Is energy merely another commodity among many in the modern industrial economy? Or is it the very basis of our financial and material life?
Tuesday, December 23, 2008
Sunday, December 21, 2008
The certainty that we were living in stable times led some people to commit more and more of their wealth to investments rather than savings accounts. It led others to rack up huge amounts of debt believing that the good times could never end. The risk was not being in the market or not getting that house you really wanted. Likewise businesses found themselves in an environment of cheap finance. Why not lever up the company balance sheet and make even more money? Both consumers and businesses were abetted by banks and other lenders who used complex models to justify their wild expansion of lending. The models were said to be backtested and the risk properly hedged or offloaded onto investors. Investment ratings agencies seconded this thoughtless optimism with high ratings of questionable securities, ratings that in hindsight look like rampant grade inflation at a second-rate school trying to attract students. Numbers crunched on computers gave everyone a belief that profits were certain and that risk was negligible.
But, beware of those offering certainty. They probably have something to sell you, perhaps something you don't need and that may be dangerous to your health and prosperity. Former hedge fund manager and self-styled philosopher of uncertainty Nassim Nicholas Taleb has a rule of thumb: Don't trust any predictions from people who wear ties. He notes that bankers and financial economists almost universally wear ties to work. Those in the hard sciences such as physicists and chemists almost never do. Such scientists have a much better record of predicting the course of planets and the outcomes of chemical reactions than the bankers and economists do of predicting the trajectory of the economy or the markets.
But certainty sells, especially regarding those things about which we are most uncertain. The purveyors of research on the future would like to tell us (often but not always for a fee) that everything will be all right, especially if we let that purveyor (or his or her clients) make all the important personal and public policy decisions for us. (I probably should have put the word "research" in the previous sentence in ironic quotes since it is impossible to do research on the future.) Other purveyors might also tell us of dark days ahead for which they can sell us the certain and perfect defense. And, there is yet a third very small class of soothsayers who offer a message of gloom (without extracting a fee or at least a very large one) and without offering hope (at least that life will ever again be what passes for normal these days). I sometimes give this third class my attention since they tend to speak with less certitude, and they often pray that they are wrong.
A succession of developments has lifted the reputation of the few in this third class. The highest prices ever seen for oil were recorded in July this year. This was followed by the swiftest decline in the economy since the Great Depression. Nearly every market crashed making mincemeat of practically all investment advice even from those who ostensibly foresaw the crash and recommended investments that were supposed to go up in such a crash. Suddenly, those things which seemed so certain just 12 months ago are now quite shaky. What most people want to know is whether someone or something, perhaps the government, can restore certainty to our lives. But is that what we really need?
More than 50 years ago author and interpreter of Zen to the English-speaking world Alan Watts wrote a book entitled "The Wisdom of Insecurity." He made the case that feelings of certainty and security were just that, feelings. Our true and perpetual state as humans is that of uncertainty and insecurity. The world never stops changing and never stops unsettling our settled notions, at least if we pay careful attention to it.
And so, what's really necessary to feel certainty in one's life is to be oblivious to what is actually happening. For Watts a good life and a happy life, taken with all its sufferings, is one lived while paying attention. Recent events are forcing more of us to pay careful attention. But to pay attention is to feel more insecure and more uncertain. Still, instead of something to be avoided, insecurity is something to be embraced. It forces us to become more resourceful, to encounter the world as it is and to gain a measure of prudence that can serve us well when we are tempted to believe the optimistic hype of investment advisors, economists, politicians, or experts of any kind.
I find myself writing an odd sort of holiday message in this piece. When so many others are sending out words of comfort and joy and wishes for a happy new year, I am focused on getting in touch with life's inherent uncertainty and insecurity which in my view is the true cauldron of creativity in our lives. If you want to have a better year next year than you had this year, I offer no certain way to achieve it--only the insecurity and uncertainty that engender prudent and practical effort, which when we do it in concert with others can bring us the joy of working together on something worthwhile.
Sunday, December 14, 2008
In the absence of independent contrary information, unsuspecting investors will believe in Ponzi schemes as long as their returns are high. In the same way the public will put its faith in neoclassical economic theories which claim that perpetual economic growth is possible. What most investors and many Americans want is to get rich. Most recently they were led to believe that the stock market was a one-way ticket to wealth. While the stock market as a whole is not a Ponzi scheme, the companies on the exchanges are run on the basis of neoclassical economic assumptions about growth. When those assumptions are undermined, as is happening currently, investors and corporate leaders look for villains and bailouts rather than questioning the assumptions themselves.
In an effort to challenge those assumptions, systems ecologist and energy researcher Charlie Hall has long championed a biophysical approach to economics as an alternative to neoclassical economics which he likens to a Ponzi scheme. Why 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.
Theoretically, given no other resource constraints, this might work for a very long time if the energy were to come entirely from renewable resources. But such is not the case. The vast majority of current energy flows come from finite fossil fuels. That means that without drastic shifts in the sources of energy for society, there will be a day of reckoning, just as there is for every Ponzi scheme when not enough new investors are brought in to pay off the old ones.
(Some people think that day may have already arrived. They posit that oil supply constraints sent prices so high last summer that those high prices brought on a depression, one that will now cause massive debt defaults. They also believe that we may have no prospect of ever returning to sustained economic growth based on increasing supplies of fossil fuels.)
The lure of wealth is so great, however, that the dream will die hard. Even now middle-class investors are being told to hang on until growth returns. And, perhaps it will. But the dream of becoming wealthy remains problematic if unquestioned. First, not everyone can get rich. The idea that anybody can become wealthy is not the same as everybody becoming wealthy. Second, although fossil fuels have made possible enormous comforts for the middle-class and even many poor people, few of them would consider themselves wealthy. Wealth is a relative concept. To be wealthy is essentially to be able to pay other people to do many things for you that most people do for themselves. If everyone were to become wealthy, it would be meaningless since wealth always implies privilege, that is, inequality. If you still have to wash your own shirts, take out the garbage and drive yourself to work, you may be comfortable, but you won't necessarily consider yourself privileged.
The unreflective view of wealth--the confusion of wealth with money, the failure to see that feeling wealthy requires an underclass--masks attempts to explain the limits of wealth. Now that the expectations of perpetual financial gain are being dashed, there may be an opening to explain those limits. If the Ponzi-like scheme that animates our economic thinking can be exposed, it could help many to see, perhaps for the first time, that the source of wealth is not the financial markets or the banks, but rather the very earth, air and sea around us.
Thursday, December 04, 2008
(I am posting early this week since I will be on vacation and away from home until late next week.)
This Thanksgiving I was discussing the idea of technological progress with my father. I asked him if he had ever heard the term "singularity." He recognized the word had something to do with physics, but did not know any meaning that related to our discussion of technology. Then, he went on to describe a view of technology that seemed strikingly similar to that espoused by believers in the so-called "technological singularity," a speed-up in the rate of technological change so immense that it would constitute a third revolution in human history alongside the agricultural and industrial revolutions.
But his explanation had a twist. He thought it very likely that this technological progress would result in the destruction of human civilization and perhaps all life on the planet within a century. Alas, he didn't see any way to stop it.
The idea that the advance of technology is speeding up is not a new one. And, the idea that technological progress may actually be putting us on a path to destruction precisely because we don't know when enough is enough has a long history as well. But perhaps the most pernicious idea of the three my father mentioned is that nothing can be done to stop it.
I was struck by how deeply the idea of inevitable, unstoppable, rapid technological progress had become ingrained in the culture. If my father--who reads a lot, but is not particularly versed in things scientific or technological--could describe this idea and its possible consequences in such great detail, then it must indeed have made its way into the minds of nearly every thinking and perhaps many nonthinking persons.
The effect of this idea has been threefold. First, the vast majority of people regard technological progress as an unalloyed blessing. Of course, they are, in part, confusing the availability of cheap energy to run the technology with the technology itself. Without cheap energy much of that technology would not be available to the masses. And, we would not have been able to build the necessary infrastructure nor been able to put the necessary number of people to work to develop so many new technologies.
Second, many people are also discounting the ill effects. If someone had told you at the beginning of the 20th century that the automobile would become ubiquitous in American life, that it would lead to tens of thousands of fatalities and countless injuries each year, that it would be a major cause of urban decline, that it would make our country dangerously dependent on foreign oil imported from the most politically unstable parts of the world, and that it would be a large contributor to climate change, would you not have joined a campaign to ban it? Yet, even today most people are largely blind to or at least have little concern about these clearly deleterious effects.
Third, faith in technology turns most people into citizen-couch potatoes. Since technology will fix everything, we'll put the technologists in charge and then sit back and wait for the miracles to arrive.
The persistence and depth of this conviction results not from the available evidence, but rather from a pseudo-religious belief in the innate goodness of technological progress. Ray Kurzweil, the high priest of the singularity idea, tells us in his tome, "The Singularity is Near," that humans have become joined to machines in their cultural evolution. So far, this is not news. Human ecologist William Catton Jr. made the same point in his 1980 book, "Overshoot," where he refers to human beings as homo colossus, a man-tool hybrid of extraordinary destructive power.
But Kurzweil goes on to say that evolution creates better solutions to the problems of survival, and that technological evolution as part of overall evolution inevitably makes humans more fit for survival. This, he says, is the necessary progression of the universe. That's not exactly what the original evolutionist, Charles Darwin, thought. Changes in living organisms are due to random mutations that are just that, changes. They do not have a purpose per se. The natural world simply sorts through these experiments (including presumably any human technological inventions), keeping the ones which make animals and plants more fit and discarding the ones that don't. Since this sorting takes place over many generations and sometimes many millennia, there is no good way to tell ahead of time what will work and what won't.
So, Kurzweil's faith that our technology will make us more fit for survival in the universe is, in reality, a religious view, not a scientific one. To be fair, Kurzweil does acknowledge many potential dangers from new technologies such as genetic research, nanotechnology and robotics. But he believes we can mitigate or eliminate those dangers with proper regulation.
The main problem with this worldview is that nature is almost entirely absent from it. In this view nature is something which we seek to understand in order to manipulate it for our benefit and for the benefit of other creatures when we deem it necessary. And, nature is something we can fix when we have to. Witness the many ideas for geoengineering the climate including giant mirrors in space to reflect a portion of the sunlight that would otherwise fall on the Earth and a proposal to seed the ocean with iron to increase algae growth, algae that will ultimately die and fall to the ocean floor thereby sequestering carbon.
First, the natural world is so complex that environmental education giant David Orr believes we will never solve the knowledge problem. For everything we learn about the natural world and how to manipulate it, we create an equal and consequential void of ignorance concerning the effects of our actions. When it came to chlorofluorocarbons--a set of chemicals used in refrigerators and spray cans--we almost found out too late that they were eating a hole in the ozone. Given our countless industrial and technological processes, we simply cannot know all their effects on our biosphere.
Second, those effects might be so severe that they could wipe out human civilization. Bill Joy, formerly the chief scientist for Sun Microsystems, wrote a widely read article for Wired back in 2000 about just such possibilities. The article entitled "Why the Future Doesn't Need Us" details the possibilities for the dissemination of designer viruses with the power to kill selectively, self-replicating nanobots that devour the world, and robotic intelligence too great for us to understand or control. The problems may seem like something out of science fiction, but at least the designer viruses and the self-replicating nanobots are in principle possible. Robotic intelligence that mimics and outpaces human intelligence is still just a dream. And, many debate whether such a thing is even possible. But if it were to come to pass, it would have enormous consequences, not all of them salutary for the human race or the biosphere.
Finally, there is the perception that technological progress is speeding up. But is it? After one hundred years, we are still dependent on the internal combustion engine for almost all of our land and much of our sea transportation. We were promised miracle cures for genetic diseases a decade ago, but they haven't arrived. After a half a century of research, we expected fusion reactors to be in place. But the latest international project promises to bring us commercial fusion power only by the mid-21st century. In truth, it is not altogether clear that we will ever be able to master fusion energy. Our main fuels by far remain fossil fuels, 86 percent by energy content. And, these fuels are heading toward depletion faster than anyone anticipated as the world economy and population grow, and as more and more people want access to high-energy lifestyles.
In reality, technology sometimes progresses in fits and starts, and sometimes not at all. Joseph Tainter, author of "The Collapse of Complex Societies," suggests that we may have reached an era of diminishing returns for technology and for the complexity it fosters. Complexity, Tainter explains, can increase the power and reach of a civilization. But increasing complexity will also eventually have diminishing and even negative returns to a society thereby endangering its very cohesiveness. He cites Roman and Mayan civilizations as examples.
An aura of inevitability surrounds the idea of technological progress. And, that aura implies meaningful progress for human society as well. But is that aura in reality merely a paralyzing agent that prevents careful examination of technology and its claims for the future? Humans have, in fact, stopped, slowed or restricted technology on a few occasions. Whether wisely or not, the nuclear power industry was essentially stopped in its tracks after the accident at the Three Mile Island reactor in Pennsylvania in 1979. The public wanted other solutions.
We should want other solutions now, too. Technology enthusiasts claim that new as yet created technologies will keep human society overflowing with the cheap energy it needs for the energy-hungry technological wonderworld of the future. And, yet despite all our new technology, oil discoveries continue to fall. Geology is remorseless and doesn't yield to mere faith in technology. The development of alternatives is lagging far behind our need for quick replacements. The effects of climate change are visiting us sooner than even the most pessimistic estimates had presumed.
The singularitarians tell us, "Just wait! The great breathtaking exponential acceleration of technological progress is about to begin and will play out over the next few decades." The new technologies that will emerge will solve the problems of energy supply, clean water, hunger, and even climate change. And, they will also lead to much greater longevity and far better human health.
But as the world hurtles toward peak oil, catastrophic climate change, widespread water shortages and further vast destruction of the biosphere, can we afford to wait for the singularity to arrive? Or do we need to be pragmatic and start addressing these issues now as well as we can, not just with our technology, but with a plan to change the very way in which we live to make our presence more consonant with the limits of the Earth?
Saturday, November 29, 2008
What used to be country-specific or regional crises, now become worldwide crises. In the past we've had the Mexican crisis, the Asian crisis, the Argentinian meltdown and most recently the utterly devastating hyperinflation in Zimbabwe. But none of these became global crises.
"It's vastly more optimal to have one large bank than 10 small banks. It's more efficient," Taleb told The News Hour with Jim Lehrer recently. "[But,] when one bank, [a] large bank makes a mistake, OK, it's 10 times worse than a small bank making a mistake." The moral of the story: A world with a lot of small banks is far more resilient than one with a few large banks. That's the kind of result one would expect in biological communities, and it turns out to be true, not surprisingly, in human communities as well.
But overoptimization isn't just limited to the banking industry. In fact, it is everywhere, and it makes for vulnerabilities across multiple fronts that quite often interact with one another. We've built a system too complex for any human to understand. Therefore, when something major goes wrong, no one can be sure how to correct it.
Witness the floundering attempts to revive the comatose credit markets. The seemingly incoherent policy shifts exhibited by U. S. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke are not so much a result of incompetence as a reaction to the opacity of the global economy and the inability of anyone to grasp its workings or interpret its supposed signals.
As for the vulnerabilities across multiple fronts, one need look no further than the world's ports. The financial crisis has slowed many to a crawl as exporters worry that importers on the other side of the ocean may not be able to pay them. Banks are reluctant to issue letters of credit guaranteeing payments when they can't be sure the bank on the other side of the transaction is sound. This has driven dry cargo rates down 90 percent from their highs this year forcing some shipping companies to simply idle freighters. In addition, several shipping companies are on the verge of bankruptcy. And, that means orders for new ships are plummeting as well driving shipbuilders toward bankruptcy or at least consolidation.
The tight coupling and vast size of the globe's major economic actors, once hailed a triumph for economic efficiency, has now become an Achilles' heel. Only a few months ago the globe's just-in-time delivery system was strained beyond the limit. Now, as demand has fallen off a cliff, it's spewing out so much stuff that the Port of Long Beach doesn't know where to put all the imported cars coming ashore. Feast or famine, the system wasn't designed for surges or sudden drops in demand.
Overoptimization has taken place in agriculture as well. We are now hostage to such potential crises as the so far unstoppable wheat rust which threatens to knock down wheat yields worldwide. Farms that grow and rotate multiple crops with multiple varieties would be less efficient, but far more resilient in the face of such plant diseases.
And, with the huge, but clunky U. S.-Canadian electrical grid, we are subject to large consequences from small disturbances. Overgrown tree limbs in Ohio were said to blame for the 2003 power outage that deprived 50 million people of electricity from Detroit to New York and from the Ohio River to northern Ontario. A distributed power system made up of a large number of individual home and business generators might be less efficient; but it would be much more resilient. A failure of even many parts of such a power system would leave most of the rest functioning.
The effects of the overoptimized society have been seen in price swings as well. Small changes in the supply and demand for oil can send the price soaring or plunging, and we have seen both this year. The same has been true in the grain and base metals markets.
What all this tells us is that the pablum we've been fed about the merits of globalization has masked its dreadful vulnerabilities. We have created a system that nobody understands and nobody can fix when it falters. We were told that the global marketplace could heal itself and correct imbalances. Well, obviously it can't, not without mowing down an awful lot of people who did nothing to cause the current financial meltdown.
That's the problem with a complex, tightly interconnected network. When it spirals out of control, it tends to create a cascade of problems everywhere. Nassim Taleb says he used to get up in the morning and worry about what will happen to our out-of-control financial system. Now, he wakes up in the middle of the night and wonders how bad it could get.
Maybe, just maybe, it's time to redesign our society with resilience in mind. If things keep going in the current direction, we will surely be forced to.
Tuesday, November 25, 2008
The world's energy optimists often employ a particular lexicon to make their case for abundance far into the future. Whether the lexicon is used cynically or out of ignorance, the result is the same: false impressions.
Sunday, November 23, 2008
The panel included peak oil lecturer and author Richard Heinberg who other than James Howard Kunstler is probably the most widely recognized name in peak oil circles. It also included Albert Bates, a polymath of sorts, who has authored several books on sustainability, argued environmental and civil rights cases before the U. S. Supreme Court, helped to organize the Global Ecovillage Network, and works assiduously to teach others about permaculture and natural design. Also included were two Michigan state representatives, a utility representative, an independent wind power expert, and an academic transportation expert.
For those who acknowledged the possibility of an upper limit on and perhaps an ongoing drop in the supply of oil starting in, say, the next few years, the time for drastic action seemed to be more or less "yesterday." Not surprisingly this group included Heinberg, Bates, the transportation expert and the wind power expert. One of the state representatives also fell into this group.
The other state representative and the utility representative cautioned against a headlong rush into renewable energy. Yes, an energy transition is necessary to address global warming and fossil fuel depletion. But 2050 is a better time frame for completing the transition. We were told by the state representative that putting all of our eggs in one basket, namely, renewable energy, risked economic damage and risked betting on technologies that might not survive, work as planned or might be improved upon considerably over time.
Rushing to build an entirely new energy infrastructure may indeed not result in an optimal system and may saddle us with technology that will likely be superseded. Witness the efficiency gains in wind generators and the far greater knowledge we have today about where to deploy them compared to, say, 20 years ago. A gradual energy transition would clearly be much better in many ways.
The key question is whether we have the time for said gradual energy transition. Should the analogy be the computer revolution that took from the end of World War II to the middle of this decade to make ownership of a home computer all but universal in the United States? Or should the analogy be the American entry into World War II which led to a command economy directed by the federal government with the aim of winning the war?
One could certainly argue that the United States did not make optimal use of its resources during World War II. But, it did win. And, private industry directed by the War Production Board managed feats which no one believed possible at the beginning. The effort required the sacrifice of the consumer economy, something which is unthinkable today in the United States even now in time of war. In fact, the primary concern in the current economic downturn is to get consumer spending going again even as two wars grind on.
As long as even those who agree that an energy transition is necessary have wildly differing timetables, the needed changes will limp along at a snail's pace. It seems that only a catalyzing event, something as compelling and clear as America's entry into World War II, can now bring about a rapid energy transformation. It's hard to imagine what would be more compelling than a disastrous and failed war in the Middle East, $150 a barrel oil last summer, and now economic freefall. But the public and the vast majority of policymakers have not made the connection.
If they finally do, the now unfolding economic hardship could become the basis a vast public works program aimed at a rapid and successful energy transition, something at least an order of magnitude larger and far more comprehensive than is currently being contemplated by the incoming Obama administration. But that would mean that America could no longer be about mere consumption, a change that would require a true leap of faith.
Friday, November 14, 2008
Back in February in a piece entitled "Do High Commodity Prices Speak for Themselves?" I wrote that the emerging spike in commodity prices would tell us less about resource depletion than prices during the inevitable bust. I observed:
The real price of commodities has been going down for more than a century. This is because the race between technology and resource exhaustion has been been won decisively by technology. Whether that will continue is now in question.
One indicator will be to see not what new highs are achieved in various commodities in the coming years, but whether a new floor is established that is significantly above previous historical real prices. In other words, higher lows will be more indicative of our situation than higher highs which are usually a very temporary phenomenon.
Well, the bust has arrived much sooner than I anticipated. So, now seems like a good time to evaluate. To be sure, commodities--which have already taken one of the worst drubbings ever--may have further to fall. But the glee with which their fall has been greeted may be obscuring what current prices are telling us.
Let's look at crude oil. At its peak this summer oil sold for $147.27 a barrel. As I write, crude for December delivery sits at $56.16. That's a decline of 62 percent. But it's a different story if we compare the current crude price with its previous bear market low. On December 10, 1998 crude oil on the New York Mercantile Exchange closed at $10.72 a barrel. Today, even after a precipitous fall in prices, oil remains 424 percent above the previous bear market low.
How about copper? It reached an all-time high on May 5 of $4.26 per pound. As I write, copper for December delivery sells for $1.65. That's a drop of 61 percent. In late 2001, however, copper prices were hovering around 60 cents per pound. That means that even the latest power dive in the price leaves copper 175 percent above its previous bear market lows.
Foodstuffs don't look all that much different. Sugar, for example, was hovering around 4 cents a pound in early 1999, but vaulted to 19.73 cents by February 2006. As I write, sugar for March delivery sits at 11.61 cents. That's a fall of 41 percent leaving sugar still 190 percent higher than its previous bear market low.
Of course, we may just be seeing a pause in the commodity bull market that began way back in late 1998. The average span for such bull markets in the past century has been about 17 years. On the other hand, if we go into a long economic slump, but commodity prices never return to their lows, we may chalk that up as another indication that depletion may be stealing the march on technology.
Of course, we can grow more sugar if we decide to expand our acreage or increase our inputs. (That's assuming that the fossil-fuel inputs will be readily available and that we have adequate water and fertile soil, both of which are being depleted by modern farm practices.) We cannot, however, grow more copper or more oil. We may figure out how to get leaner and leaner ores to yield copper. And, we may be able to get more difficult-to-extract deposits of petroleum to yield their oil. The key question is whether this will take a rising portion of society's total effort to do so. If it does, that may mean depletion has begun to overwhelm our technological prowess. And that could mean that we need to find other ways to meet our needs for minerals and energy.
Of course, we can deploy renewable sources of energy. And, we could fully recycle all key metals. But these steps would require practices and an infrastructure much different from what we currently have. And, the changes would have to be put in place long before we reached critical shortages in order to avoid large disruptions in our economic life.
Sunday, November 09, 2008
I have been dwelling on this in the celebratory aftermath of Barack Obama's election victory. (Full disclosure: I voted for him.) I think that those who supported Obama have reason to celebrate, especially for the way in which he was able to spread blue all over the electoral map of the country. Of course, there will be the difficulty of getting legislation through Congress even with increased Democratic majorities. But there is the much more serious problem of trying to govern the country in a time not only of financial collapse, but also of resource stringency.
It may not seem as if resource stringency is a problem. After all, oil prices are less than half what they were a few months ago. But the price decline has little to do with increasing supply. It is primarily due to swiftly falling demand, and that has been the result of slowing economic activity due to the financial crisis. So, even as the economy tries to lift off again, it will all too quickly face the headwinds of limited supply, not only of oil, but also of other critical resources including agricultural products and some base and rare earth metals.
In his first news conference, Obama tried to reassure the public about his focus on and understanding of economic issues by having an army of financial heavyweights stand with him on stage. Now, I don't easily discount expertise. We've had too little of it in government in the last eight years. So-called "common sense" isn't enough when it comes to understanding highly complex systems. But, the global economy may now be far too complex for anyone to understand. Nassim Nicholas Taleb, author of "The Black Swan," says he lies awake at night sometimes wondering how bad things could get. (Much of the current turmoil was foreshadowed in his book.)
That policymakers don't really understand the current economic system has been most clearly demonstrated in the many iterations of the plan for using the $700 billion in bailout funds appropriated by the U. S. Congress. Treasury officials went from proposing that it be used to buy toxic assets from banks, to proposing and then using it to inject capital into banks by buying preferred shares, to working on a plan to inject money into insurance companies and now even a plan to inject money into a wide array of nonfinancial companies. The truth is they don't really know where the levers of the economy are anymore, and neither does anyone else. Add to this that most economic policymakers recognize no environmental limits to economic growth, and you have a recipe for perpetually wrongheaded and perhaps disastrous economic thinking.
Environmental education giant David Orr is fond of saying that as our knowledge grows, so does our ignorance. He is merely speaking the truth about any complex system. His response is to suggest that we employ wide margins of safety to take into account those dangers which we cannot see or understand at present.
Of course, such advice was never taken seriously in the trading rooms of Wall Street which used the risk formulas of what Taleb calls pseudo-scientists, namely, the financial economists and physicists turned financial risk modelers. They assumed they could calculate risks precisely and created charts and graphs and equations to make people feel comfortable.
I am reminded of a talk I gave at Michigan State University, a captive hub for industrial agriculture and now biofuels research. I downplayed the likelihood that biofuels will be able to substitute in any substantial way for petroleum-derived fuels for reasons of scale, resource scarcity (i.e. scarcity of petroleum- and natural gas-based products now critical to modern agricultural productivity and scarcity of water) and soil degradation. One student came up after the talk and wanted to reassure me that my concern over removing crop waste (for cellulosic ethanol) was being addressed. He was working on research to determine exactly how much crop waste could be removed for biofuel feedstock without affecting soil fertility. Anyone who understands how complex soil is and how comparatively little we know about its interactions in the environment will be forgiven for wondering whether we can calculate such things to the fourth decimal place.
But it is possible to calculate or at least characterize some of the damage done to the ability of the next president to govern the United States. During this year's presidential campaign I was reminded of the perhaps apocryphal saying attributed to members of the Ba'athist party in Iraq, the party through which Saddam Hussein controlled the country: "If we don't govern Iraq, nobody will." Years of insurgency in the country illustrate the sentiment.
Here in the United States, the McCain campaign along with its surrogates did their best to suggest to the American public that Barack Obama was a Manchurian candidate, as if he had been held captive in the Rev. Jeremiah Wright's church and brainwashed to act on instructions to destroy the country upon becoming president. Or perhaps Obama better fit the description of a fifth columnist. His almost laughably tenuous connection with one William Ayers was somehow supposed to prove that Obama was loyal to a terrorist creed born out of the 1960s, a decade during which Obama reached the ripe old age of eight. Maybe it was Obama's middle name Hussein which was the giveaway, a fact almost endlessly repeated on the FOX News Channel. The McCain campaign and its surrogates could never make up their minds about which paranoid vision would work, so they tried all of them. It is the kind of appeal so aptly described by Richard Hofstadter in his famous essay, "The Paranoid Style in American Politics."
Of course, none of these approaches yielded victory, but they can only help to make the country more ungovernable. If you voted for McCain believing that Obama is a traitor--rather than merely an American politician with whom you strongly disagree--shouldn't you resist his treason and those who supported it with every fiber of your being? It is wildly irresponsible to make claims of disloyalty against a candidate. Kathleen Hall Jamieson, an ardent student of campaign advertising, had this to say about such claims during a recent interview on Bill Moyers' Journal:
The notion that we would impugn the integrity of a person running for president on the other side, question their patriotism, is something that we all ought to step back from and say that is unacceptable. The evidence that one should have to mount to make that kind of case should be so clear and so overwhelming that it would persuade that person's mother. And for practical purposes, those are charges that are out of bounds.
Now some will say that the Obama campaign ran many negative ads against McCain. And, I must agree that it was questionable that a McCain administration would just be a continuation of the Bush administration, a message that was the main thrust of the Obama ads. But I defy anyone to point to an ad put out by the Obama campaign--and not by some crazy on the Internet--which branded John McCain as disloyal to his country.
The paranoid style which we saw exhibited in the McCain campaign comes to the fore in times of extreme social stress such as we are witnessing now. (By the way, I don't actually think McCain believed his own attacks, but merely saw them as a useful tactic. And, we saw that in an exchange he had with a questioner at one of his rallies. But that doesn't excuse him in my view.) The paranoid style makes it exceedingly difficult to have serious discussions about issues since the motives of those discussing the issues are always suspect.
Even though a serious dialogue about our interlocking financial and resource crises has been somewhat undermined by the paranoid style exhibited in the presidential campaign, I still believe that the nation can have such a dialogue. But I believe it will end up being much more fruitful on the local level. If energy stringency means a turn away from expansion of the global economy and toward more regional and local economies, then it's hard to see how the federal government could play a dominant role in such a transition. The federal government by its very nature is designed to centralize activities rather than disperse them.
While there are certainly actions the federal government could undertake to aid in the move to a decentralized economy, it seems unlikely those actions would take the right form. For example, if the Congress were to move to expand support of wind and solar power, would it do so in a manner that would make communities more self-sufficient in energy? Or would it emphasize renewable electricity generation by large utilities rather than individual households? I am fairly certain that federal policy would favor the second approach over the first.
And, this brings me to my final point. The reason I call this piece "Governing the ungovernable" is that I believe the problems we now face will not be solved at the central government level. They might be mitigated or exacerbated, but not truly solved. In essence, the world as currently constructed has become ungovernable. So, along with new ways of living, we must find new ways of governing, and I believe those new ways will emphasize the local and the regional over the national or the international.
This tempers my enthusiasm for the new administration about to take power in Washington, one with whom I already have many disagreements especially in the area of energy policy. To the extent that Barack Obama and the team he assembles inspire and empower people to act in their own communities to address energy stringency, climate change, food self-sufficiency and the repercussions of the financial meltdown, the next administration will succeed. But the real successes will have to be imagined and implemented closer to home.
Sunday, October 19, 2008
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Sunday, October 12, 2008
When the world economy was humming along, nary a thought was given to its enormous complexity. It is only now when it is disrupted that we are forced to notice where that complexity is breaking down. And, perhaps the biggest disconnect is between the scope of the problem which is international and the response which has been largely national. The cowboy capitalism which spread across the globe in the past 20 years is now looking for a marshall to come to town and straighten things out.
But there is no overarching international financial authority which can order countries to do anything. And the national approach is, of necessity, a political approach as Stratfor writes in a recent piece:
Countries do not want to bail out foreigners, and different governments do not want to assume the liabilities of other nations. The nature of political solutions is always that politicians respond to their own constituencies, not to people who can’t vote for them.Stratfor goes on to write:
If the United States comes up with a plan which guarantees loans to U. S. banks but not European banks, and Europeans lend to Europe and not the United States, the integration of the global economy will very quickly shatter, leading to significant limitations on international trade, currency convertibility and so on. You will nationalize economies that can’t stand being purely national.
The international just-in-time systems upon which we depend for food, fuel and medicine are starting to seize up. Many in the world could find themselves without enough of one or more of these essentials. The loss of the hallucinated wealth conjured up in the last decade will pale in comparison to the failure of our physical delivery systems if that failure goes on for too much longer. And, for the moment we are stuck with such systems and cannot merely rely on our national systems for our basic needs. We have become too intertwined. In a sense we have become too complex to fail.
This then ought to be the overriding consideration for the present: how to maintain payment systems for essentials moving through the world marketplace. But since those systems have been designed ad hoc by the financial cowboys who are still running the world of finance and since they have no particular government to backstop them, it's not clear how these systems could be administered by anything other than the current frightened private hands. And, given the record so far, how effective will fresh government guarantees be at making those frightened hands more bold?
It is during such times that we come to realize that our seeming mastery of the world through complex systems actually makes our society much more vulnerable to breakdowns. We have power and reach that previous non-industrial societies lacked. But as for resilence in the face of extreme stresses, we are likely to find that we fall short.
Sunday, October 05, 2008
It is these positive sentiments which Aubrey McClendon, the chief executive officer of Chesapeake Energy Corp., exploits in his new push to use compressed natural gas for transportation fuel. The company McClendon heads purports to produce 4 percent of all U. S. natural gas and drill 9 percent of all new gas wells. (We'll come back to the curious difference between these two percentages later and what it tells us about McClendon's claims.) He funds a nonprofit called American Clean Skies Foundation and a website called CNG Now to push his agenda. A set of television ads currently playing in my area (and I suspect across the country) can be viewed on the CNG Now site. It all adds up to a natural gas smoke screen that makes it harder for people to understand the real natural gas situation in North America.
Not surprisingly, Chesapeake and along with it McClendon have prospered as natural gas prices have risen fourfold in this decade. That price rise has made it profitable to drill deep into known deposits of shale gas. The resource was virtually ignored for many years because it is deep--a mile and a half down in the Barnett Shale in Texas, for example--and difficult to produce. The permeability of shale is quite low and that has meant low flow rates in the past. Typically, only wells encountering rare natural fractures in the shale (which provided increased permeability) proved to be profitable.
But advances in fracturing technology--i.e., creating artificial fractures in the shale--and in drilling along with high prices have made shale gas economical to produce, and a drilling boom has emerged in areas previously almost untouched. The future for shale gas does seem promising. And, in the last year it has almost singlehandedly been responsible for the first major uptick in the rate of U. S. natural gas production in a decade. But does that mean that total natural gas supplies can grow to meet the proposed additional transportation demand along with all other demands?
Three participants at the recent ASPO-USA conference in Sacramento are skeptical. David Hughes, now retired from the Geological Survey of Canada and a keen student of North American gas supplies, told me that the jury is still out on whether shale gas supplies can grow at high rates in the long term. That shale resources cover seemingly large areas is deceptive. The permeability of the shales is highly variable changing over relatively short distances. There are "sweet spots" which are worth drilling, but those "sweet spots" often turn out not to extend very far, according the Hughes. That means the number of wells drilled when compared to conventional gas exploration is significantly higher.
I asked Hughes if he puts any faith in geologist Jean Laherrère's work on North American natural gas which predicts a plunge in production in the coming years as older conventional fields deplete. Hughes responded affirmatively. LaHerrère believes that conventional production is now mirroring conventional discovery with a 23-year lag and that conventional production could be down by one-half by the end of 2010, mimicking the cliff in conventional discovery which occurred 23 years prior.
Oilman Jeffrey Brown, originator of the Export Land Model, also talked with me at the conference at length about shale gas. His take: Shale gas wells deplete rapidly, dropping some 65 percent on average in the first year alone in the Barnett Shale. The wells then deplete completely by the fourth year. The number of wells drilled will have to grow geometrically in order to replace depleting shale gas wells and increase overall natural gas production. This may explain why although Chesapeake Energy produces only 4 percent of America's natural gas, it must drill 9 percent of the country's new wells.
To increase natural gas production in North America, new shale gas production will also have to overcome, in part, the depletion of conventional wells which are declining at the rate of about 5 percent a year. Brown's conclusion: Production growth will stop in shale gas at some point because of constraints on manpower and drilling rigs. Shale gas won't even be able to sustain its own growth in production beyond three more years, let alone make up for the depletion among conventional wells.
Finally, Andy Weissman, publisher of Energy Business Watch, suggested in a presentation at the ASPO conference that increasing demand for natural gas from new electric power plants combined with a poor outlook for natural gas supply growth could mean a major crisis at the beginning of the next decade for both natural gas and electricity. He said that if something isn't done to change North America's energy trajectory, marginal supplies of liquefied natural gas (LNG) which now sells for about $20 per mcf in Japan and around $12 to $14 per mcf in Italy will dictate prices for North American gas. That, of course, could lead to a lot of unpleasant demand destruction as businesses and power plants dependent on natural gas shut down.
So, how can it be that Aubrey McClendon believes that North America needs to find a new user for natural gas, namely, transportation? I can only take McClendon at his word. He must believe that the vast resource of shale gas is going to be tapped in a way that most experts discount. McClendon's American Clean Skies Foundation commissioned a report from an energy consulting firm that concluded that available natural gas resources in the United States, especially from shale, are far larger than previously thought. (Lousy is the consultant who fails to come up with the conclusion that his client wants.) But a look at the report reveals a number of holes.
The report writers assume straight-line trend growth for shale gas production. They use numbers that include "unproven technically recoverable resource" to conclude that we have 118 years of natural gas left at current rates of consumption. The words "unproven" and "technically recoverable" should give us pause. We ought not to be making policy based on extravagant claims of unproven resources. We should be even more cautious when these resources are categorized as technically recoverable since they may never be economically recoverable.
We should also keep in mind that little phrase "at current rates of consumption." Proposing a vast new use for natural gas means perforce that rates of consumption will rise dramatically and therefore shorten not only the life of the resource, but also bring the peak in production much, much closer. So even if we accept the consultants' numbers (which I don't), they are misleading us about the longevity of supplies and not even mentioning the time to peak production. Even more concerning, the report writers don't even deal with the stocks versus flows problem. The gas may be there, but it's going to be awfully hard to get it out of the ground at the rate we would like, and the rate is the key variable in determining what will be available to us in any one year. To repeat an analogy I've used before: If you inherit a million dollars with the stipulation that you can only draw it out at $500 a month, you may be a millionaire, but you will never be able to live like one.
I don't question McClendon's motives. If he believes vast supplies of natural gas are about to come onto the North American market, it's his job to figure out whom to sell them to. The idea of running much of our transportation system on domestic natural gas as an bridge to future liquid fuels is a good idea in theory if not in practice. And, McClendon must be thinking that he's right for now since plummeting prices for natural gas have led him to cut back spending on drilling for the time being.
But if Weismann and others are right, any dip in the natural gas price will only be temporary and therefore other measures including stringent conservation ought to be part of any overall energy policy.
As for McClendon's natural gas smoke screen, I'm inclined to believe that some of the smoke is actually getting into his eyes and making it a little difficult for him to see the true long-term picture. Anyone who drills for natural gas for a living wants to believe that there is a lot out there ready to be harvested by a clever, experienced risktaker.
But the key questions about the actual size of North America's natural gas resource remain unresolved. And, concerns about the possible rate of production from unconventional sources such as shale gas loom large. Until these are addressed more convincingly, North American policymakers would be advised to look upon McClendon's proposals with skepticism and to plan prudently for a less than rosy natural gas future.
Thursday, September 25, 2008
When oil optimists tout the huge supply of oil that is still available to us in the form of tar sands and oil shale, they forget to mention that costs are rising so quickly for producing that oil that these alternative sources may prove to be of limited value. The same cost problems are occurring in the renewable energy field as well. What is behind this phenomenon sometimes referred to as the problem of receding horizons?...Read more
Friday, September 19, 2008
While watching this week's turmoil in the world markets, I thought back to a piece Howard Odum wrote in 1974. In it he wrote:
Worldwide inflation is driven in part by the increasing fraction of our fossil fuels that have to be used in getting more fossil and other fuels. If the money circulating is the same or increasing, and if the quality [of] energy reaching society for its general work is less because so much energy has to go immediately into the energy-getting process, then the real work to society per unit [of] money circulated is less. Money buys less real work of other types and thus money is worth less. Because the economy and total energy utilization are still expanding, we are misled to think the total value is expanding and we allow more money to circulate which makes the money-to-work ratio even larger.
I think what we are seeing is the convergence of colossal financial mismanagement with energy stringency. Not surprisingly the authorities think that only money is the problem, i.e., there isn't enough of it available to fill the holes created by the disappearing value of various types of financial instruments. But if energy stringency is also part of the problem, then merely filling the financial voids with new money will only add fuel to the already potent inflationary mix which I fear is about to ignite.
In saying this, I offer no solution to the problem as stated. The real solution is much harder: deep cuts in energy use, rapid investment in and deployment of alternatives, reworking the infrastructure including agriculture for a low energy society. I'm under no illusion about whether such proposals will be made at the highest levels since there seems to be little awareness of our energy predicament.
I title this piece, "The Last Bailout," because if we are at peak, then financial bailouts will do little to help us. In the past when society had rising energy supplies with large energy profit ratios, these financial bailouts could avert disastrous consequences. They would allow the economy to regain its equilibrium and await the next sustained upturn. But, what if there is no next sustained upturn? If that turns out to be the case, then even if additional bailouts take place after today, they will all ultimately be lumped together into one, namely, the last bailout. And, the last bailout will of necessity fail to work as advertised.
Sunday, September 14, 2008
What does that mean? First, a quick review. It takes energy to get energy. EROI is a measurement of how efficient a process, an enterprise or a society is in obtaining energy. EROI is usually expressed in a ratio, say, 20 to 1. That would mean that the process being studied produced 20 units of energy for every one unit expended. As it turns out, that's about what conventional crude oil returns.
Hall estimates that the United States is currently running on an EROI of just under 40 to 1. This looks like a fairly substantial margin of safety over the 5 to 1 that might lead to societal breakdown. But worrisome developments in the oil, natural gas and coal fields may send us rushing toward that figure.
A post earlier this year on The Oil Drum suggests that the EROI for natural gas in North America is dropping like a stone. This is, in part, reflected in the price of natural gas which is up fourfold in this decade. It is also reflected in the number of wells and the number of total feet drilled just to maintain production. We are having to drill faster and deeper just to stay even. The recent uptick in U. S. supplies may represent a small flattening of the EROI decline, but those supplies are the product of furious drilling and huge exploration expenditures.
The tar sands, presumed to be the great energy savior for North America, have long been a low EROI source of oil. Estimates range from 1 to 1 to about 7 to 1. Work by Charles Hall and his students posted on The Oil Drum gives a tentative estimate of 5.2 to 1 based on admittedly incomplete data.
Coal has a very high return when used to generate electricity, around 80 to 1. But evidence now suggests that in the United States at least, not only has the energy content per ton of coal declined by more than 30 percent since 1955, but the total energy content of coal mined in the country is now falling despite rising coal tonnage.
But what about nuclear? Hall and his students once again attempted to calculate the EROI. Others have made claims of 1.86 to 1 to 93 to 1. The very high estimates appear to leave out many steps in the nuclear fuel and construction cycle. Some contend that the EROI of nuclear is favorable enough--perhaps 11 to 1--to argue for expansion of nuclear power. But, if one takes into account all the energy that will be expended over time storing nuclear waste and guarding the waste and the mothballed nuclear plants in the future, the EROI could drop below 1. Essentially, we get the benefit now, and future generations get both the security and energy expenditures.
On its current trajectory, nuclear power may not even maintain its share of world energy production. It would certainly be useful to know what the true EROI of nuclear power is in order to assess its importance to our energy future.
Solar power has promise as shown in this chart compiled by Hall and his students. But, the estimated EROI ranges are so wide that it would be difficult to promise that solar photovoltaic could consistently provide returns above 5 to 1.
This chart provides an estimate of above 70 to 1 for wind power in one location. EROI in this case, of course, depends heavily on whether the wind generators are located in ultra-windy Denmark or not-so-windy Japan. The main problem with wind and solar, however, is that they are intermittent; the energy produced is difficult to store for use during nighttime or low-wind conditions.
Finally, hydroelectric has a very high EROI. While there is still room for some expansion of hydro power in the developing world, most of the good sites have already been taken in North America and Europe.
And, this brings us to the idea of the net energy cliff. If our energy transition away from fossil fuels does not result in their replacement by high EROI sources of energy with the necessary versatility and storage characteristics, or if such replacements are possible, but delayed too long, then we may be facing a net energy cliff.
It may seem that the difference between an EROI of 40 to 1 and one of, say, 30 to 1 would be comparable to a move from 20 to 1 to 10 to 1. But the mathematics say otherwise. In a society that has an EROI of 40 (which is approximately what the United States is thought to have) about 2.5 percent of the economy is devoted to gathering energy for the other 97.5 percent. If an economy has an EROI of 30 to 1, then the portion of the economy involved in gathering energy rises to about 3.3 percent. This is a significant jump, but probably manageable. However, an EROI that drops from 20 to 1 to 10 to 1 results in the doubling of the part of the economy devoted to securing energy from 5 percent to 10 percent. A further drop to an EROI of 5 to 1, puts 20 percent of the economy within the general classification of energy gathering. This is the net energy cliff.
A drop to an EROI of 5 in today's American economy would mean that the energy sector of society would have to grow eightfold. If the drop came quickly, it would be very difficult to adapt. If the EROI were to drop to, say, 3, this would imply that potentially every third person would be involved in gathering energy in some fashion. Such a society would have little resemblence to the one we now inhabit.
The net energy cliff shows us how important EROI is when considering energy alternatives. Even very large resources such as the tar sands and oil shale become problematic when one considers their EROI.
There appear to be two ways forward then. One is to hope for breakthroughs which increase the energy returns of alternative energy sources. A second is to rework our infrastructure and our way of living so that our society can better withstand a significant overall decline in EROI should it develop.
Saturday, September 06, 2008
Then, there are those, probably an even larger group, that believe we have simply misused our technological prowess, and that if we could turn that prowess toward harmonizing ourselves with nature, we could preserve ourselves and our technical society while allowing nature to flourish once again.
Embedded in each view is the assumption that somehow human society made a bad decision, perhaps even an immoral decision. It's hard for me to imagine that such "decisions" could have been averted or that such developments even fit the definition of the word "decision." For example, it's hard to imagine someone long ago "deciding" to plant seeds and tend to the resulting plants. It's easier to imagine that the connection was made between seeds and plants that sprouted from where those seeds had once lain. I can imagine experiments, halting at first, to test the theory that plants come from seeds. And finally, I can imagine attempts to sow seeds of favored food plants on plots near temporary seasonal encampments in order to provide food that would supplement sustenance obtained from traditional hunting and gathering.
Likewise, the discovery and use of fossil fuels was not a "decision," but more likely perceived as an opportunity for energy gain.
I am more inclined to the view that humans are like any organism and seek to maximize their energy gain for the purposes of survival and propagation. And, like other organisms humans can experience periods of riotous growth in their numbers followed by periods of decline and retrenchment. This "pulsing" is completely consistent with observed natural patterns. And, while we certainly should not abandon moral thinking, we need to be careful when we apply it to something as vast as the evolution of the human species.
In saying this, I do not mean to minimize the human suffering that may be in store for us in a future that is energy-constrained--one in which fossil fuel supplies decline, but nothing of comparable scale takes their place. I am only trying to point out what Howard Odum suggests in his book, The Prosperous Way Down, namely, that human societies are not immune to the expansions and contractions which apply to other creatures. To be more precise, industrial civilization is not a path of continuous expansion, but simply a phase of expansion that will inevitably lead one day to a phase of contraction.
By looking at the fossil fuel age this way, we need not judge it as either good or bad. I often think that the burden of criticizing or defending our current society on moral grounds uses up considerable energy that might be used to imagine and construct a new society that will be viable during a period of contraction. I'm afraid it is not moral arguments that will cause people to ready themselves for such a contraction, but circumstances themselves. (I confess that I must take some of the responsibility for the excessive moralizing.)
To the extent that we can accept that industrial civilization is neither a mistake nor the highest and best arrangement of human affairs that will ever be, but rather has unfolded as one would expect through the interactions of social creatures who seek maximum energy, we can turn our energies to managing a transition to the next phase of civilization.
There is considerable talk about creating sustainable societies, that is, societies that can last for an indefinite period without either exhausting their resources or fatally disturbing the natural processes upon which they depend. But if Odum is correct about the pulsing nature of complex systems, then we can expect to do no such thing. Instead, humans will be continually called upon to adapt to dynamic resizings of their scope during phases of both expansion and contraction.
Often we confuse what is good with what is permanent. Permanence somehow conveys an innate moral rightness to us. But there are many things which we value which are inherently ephemeral--the bloom on a rose, the flight of a bird, the excitement of success, the exhilaration of falling in love. Do we value these things any less because they do not last? No, we value them all the more. But, we learn to go on to the next task in life, looking to meet our needs and attentive to the possibilities of pleasure and pain in every circumstance.
If we could come to accept that our current industrial age is just a phase, ephemeral like all ages, neither a triumph which must be defended in its entirety at all costs, nor a mistake which must be allowed to collapse, nor a system that can be redeemed with just a few adjustments, we could learn to let go of it as it recedes without rejecting aspects of it that might prove to be instructive or useful. We could then move on to our next task, creating a new phase of human existence on planet Earth within limits we can no longer ignore.
Sunday, August 31, 2008
It ain't what you don't know that gets you into trouble.
It's what you know for sure that just ain't so.
Last week I participated in an energy forum sponsored by a congressional candidate from my district. In preparation I thought it would be useful to understand the positions of his opponent, the incumbent, on energy issues. Fortunately, the incumbent had done a lengthy interview with our local National Public Radio station earlier in the summer.
I confess that my expectations about energy literacy among most people are quite low. And, I wouldn't expect most members of Congress to understand energy very well either unless they serve on committees that deal with energy issues. But my congressman, Fred Upton of Michigan, is the ranking Republican member on the Subcommittee on Energy and Air Quality. So, I expected that he would have a pretty good handle on basic information about energy, at least in the United States.
With pen and yellow pad in hand I clicked on the interview ready to take a few notes. On the first pass I thought perhaps Upton had just misspoken on some points. But as I listened again, I realized that he was confidently spouting obviously erroneous information. Here is a man who is central to energy policy in the United States speaking glibly on a broad range of energy issues who in at least two instances got important basic facts wrong and in other cases was either misinformed or misleading. If his understanding of energy issues is a proxy for those in Congress who are well-informed on energy issues, then it's no wonder federal energy policy is in the state it's in.
Here are two instances in which he was just plain wrong. He could have discovered the correct information with a few searches on the Internet and some simple calculations.
On oil consumption in the United States: "Our use here in the United States is about 10 million barrels a day."
The Facts: Average daily consumption of total crude oil and petroleum products in the United States for June 2008 was 19,552,867 barrels per day. You can calculate this using numbers from U. S. Energy Information Administration (EIA), a part of the U. S. Department of Energy. (The math is 586,586,000 barrels divided by 30 days.) I would have accepted 19, 19.5, or 20 million as close enough for radio. But 10 million is so far off that I have to believe that Upton simply has the wrong information or made up a number. How can the go-to guy in the House of Representatives on energy for the Republicans not know this piece of basic information cold?
On exports to the United States from the Canadian tar sands: "We need to bring in oil from tar sands up in Canada. They're producing a million barrels a day, and yet, we stop it at the border. It can't come down."
The Facts: Some 99 percent of all Canadian crude oil exports go to the United States. About 43 percent of all crude oil production in Canada comes from the tar sands. Considerable amounts of refined and upgraded products are also exported to the United States. This information is available on the website of the National Energy Board of Canada. Moreover, an extensive pipeline network links the Canadian petroleum infrastructure to the United States. The pipelines carry both crude oil and upgraded and refined petroleum products. To see how extensive these connections are, check out pipeline maps from the major pipeline companies: Enbridge, Kinder Morgan, and TransCanada. Note that an Enbridge pipeline reaches right up to Fort McMurray which is the epicenter of Canadian tar sands activity and connects it with a major crossborder pipeline.
It stands to reason that some Canadian products from the oil sands are indeed flowing into the United States. But more broadly, the implication that there is some impediment to Canadian hydrocarbons crossing the U. S. border is complete nonsense. In addition, the Oil & Gas Journal reports extensive investments are currently being made in pipeline and refining capacity in both the United States and Canada to handle increased production from the tar sands. What could my congressman possibly mean when he says that oil from the tar sands is being stopped at the border?
Perhaps even more troubling is his assumption that oil resources in other countries are subject to whatever call the United States wishes to make on them. What if the Canadians were to decide to export more of their oil to Asia? Or, what if they decided they needed more oil for domestic use as is occurring in many of the world's largest exporting countries? Would Upton suggest that we take it by force?
In other instances he appeared to be either misinformed or misleading. I'm inclined to think that he believes what he says, and that means that he is not being cynical, but truly doesn't understand energy issues.
On wind power for Michigan: "Wind and solar I'm all for. But, you know, you're not going to reserve the whole state of Missouri to build these wind farms."
The Facts: It's not clear why Upton believes Michigan would have to import wind energy from Missouri when Michigan has some of the best wind resources in the world. According a wind map of the state prepared by the National Renewable Energy Laboratory, Michigan has huge Class 5 (excellent) and Class 6 (outstanding) wind resources along its extensive shorelines. A draft report prepared for the Michigan Public Service Commission shows estimates from the National Renewable Energy Laboratory of 16.5 gigawatts of onshore wind capacity and almost 45 gigawatts of offshore capacity. The entire state of Michigan currently has generating capacity of about 30 gigawatts. A study from the Michigan Alternative and Renewable Energy Center suggests that in the central part of Lake Michigan the wind resource could be 182 gigawatts, six times the state's current generating capacity. With these resources Michigan could become a substantial power exporter.
Upton is right when he says the national grid would have to be upgraded and expanded to accommodate transfer of power from exporters of wind-generated electricity to those needing the power. But his remark about Missouri makes it clear that he doesn't understand the wind potential of his own state nor that wind is a highly decentralized power source that can be tapped on much smaller scales than the huge wind farms he implies are necessary.
On oil shale: "The reserves in Colorado, Utah and Wyoming exceed a trillion barrels of what's expected down there. And, that's more than what Saudi Arabia has."
On greenhouse gas emissions related to nuclear power: "They have no emissions. No greenhouse gas emissions at all."
The Facts: Upton might claim that he meant only the operation of the reactor causes no emissions. But he keeps repeating this claim throughout the interview. Of course, uranium mining and processing are exceedingly energy intensive with much of that energy coming from oil, particularly diesel. In addition, the construction of a nuclear power plant releases large amounts of carbon dioxide, especially from the enormous volumes of concrete used in making the containment building and other facilities. It's true that the emissions are considerably less than those of fossil fuel plants over their lifetime, but the emissions are not zero. Solar- and wind-generated electricity has carbon emissions much closer to zero; but even solar panels and windmills must currently be manufactured, deployed and serviced using some fossil fuel energy.
On the French nuclear program: "The French, 90 percent of their power comes from nuclear power."
The Facts: Nuclear advocates often tout the French nuclear program as a big success story. It is true that the French get most of their electricity from nuclear power--78 percent, not the 90 percent claimed by Upton in his interview. And, it is true that the French have not experienced headline-grabbing accidents such as those that occurred at Three-Mile Island and Chernobyl. What Upton doesn't say is that French civilian nuclear power has been entirely controlled by the French government. Electricity generation in France has long been a public trust. And, even though the country's government electricity monopoly, Électricité de France, has recently floated shares to the public, the government still retains 85 percent ownership.
Part of the success of the French nuclear program can be attributed to the fact that the French government chose what it believed to be the safest reactor design available, deployed it throughout the country, and was able to apply lessons learned in operating that design to the safe and efficient operation of its entire reactor fleet. In the United States, a public-private partnership in the nuclear industry spawned many reactor designs with differing operational trajectories which meant that lessons and insights gained from one type of reactor were difficult to apply to other reactor designs. The French nuclear power industry has been operated on behalf of the citizens of France, while the American nuclear power industry has been operated on behalf of its shareholders. Theoretically, the privately owned nuclear utilities should have outperformed their government-owned equivalents. In practice, they have not.
Would that Upton's newfound love for all things French extended to another government-run success: the French system of universal health care which the World Health Organization rated as the best in the world in its last assessment of health systems. But that's another story.
The Facts: The trillion barrels number that Upton cites comes from estimates of the total resource. But for economic and technical reasons only a fraction of the total resource could ever be exploited. The U. S. Energy Information Administration (EIA) believes that the amount of liquid fuel available from oil shale in the United States is closer 400 billion barrels. What Upton doesn't know or doesn't say is that oil shale, in fact, contains no oil. It is rock impregnated with kerogen, a waxy substance that is better characterized as immature oil. If the rock had been buried sufficiently far underground, higher temperatures and pressures might have cooked it until it had become oil or natural gas.
What this means is that the "cooking" has to be done by us humans. That requires huge amounts of energy which have to come from somewhere. One of the big problems with oil shale is that it may end up taking more energy to get it out of the ground and transform it than it yields, even with new technologies. So, the question is, why not use the energy that would be used to process oil shale in our vehicles, homes and industries directly instead? We'd actually save energy by doing so as long as it takes more energy to extract and process kerogen from shale.
Finally, the statement that there is more oil in America's oil shale than under Saudi Arabia is misleading. The absolute size of the total resource may be larger, but oil from oil shale must be manufactured using unproven, energy-intensive processes. In fact, there are no commercial oil shale processing plants in operation. Saudi oil, which is some of the very highest quality in the world, is simply pumped out of the ground at the rate of 10 million barrels a day ready to be refined into the products we want. In fact, because of the difficulties related to processing oil shale, the EIA is projecting that even in the best case scenario, oil shale in the United States will yield only about 140,000 barrels of oil products a day by 2030. That represents just 0.6 percent of the total expected consumption of liquid fuels in that year of 22.8 million barrels per day for the entire United States.
Perhaps an analogy will help illustrate the problem. If you were to receive an inheritance of $1 million with the stipulation that you could only draw out $100 a week, you might be a millionaire, but you would never be able to live like one. It is doubtful that the huge inheritance of oil shale the United States contains will ever produce oil at a rate that will allow Americans to live like Saudi princes or even produce it at more than a tiny fraction of the rate that the average Saudi or American citizen currently requires.
Sunday, August 24, 2008
Optimism sells. It is one of the staples of American life. And, it makes it difficult to tell Americans bad news.
I was reminded of this on a recent trip to Canada for a week of theater performances. Two of the performances were American musicals and one of those musicals was The Music Man written in 1957. For those who haven't seen it, a professional confidence man arrives in the mythical town of River City, Iowa in 1912 with a plan to separate its citizens from their money by convincing them that they need a boys' band. The con man, going by the name of Prof. Harold Hill, says that the band will provide a wholesome alternative to the new pool table at the local billiard parlor, a pool table that is leading to the degradation of River City's youth. Hill plans to make his exit after the instruments and uniforms arrive and he collects his money.
But when the instruments arrive first, Hill has to contrive a reason for not conducting lessons for the children who will play in the band. He says he will have them use the "think method." They will just think about the melodies, and they will be able to play them.
Now we have the underlying pathology of American life. You can get something for nothing. You can learn without effort. Mere thinking, or perhaps more appropriately mere wishing, is a substitute for action or, in this case, practice.
The very odd part about The Music Man is that when the people of River City find out they've been swindled, they are convinced not to punish Hill by the only real intellectual in the town, Marian, the librarian. She suspected Hill from the beginning and then confirmed with a little research that he was a fake. So, why did she defend him? Because his optimistic salesmanship lifted people's spirits, especially that of Marian's young brother who is painfully shy, in part, because of his lisp. People came to feel better about themselves. Even Marian feels better.
This self-esteem training comes to us from 1912 via a 1950s musical. And, it ends like so much self-esteem training. Everyone feels better for a while, but no one actually becomes competent to do anything. The boys' band is a complete flop. Not surprisingly, no one can play a note.
Now, humans apparently have a peculiar evolutionary susceptibility to optimistic pronouncements. Nate Hagens wrote a piece on human motivation recently on The Oil Drum explaining that people attain a certain level of euphoria just from anticipating a reward. The chemicals which signal a reward begin to cascade through the brain before the reward even arrives.
Our fictional Harold Hill couldn't have known anything about brain chemistry, but he seemed to understand that optimism and pleasant promises sell. Of course, the Harold Hills of America have not disappeared. In the current presidential campaign, John McCain offers relief from high gasoline prices by exhorting that "we need to drill here and we need to drill now." He claims that this could lower gas prices "within a matter of months." As Harold Hill might have intoned, no one has to lift a finger. They just have to think about drilling here and drilling now, and gas prices will drop.
Many already know McCain's claims are false, and that the amount of new oil from offshore drilling, which is what McCain is talking about, would be small compared to our total consumption. The oil would arrive some 10 years from now and have a negligible affect on prices.
But so many euphoria-inducing chemicals are now flowing in the brains of America's low-information voters, that McCain's opponent, who at first resisted what he regarded as bad policy, has now agreed that some drilling offshore ought to be allowed as part of a comprehensive package of energy policy reforms. (For those unfamiliar with the term low-information voters, these are voters who barely pay attention to political campaigns and get most of their information about them from television and radio. Also, let me say here that Barack Obama's energy proposals, while better than McCain's in my view, fall woefully short of the crash programs I believe we need in energy efficiency, renewable energy and electrified transportation.)
Like River City's hapless mayor who warned the townspeople to be careful about Harold Hill, many newspapers have criticized McCain's claims including one that says his proposals amount to "an energy plan for suckers."
Despite the widespread criticism of McCain's claims about drilling, his proposal seems to have lifted him in the polls. Members of the peak oil movement take note! Gloomy Gusses have a hard time elevating dopamine levels in people. For the few who will listen, careful explanation and credible evidence will overcome those increased dopamine levels and provide appropriate perspective on these dubious claims. But when it comes to mass communication with millions who are barely paying attention, promises of relief will get the pleasure centers going even without anyone actually delivering that relief. And, if McCain gets elected, he might very well be forgiven when he can't deliver on his promise just as Harold Hill was. But, of course, McCain provided some uplift when people needed it. That will seem more important to many compared to his incompetence when it comes to energy policy.
The lesson is this: Those intent on spreading the truth about our oil predicament will need to study Harold Hill's techniques which are widely used by the likes of Daniel Yergin and other oil optimists. With brain chemistry working against you, it won't be easy to figure out how to counter them.