuters article indicates.

Renewable energy projects are not escaping the carnage. It’s not just that renewables become less profitable or even unprofitable as fossil fuel prices decline. As Jerome a Paris reports, even if wind or solar still pencil out “zombie” banks have no money for wind farms.

Maybe it’s not a bad thing that we’re slashing investment in fossil fuels. It is a bad thing to be slashing investment in renewable energy, at a time when we need to be redoubling and redoubling again our efforts to transition from fossil fuels. One thing that the financial crisis has shown us is that in an emergency, trillions begin to sound like chump change.

If we can afford to throw hundreds of billions at the “masters of the universe” who destroyed the financial system and at the industrial dinasaurs of Detroit, we surely can muster the political will to invest in the renewable and energy system needed to fuel our future.

Herman Daly, one of the founders of the field of ecological economics, writes at NewScientist that traditional economists have a blind spot: they fail to recognize that our economy is part of a larger system - the ecosystem.

“[E]conomists have not grasped a simple fact that to scientists is obvious: the size of the Earth as a whole is fixed. Neither the surface nor the mass of the planet is growing or shrinking. The same is true for energy budgets: the amount absorbed by the Earth is equal to the amount it radiates. The overall size of the system - the amount of water, land, air, minerals and other resources present on the planet we live on - is fixed.

“The most important change on Earth in recent times has been the enormous growth of the economy, which has taken over an ever greater share of the planet’s resources. In my lifetime, world population has tripled, while the numbers of livestock, cars, houses and refrigerators have increased by vastly more. In fact, our economy is now reaching the point where it is outstripping Earth’s ability to sustain it. Resources are running out and waste sinks are becoming full. The remaining natural world can no longer support the existing economy, much less one that continues to expand.”

The sources of the resources consumed and the sinks into which wastes are deposited are ignored. Effectively, economists are assuming they are infinite. Consequently, economists recognize no limits on the capacity for economic growth.

Now we are seeing the warnings uttered in the 1972 book Limits to Growth come true: exponential growth is resulting in economic and environmental collapse.

Daly says to avoid environmental and economic disaster we must transition to a “steady-state” economy - one where the value of goods produced can still increase, but the physical scale of our economy is kept at a level the planet is able to sustain.

The idea of moving to a steady-state economy may at this moment appear radical and politically unimaginable. But the alternative - an economy that grows in scale beyond the biophysical limits of the Earth - is an absurdity impossible to sustain.