miércoles, junio 02, 2004

Life After the Oil Crash/ Part III. Issues of Economy,

Part III. Issues of Economy,
Technology and the Ability to Adapt

I have designed the following passages with somebody new to the issue of oil depletion in mind. If you would like more in depth explanations, with graphs, charts and the like, please consult The Oil Age Is Over: What to Expect as the World Runs Out of Cheap Oil, 2005-2050.

I don't think there is really anything to worry about. According to classical economics, when one resource becomes scarce, people get motivated to invest in a replacement resource. When the price of oil gets too high, renewable energy will become profitable and companies will begin investing in it.

Classical economic theory works great for goods within an economy. Relying on it to address a severe and prolonged energy shortage, however, is going to prove disastrous. Classical economics works well so long as the market indicators arrive early enough for people to adapt. In regards to oil, market indicators will likely come too late for us to implement even the modest solutions we have available. Once the price of oil gets high enough that people begin to seriously consider alternatives, those alternatives will become too expensive to implement on a wide scale. Reason: oil is required to develop, manufacture, transport and implement oil alternatives such as solar panels, biomass, and windmills.

There are many examples in history where a resource shortage prompted the development of alternative resources. Oil, however, is not just any resource. In our current world, it is the precondition for all other resources, including alternative ones. To illustrate: as of the winter of 2004, a barrel of oil costs $38. It would cost in the range of $100-$250 to get the amount of energy in that barrel of oil from renewable sources. This means that an energy company won't be motivated to aggressively pursue renewable energy until the cost of oil doubles, triples, or quadruples. At that point, our economy will be close to devastated. Our ability to implement whatever alternatives we can think of will be permanently eliminated. In effect, we will be a lifeless barge of a nation floating on some very rough seas.

In pragmatic terms, this means that if you want your home powered by solar panels or windmills, you had better do it soon. If you don't have these alternatives in place when the lights go out, they're going to stay out.

The “invisible hand of the market” is about to bitch-slap us back to the stone age.

The oil companies are so greedy, they will come up with a solution to keep making money, right?

Expecting the oil companies to save you from the oil crash is about as wise as expecting the tobacco companies to save you from lung cancer. Corporate officers are bound by law to do what is in the best interests of the corporation, so long as their actions are legal. Their legal obligation is to make money for the company, not to save the world, not to serve their country, not to clean up the environment, not to bring glory to God, not to anybody but the corporation. For all intents and purposes, this means it is illegal for an oil executive to aggressively pursue renewable energy. Occasionally, a company will stroll out a "renewable energy" initiative, but this is almost always more for publicity and public relations purposes than it is for profit.

The truth is that you probably don’t want the oil companies to aggressively pursue renewable energy. The profit margin of renewable energy is so poor that if oil companies attempted to pursue it, they would quickly go bankrupt. This would cause a collapse of the stock market, which would result in an economic meltdown.

Furthermore, the oil companies are likely to profit from the initial stages of the crash. How? Simple — say, for example, that in February 2004, it takes $10 to extract and refine a barrel of oil. If a company sells that same barrel in March 2004, they will likely fetch about $38 for it. However, if they wait until the oil crash hits hard, they may be able to sell that same barrel for considerably more.

Expecting the oil companies, the government, or anybody else to solve this problem for us is simply suicidal. You, me, and every other "regular person" needs to be actively engaged in addressing this issue if there is to be any hope for humanity.

I think you are underestimating the human spirit. Humanity always adapts to challenges. We will just adapt to this, too.

Absolutely, we will adapt. Part of that adaptation process will include most of us dying if we don't take massive action right now. Adaptation for millions does not equal survival for billions. The human spirit is capable of some miraculous things. We need a miracle right now, so the human spirit had better get its ass in gear, pronto! Unfortunately, there is no law that says when humanity adapts to a resource shortage, everybody gets to survive. Think of any mass tragedy connected to resources such as oil, land, food, labor (slaves), buffalo, etc. The societies affected usually survive, but in a drastically different and often unrecognizable form.

Just look at Easter Island. The islanders had one of the most socially complex and technologically advanced civilizations for their time and resource base. They were certainly endowed with as much intelligence and ingenuity as any other group of people. Yet they were unable to adapt to a critical resource shortage until their population was reduced by 98%.

What if somebody invents some new, miraculous technology or makes some discovery that can replace oil? In fact, I just heard of an inventor who has a device/new resource he claims will replace oil. It sounded pretty promising.

Before you stake your survival on a life raft that you've never even seen, you should ask yourself some questions:

•Is this new technology or discovery easily transportable like oil?

•Is it energy-dense like oil?

•Is it suitable for a variety of uses, including transportation, heating, and the production of fertilizers, plastics and pesticides?

•Can you mass-produce this invention without cheap oil?

•Can you distribute this resource without cheap oil?

•Does it have an EPR comparable to that of oil?

•Is there any infrastructure currently in place to handle this currently nonexistent invention or discovery?

•If this resource or discovery is implemented, how will it affect our transportation, agricultural and industrial systems? Can these systems be retrofitted to handle this new resource or discovery?

•What is the profit margin? Is there a profit margin?

•How long before it can be brought online on a society-wide level?

•Could it be implemented before billions of people die? Or would it be implemented only after that ghastly horror has motivated us to implement it?

•How much oil would it take to develop it? To manufacture it? To transport it? To install it?

•How would vested interests react?

•How much of a shock to the stock market would this invention or discovery create? How many factory farms, auto manufacturers and energy companies would it put out of business?

•Have you considered the fact that the multi-trillion-dollar energy industry has been investing ungodly sums to this end with no success?

•Have you considered that without cheap oil, none of our current technology could have been produced on more than a prototype-experimental scale?

•How does this new technology or resource affect the environment?

You need to ask the tough questions before you stake your life on something that doesn't even exist yet.

We'll think of something. We always do. Necessity is the mother of invention.

Yes, and lots of cheap oil has been the father of invention for 150 years. No invention was mass-produced and no resource was distributed without an abundance of cheap oil.

How will the coming oil shortages affect our banking and monetary system?

This issue seems to be a "blind spot" for many people concerned about the ramifications of Peak Oil. Typically, when addressing Peak Oil, people focus on finding a magic bullet alternative to oil. Even if such a resource existed, it would not solve our problems unless it was implemented in conjunction with a complete overhaul of our monetary system. The reason is simple: the monetary system is really just a reflection of our energy system.

Our monetary system is designed for one thing: growth. For any system to grow, it requires a constantly increasing supply of energy. We had a constantly increasing supply of energy as we moved up the upslope of the oil (energy) production curve. Now, however, we are stuck with a system that requires growth, but we are about to be denied the excess energy needed for that growth. Our monetary system was not designed for this contingency. If it can't grow, it collapses. There is no other alternative.

If the monumental scope of our problem wasn't clear to you already, hopefully it is now. Dealing with the oil crisis requires much more than just finding a replacement for oil. It requires replacing a growth-based monetary system with a steady-state system. This is an undertaking whose mythic proportions cannot be overstated.

Matthew David Savinar