From ENERGY BULLETIN
So get down to the nitty gritty and this is what it has all been about. Converting oil or coal into shoes, hamburgers, cellphones and SUVs. However, a reckoning is coming.
It’s not the end of the world, just the end of consumerism. We are about to wave goodbye to the dream of endless economic growth – always, every year, more stuff. However, we have enough already. We really do.
Dr Susan Krumdieck, an engineering professor at the University of Canterbury, addresses her audience with a smile. The message is radical, but she believes it will be good news once we have had time to get used to it.
A change is about to be forced on society because energy consumption pretty much is the economy. And we are about to run short of the cheap energy which has been driving the past century of unchecked economic expansion.
There is this myth going round, says Krumdieck, that with every decade we have grown wealthier because we have collectively become smarter and more productive. If everything is bigger, better, brighter, well, it has been earned.
Yet actually we have just been digging up and burning more fossil fuel. Graph the world’s energy consumption against its gross domestic product (GDP) and the two lines track. So get down to the nitty gritty and this is what it has all been about. Converting oil or coal into shoes, hamburgers, cellphones and SUVs.
However, a reckoning is coming. The ecological limits on growth have come into view. Climate change and over- population. But peak oil most immediately.
Over the past year, this has even become semi-official. Towns like Dunedin and Timaru have just voted in their first “peak oiler” councillors. Parliament’s research department recently released a rather unwelcome document, The next oil shock?. A group of Kiwi scientists has set up Phase2.org – a think tank for the second, post-fossil fuel phase of the human story – and issued their manifesto for “strong sustainability”.
Everywhere the meetings have been gathering pace. A cross-party conference of MPs met to talk about the threat to the economy. And now there is this e-conference, Signs of Change, organised by Krumdieck. People seem ready to face some hard truths.
Of course, it could be just the doomsters talking. Anyone who can remember the last oil crisis of 1979 – President Jimmy Carter warning of national catastrophe in the United States, car-less days in New Zealand – will also remember how swiftly the world moved on again.
The Club of Rome’s The Limits to Growth, a study based on an alarming set of computer predictions, was briefly a fashionable read; it fell out of fashion, along with flared pants.
But biophysical constraints to growth are back on the agenda, says Krumdieck. And once people get over the initial shock, once they have adjusted to the idea of a future of having to live within our ecological means, they will see how it will all work out in the end, she adds, offering another hopefully reassuring smile.
In truth, several factors underpin economic growth.
The availability of capital is one – a free flow of credit to build factories and launch businesses. Population is another. More people means more production. And technology. That goes without saying. We would like to think human inventiveness is the biggest single reason for continually rising living standards.
However, “biophysical economists” like Charles Hall, a professor at State University of New York, argue that the modern era is predominantly the story of how we have turned the energy so conveniently locked up in buried fossil fuels into an ever-expanding array of consumer goods and services.
It even accounts for empires. Great Britain arose because it had the ready supply of coal to turn iron into ships and cannons. The US became a world power because it had the sweet light oil fields of Pennsylvania and Texas.
Hall says it is obvious energy is needed to make things. Or even grow them. When the tractors, fertilisers and all the other energy inputs are totted up, it takes about four litres of oil to put the food on our plates each day.
But Hall says what really matters is the gap between the price we pay for energy and how much value we can then extract from it – the energy returned on the energy invested (EROEI). This is the profit margin which makes the difference between us feeling rich or poor as nations.
For a century, oil and coal have seemed so cheap that economically they have barely been a talking point. It has only cost about a barrel of oil for every 20 barrels extracted. So petroleum has been inexpensive to deliver. The EROEI story for coal-mining has been very similar. Then, because economic activity is energy consumption by another name, this has created plenty of head- room in the economy as a whole.
Hall’s analyses show that in the 1990s and into the 2000s, the energy bill to run the US was less than 10 per cent of its GDP. Which, after all the necessary costs of life, like infrastructure, health and education, were taken into account, still left a quarter of the entire economy for discretionary spending – the enjoyment of wealth.
But, he asks, what if the price of oil were to double – as it did in the 2008 spike that preceded, and may have even provoked, the financial meltdown? Or quadruple as it did in the 1970s, and some are suggesting might happen again if oil supplies become constrained?
Hall says energy could suddenly become 20 per cent of society’s running costs, or even more than a third. And the cuts to balance the books would have to come off the discretionary spending. So that sense of easy wealth would fast be wiped out. A quarter could shrink to next to nothing fairly rapidly.
These are back of an envelope calculations perhaps, admits Hall. But broadly it can be seen we rely on a world where our energy sources are not just plentiful but also dirt cheap. A profit margin has to be built in to rig the national GDP game. And when that era ends, we had better have a plan B ready, Hall says.
The focus is on petroleum because oil and natural gas are still overwhelmingly the prime fuel sources for the world.
According to the annual BP statistical review of world energy, oil makes up 35 per cent of the global energy budget, while natural gas is another 24 per cent. Coal is then 29 per cent, while nuclear is just 5 per cent and renewables, like hydro and wind, answer for the remaining 7 per cent.
And while New Zealand often pats itself on the back for being a hydro nation, dams meeting 31 per cent of our needs, we are in fact even more reliant on oil than average. A long skinny country, connected by a lot of roads and a lot of trucks, oil is nearly 40 per cent of what we use.
The peak oil argument is that the Earth’s supply of petroleum is limited and we have burnt through a trillion barrels of crude oil now. Our appetite has been exponential – each year always more. We have also quite naturally been pumping the cheap and easy-to-get-at oil first, the large reservoirs found in places like Alaska and the Middle East.
So eventually, we will be left with only a diminishing supply of the dirty and hard-to-recover oil. The deep sea wells that blew up in the Gulf of Mexico, the tar sands that will have to be open-cast mined in Canada, the scattering of smaller fields that might remain spotted around the world.
Which is when Hall’s EROEI and the law of diminishing returns kicks in. Steadily the cost of producing oil will rise and its in- built profit margin will begin to shrivel.
Top 10 oil producing countries. Amounts are barrels per day.
* 1 Russia 9,932,000
* 2 Saudi Arabia 9,764,000
* 3 United States 9,056,000
* 4 Iran 4,172,000
* 5 China 3,991,000
* 6 Canada 3,289,000
* 7 Mexico 3,289,000
* 8 United Arab Emirates 2,798,000
* 9 Brazil 2,572,000
* 10 Kuwait 2,494,000
* 58 New Zealand 61,150
* Source: Central Intelligence Agency factbook