lifted off The Oil Drum – the whole series is worth the read

Tipping Point: Near-Term Systemic Implications of a Peak in Global Oil Production–Conclusion and Adaptations

Posted by Gail the Actuary on April 28, 2010 – 6:04pm in The Oil Drum: Campfire
Topic: Environment/Sustainability
Tags: david korowicz, de-growth, economic collapse, economic growth, globalised economy, tipping point paper [list all tags]

Recently, a 55 page paper called Tipping Point: Near-Term Implications of a Peak in Global Oil Production (PDF warning) was published as the joint effort of two organizations: Feasta and The Risk/Resilience Network, with lead author David Korowicz. We have recently published several excerpts from that paper, which can be found at this link. This final excerpt gives the author’s view about the future.

8. Conclusion

This report has laid out why we may be entering a near-term period of profound and abrupt change. The temptation might be to ignore it, or to carry it awhile until some august personage assures and persuades us that such concerns are quite without foundation and that the experts are indeed in control. Or we might wonder why we should stand out from our social group, initiate some actions, and risk the ridicule of those whose opinion we value. There is an abundance of psychological literature exploring the diverse ways in which we as individuals and groups maintain cohesion and keep the frightening and uncomfortable at bay [67]. Yet in acknowledging our fears and anxieties we are being true to ourselves. Fear evolved to warn us that action must be taken, and for many, action is the means by which we surmount our fears.

There is much we can do. Not to prevent or defer a collapse–rather to prepare to some degree ourselves and communities for some of its impacts. For example, despite the limitations of lock-in, planning for food insecurity is something in which everyone, from children to governments, has a role to play. Other jobs, from monetary system collapse and reserve communication systems planning are more specialised, but in which we all have an interest in understanding. And the reality is that this is the most important, meaningful, and potentially liberating work that we have ever had to do, and it must be done right now. Our current employment status is immaterial, employed or unemployed, we can begin from where we are.

Part of the preparation is in the acknowledgement of our predicament, that we recognise it when we see it. That as systems fail, we spend our efforts on positive change and adaption, rather than finding scapegoats or letting anger and loss drive the cannibalisation of our social fabric. Putting a wise step forward increases the chance that the next step will be wise; putting the foolish foot forward increases the chance that the next step will be foolish, or even initiates an evolving spiral of social breakdown. By acknowledging the potential stresses and the demons in our nature, we can begin to protect ourselves from our own worst enemy.

What does seem clear is that those who, through fear or avarice, try and insulate themselves from the impacts by disproportionate hoarding or land grabs for example, will imperil not only their community’s security and wellbeing, but their own. This will be a time when we really will need the cooperation and support of others, and where the idea of autonomous security through wealth and the market system will be revealed as a transient illusion.

What is important is wisdom and speed. Our current political and social processes have not evolved to take quick and decisive action, in developed democracies. Instead, they have evolved to manage competing interests for the spoils of growth, and the maintenance of general stability. Constructive action must be taken at the limits of the possible, and this will require individual courage and the support of those who recognise the precarious status quo.

Finally, this is a personal story. It will no doubt be a difficult time, and horrific for some. We are likely to see a major increase in mortality. But it will also be a time when many people will find a liberation in new social and personal roles; in the new friends and connections they make; in the skills and pastimes acquired; in their ability to contribute to other’s welfare; in their freedom from the subtle corrosion of positional consumption; and in the pleasures gained from contributing to the most crucial of shared endeavours.

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nights at RNZ, Bryan Crump, Ralph Sims.

Well,well. After my spleen-vent at Mora, we get a superb night with Bryan Crump – and it’s not the first time I’ve mentioned Nights here.

Well worth finding the podcast of his Ralph Sims interview tonight. Ralph is a bit optimistic for my taste, and never addresses EROEI of the exponential / growth problem, but of course he’s an academic, and sticks to his knitting.

With that in mind, it’s a good listen

Afternoons – my Panel critique

Yesterday, I pulled off to the side of the road, and bunged off a grumpy text to Jim Mora, during a Panel discussion.  This is my follow-up email. Hopefully it’s self-explanatory:

Jim – I thought your Panel discussion yesterday (particularly about the ETS) was deficient.

Firstly – and as usual – your personal bias showed through clearly – as it has ever since your denigration of Gore’s travel and living habits, a long time ago.

Secondly, your choice of Muriel Newman as the ring-in. If you’re going to choose folk like her, you have to choose equal numbers of antidote. To fail to do so, is for your programme to exhibit the bias you do. (I appreciate you have a problem there, our society is skewed a long way from addressing reality at the moment, so your pool is inevitably skewed too).

Joanne Black, for instance, once opined “I think that the problem is that we’ve got too many people – too much population”. Well, Joanne, flip-side if you please. What is too many people, if not too few resources? What other quantification ot ‘too’ is there?
Then follow it through, Joanne. If wealth (growth, GDP, ‘the economy’, call it what you will) needs to be underwritten by extraction of those resources? We’ve already established there aren’t enough, but wait, there’s more.
If banks charge interest on every go-round (the initial loan comes back when spent and is essentially neutral, unless linked to pounds-of-flesh/resources) then every go-round has to be bigger, to repay the interest.
Exponentially.
Clearly that had to hit the wall in a finite system.
Clearly, the Achilles heel was goint to be the PEAK RATE OF SUPPLY OF ENERGY. (not, note, the end of supply, but the point at which exponentially-increasing demand cound no longer be matched).
Meaning that, on average, all ‘investment’ from here on in, has to return a declining average.
Yes, you can like energy straight-line to wealth. (I have a graph from 1975, when I firsh started thinking of such things).
Meaning the end of the fiscal system you did up your house under, Joanne. Did you take out a mortgage for it I wonder? Without investigating whether there was energy-supply time to repay it?

Newman is a paid tout for that process which concentrates an ever-greater percentage of the (finite, remember) available and potential ‘wealth’, in fewer and fewer hands. Given the point we are now at re limits, it was entirely predictable that we would see this lobby carving into ‘the commons’ (DoC mining, grazing, ECAN water, aquaculture space and energy (all food-chains are an energy transfer – if a cheetah expends more chasing a rabbit that the rabbit contains, the cheetah dies) , the move to limit/own public service, etc etc.
Their presence is actually an indication that the limits to growth are here, or approaching.
(also entirely predictable – the carve-up is into a finite-and-dwindling stock, so cannot sate an exponential demand).

When a lobbyist repeats ‘serious’, you ought to get her to defend her comments. It’s a failure from the Chair, to reinforce them.

Your failure to introduce her as what she is, is mirrored by Kathryn Ryan. She consistently uses Matthew Hooten as a yin/yang panellist. He is actually a Newman-like tout, and for the mining industry at that. Worse, Brownlee junior works for him! (Talk about looking to a post-Parliamentary future). She doesn’t announce him for what he is. She’s been told too……

I sum it all up as ‘Ponsonby denial’, entirely legitimate individually (we can all hold opinions, falsely-based or not, as individuals) but not for the media.
You lot are charged with examining and exposing truths.
No more, no less.

You all aspire to mansions and easy living, all consume, and all seem comfortable in borrowing (and it ain’t from the past that we borrow, is it?) from the future, to do so. And baulk at addressing the ramifications head-on.

That’s an insult to your kids, those of your peers, and mine.

Denial (and examining obesity/smoking/RWC/investment/anything micro, without the overarch is denial, or at the very least obfuscation/skew) would only be a legitimate approach from the media, if there were no hope – a meteor arriving tomorrow, for instance.
In this case, there is a legitimate approach, although we are probably fatally late in activating it.

Hackneyed spin/skew aside, it is called ‘Sustainability’. Some of us are a long way down the track, should you lot ever let the debate happen. (google: ODT Murray Grimwood Jennie Upton).

There is a historical prescedent to this media-dropping-the-ball thing: Douglas Reed’s ‘Insanity Fair (Jonathan Cape, 1938). It has a lot of lessons – worth every scribe reading twice.

It sums up in a comment you once emailed me. “You can’t know that”.
Only, Jim, if people in your position don’t tell me.
And people like me expect you to tell us the truth – even if it’s inconvenient.

Murray Grimwood
(alias Powerdownkiwi).

ps:    when IQ’s were in vogue, mine ran 142. It’ isn’t that, but it’s adequate. I can ‘know that’, and I’ve spent more than three decades learning ‘that’.

rudd – sod the aussies

well, it was inevitable in the ‘lucky country’.  Coal-fired, sunburnt, selfish and consumerist.

Sod them. Sod him.

Interesting about NZ, though. Have they done some surveys?

phil heatley aquaculture and the energy comes from?

Aquaculture is just tapping in to the food chain at an earlier level than tuna.

All food-chains are empirical energy chains – Billions of plankton, millions of baitfish, hundreds of tuna.

The thing is finite, due to source. The question then, is what will suffer from our intruding at a lower level, and extracting food energy at that point.

Perhaps we have removed so much up the chain, that there is a bottlenext, and excess.

Perhaps.

But I bet we haven’t thought of it.

At all.

good to see another Prof sticking his neck out….

http://www.stoneycreeknews.com/opinions/article/208351

lifted from the oil drum

Excerpts from “Energy, Growth, and Sustainability: Five Propositions” by Steve Sorrel

Posted by Gail the Actuary on April 19, 2010 – 10:18am
Topic: Economics/Finance
Tags: energy, growth, steve sorrell, sustainability [list all tags]

Steve Sorrel, Senior Fellow, Sussex Energy Group, University of Sussex in the UK has recently published a 25 page paper called Energy, Growth and Sustainability which can be downloaded at this link. This post provides some excerpts from the paper, which summarize its findings. Readers are encouraged to read the entire paper.

According to the introduction to the paper:

This paper questions the conventional wisdom underlying climate policy and argues that some long-standing and fundamental questions regarding energy, growth, and sustainability need to be reopened. It does so by advancing the following propositions:

1. The rebound effects from energy efficiency improvements are significant and limit the potential for decoupling energy consumption from economic growth.

2. The contribution of energy to productivity improvements and economic growth has been greatly underestimated.

3. The pursuit of improved efficiency needs to be complemented by an ethic of ‘sufficiency’.

4. Sustainability is incompatible with continued economic growth in rich countries.

5. A zero-growth economy is incompatible with a debt-based monetary system.

These propositions run counter to conventional wisdom and highlight either blind spots or taboo subjects that deserve closer scrutiny. While accepting one proposition reinforces the case for accepting the next, the former is neither necessary nor sufficient for the latter.

1. Rebound effects are significant and limit the potential for decoupling energy consumption from economic growth

This is basically Jevons’ paradox, which has been discussed quite a few times on The Oil Drum. As technology increases the efficiency with which a resource is used, use of the resource tends not to decline as predicted. Instead, there tends to be a rebound effect, and the amount of the resource used may even increase instead. The section concludes:

In sum, rebound effects will make energy efficiency improvements less effective in reducing overall energy consumption than is commonly assumed. This could limit the potential for decoupling, although by precisely how much remains unclear. In principle, increases in energy prices should reduce the magnitude of such effects by offsetting the cost reductions from improved energy efficiency. This leads to the policy recommendation of raising energy prices through either carbon taxation or emissions trading schemes. Price increases will induce substitution and technical change , but their impact on total factor productivity and economic growth remains disputed (Jorgensen, 1984; Sorrell and Dimitropoulos, 2007c). This leads to the second proposition, discussed below.

2. The contribution of energy to productivity improvements and economic growth has been greatly underestimated

Many of the arguments in favour of Jevons Paradox focus on the source of productivity improvements and the relationship between energy consumption and economic growth. Orthodox and ecological economics provide very different perspectives on this question with correspondingly different conclusions on the potential for decoupling.

Orthodox economic models imply that the economy is a closed system within which goods are produced by capital and labour and exchanged between consumers and firms. While such models can be extended to include natural resources, ecosystem services and wastes, these remain secondary concerns at best. Economic growth is assumed to derive from a combination of increased capital and labour inputs, changes in the quality of those inputs (e.g. better educated workers) and technical change (Barro and Sala-I-Martin, 1995; Jones, 2001). Both increases in energy inputs and improvements in energy productivity are assumed to make only a minor contribution to economic growth, largely because energy accounts for only a small share (typically <5%) of total input costs. It is also assumed that capital and labour will substitute for energy should it become more expensive. From this perspective, improvements in energy efficiency are unlikely to have a significant impact on overall productivity, so the corresponding rebound effects should be relatively small. Hence, there seems to be no reason why energy consumption could not be substantially decoupled from economic growth.

Ecological economists consider that the orthodox models ignore how economic activity is sustained by flows of high quality energy and materials which are then returned to the environment in the form of waste and low temperature heat. The system is driven by solar energy, both directly and embodied in fossil fuels, and since energy cannot be produced or recycled it forms the primary input into economic production. In contrast, labour and capital represent intermediate inputs since they cannot be produced or maintained without energy. So far from being a secondary concern, energy becomes the main focus of attention.

Ecological economists claim that the massive improvements in labour productivity over the last century have largely been achieved by providing workers with increasing quantities of high quality energy, both directly and indirectly as embodied in capital equipment and technology . . .

Ecological economists also claim that the indirect energy consumption associated with capital and labour (e.g. the energy required to manufacture thermal insulation) limits the extent to which they can substitute for energy in economic production (Stern, 1997). The energy embodied in capital goods is commonly overlooked by studies that estimate energy-saving potentials at the level of individual sectors and then aggregate the results to economy as a whole. Furthermore, many energy-economic models assume a greater potential for substitution that is allowed for by physical laws (Daly, 1997). Hence, from an ecological perspective, the potential for decoupling energy consumption from economic growth appears more limited (Table 1).

The paper provides considerable discussion and gives empirical support for the ecological perspective. This section concludes:

In sum, orthodox analysis implies that rebound effects are small, improvements in energy productivity make a relatively small contribution to economic growth and decoupling is both feasible and cheap. In contrast, the ecological perspective suggests that rebound effects are large, improvements in energy productivity make an important contribution to economic growth and decoupling is both difficult and expensive. While the empirical evidence remains equivocal, the ecological perspective highlights some important blind spots within orthodox theory that are reflected in the design of economic models used to underpin climate policy. If this perspective is correct, both the potential for and continued reliance upon decoupling needs to be questioned.

3. The pursuit of improved efficiency needs to be complemented by an ethic of sufficiency

The key idea here is sufficiency, defined by Princen (2005) as a social organising principle that builds upon established notions such as restraint and moderation to provide rules for guiding collective behaviour. The primary objective is to respect ecological constraints, although most authors also emphasise the social and psychological benefits to be obtained from consuming less.

While Princen (2005) cites examples of sufficiency being put into practice by communities and organisations, most authors focus on the implications for individuals. They argue that ‘downshifting’ can both lower environmental impacts and improve quality of life, notably by reducing stress and allowing more leisure time. This argument is supported by an increasing number of studies which show that reported levels of happiness are not increasing in line with income in developed countries (Blanchflower and Oswald, 2004; Easterlin, 2001). As Binswanger (2006) observes:

“…the economies of developed countries turn into big treadmills where people try to walk faster and faster in order to reach a higher level of happiness but in fact never get beyond their current position. On average, happiness always stays the same, no matter how fast people are walking on the treadmills”.

It is possible that an ethic of sufficiency could provide a means of escaping from such treadmills while at the same time contributing to environmental sustainability.

The section concludes:

A successful ‘sufficiency strategy’ will reduce the demand for energy and other resources, thereby lowering prices and encouraging increased demand by others which will partly offset the energy and resource savings. While this ‘sufficiency rebound’ could improve equity in the consumption of resources, it will nevertheless reduce the environmental benefits of the sufficiency measures. But since the global ‘ecological footprint’ already exceeds sustainable levels in many areas the global consumption of resources needs to shrink in absolute terms (Rockström, et al., 2009). To achieve this and to effectively address problems such as climate change, will require collective agreement on ambitious, binding and progressively more stringent targets at both the national and international level.

4. Sustainability is incompatible with continued economic growth in rich countries

The preceding arguments highlight a conflict between reducing energy consumption in absolute terms whiles the same continuing to grow the economy. Recognising the importance of rebound effects and the role of energy in driving economic growth therefore re-opens the debate about limits to growth. This debate is long-standing and multifaceted, but a key point is that the goal of economic development should not be to maximise GDP but to improve human well-being and quality of life . . .

Table 2 compares this emerging ‘green’ perspective on economic development with the orthodox model. . .

Over the long term, continued economic growth can only be reconciled with environmental sustainability if implausibly large improvements in energy efficiency can be achieved. This point is easy to demonstrate with the I=P*A*T equation, which represents total environmental impact (I) as the product of population (P), affluence or income level (A) and technological performance or efficiency (T) (Ehrlich and Holdren, 1971). In the case of climate change, I could represent total carbon emissions, A GDP per capita and T carbon emissions per unit of GDP (itself a product of energy consumption per unit of GDP and carbon emissions per unit of energy consumption). The decoupling strategy seeks reductions in T that will more than offset the increases in P and A, thereby lowering I. . .

The required changes look even more challenging when rebound effects are considered. The I=P*A*T equation implies that the right-hand side variables are independent of one another – or at least if any dependence is sufficiently small that it can be neglected. But in practice the variables are endogenous. So while a reduction in the economy-wide emission intensity (T) may have a direct effect in lowering emissions (I), it will also encourage economic growth (A), which in turn will increase emissions. Over the long term and up to a certain level of income, rising affluence (A) encourages higher population levels (P), which will further increase emissions (I). Hence, a change in T will trigger a complex set of adjustments and the final change in emissions is likely to be lower than the IPAT identity suggests. This in turn, implies that greater changes in T will be required to achieve a particular reduction in I.

Hence, in an increasingly ‘full’ world, the goal of continued economic growth in the rich countries deserves to be questioned.

I have omitted several paragraphs of this discussion, taking about how reductions in emission would have to be vastly larger than assumed in the Stern report, to get both economic growth and 350 ppm of CO2. A direct calculation of the needed reduction in emissions would be 6.9% per year, but with the impact of Jevons’ paradox, the necessary reduction in CO2 emissions would need to be much larger that 6.9% per year. This is far outside the range of anything anyone has considered.

5. A zero-growth economy is incompatible with a debt-based monetary system

An excerpt:

A purely private enterprise system can only function if companies can obtain sufficient profits which in turn requires that the selling price of goods exceeds the costs of production. This means that the selling price must exceed the spending power that has been ‘cast into circulation’ by the production process. Hence, to ensure sufficient ‘aggregate demand’ to clear the market, additional spending power is required from some other source. In a purely private enterprise system, this normally derives from investment in new productive capacity which will increase the amount or quality of goods supplied, but only after some interval. Investment therefore serves the dual role of increasing productive capacity and creating additional demand to clear the market of whatever has already been produced (Hixson, 1991). Importantly, the investment cannot be financed from savings since the resulting increase in aggregate demand would be offset by a corresponding decrease in consumption spending.

Aggregate demand is commonly expressed as the product of the amount of money in circulation and the speed with which that money circulates through the economy. Hence increases in aggregate demand require increases in the money supply or the speed of circulation or both. Increases in the money supply, in turn, lead to increases in aggregate output, the average price of goods and services or both.

The key issue is how the increase in the money supply is brought about. Governments could (and should) create the new money interest-free and spend it in to circulation in much the same way as coins and notes are created. But instead, the bulk of the money supply is created by commercial banks who print credit entries into the bank accounts of their customers in the form of interest-bearing loans. This system of ‘fractional reserve banking’ has its origins in the essentially fraudulent practices of the early goldsmiths who made ‘loans’ of a far greater quantity of gold that they actually held in their vaults. This gave them substantial profits and allowed them to increase their claims on wealth (in the form of collateral), but also served the essential function of increasing purchasing power in a growing economy. This practice gradually evolved into modern banking, with central banks imposing minimum reserve requirements and acting as a lender-of-last-resort.

A crucial consequence of this system is that most of the money in circulation only exists because either businesses or individuals have gone into debt and are paying interest on their loans. While individual loans may be repaid, the debt in aggregate can never be repaid because this would remove virtually all the money from circulation. The health of the economy is therefore entirely dependent upon the continued willingness of businesses and consumers to take out loans for either investment or consumption. Any reduction in borrowing therefore threatens to tip economies into recession.

Individual loans need to be repaid with interest, but the money required to pay this interest was not created with the original loan. While banks will recycle a large part of the interest payments in the form of wages, dividends, and investments, a portion will be retained as bank capital to underpin further loans (Binswanger, 2009). Hence, the only way that individual borrowers can pay the interest on their loans, without at the same time reducing the money supply, is if they, or other borrowers, borrow at least as much as is being removed (Douthwaite, 2000). As a result, the amount of money in circulation needs to rise each year which means that the value of goods and services bought and sold must also rise, either through inflation or higher consumption (Douthwaite, 2000). In other words, both debt and GDP must grow – with the former growing faster than the latter.

Slow or negative growth will leave firms with lower profits and unused capacity, discouraging them from investing. Less investment will means fewer loans being taken out and thus less money entering into circulation to replace that being removed through interest payments. And less money in circulation will mean that there is less available for consumers to spend, which will exacerbate the economic slowdown and cause more bankruptcies and unemployment. By such processes, the monetary system creates a structural requirement for continued growth and increased consumption.

Summary

This paper has advanced five linked and controversial propositions regarding energy consumption, economic growth and sustainability. These run counter to conventional wisdom and highlight either blind spots or taboo subjects within orthodox theory. Each raises numerous theoretical and empirical questions that deserve both detailed and critical investigation. This will take time, but that commodity is becoming increasingly scarce.

A sustainable economy needs to have much higher levels of energy and resource efficiency than exist today and policies to encourage this have a crucial role to play. But for the reasons outlined above, this is unlikely to be sufficient to meet growing environmental constraints. Instead of encouraging further growth and greater consumption, the benefits of improved efficiency need to be increasingly channelled into low carbon energy supply and improved quality of life. Quite how this can be achieved remains far from clear since a credible ‘ecological macroeconomics’ has yet to be developed. Most importantly, a crucial element of that macroeconomics – namely monetary reform – remains almost entirely overlooked. It is hoped that this paper will at least stimulate some thinking in that direction.