Supplemental energy puts humans in charge

Energy is a subject that is greatly misunderstood. Its role in our lives is truly amazing. We humans are able to live and move because of the energy that we get from food. We count this energy in calories.

Green plants are also energy dependent. In photosynthesis, plants use energy from the sun to convert carbon dioxide and water into the glucose that they need to grow.

Ecosystems are energy dependent as well. The ecologist Howard T. Odum in Environment, Power, and Society explains that ecosystems self-organize in a way that maximizes the useful energy obtained by the group of plants and animals.

Economies created by humans are in some respects very similar to ecosystems. They, too, self-organize and seem to be energy dependent. The big difference is that over one million years ago, pre-humans learned to control fire. As a result, they were able to burn biomass and indirectly add the energy this provided to the food energy that they otherwise had available. The energy from burning biomass was an early form of supplemental energy. How important was this change?

How Humans Gained Dominion Over Other Animals

James C. Scott, in Against the Grain, explains that being able to burn biomass was sufficient to turn around who was in charge: pre-humans or large animals. In one cave in South Africa, he indicates that a lower layer of remains found in the cave did not show any carbon deposits, and hence were created before pre-humans occupying the cave gained control of fire. In this layer, skeletons of big cats were found, along with scattered gnawed bones of pre-humans.

In a higher layer, carbon deposits were found. In this layer, pre-humans were clearly in charge. Their skeletons were much more intact, and the bones of big cats were scattered about and showed signs of gnawing. Who was in charge had changed.

There is other evidence of human domination becoming possible with the controlled use of fire. Studies show a dramatic drop in numbers of large mammals not long after settlement by humans in several areas outside Africa. (Jeremy Lent, The Patterning Instinct, based on P. S. Martin’s “Prehistoric overkill: A global model” in Quaternary Extinctions: A Prehistoric Revolution.) Continue reading

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The world’s weird self-organizing economy

Why is it so difficult to make accurate long-term economic forecasts for the world economy? There are many separate countries involved, each with a self-organizing economy made up of businesses, consumers, governments, and laws. These individual economies together create a single world economy, which again is self-organizing.

Self-organizing economies don’t work in a convenient linear pattern–in other words, in a way that makes it possible to make valid straight line predictions from the past. Instead, they work in ways that don’t match up well with standard projection techniques.

How do we forecast what lies ahead? Today, some economists believe that the economy of the United States is in danger of overheating. Others believe that Italy and the United Kingdom are facing dire problems, and that these problems could adversely affect the world economy. The world economy should be our highest concern because each country is dependent on a combination of imported and exported goods. The forecasting question becomes, “How will divergent economic results affect the world’s economy?”

I am not an economist; I am a retired actuary. I have spent years making forecasts within the insurance industry. These forecasts were financial in nature, so I have had hands-on experience with how various parts of the financial system work. I was one of the people who correctly forecast the Great Recession. I also wrote the frequently cited academic article, Oil Supply Limits and the Continuing Financial Crisis, which points out the connection between the Great Recession and oil limits.

Today’s indications seem to suggest that an even more major recession than the Great Recession may strike in the not too distant future. Why should this be the case? Am I imagining problems where none exist?

The next ten sections provide an introduction to how the world’s self-organizing economy seems to operate.

[1] The economy is one of many self-organized systems that grow. All are governed by the laws of physics. All use energy in their operation.

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Eight insights based on December 2017 energy data

BP recently published energy data through December 31, 2017, in its Statistical Review of World Energy 2018. The following are a few points we observe, looking at the data:

[1] The world is making limited progress toward moving away from fossil fuels.

The two bands that top fossil fuels that are relatively easy to see are nuclear electric power and hydroelectricity. Solar, wind, and “geothermal, biomass, and other” are small quantities at the top that are hard to distinguish.

Figure 1. World energy consumption divided between fossil fuels and non-fossil fuel energy sources, based on data from BP 2018 Statistical Review of World Energy 2018.

Wind provided 1.9% of total energy supplies in 2017; solar provided 0.7% of total energy supplies. Fossil fuels provided 85% of energy supplies in 2017. We are moving away from fossil fuels, but not quickly.

Of the 252 million tons of oil equivalent (MTOE) energy consumption added in 2017, wind added 37 MTOE and solar added 26 MTOE. Thus, wind and solar amounted to about 25% of total energy consumption added in 2017. Fossil fuels added 67% of total energy consumption added in 2017, and other categories added the remaining 8%.

[2] World per capita energy consumption is still on a plateau.

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Our Energy Problem Is a Quantity Problem

(This post consists of a short overview article I recently wrote for Transform, a magazine for Environment and Sustainability Professionals, plus six related Questions and Answers.)

Reading many of today’s energy articles, it is easy to get the impression that our energy problem is a quality problem—some energy is polluting; other energy is hoped to be less polluting.

There is a different issue that we are not being told about. It is the fact that having enough energy is terribly important, as well. Total world energy consumption has risen quickly over time.

Figure 1. World Energy Consumption by Source, based on Vaclav Smil estimates from Energy Transitions: History, Requirements and Prospects and together with BP Statistical Data for years 1965 and subsequent.

In fact, the amount of energy consumed, on average, by each person (also called “per capita”) has continued to rise, except for two flat periods.

Figure 2. World per Capita Energy Consumption with two circles relating to flat consumption. World Energy Consumption by Source, based on Vaclav Smil estimates from Energy Transitions: History, Requirements and Prospects (Appendix) together with BP Statistical Data for 1965 and subsequent, divided by population estimates by Angus Maddison.

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How the Economy Works as It Reaches Energy Limits — An Introduction for Actuaries and Others

Why have long-term interest rates generally fallen since 1981? Why have asset prices risen? Can these trends be expected to continue? The standard evaluation approach by actuaries and economists seems to be to look at past patterns and assume that they will be repeated.

The catch is that energy consumption growth plays a hugely important role in GDP growth. It also plays an important role in interest rates that businesses and governments can afford to pay. Energy consumption growth has been slowing; it is hard to see how growth in energy consumption can ramp back up materially in the future.

Slowing growth in energy consumption puts the world on track for a future like the 1930s, or even worse. It is hard to see how GDP growth, interest rates, and inflation rates can ramp up in the future. More likely, asset price bubbles will pop, leading to significant financial distress. Derivatives may be affected by rapid changes in prices and currency relativities, as asset bubbles pop.

The article that follows is a partial write-up of a long talk I gave to a group of life and annuity actuaries. (I am a casualty actuary myself, which is a slightly different specialty.) A PDF of my presentation can be found at this link: Reaching Limits of a Finite World


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