Green futures and the last oil shock

7 08 2007

At school my daughter is a very excited member of the Enviro Explorers who aim to treasure the environment while many of us parents drive them to school in huge gas guzzling cars. How shortsighted is that?

Incredibly it seems that despite 30 years of rising environmental awareness we still haven’t been convinced to significantly change our energy consumption behaviours.

In a video presentation on sustainability Alex Steffen makes the good point that we are currently using up enough resources to use up 5 planets worth (or more) and that the way that those resources are being used is also very unfair and extremely difficult to change.

John Doerr thinks that going green may be our “biggest economic opportunity of the 21st century” and his VC firm has invested US$200m in green-tech to try and find out. Both of these presentations are available on video at Ted.com

Despite better resources and greater need than ever – invitations by Alex Steffen and John Doerr to explore the bright green future are being downplayed while we continue to trash the planet.

What could be more important than global warming? Answer: Peak Oil

I’ve been reading The Last Oil Shock by David Strahan and it is a tough read because all of the usual arguments for technical progress (saving the day) are easily demolished. See also this piece by David on what the Stern Report got wrong.

“The Stern review on the economics of climate change completely fails to acknowledge the imminent decline in global oil production”

Despite the theory of peak oil having been around since 1956 many of us are still in extreme denial about what happens when oil prices quadruple or more. The change impacts that come from this when barrel prices are $70 now, but could easily get to $200-300/ per barrel – is so totally shocking that it is hard to think about.

Hubbert’s original peak oil theory was repeated by him using different models in 1962 and 1967 but it was not until the oil shocks of 1973 that his and others analysts warnings were taken seriously at all.

Our lifestyles and civilisation as we understand it is so closely tied to oil. Consider that for every barrel of oil we produce – we now consume 3. Or that 95% of oil reserves have been identified and largely extracted.

In very simple terms we running out of oil FAST and none of the other energy sources that have been trialled can replace the very high energy density of oil. Strahan backs up his test with research with and comes across as a thoroughly moderate and reasonable commentator on the subject.

Peak oil theory does attract some extreme views, which is not surprising for something that represents the end of a long expansionary phase in human history. However while some of the highly probable scenarios are depressing there are positive signs.

The subtitle of the book is “A Survival Guide to the Imminent Extinction of Petroleum Man.” It is an essential read for policy makers anywhere and those who care about their friends and families would do well to consider the personal implications of the action plans at the end of the book.

3 Book Reviews – (to buy your copy)

Paul Chefurka recommends the book.

“A recent Peak Oil book by David Strahan called The Last Oil Shock (which I cannot recommend highly enough) contains a pointer to an analysis that supports the worriers and discredits the economists’ optimism.”

Chefurka elaborates on the theories of Kummel and Ayres(1) who found a much better way to understand and explain the true economics of energy which is one of the more interesting parts of the book in Chapter 5 – First Principles. Paul also has another essay on his site in which he adds some thoughts on how we can understand some of this better if we compare it to the 5 stages of grieving scale (Denial, Anger, Bargaining, Depression, Acceptance) by Elizabeth Kubler-Ross which is a fairly serious kind of response.

All things considered Paul is at the pessimistic end of the spectrum and appears also somewhat overwhelmed by many of the linked problems which he details on his site if you are brave.

Graham Strouts gives the book full marks and disagrees with the continued use of nuclear power as supported by Strahan as part of the pass-notes for policy makers section. He concludes with (full review at Zone 5)

“The Last Oil Shock is another powerful voice in the peak oil debate and sets a new standard in investigative journalism for the issue”

From my reading of the book – it seems that nuclear energy is not being favoured per sae. It is more an issue of having such a wide energy deficit that extending or prolonging existing nuclear facilities in the UK may help manage the transition demand peaks. But then again Nuclear is also running out of supplies as well.

Chris Sanders has plenty to say about the book and the subject.

The idea that modern civilization is unthinkable without petroleum only arises when one contemplates life with a lot less of the stuff, which no doubt explains the urgency behind attempts to discredit the notion that world oil production might actually be a finite input to the world economy..

One of the merits of this book is that it tackles head-on the obvious linkages between current events in the Middle East, repository of the last truly great reserves of oil in the world, and the fact that the West has gone to war by invading Iraq…

War for oil is one Inconvenient Truth that Al Gore will happily avoid.

The idea that most growth is a function of ever-increasing amounts of energy being used (Kümmel and Hall) that is being more efficiently employed (Ayres) is revolutionary enough, if simple. The fact that the fraction of growth it is responsible for is many multiples of that added by capital and labour is an embarrassment for the exponents of mainstream so-called neoclassical economics. Indeed, this is one of the more exciting prospects raised by peaking world oil and gas production: to tear down the temple that Marshall, Keynes, Friedman and others have built and replace it with an approach to understanding political economy that is intellectually honest, consistent with the basic physical principles of the universe we live in, pragmatic, and accessible to all.

This may be hoping for too much, but The Last Oil Shock is a good start.

His full review including graphs is here. (About Chris Sanders)

From my reading so far the real challenge of peak oil is that our present society seems to be incredibly short sighted about any kind of economic indicators. I just read this week that purchases of cars with larger than 3l motors has increased – partially due to the strength of the NZ$ against the US and a completely misguided view of the stability of oil prices.

The global level of fuel prices also has a major impact on demand perceptions around the world. For example in the UK prices of around $US7 per gallon compare to $US3 per gallon in many parts of the U.S and $US4.70 in NZ with prices in Japan also being quite high. (Note to do these calculations convert to US gallon which is smaller than UK gallon and convert to U.S $ to get a comparison.)

Note (1) Dr David Haywood notes regarding the Ayres Paper almost as a comment in passing. The significance of the Ayres research deserves a special post of its own.

“one of the best research papers I’ve read in years. Ayres and Warr (writing in Structural Change and Economic Dynamics) explain the Solow residual using the Laws of Thermodynamics. Totally amazing stuff that should be compulsory reading for anyone interested in economics.”

The Robert Ayres paper receives a very readable analysis by Strahan in Chapter 5 of the book where I would agree with him when he commented on the Solow Residual model from 1956 “a model that failed to explain over three quarters of what it sought to explain should be junked or thoroughly reworked.”

The significance of the Ayres theory is that efficiency gains in the use of energy can actually drive economic growth and this is the most exciting economics I’ve seen almost since ever. It is sometimes known as the economic theory of growth. I want to know why did it took 30 years to get a sensible result without a nonsensical residual?

For more on the Professor Robert Ayres theory – watch David Haywood’s column at Southerly and the science section at Public Address including such deliciously useful topics as

For clues on what happens next see the Oil Depletion Protocol. This is Part 1 of a 4 part series. See these related posts in the series.