2023: Expect a financial crash followed by major energy-related changes

Why is the economy headed for a financial crash? It appears to me that the world economy hit Limits to Growth about 2018 because of a combination of diminishing returns in resource extraction together with rising population. The Covid-19 pandemic and the accompanying financial manipulations hid these problems for a few years, but now, as the world economy tries to reopen, the problems are back with a vengeance.

Figure 1. World primary energy consumption per capita based on BP’s 2022 Statistical Review of World Energy. Same chart shown in post, Today’s Energy Crisis Is Very Different from the Energy Crisis of 2005.

In the period between 1981 and 2022, the economy was lubricated by a combination of ever-rising debt, falling interest rates, and the growing use of Quantitative Easing. These financial manipulations helped to hide the rising cost of fossil fuel extraction after 1970. Even more money supply was added in 2020. Now central bankers are trying to squeeze the excesses out of the system using a combination of higher interest rates and Quantitative Tightening.

After central bankers brought about recessions in the past, the world economy was able to recover by adding more energy supply. However, this time we are dealing with a situation of true depletion; there is no good way to recover by adding more energy supplies to the system. Instead, the only way the world economy can recover, at least partially, is by squeezing some non-essential energy uses out of the system. Hopefully, this can be done in such a way that a substantial part of the world economy can continue to operate in a manner close to that in the past.

One approach to making the economy more efficient in its energy use is by greater regionalization. If countries can start trading almost entirely with nearby neighbors, this will reduce the world’s energy consumption. In parts of the world with plentiful resources and manufacturing capability, the economy can perhaps continue without major changes. Another way of squeezing out excesses might be through the elimination (at least in part) of the trade advantage the US obtains by using the dollar as the world’s reserve currency. In this post, I will also mention a few other ways that non-essential energy consumption might be reduced.

I believe that a financial crash is likely sometime during 2023. After the crash, the system will start squeezing down on the less necessary parts of the economy. While these changes will start in 2023, they will likely take place over a period of years. In this post, I will try to explain what I see happening.

[1] The world economy, in its currently highly leveraged state, cannot withstand both higher interest rates and Quantitative Tightening.

With higher interest rates, the value of bonds falls. With bonds “worth less,” the financial statements of pension plans, insurance companies, banks and others holding those bonds all look worse. More contributions are suddenly needed to fund pension funds. Governments may find themselves needing to bail out many of these organizations.

At the same time, individual borrowers find that debt becomes more expensive to finance. Thus, it becomes more expensive to buy a home, vehicle, or farm. Debt to speculate in the stock market becomes more expensive. With higher debt costs, there is a tendency for asset prices, such as home prices and stock prices, to fall. With this combination (lower asset prices and higher interest rates) debt defaults are likely to become more common.

Quantitative Tightening makes it harder to obtain liquidity to buy goods internationally. This change is more subtle, but it also works in the direction of causing disruptions to financial markets.

Other stresses to the financial system can be expected, as well, in the near term. For example, Biden’s program that allows students to delay payments on their student loans will be ending in the next few months, adding more stress to the system. China has had huge problems with loans to property developers, and these may continue or get worse. Many of the poor countries around the world are asking the IMF to provide debt relief because they cannot afford energy supplies and other materials at today’s prices. Europe is concerned about possible high energy prices.

This is all happening at a time when total debt levels are even higher than they were in 2008. In addition to “regular” debt, the economic system includes trillions of dollars of derivative promises. Based on these considerations alone, a much worse crash than occurred in 2008 seems possible.

[2] The world as a whole is already headed into a major recession. This situation seems likely to get worse in 2023.

The Global Purchasing Managers Index (PMI) has been signaling problems for months. A few bullet points from their site include the following:

  • Service sector output declined in October, registering the worst monthly performance since mid-2020.
  • Manufacturing output meanwhile fell for a third consecutive month, also declining at the steepest rate since June 2020.
  • PMI subindices showed new business contracting at the quickest rate since June 2020, with the weak demand environment continuing to be underpinned by declining worldwide trade.
  • The global manufacturing PMI’s new export orders index has now signaled a reduction in worldwide goods exports for eight straight months.
  • Price inflationary pressures remained solid in October, despite rates of increase in input costs and output charges easing to 19-month lows.

The economic situation in the US doesn’t look as bad as it does for the world as a whole, perhaps because the US dollar has been at a relatively high level. However, a situation with the US doing well and other countries doing poorly is unsustainable. If nothing else, the US needs to be able to buy raw materials and to sell finished goods and services to these other countries. Thus, recession can be expected to spread.

[3] The underlying issue that the world is starting to experience is overshoot and collapse, related to a combination of rising population and diminishing returns with respect to resource extraction.

In a recent post, I explained that the world seems to be reaching the limits of fossil fuel extraction. So-called renewables are not doing much to supplement fossil fuels. As a result, energy consumption per capita seems to have hit a peak in 2018 (Figure 1) and now cannot keep up with population growth without prices that rise to the point of becoming unaffordable for consumers.

The economy, like the human body, is a self-organizing system powered by energy. In physics terminology, both are dissipative structures. We humans can get along for a while with less food (our source of energy), but we will lose weight. Without enough food, we are more likely to catch illnesses. We might even die, if the lack of food is severe enough.

The world economy can perhaps get along with less energy for a while, but it will behave strangely. It needs to cut back, in a way that might be thought of as being analogous to a human losing weight, on a permanent basis. On Figure 1 (above), we can see evidence of two temporary cutbacks. One was in 2009, reflecting the impact of the Great Financial Crisis of 2008-2009. Another related to the changes associated with Covid-19 in 2020.

If energy supply is really reaching extraction limits, and this is causing the recent inflation, there needs to be a permanent way of cutting back energy consumption, relative to the output of the economy. I expect that changes in this direction will start happening about the time of the upcoming financial crash.

[4] A major financial crash in 2023 may adversely affect many people’s ability to buy goods and services.

A financial discontinuity, including major defaults that spread from country to country, is certain to adversely affect banks, insurance companies and pension plans. If problems are widespread, governments may not be able to bail out all these institutions. This, by itself, may make the purchasing of goods and services more difficult. Citizens may find that the funds they thought were in the bank are subject to daily withdrawal limits, or they may find that the value of shares of stock they owned is much lower. As a result of such changes, they will not have the funds to buy the goods they want, even if the goods are available in shops.

Alternatively, citizens may find that their local governments have issued so much money (to try to bail out all these institutions) that there is hyperinflation. In such a case, there may be plenty of money available, but very few goods to buy. As a result, it still may be very difficult to buy the goods a family needs.

[5] Many people believe that oil prices will rise in response to falling production. If the real issue is that the world is reaching extraction limits, the problem may be inadequate demand and falling prices instead.

If people have less to spend following the financial crash, based on the reasoning in Section [4], this could lead to lower demand, and thus lower prices.

It also might be noted that both the 2009 and 2020 dips in consumption (on Figure 1) corresponded to times of low oil prices, not high. Oil companies cut back on production if they find that prices are too low for them to expect to make a profit on new production.

We also know that a major problem as limits are reached is wage disparity. The wealthy use more energy products than poor people, but not in proportion to their higher wealth. The wealthy tend to buy more services, such as health care and education, which are not as energy intensive.

If the poor get too poor, they find that they must cut back on things like meat consumption, housing expenses, and transportation expenses. All these things are energy intensive. If very many poor people cut back on products that indirectly require energy consumption, the prices for oil and other energy products are likely to fall, perhaps below the level required by producers for profitability.

[6] If I am right about low energy prices, especially after a financial discontinuity, we can expect oil, coal, and natural gas production to fall in 2023.

Producers tend to produce less oil, coal and natural gas if prices are too low.

Also, government leaders know that high energy prices (especially oil prices) lead to high food prices and high inflation. If they want to be re-elected, they will do everything in their power to keep energy prices down.

[7] Without enough energy to go around, more conflict can be expected.

Additional conflict can be expected to come in many forms. It can look like local demonstrations by citizens who are unhappy about their wages or other conditions. If wage disparity is a problem, it will be the low-wage workers who will be demonstrating. I understand that demonstrations in Europe have recently been a problem.

Conflict can also take the form of wide differences among political parties, and even within political parties. The difficulty that the US recently encountered electing a Speaker of the House of Representatives is an example of such conflict. Political parties may splinter, making it difficult to form a government and get any business accomplished.

Conflict may also take the form of conflict among countries, such as the conflict between Russia and Ukraine. I expect most wars today will be undeclared wars. With less energy to go around, the emphasis will be on approaches that require less energy. Deception will become important. Destruction of another country’s energy infrastructure, such as pipelines or electricity transmission, may be part of the plan. Another form of deception may involve the use of bioweapons and supposed cures for these bioweapons.

[8] After the discontinuity, the world economy is likely to become more disconnected and more regionally aligned. Russia and China will tend to be aligned. The US seems likely to be another center of influence.

A major use of oil is transporting goods and people around the globe. If there is not enough oil to go around, one way of saving oil is to transport goods over shorter distances. People can talk by telephone or video conferences to save on oil used in long distance transportation. Thus, increased regionalization seems likely to take place.

In fact, the pattern is already beginning. Russia and China have recently been forging long-term alliances centered on providing natural gas supplies to China and on strengthening military ties. Being geographically adjacent is clearly helpful. Furthermore, major US oil companies are now focusing more on developments in the Americas, rather than on big international projects, according to the Wall Street Journal.

Countries that are geographically close to Russia-China may choose to align with them, especially if they have resources or finished products (such as televisions or cars) to sell. Likewise, countries near the US with suitable products to sell may align with the United States.

Countries that are too distant, or that don’t have resources or finished products to sell (goods, rather than services), may largely be left out. For example, European countries that specialize in financial services and tourism may have difficulty finding trading partners. Their economies may shrink more rapidly than those of other countries.

[9] In a regionally aligned world, the US dollar is likely to lose its status as the world’s reserve currency.

With increased regionalization, I would expect that the US dollar’s role as the world’s reserve currency would tend to disappear, perhaps starting as soon as 2023. For example, transactions between Russia and China may begin to take place directly in yuan, without reference to a price in US dollars, and without the need for US funds to allow such transactions to take place.

Transactions within the Americas seem likely to continue taking place using US dollars, especially when they involve the buying and selling of energy-related products.

With the US dollar as the reserve currency, the US has been able to import far more than it exports, year after year. Based on World Bank data, in 2021 the US imported $2.85 trillion of goods (including fossil fuels, but excluding services) and exported $1.76 trillion of goods, leading to a goods-only excess of imports over exports of $1.09 trillion. When exports of services are included, the excess of imports over exports shrinks to “only” $845 billion. It is hard to see how this large a gap can continue. Such a significant difference between imports and exports would tend to shrink if the US were to lose its reserve currency status.

[10] In a disconnected world, manufacturing of all kinds will fall, especially outside of Southeast Asia (including China and India), where a major share of today’s manufacturing is performed.

A huge share of today’s manufacturing capability is now in China and India. If these countries have access to oil from the Middle East and Russia, I expect they will continue to produce goods and services. If there are not enough of these goods to go around, I would expect that they would primarily be exported to other countries within their own geographic region.

The Americas and Europe will be at a disadvantage because they have fewer manufactured goods to sell. (The US, of course, has a significant quantity of food to export.) Starting in the 1980s, the US and Europe moved a large share of their manufacturing to Southeast Asia. Now, when these countries talk about ramping up clean energy production, they find that they are largely without the resources and the processing needed for such clean energy projects.

Figure 2: New York Times chart based on International Energy Agency data. February 22, 2022.

In fact, ramping up “regular” manufacturing production of any type in the US, (for example, local manufacturing of generic pharmaceutical drugs, or manufacturing of steel pipe used in the drilling of oil wells) would not be easy. Most of today’s manufacturing capability is elsewhere. Even if the materials could easily be gathered into one place in the US, it would take time to get factories up and running and to train workers. If some necessary items are lacking, such as particular raw materials or semiconductor chips, transitioning to US manufacturing capability might prove to be impossible in practice.

[11] After a financial discontinuity, “empty shelves” are likely to become increasingly prevalent.

We can expect that the total quantity of goods and services produced worldwide will begin to fall for several reasons. First, regionalized economies cannot access as diverse a set of raw materials as a world economy. This, by itself, will limit the types of goods that an economy can produce. Second, if the total quantity of raw materials used in making the inputs declines over time, the total amount of finished goods and services can be expected to fall. Finally, as mentioned in Section [4], financial problems may cut back on buyers’ ability to purchase goods and services, limiting the number of buyers available for finished products, and thus holding down sales prices.

A major reason empty shelves become can be expected to become more prevalent is because more distant countries will tend to get cut out of the distribution of goods. This is especially the case as the total quantity of goods and services produced falls. A huge share of the manufacturing of goods is now done in China, India, and other countries in Southeast Asia.

If the world economy shifts toward mostly local trade, the US and Europe are likely to find it harder to find new computers and new cell phones since these tend to be manufactured in Southeast Asia. Other goods made in Southeast Asia include furniture and appliances. These, too, may be harder to find. Even replacement car parts may be difficult to find, especially if a car was manufactured in Southeast Asia.

[12] There seem to be many other ways the self-organizing economy could shrink back to make itself a more efficient dissipative structure.

We cannot know in advance exactly how the economy will shrink back its energy consumption, besides regionalization and pushing the US dollar (at least partially) out of being the reserve currency. Some other areas where the physics of the economy might force cutbacks include the following:

  • Vacation travel
  • Banks, insurance companies, pension programs (much less needed)
  • The use of financial leverage of all kinds
  • Governmental programs providing payments to those not actively in the workforce (such as pensions, unemployment insurance, disability payments)
  • Higher education programs (many graduates today cannot get jobs that pay for the high cost of their educations)
  • Extensive healthcare programs, especially for people who have no hope of ever re-entering the workforce

In fact, the population may start to fall because of epidemics, poor health, or even too little food. With fewer people, limited energy supply will go further.

Governments and intergovernmental agencies may start to fail because they cannot get enough tax revenue. Of course, the underlying issue for the lack of tax revenue is likely to be that the businesses within the governed area cannot operate because they cannot obtain enough inexpensive energy resources for operation.

[13] Conclusion.

If the world economy experiences major financial turbulence in 2023, we could be in for a rough ride. In my opinion, a major financial crash seems likely. This is could upset the economy far more seriously than the 2008 crash.

I am certain that some mitigation measures can be implemented. For example, there could be a major push toward trying to make everything that we have today last longer. Materials can be salvaged from structures that are no longer used. And some types of local production can be ramped up.

We can keep our fingers crossed that I am wrong but, with fewer oil and other energy resources available per person, moving goods shorter distances makes sense. Thus, the initial trends we are seeing toward regionalization are likely to continue. The move away from the US dollar as the reserve currency also looks likely to continue. Moreover, if the changes I am talking about don’t occur in 2023, they are likely to begin in 2024 or 2025.

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The economy is moving from a tailwind pushing it along to a headwind holding it back

The problem is hitting limits in the extraction of fossil fuels

We know that historically, many economies around the world have collapsed. We also know that there is a physics reason why this happens. Growing economies require a growing supply of energy to keep up with a growing population. At some point, the energy supply and other resource needs cannot grow rapidly enough to keep up with population growth. When this happens, economies tend to collapse.

In their book Secular Cycles, researchers Peter Turchin and Sergey Nefedov found that economies tend go through four distinct phases in each cycle, with each stage lasting for quite a few years:

  1. Growth
  2. Stagflation
  3. Crisis
  4. Inter-cycle

Based on my own analysis, the world economy was in the Growth Stage for much of the time between the Industrial Revolution and 1973. In late 1973, oil prices spiked, and the world was put on notice that the energy supply could not continue rising as rapidly as in the past. Between 1973 and 2018, the world economy was in the Stagflation Stage. Based on current data, the world economy seems to have entered the Crisis Stage about 2018. This is the reason for saying that headwinds are beginning to hold the economy back in the title of this article .

When the Crisis Stage occurs, there are fewer goods and services per capita to go around, so some participants in the world economy must come out behind. Conflict of all kinds becomes more likely. Political leaders, if they happen to discover the predicament the world economy is in, have little interest in making the predicament known to voters, since doing so would likely lead them to lose the next election.

Instead, the way the physics-based self-organizing economic system works is that alternative narratives that frame the situation in a less frightening way gain popularity. Political leaders may not even be aware of how dependent today’s economy is on fossil fuels. Researchers may not be aware that their “scientific” models are misleading because they look at too small a portion of the overall system and make unwarranted assumptions.

In this post, I show evidence that the economy is reaching energy limits. In the last section, I explain how my view differs from the standard narrative, which says that there is almost an unlimited amount of fossil fuels available to burn, if we choose to utilize these fossil fuels. According to this view, humans can prevent climate change by voluntarily moving away from fossil fuels.

The standard narrative proposes a reasonable plan for citizens of parts of the world without adequate fossil fuels (cut back on buying fossil fuels), but without telling citizens what the real problem is. The standard narrative also gives the impression that there is a near-term clean energy alternative. In my opinion, this is wishful thinking for the reasons I describe in Sections [6] and [7]. Section [2] also sheds light on the reasonableness of moving to renewable energy.

[1] The world has been warned, at least twice, that collapse might occur about now.

Back in the 1950s, several physicists, including M. King Hubbert, became interested in the limits that the world was up against. The military became interested in the problem, as well. In 1957, Admiral Hyman Rickover of the US Navy gave a very insightful speech. One thing Admiral Rickover said was, “With high energy consumption goes a high standard of living.” Another thing he said was, “A reduction of per capita energy consumption has always in the past led to a decline in civilization and a reversion to a more primitive way of life.”

Regarding the future, he said,

For it is an unpleasant fact that according to our best estimates, total fossil fuel reserves recoverable at not over twice today’s unit cost are likely to run out at some time between the years 2000 and 2050, if present standards of living and population growth rates are taken into account. 

The issue Admiral Rickover is pointing out is that as extraction costs rise, fossil fuels become increasingly unaffordable. If citizens cannot afford food, housing, and other basic goods made with high-cost fossil fuels, those fossil fuels will be left in the ground. If politicians try to pass the high cost of extraction on to consumers, it will cause inflation. Citizens will become unhappy with politicians and will vote them out of office. This is basically our problem today.

A second analysis that pointed to the current time frame for the world hitting fossil fuel limits is given in the 1972 book, The Limits To Growth by Donella Meadows and others. This analysis used computer modeling to look at several alternative future scenarios, considering resources available and population trends. The base scenario showed resource limits in general hitting sometime around 2020. The economy would collapse over a period of years after resource limits were hit.

[2] The Industrial Revolution in England is an example of how an economy changes for the better when fossil fuel energy is added.

Figure 1 shows a chart E. A. Wrigley shows in his book, Energy and the English Industrial Revolution:

Figure 1. Annual energy consumption per head (megajoules) in England and Wales 1561-70 to 1850-9 and in Italy 1861-70. Figure by Wrigley

Wrigley observes that when coal was added to the economy, it was possible to make far more metal tools than had been made in the past. With the use of metal tools instead of wood tools, farmers could be three times as productive. Thus, there didn’t need to be as many farmers, freeing some farmers for other occupations. Also, roads to coal mines were paved, in an era when few roads were paved. These paved roads were beneficial to other businesses and to the economy as a whole.

Another reason for coal to be of interest was because of increased deforestation near cities, as the population grew. This deforestation led to a need to transport firewood over long distances. Coal was more compact, and so easier to transport. Furthermore, the use of coal prevented having to cut down as many trees, helping the environment.

Figure 1 shows that energy from wind and water were only a tiny part of the economy, both before and after coal was added. They did not directly provide heat energy, which was a significant share of what the economy needed at that time.

[3] The period between the end of World War II and 1973 was another period when energy consumption per capita was rising rapidly. We might say the economy then had an “energy tailwind.”

Figure 2 shows that US energy consumption per capita was rising rapidly in the 1949 to 1973 period. Growing oil, coal and natural gas consumption all contributed to the overall rise in fossil fuel use.

Figure 2. Energy consumption by type of energy, on a per capita basis. Energy amounts as provided by US EIA data. Population based on 2022 United Nations population estimates by country.

In fact, BP data (only available from 1965 onward) shows energy consumption per capita rising for most parts of the world between 1965 and 1973. During this period, oil, coal and natural gas consumption per capita were all rising.

Figure 3. Energy consumption per capita from 1965 to 1973 for selected parts of the world based on BP’s 2022 Statistical Review of World Energy.

A major thing that pushed oil consumption along was its low price (Figure 4). According to BP data, the inflation-adjusted price was only $11.99 per barrel in 1970. In 1971, it averaged $14.30 per barrel. The comparable price today is about $79 per barrel.

Figure 4. World oil production and Brent equivalent price, adjusted for inflation to 2021, based on BP’s 2022 Statistical Review of World Energy.

The average price for 1973 rose to the equivalent of $19.73 per barrel, which is still incredibly low relative to today’s prices. It is an annual average price, reflecting a low price at the beginning of the year and a much higher price toward the end of the year.

There were multiple issues behind the rise in oil prices, starting at the end of 1973. Part of the problem was the fact that US oil production began to fall in 1971, necessitating the use of more imported oil, year after year. Another issue was that world oil production could not keep up with the high demand, given the low price that oil was selling for. The Office of the Historian of the US writes the following:

By 1973, OPEC had demanded that foreign oil corporations increase prices and cede greater shares of revenue to their local subsidiaries. In April, the Nixon administration announced a new energy strategy to boost domestic production to reduce U.S. vulnerability to oil imports and ease the strain of nationwide fuel shortages. That vulnerability would become overtly clear in the fall of that year.

Without higher oil prices, it would be hard for local producers to make the investments needed to ramp up production. Also, taxes for governments in the areas where the oil was produced were falling too low, given the low prices that oil was selling for on the international market. Indirectly because of these problems, but supposedly also because of support for Israel by certain countries in the 1973 Arab-Israeli war, the Arab members of OPEC initiated an oil embargo. This embargo cut off exports to the US, Netherlands, Portugal, and South Africa from November 1973 until March 1974. It was at that time that world oil prices rose to a much higher level, and oil consumption per capita began to fall.

One thing that is striking about the period between World War II and 1973 is the huge advances in wages made by both the bottom 90% and the top 10% (Figure 5).

Figure 5. Chart comparing income gains by the top 10% to income gains by the bottom 90% by economist Emmanuel Saez. Based on an analysis of IRS data, published in Forbes.

Between 1948 and 1968, inflation-adjusted income of both the bottom 90% and the top 10% increased by roughly 80%. This meant that many people in the bottom 90% could afford to buy cars and their own homes for the first time. Even in the period between 1968 and 1982, inflation-adjusted incomes kept up with inflation, something that low-income earners today have difficulty with. It was not until after about 1982 that wage disparity started to increase.

Most people remember the 1950s and 1960s as a favorable period for ordinary workers. Because of the higher wages of ordinary citizens and growing US manufacturing capabilities, the number of cars registered in the US rose from 25.8 million in 1945 to 75.3 million in 1965. The US initiated the 41,000 mile Interstate Highway System in 1956, so that auto owners would have multilane, limited access roads to travel on.

Electricity was sold in a conservative way, called the Utility Pricing System, which would hopefully assure that the whole system would be properly maintained. Utilities were typically owners of electricity generation units, plus all other local infrastructure, including transmission lines. Each utility would compute a total required rate for all its needs, including enough funds to install new generating capacity, provide fuel, and install and maintain transmission lines. A government regulator would approve the rates, but there was no real competition.

[4] In the period between 1973 and 2018, many changes were to increase energy efficiency and to lower the perceived cost to users. Unfortunately, some of these changes, when taken to the extremes they were taken to later in the period, tended to make the economy brittle and thus more subject to collapse.

Up until 1973, oil was being put to uses for which substitution could easily be made. One of these was electricity generation; another was home heating. An easy change in electricity generation was to build new generating facilities using an alternate fuel (coal, natural gas, or nuclear). Home heating could often be changed to natural gas or electricity.

Also, Japan already had automobiles that were smaller and more fuel efficient than American automobiles. These could be substituted for some of the large cars produced in the US.

Especially with the Reagan and Thatcher administrations starting shortly after 1980, there was more interest in cutting costs in electricity generation. “Competitive rating” instead of utility rating became popular in places where electricity prices were high. Utilities were broken up, and the various parts were encouraged to compete.

Of course, competitive rating, when taken to its extreme, can lead to the neglect of infrastructure. It was recently reported that California’s utility company, Pacific Gas and Electric, now finds that it must raise $50 billion for wildfire prevention, after years of neglecting maintenance on the long distance transmission lines used for hydroelectric generation and other long distance transmission. Now it needs to raise money to bury many of these lines underground.

It has long been known that added complexity can be helpful in working around problems of inadequate energy supply. Complexity involves many things including using more advanced technology and international trade. It involves bigger organizations to take advantage of economies of scale. It tends to require higher education for at least some of its workers.

One major disadvantage of growing complexity is the increasing wage disparity it tends to produce. Wages for less educated workers often fall quite low. Work in whole industries may disappear overseas, leaving workers to start over, in new lines of work, at lower pay scales.

Unfortunately, having many workers at low wages tends to push an economy toward collapse. The big issue is that these workers cannot afford goods like cars and new homes. Their lack of purchasing power tends to hold down commodity prices, such as the price of fossil fuels. Prices don’t rise high enough to justify new investment to raise production, so production slows down and eventually stops.

Another approach that gained popularity starting about 1981 was the increased use of debt and more exotic financial approaches. Interest rates were very high in 1981. Central banks could make monthly payments for goods such as homes and cars more affordable by lowering interest rates. This approach works for a while, but it reaches limits when interest rates fall too low relative to inflation rates. Furthermore, if an economy slows down, a major increase in debt defaults becomes likely, as became clear in 2008. With the high level of debt in the world economy today, the default problem could become even worse in 2023 or 2024 than it was in 2008, if the economy slows again.

[5] Since 2015, oil and natural gas investments have remained at low levels because oil prices have not been high enough to justify drilling in the remaining places.

Figure 6. US world oil prices, adjusted to 2021 US$, based on data from BP’s 2022 Statistical Review of World Energy.

In my opinion, oil companies really need quite high oil prices, probably $120 per barrel or higher, on a consistent basis, to justify drilling in sufficient new locations to ramp up oil production. Since 2014, prices have generally remained far below that level. There was a major drop in oil prices in 2014 and 2015. In response to the lower oil prices, oil and gas companies cut back on investment in “Exploration and Production” (E&P). (Figure 7)

Figure 7. Global Oil and Gas Exploration and Production Investments in chart by Rystad Energy.

After a drop in E&P investments, oil production does not drop immediately. Instead, 2018 was the single highest year of oil production. Production looks likely to drop further because of the continued lack of investment (Figure 8).

Figure 8. Figure 1 from my most recent post. It shows world primary energy consumption per capita based on BP’s 2022 Statistical Review of World Energy.

[6] If we look across the major types of energy supply, we discover that “Wind and Solar” is the only category rising significantly faster than world population. Others tend to be flat or falling, on a per capita basis.

Figure 9. Energy per capita worldwide, for selected types of energy, based on data from BP’s 2022 Statistical Review of World Energy.

In Figure 9, the star performer is the category “Wind + Solar.” The main attraction of wind and solar today is the subsidies they get, and the mandates that require utilities to move away from fossil fuels. Unfortunately, wind and solar really aren’t terribly helpful as far as I can see, except from the point of view of the benefit of the subsidies they provide.

One of the problems with intermittent wind and solar is that they tend to drive nuclear electricity providers out of business because of the favorable rates they receive when wind and solar are allowed to go first, in competitive rating schemes. With this arrangement, the wholesale rates that nuclear providers receive often fall to negative amounts. Nuclear providers cannot close down for short periods with negative rates, so they tend to need subsidies to remain open. Figure 9 shows that the supply of nuclear electricity has been dropping since at least 2001. In fact, of all the energy types shown on Figure 9, nuclear’s production (relative to population) is dropping fastest.

In my opinion, our primary energy concern should be food production and transport. Diesel, made from oil, is the major fuel for agriculture. It will be decades before farming machinery and transport of food can be changed over to electricity, assuming this can be done at all. Until this happens, electricity’s role in getting food to the shelves of grocery stores will be limited.

Solar energy comes primarily in the summer but, unfortunately, in many places, the big need for heat energy is in the winter. People in Europe, with their many wind turbines and solar panels, are worried about possibly freezing in the dark this winter if natural gas supplies prove inadequate. We don’t have batteries for storing solar or wind energy for months on end, so they cannot be counted on for winter heat.

When homeowners put solar panels on their roofs, the electricity they sell to the utility is often “net metered” (credited with the full retail value of electricity that this home would pay). This is a huge subsidy to the owners of the solar panels because the value of the intermittent electricity to the utility is far less than this, probably closer to the cost of the natural gas or other fuel saved.

To make up for the loss of revenue caused by the overly generous compensation to solar panel owners, the utility is forced to raise rates for those without solar panels. Studies show that homeowners with solar panels tend to be wealthier than the renters and others who do not have the opportunity to add these subsidized solar panels. Thus, this is an example of a benefit for rich homeowners being paid for by less wealthy buyers of electricity.

I would also argue that the BP data I used to produce Figure 9 tends to give an overly optimistic view of the value of wind and solar. The approach used indirectly assumes that they fully replace the entire system of dispatchable electricity used today, rather than providing only intermittent electricity. The less generous approach (giving a little less than half as much credit) is used by the International Energy Association and by many researchers.

Furthermore, solar panels tend to pollute ground water when they are disposed of, so they are not very clean. Wind turbines are noisy, take up farmland, and kill bats and birds, so they have serious drawbacks as well.

Wind and solar are made and transported using fossil fuels. They cannot last any longer than today’s fossil fuel industry. In fact, roads and transmission lines require fossil fuels to continue. The whole system is likely to go down at approximately the same time.

It seems to me that the main reason why we hear so much about intermittent wind and solar is because there needs to be a hopeful narrative for politicians to provide to voters, and for educators to provide to students. Otherwise, the situation shown on Figure 9 looks grim. The fact that fossil fuel prices have been spiking in 2022 and regulators are trying to get these prices back down again is testimony to the fact that we are running short of cheap-to-produce fossil fuel energy.

[7] The incorrect narrative provided by mainstream media (MSM) is that climate change is our worst problem. To lessen this problem, citizens need to move quickly away from fossil fuels and transition to renewables. The real narrative is that we are running short of fossil fuels that can be profitably extracted, and renewables are not adequate substitutes. However, this narrative is too worrisome for most people to handle.

I expect most readers will say, your view can’t be right. We don’t read this story in the news. All we hear about is climate change and the need to reduce fossil fuel usage to prevent climate change.

In many ways, the narrative presented by MSM is less frightening to the public than a narrative in which fuels are already being stretched too thin. The MSM narrative sounds like a situation that we can perhaps live with and work around. It sounds like careers that people study for today will be useful in the future. It also sounds like homes, cars and factories built today will be useful in the future.

One major difference in the MSM view, relative to my view, is with respect to the amounts of fossil fuels that can be extracted. The standard narrative says we will extract all the fossil fuels that we have the technology to extract unless we make a concerted effort not to extract these fuels. For this to happen, demand (a favorite word of economists) must keep rising to keep prices high enough for businesses to want to continue extraction from fields plagued by depletion.

History shows that when an economy approaches limits, what tends to happen is that demand tends to fall too low. This happens because the physics of the way the economy works: Wage and wealth disparities tend to spike as energy resources are increasingly stretched thin. In fact, the great wealth of the top 1%, relative to that of the remaining 99%, is a major problem in the world today. When increasing wage and wealth disparity occurs, a growing number of poor workers find themselves with inadequate wages to buy food, homes, cars and other goods made with commodities, including oil.

There are so many of these poor workers that their lack of demand tends to bring down commodity prices without government intervention. If these low wages are not sufficient to hold down commodity prices, politicians will raise interest rates to try to get commodity prices down, so they can be re-elected. It is low fossil fuel prices that will drive fossil fuel providers out of business.

Of course, another part of the MSM narrative is the view that renewables can save the system. I explained in Section [6] why this cannot be the case for wind and solar. I didn’t say much about hydroelectricity, but it is already built out in most of the developed world. Electricity from hydroelectric plants tends to be intermittent, with the greatest supply coming in the spring, when snow melts. Like wind and solar, hydroelectric generation plants are built and repaired using fossil fuels. These facilities, and their transmission lines, will last only until parts break that cannot be repaired.

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Today’s Energy Crisis Is Very Different from the Energy Crisis of 2005

Back in 2005, the world economy was “humming along.” World growth in energy consumption per capita was rising at 2.3% per year in the 2001 to 2005 period. China had been added to the World Trade Organization in December 2001, ramping up its demand for all kinds of fossil fuels. There was also a bubble in the US housing market, brought on by low interest rates and loose underwriting standards.

Figure 1. World primary energy consumption per capita based on BP’s 2022 Statistical Review of World Energy.

The problem in 2005, as now, was inflation in energy costs that was feeding through to inflation in general. Inflation in food prices was especially a problem. The Federal Reserve chose to fix the problem by raising the Federal Funds interest rate from 1.00% to 5.25% between June 30, 2004 and June 30, 2006.

Now, the world is facing a very different problem. High energy prices are again feeding over to food prices and to inflation in general. But the underlying trend in energy consumption is very different. The growth rate in world energy consumption per capita was 2.3% per year in the 2001 to 2005 period, but energy consumption per capita for the period 2017 to 2021 seems to be slightly shrinking at minus 0.4% per year. The world seems to already be on the edge of recession.

The Federal Reserve seems to be using a similar interest rate approach now, in very different circumstances. In this post, I will try to explain why I don’t think that this approach will produce the desired outcome.

[1] The 2004 to 2006 interest rate hikes didn’t lead to lower oil prices until after July 2008.

It is easiest to see the impact (or lack thereof) of rising interest rates by looking at average monthly world oil prices.

Figure 2. Average monthly Brent spot oil prices based on data of the US Energy Information Administration. Latest month shown is July 2022.

The US Federal Reserve began raising target interest rates in June 2004 when the average Brent oil price was only $38.22 per barrel. These interest rates stopped rising at the end of June 2006, when oil prices averaged $68.56 per barrel. Oil prices on this basis eventually reached $132.72 per barrel in July 2008. (All of these amounts are in dollars of the day, rather than being adjusted for inflation.) Thus, the highest price was over three times the price in June 2004, when the US Federal Reserve made the decision to start raising target interest rates.

Based on Figure 2 (including my notes regarding the timing of the interest rate rise), I would conclude that raising interest rates didn’t work very well at bringing down the price of oil when it was tried in the 2004 to 2006 period. Of course, the economy was growing rapidly, then. The rapid growth of the economy likely led to the very high oil price shown in mid-2008.

I expect that the result of the US Federal Reserve raising interest rates now, in a low-growth world economy, might be quite different. The world’s debt bubble might pop, leading to a worse situation than the financial crisis of 2008. Indirectly, both asset prices and commodity prices, including oil prices, would tend to fall very low.

Analysts looking at the situation from strictly an energy perspective tend to miss the interconnected nature of the economy. Factors which energy analysts overlook (particularly debt becoming impossible to repay, as interest rates rise) may lead to an outcome that is pretty much the opposite result of the standard belief. The typical belief of energy analysts is that low oil supply will lead to very high prices and more oil production. In the current situation, I expect that the result might be closer to the opposite: Oil prices will fall because of financial problems brought on by the higher interest rates, and these lower oil prices will lead to even lower oil production.

[2] The purpose of the US Federal reserve raising target interest rates was to flatten the growth rate of the world economy. Looking back at Figure 1, the growth in energy consumption per capita was much lower after the Great Recession. I doubt that now in 2022, we want even lower growth (really, more shrinkage) in energy consumption per capita for future years.*

Looking at Figure 1, growth in energy consumption per capita has been very slow since the Great Recession. A person wonders: What is the point of governments and their central banks pushing the world economy down, now in 2022, when the world economy is already barely able to maintain international supply lines and provide enough diesel for all of the world’s trucks and agricultural equipment?

If the world economy is pushed downward now, what would the result be? Would some countries find themselves unable to afford fossil fuel energy products in the future? This might lead to problems both in growing and transporting food, at least for these countries. Would the whole world suffer a major crisis of some sort, such as a financial crisis? The world economy is a self-organizing system. It is difficult to forecast precisely how the situation would work out.

[3] While the growth rate in energy consumption per capita was much lower after 2008, the price of crude oil quickly bounced back to over $120 per barrel in inflation-adjusted prices in the 2011-2013 time frame.

Figure 3 shows that oil prices immediately bounced back up after the Great Recession of 2008-2009. Quantitative Easing (QE), which the US Federal Reserve began in late 2008, helped energy prices to shoot back up again. QE helped keep the cost of borrowing by governments low, allowing governments to run larger deficits than might otherwise have been possible without interest rates rising. These higher deficits added to the demand for commodities of all types, including oil, thus raising prices.

Figure 3. Average annual oil prices inflation-adjusted oil prices based on data from BP’s 2022 Statistical Review of World Energy. Amounts shown are Brent equivalent spot prices.

The chart above shows average annual Brent oil prices through 2021. The above chart does not show 2022 prices. The current Brent oil price is about $91 per barrel. So, oil prices today are a little higher than they have been recently, but they are nowhere nearly as high as they were in the 2011 to 2013 period or in the late 1970s. The extreme reaction we are seeing is very strange. The problem seems to be much more than oil prices, by themselves.

[4] High prices in the 2006 to 2013 period allowed the rise of unconventional oil production. These high oil prices also helped keep conventional oil production from falling after 2005.

It is difficult to find detail on the precise amount of unconventional oil, but some countries are known for their unconventional oil production. For example, the US has become a leader in the extraction of tight oil from shale formations. Canada also produces a little tight oil, but it also produces quite a bit of very heavy oil from the oil sands. Venezuela produces a different type of very heavy oil. Brazil produces crude oil from under the salt layer of the ocean, sometimes called pre-salt crude oil. These unconventional types of extraction tend to be expensive.

Figure 4 shows world oil production for various combinations of countries. The top line is total world crude oil production. The bottom gray line approximates world total conventional oil production. Unconventional oil production has been rising since, say, 2010, so this approximation is better for years 2010 and subsequent years on the chart, than it is for earlier years.

Figure 4. Crude and condensate oil production based on international data of the US Energy Information Administration. The lower lines subtract the full amount of crude and condensate production for the countries listed. These countries have substantial amounts of unconventional oil production, but they may also have some conventional production.

From this chart, it appears that world conventional oil production leveled off after 2005. Some people (often referred to as “Peak Oilers”) were concerned that conventional oil production would reach a peak and begin to decline, starting shortly after 2005.

The thing that seems to have kept production from falling after 2005 is the steep rise in oil prices in the 2004 to 2008 period. Figure 3 shows that oil prices were quite low between 1986 and 2003. Once oil prices began to rise in 2004 and 2005, oil companies found that they had enough revenue that they could start adopting more intensive (and expensive) extraction techniques. This allowed more oil to be extracted from existing conventional oil fields. Of course, diminishing returns still set in, even with these more intensive techniques.

These diminishing returns are probably a major reason that conventional oil production started to fall in 2019. Indirectly, diminishing returns likely contributed to the decline in 2020, and the failure of the oil supply to bounce back up to its 2018 (or 2019) level in 2021.

[5] A better way of looking at world crude oil production is on a per capita basis because the world’s crude oil needs depend on world population.

Everyone in the world needs the benefit of crude oil, since it is used both in farming and in transporting goods of all kinds. Thus, the need for crude oil rises with population growth. I prefer analyzing crude oil production on a per capita basis.

Figure 5. Per capita crude oil production based on international data by country from the US Energy Information Administration.

Figure 5 shows that on a per capita basis, conventional crude oil production (gray bottom line) started declining after 2005. It was only with the addition of unconventional oil that crude oil production per capita could remain fairly level between 2005 and 2018 or 2019.

[6] Unconventional oil, if analyzed by itself, seems to be quite price sensitive. If politicians everywhere want to hold oil prices down, the world cannot count on extracting very much of the huge amount of unconventional oil resources that seem to be available.

Figure 6. Crude oil production based on international data for the US Energy Information Administration for each of the countries shown.

On Figure 6, crude oil production dips in 2016 – 2017 and also in 2020 – 2021. Both the 2016 and the 2020 dips are related to low prices. The continued low prices in 2017 and 2021 may reflect start-up problems after a low price, or they may reflect skepticism that prices can stay high enough to make continued extraction profitable. Canada seems to show similar dips in its oil production.

Venezuela shows a fairly different pattern. Information from the US Energy Information Administration mentions that the country started having major problems once the world oil price started falling in 2014. I am aware that the US has had sanctions against Venezuela in recent years, but it seems to me that these sanctions are closely related to Venezuela’s oil price problems. If Venezuela’s very heavy oil could really be extracted profitably, and the producers of this oil could be taxed to provide services for the people of Venezuela, the country would not have the many problems that it has today. The country likely needs a price between $200 and $300 per barrel to allow for sufficient funds for extraction plus adequate tax revenue.

Brazil’s oil production seems to be relatively more stable, but its growth has been slow. It has taken many years to get its production up to 2.9 million barrels per day. There is also some pre-salt oil production just now getting started in Angola and other countries of West Africa. This type of oil requires a high level of technical expertise and imported resources from around the world. If world trade falters, this type of oil production is likely to falter, as well.

A large share of the world’s oil reserves are unconventional oil reserves, of one type or another. The fact that rising oil prices are a real problem for citizens means that these unconventional reserves are unlikely to be tapped. Instead, we may be dealing with seriously short supplies of products we need for operating our economies, including diesel oil and jet fuel.

[7] Figure 1 at the beginning of this post indicated falling energy consumption per capita. This problem extends to more than oil. On a per capita basis, both coal and nuclear energy consumption are falling.

Practically no one pays any attention to coal consumption, but this is the fuel that allowed the Industrial Revolution to start. It is reasonable to expect that since the world economy started using coal first, it might be the first to deplete. Figure 7 shows that world coal consumption per capita hit a peak in 2011 and has declined since then.

Figure 7. World coal consumption per capita, based on data from BP’s 2022 Statistical Review of World Energy.

Many of us have heard about Aesop’s Fable, The Fox and the Grapes. According to Wikipedia, “The story concerns a fox that tries to eat grapes from a vine but cannot reach them. Rather than admit defeat, he states they are undesirable. The expression ‘sour grapes’ originated from this fable.”

In the case of coal, we are told that coal is undesirable because it is very polluting and raises CO2 levels. While these things are true, coal has historically been very inexpensive, and this is important for people buying coal. Coal is also easy to transport. It could be used for fuel instead of cutting down trees, thus helping local ecosystems. The negative things that we are being told about coal are true, but it is hard to find an adequate inexpensive substitute.

Figure 8 shows that world nuclear energy per capita is also falling. To some extent, its fall has stabilized since 2012 because China and a few other “developing nations” have been adding nuclear capacity, while developed nations in Europe have tended to remove their existing nuclear power plants.

Figure 8. World nuclear electricity consumption per capita, based on data from BP’s 2022 Statistical Review of World Energy. Amounts are based on the amount of fossil fuels that this electricity would theoretically replace.

Nuclear energy is confusing because experts seem to disagree on how dangerous nuclear power plants are, over the long term. One concern relates to proper disposal of spent fuel after its use.

[8] The world seems to be at a difficult time now because we don’t have any good options for fixing our falling energy consumption per capita problem, without greatly reducing world population. The two choices that seem to be available both seem to be far higher-priced than is feasible.

There are two choices that seem to be available:

[A] Encourage large amounts of fossil fuel production by encouraging very high fossil fuel prices. With such high prices, say $300 per barrel for oil, unconventional crude oil in many parts of the world would be available. Unconventional coal, such as that under the North Sea, would also be available. With sufficiently high prices, natural gas production could be raised. This natural gas could be shipped as liquefied natural gas (LNG) around the world at great cost. Additionally, many processing plants could be built, both for supercooling the natural gas to allow it to be shipped around the world and for re-gasification, when it arrives at its destination.

With this approach, food costs would be very high. Much of the world’s population would need to work in the food industry and in fossil fuel production and shipping. With these priorities, citizens would not have time or money for most things we buy today. They likely could not afford a vehicle or a nice home. Governments would need to shrivel in size, with the usual outcome being government by a local dictator. Governments wouldn’t have sufficient funds for roads or schools. CO2 emissions would be very high, but this likely would not be our most serious problem.

[B] Try to electrify everything, including agriculture. Greatly ramp up wind and solar. Wind and solar are very intermittent, and their intermittency does not match up well with human needs. In particular, one of the world’s primary needs is for heat in winter, but solar energy comes in summer. It cannot be saved until winter with today’s technology. Spend enormous amounts and resources on electricity transmission lines and batteries to try to somewhat work around these problems. Try to find substitutes for the many things that fossil fuels provide today, including paved roads and chemicals used in agriculture and in medicine.

Hydroelectricity is also a renewable form of electricity generation. It cannot be expected to ramp up much because it has mostly been built out already.

Figure 9. World consumption of hydroelectricity per capita, based on data from BP’s 2022 Statistical Review of World Energy.

Even if greatly ramped up, wind and solar electricity production would likely be grossly inadequate by themselves to try to operate any kind of economy. In addition, at a minimum, natural gas, shipped at very high cost as LNG around the world, would likely be needed. Also, huge quantity of batteries would be needed, leading to a short supply of materials. Huge quantities of steel would be needed to make new electrical machines to try to replace current oil-power machines. A minimum 50-year transition would likely be needed.

I am doubtful that this second approach would be feasible in any reasonable timeframe.

[9] Conclusion. Figure 1 seems to imply that the world economy is headed for troubled times ahead.

The world economy is a self-organizing system, so we cannot know precisely what form changes in the next few years will take. The economy can be expected to shrink back in an uneven pattern, with some parts of the world and some classes of citizens, such as workers versus the elderly, doing better than others.

Leaders will never tell us that the world has an energy shortage. Instead, leaders will tell us how awful fossil fuels are, so that we will be happy that the economy is losing their usage. They will never tell us how worthless intermittent wind and solar are for solving today’s energy problems. Instead, they will lead us to believe that a transition to vehicles powered by electricity and batteries is just around the corner. They will tell us that the world’s worst problem is climate change, and that by working together, we can move away from fossil fuels.

Again, the whole situation reminds me of Aesop’s Fables. The system puts a “good spin” on whatever frightening changes are happening. This way, leaders can convince their citizens that everything is fine when, in fact, it is not.

NOTE

*If the US Federal Reserve raises its target interest rate, central banks of other countries around the world are forced to take a similar action if they do not want their currencies to fall relative to the US dollar. Countries that do not raise their target interest rates tend to be penalized by the market: With a falling currency, the local prices of oil and other commodities tend to rise because commodities are priced in US dollars. As a result, citizens of these countries tend to face a worse inflation problem than they would otherwise face.

The country with the greatest increase in its target interest rate can, in theory, win, in what is more or less a competition to move inflation elsewhere. This competition cannot go on indefinitely, however, because every country depends, to some extent, on imports from other countries. If countries with weaker economies (i. e. those that cannot afford to raise interest rates) stop producing essential goods for world trade, it will tend to bring the world economy down.

Raising interest rates also raises the likelihood of debt defaults, and these debt defaults can be a huge problem, especially for banks and other financial institutions. With higher interest rates, pension funding becomes less adequate. Businesses of all kinds find new investment more expensive. Many businesses are likely to shrink or fail completely. These indirect impacts are yet another way for the world economy to fail.

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Why financial approaches won’t fix the world’s economic problems this time

Time and time again, financial approaches have worked to fix economic problems. Raising interest rates has acted to slow the economy and lowering them has acted to speed up the economy. Governments overspending their incomes also acts to push the economy ahead; doing the reverse seems to slow economies down.

What could possibly go wrong? The issue is a physics problem. The economy doesn’t run simply on money and debt. It operates on resources of many kinds, including energy-related resources. As the population grows, the need for energy-related resources grows. The bottleneck that occurs is something that is hard to see in advance; it is an affordability bottleneck.

For a very long time, financial manipulations have been able to adjust affordability in a way that is optimal for most players. At some point, resources, especially energy resources, get stretched too thin, relative to the rising population and all the commitments that have been made, such as pension commitments. As a result, there is no way for the quantity of goods and services produced to grow sufficiently to match the promises that the financial system has made. This is the real bottleneck that the world economy reaches.

I believe that we are closely approaching this bottleneck today. I recently gave a talk to a group of European officials at the 2nd Luxembourg Strategy Conference, discussing the issue from the European point of view. Europeans seem to be especially vulnerable because Europe, with its early entry into the Industrial Revolution, substantially depleted its fossil fuel resources many years ago. The topic I was asked to discuss was, “Energy: The interconnection of energy limits and the economy and what this means for the future.”

In this post, I write about this presentation.

Slide 3

The major issue is that money, by itself, cannot operate the economy, because we cannot eat money. Any model of the economy must include energy and other resources. In a finite world, these resources tend to deplete. Also, human population tends to grow. At some point, not enough goods and services are produced for the growing population.

I believe that the major reason we have not been told about how the economy really works is because it would simply be too disturbing to understand the real situation. If today’s economy is dependent on finite fossil fuel supplies, it becomes clear that, at some point, these will run short. Then the world economy is likely to face a very difficult time.

A secondary reason for the confusion about how the economy operates is too much specialization by researchers studying the issue. Physicists (who are concerned about energy) don’t study economics; politicians and economists don’t study physics. As a result, neither group has a very broad understanding of the situation.

I am an actuary. I come from a different perspective: Will physical resources be adequate to meet financial promises being made? I have had the privilege of learning a little from both economic and physics sides of the discussion. I have also learned about the issue from a historical perspective.

Slide 4
Slide 5

World energy consumption has been growing very rapidly at the same time that the world economy has been growing. This makes it hard to tell whether the growing energy supply enabled the economic growth, or whether the higher demand created by the growing economy encouraged the world economy to use more resources, including energy resources.

Physics says that it is energy resources that enable economic growth.

Slide 6

The R-squared of GDP as a function of energy is .98, relative to the equation shown.

Slide 7

Physicists talk about the “dissipation” of energy. In this process, the ability of an energy product to do “useful work” is depleted. For example, food is an energy product. When food is digested, its ability to do useful work (provide energy for our body) is used up. Cooking food, whether using a campfire or electricity or by burning natural gas, is another way of dissipating energy.

Humans are clearly part of the economy. Every type of work that is done depends upon energy dissipation. If energy supplies deplete, the form of the economy must change to match.

Slide 8

There are a huge number of systems that seem to grow by themselves using a process called self-organization. I have listed a few of these on Slide 8. Some of these things are alive; most are not. They are all called “dissipative structures.”

The key input that allows these systems to stay in a “non-dead” state is dissipation of energy of the appropriate type. For example, we know that humans need about 2,000 calories a day to continue to function properly. The mix of food must be approximately correct, too. Humans probably could not live on a diet of lettuce alone, for example.

Economies have their own need for energy supplies of the proper kind, or they don’t function properly. For example, today’s agricultural equipment, as well as today’s long-distance trucks, operate on diesel fuel. Without enough diesel fuel, it becomes impossible to plant and harvest crops and bring them to market. A transition to an all-electric system would take many, many years, if it could be done at all.

Slide 9

I think of an economy as being like a child’s building toy. Gradually, new participants are added, both in the form of new citizens and new businesses. Businesses are formed in response to expected changes in the markets. Governments gradually add new laws and new taxes. Supply and demand seem to set market prices. When the system seems to be operating poorly, regulators step in, typically adjusting interest rates and the availability of debt.

One key to keeping the economy working well is the fact that those who are “consumers” closely overlap those who are “employees.” The consumers (= employees) need to be paid well enough, or they cannot purchase the goods and services made by the economy.

A less obvious key to keeping the economy working well is that the whole system needs to be growing. This is necessary so that there are enough goods and services available for the growing population. A growing economy is also needed so that debt can be repaid with interest, and so that pension obligations can be paid as promised.

Slide 10

World population has been growing year after year, but arable land stays close to constant. To provide enough food for this rising population, more intensive agriculture is required, often including irrigation, fertilizers, herbicides and pesticides.

Furthermore, an increasing amount of fresh water is needed, leading to a need for deeper wells and, in some places, desalination to supplement other water sources. All these additional efforts add energy usage, as well as costs.

In addition, mineral ores and energy supplies of all kinds tend to become depleted because the best resources are accessed first. This leaves the more expensive-to-extract resources for later.

Slide 11

The issues in Slide 11 are a continuation of the issues described on Slide 10. The result is that the cost of energy production eventually rises so much that its higher costs spill over into the cost of all other goods and services. Workers find that their paychecks are not high enough to cover the items they usually purchased in the past. Some poor people cannot even afford food and fresh water.

Slide 12
Slide 13

Increasing debt is helpful as an economy grows. A farmer can borrow money for seed to grow a crop, and he can repay the debt, once the crop has grown. Or an entrepreneur can finance a factory using debt.

On the consumer side, debt at a sufficiently low interest rate can be used to make the purchase of a home or vehicle affordable.

Central banks and others involved in the financial world figured out many years ago that if they manipulate interest rates and the availability of credit, they are generally able to get the economy to grow as fast as they would like.

Slide 14

It is hard for most people to imagine how much interest rates have varied over the last century. Back during the Great Depression of the 1930s and the early 1940s, interest rates were very close to zero. As large amounts of inexpensive energy were added to the economy in the post-World War II period, the world economy raced ahead. It was possible to hold back growth by raising interest rates.

Oil supply was constrained in the 1970s, but demand and prices kept rising. US Federal Reserve Chairman Paul Volker is known for raising interest rates to unheard of heights (over 15%) with a peak in 1981 to end inflation brought on by high oil prices. This high inflation rate brought on a huge recession from which the economy eventually recovered, as the higher prices brought more oil supply online (Alaska, North Sea, and Mexico), and as substitution was made for some oil use. For example, home heating was moved away from burning oil; electricity-production was mostly moved from oil to nuclear, coal and natural gas.

Another thing that has helped the economy since 1981 has been the ability to stimulate demand by lowering interest rates, making monthly payments more affordable. In 2008, the US added Quantitative Easing as a way of further holding interest rates down. A huge debt bubble has thus been built up since 1981, as the world economy has increasingly been operated with an increasing amount of debt at ever-lower interest rates. (See 3-month and 10 year interest rates shown on Slide 14.) This cheap debt has allowed rapidly rising asset prices.

Slide 15

The world economy starts hitting major obstacles when energy supply stops growing faster than population because the supply of finished goods and services (such as new automobile, new homes, paved roads, and airplane trips for passengers) produced stops growing as rapidly as population. These obstacles take the form of affordability obstacles. The physics of the situation somehow causes the wages and wealth to be increasingly concentrated among the top 10% or 1%. Lower-paid individuals are increasingly left out. While goods are still produced, ever-fewer workers can afford more than basic necessities. Such a situation makes for unhappy workers.

World energy consumption per capita hit a peak in 2018 and began to slide in 2019, with an even bigger drop in 2020. With less energy consumption, world automobile sales began to slide in 2019 and fell even lower in 2020. Protests, often indirectly related to inadequate wages or benefits, became an increasing problem in 2019. The year 2020 is known for Covid-19 related shutdowns and flight cancellations, but the indirect effect was to reduce energy consumption by less travel and by broken supply lines leading to unavailable goods. Prices of fossil fuels dropped far too low for producers.

Governments tried to get their own economies growing by various techniques, including spending more than the tax revenue they took in, leading to a need for more government debt, and by Quantitative Easing, acting to hold down interest rates. The result was a big increase in the money supply in many countries. This increased money supply was often distributed to individual citizens as subsidies of various kinds.

The higher demand caused by this additional money tended to cause inflation. It tended to raise fossil fuel prices because the inexpensive-to-extract fuels have mostly been extracted. In the days of Paul Volker, more energy supply at a little higher price was available within a few years. This seems extremely unlikely today because of diminishing returns. The problem is that there is little new oil supply available unless prices can stay above at least $120 per barrel on a consistent basis, and prices this high, or higher, do not seem to be available.

Oil prices are not rising this high, even with all of the stimulus funds because of the physics-based wage disparity problem mentioned previously. Also, those with political power try to keep fuel prices down so that the standards of living of citizens will not fall. Because of these low oil prices, OPEC+ continues to make cuts in production. The existence of chronically low prices for fossil fuels is likely the reason why Russia behaves in as belligerent a manner as it does today.

Today, with rising interest rates and Quantitative Tightening instead of Quantitative Easing, a major concern is that the debt bubble that has grown since in 1981 will start to collapse. With falling debt levels, prices of assets, such as homes, farms, and shares of stock, can be expected to fall. Many borrowers will be unable to repay their loans.

If this combination of events occurs, deflation is a likely outcome because banks and pension funds are likely to fail. If, somehow, local governments are able to bail out banks and pension funds, then there is a substantial likelihood of local hyperinflation. In such a case, people will have huge quantities of money, but practically nothing available to buy. In either case, the world economy will shrink because of inadequate energy supply.

Slide 16
Slide 17

Most people have a “normalcy bias.” They assume that if economic growth has continued for a long time in the past, it necessarily will occur in the future. Yet, we all know that all dissipative structures somehow come to an end. Humans can come to an end in many ways: They can get hit by a car; they can catch an illness and succumb to it; they can die of old age; they can starve to death.

History tells us that economies nearly always collapse, usually over a period of years. Sometimes, population rises so high that the food production margin becomes tight; it becomes difficult to set aside enough food if the cycle of weather should turn for the worse. Thus, population drops when crops fail.

In the years leading up to collapse, it is common that the wages of ordinary citizens fall too low for them to be able to afford an adequate diet. In such a situation, epidemics can spread easily and kill many citizens. With so much poverty, it becomes impossible for governments to collect enough taxes to maintain services they have promised. Sometimes, nations lose at war because they cannot afford a suitable army. Very often, governmental debt becomes non-repayable.

The world economy today seems to be approaching some of the same bottlenecks that more local economies hit in the past.

Slide 18

The basic problem is that with inadequate energy supplies, the total quantity of goods and services provided by the economy must shrink. Thus, on average, people must become poorer. Most individual citizens, as well as most governments, will not be happy about this situation.

The situation becomes very much like the game of musical chairs. In this game, one chair at a time is removed. The players walk around the chairs while music plays. When the music stops, all participants grab for a chair. Someone gets left out. In the case of energy supplies, the stronger countries will try to push aside the weaker competitors.

Slide 19

Countries that understand the importance of adequate energy supplies recognize that Europe is relatively weak because of its dependence on imported fuel. However, Europe seems to be oblivious to its poor position, attempting to dictate to others how important it is to prevent climate change by eliminating fossil fuels. With this view, it can easily keep its high opinion of itself.

If we think about the musical chairs’ situation and not enough energy supplies to go around, everyone in the world (except Europe) would be better off if Europe were to be forced out of its high imports of fossil fuels. Russia could perhaps obtain higher energy export prices in Asia and the Far East. The whole situation becomes very strange. Europe tells itself it is cutting off imports to punish Russia. But, if Europe’s imports can remain very low, everyone else, from the US, to Russia, to China, to Japan would benefit.

Slide 20

The benefits of wind and solar energy are glorified in Europe, with people being led to believe that it would be easy to transition from fossil fuels, and perhaps leave nuclear, as well. The problem is that wind, solar, and even hydroelectric energy supply are very undependable. They cannot ever be ramped up to provide year-round heat. They are poorly adapted for agricultural use (except for sunshine helping crops grow).

Few people realize that the benefits that wind and solar provide are tiny. They cannot be depended on, so companies providing electricity need to maintain duplicate generating capacity. Wind and solar require far more transmission than fossil-fuel-generated electricity because the best sources are often far from population centers. When all costs are included (without subsidy), wind and solar electricity tend to be more expensive than fossil-fuel generated electricity. They are especially difficult to rely on in winter. Therefore, many people in Europe are concerned about possibly “freezing in the dark,” as soon as this winter.

There is no possibility of ever transitioning to a system that operates only on intermittent electricity with the population that Europe has today, or that the world has today. Wind turbines and solar panels are built and maintained using fossil fuel energy. Transmission lines cannot be maintained using intermittent electricity alone.

Slide 21
Slide 22

Basically, Europe must use very much less fossil fuel energy, for the long term. Citizens cannot assume that the war with Ukraine will soon be over, and everything will be back to the way it was several years ago. It is much more likely that the freeze-in-the-dark problem will be present every winter, from now on. In fact, European citizens might actually be happier if the climate would warm up a bit.

With this as background, there is a need to figure out how to use less energy without hurting lifestyles too badly. To some extent, changes from the Covid-19 shutdowns can be used, since these indirectly were ways of saving energy. Furthermore, if families can move in together, fewer buildings in total will need to be heated. Cooking can perhaps be done for larger groups at a time, saving on fuel.

If families can home-school their children, this saves both the energy for transportation to school and the energy for heating the school. If families can keep younger children at home, instead of sending them to daycare, this saves energy, as well.

A major issue that I do not point out directly in this presentation is the high energy cost of supporting the elderly in the lifestyles to which they have become accustomed. One issue is the huge amount and cost of healthcare. Another is the cost of separate residences. These costs can be reduced if the elderly can be persuaded to move in with family members, as was done in the past. Pension programs worldwide are running into financial difficulty now, with interest rates rising. Countries with large elderly populations are likely to be especially affected.

Slide 23

Besides conserving energy, the other thing people in Europe can do is attempt to understand the dynamics of our current situation. We are in a different world now, with not enough energy of the right kinds to go around.

The dynamics in a world of energy shortages are like those of the musical chairs’ game. We can expect more fighting. We cannot expect that countries that have been on our side in the past will necessarily be on our side in the future. It is more like being in an undeclared war with many participants.

Under ideal circumstances, Europe would be on good terms with energy exporters, even Russia. I suppose at this late date, nothing can be done.

A major issue is that if Europe attempts to hold down fossil fuel prices, the indirect result will be to reduce supply. Oil, natural gas and coal producers will all reduce supply before they will accept a price that they consider too low. Given the dependence of the world economy on energy supplies, especially fossil fuel energy supplies, this will make the situation worse, rather than better.

Wind and solar are not replacements for fossil fuels. They are made with fossil fuels. We don’t have the ability to store up solar energy from summer to winter. Wind is also too undependable, and battery capacity too low, to compensate for need for storage from season to season. Thus, without a growing supply of fossil fuels, it is impossible for today’s economy to continue in its current form.

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Ramping Up Renewables Can’t Provide Enough Heat Energy in Winter

We usually don’t think about the wonderful service fossil fuels provide in terms of being a store of heat energy for winter, the time when there is a greater need for heat energy. Figure 1 shows dramatically how, in the US, the residential usage of heating fuels spikes during the winter months.

Figure 1. US residential use of energy, based on EIA data. The category “Natural Gas, etc.” includes all fuels bought directly by households and burned. This is primarily natural gas, but also includes small amounts of propane and diesel burned as heating oil. Wood chips or other commercial wood purchased to be burned is also in this category.

Solar energy is most abundantly available in the May-June-July period, making it a poor candidate for fixing the problem of the need for winter heat.

Figure 2. California solar electricity production by month through June 30, 2022, based on EIA data. Amounts are for utility scale and small scale solar combined.

In some ways, the lack of availability of fuels for winter is a canary in the coal mine regarding future energy shortages. People have been concerned about oil shortages, but winter fuel shortages are, in many ways, just as bad. They can result in people “freezing in the dark.”

In this post, I will look at some of the issues involved.

[1] Batteries are suitable for fine-tuning the precise time during a 24-hour period solar electricity is used. They cannot be scaled up to store solar energy from summer to winter.

In today’s world, batteries can be used to delay the use of solar electricity for at most a few hours. In exceptional situations, perhaps the holding period can be increased to a few days.

California is known both for its high level of battery storage and its high level of renewables. These renewables include both solar and wind energy, plus smaller amounts of electricity generated in geothermal plants and electricity generated by burning biomass. The problem encountered is that the electricity generated by solar panels tends to start and end too early in the day, relative to when citizens want to use this electricity. After citizens return home after work, they would like to cook their dinners and use their air conditioning, leading to considerable demand after the sun sets.

Figure 3. Illustration by Inside Climate News showing the combination of resources utilized during July 9, 2022, which was a day of peak electricity consumption. Imports refer to electricity purchased from outside the State of California.

Figure 3 illustrates how batteries in combination with hydroelectric generation (hydro) are used to save electricity generation from early in the day for use in the evening hours. While battery use is suitable for fine tuning exactly when, during a 24-hour period, solar energy will be used, the quantity of batteries cannot be ramped up sufficiently to save electricity from summer to winter. The world would run out of battery-making materials, if nothing else.

[2] Ramping up hydro is not a solution to our problem of inadequate energy for heat in winter.

One problem is that, in long-industrialized economies, hydro capabilities were built out years ago.

Figure 4. Annual hydro generation based on data of BP’s 2022 Statistical Review of World Energy.

It is difficult to believe that much more buildout is available in these countries.

Another issue is that hydro tends to be quite variable from year to year, even over an area as large as the United States, as shown in Figure 4 above. When the variability is viewed over a smaller area, the year-to-year variability is even higher, as illustrated in Figure 5 below.

Figure 5. Monthly California hydroelectric generation through June 30, 2022, based on EIA data.

The pattern shown reflects peak generation in the spring, when the ice pack is melting. Low generation generally occurs during the winter, when the ice pack is frozen. Thus, hydro tends not be helpful for raising winter energy supplies. A similar pattern tends to happen in other temperate areas.

A third issue is that variability in hydro supply is already causing problems. Norway has recently reported that it may need to limit hydro exports in coming months because water reservoirs are low. Norway’s exports of electricity are used to help balance Europe’s wind and solar electricity. Thus, this issue may lead to yet another energy problem for Europe.

As another example, China reports a severe power crunch in its Sichuan Province, related to low rainfall and high temperatures. Fossil fuel generation is not available to fill the gap.

[3] Wind energy is not a greatly better than hydro and solar, in terms of variability and poor timing of supply.

For example, Europe experienced a power crunch in the third quarter of 2021 related to weak winds. Europe’s largest wind producers (Britain, Germany and France) produced only 14% of their rated capacity during this period, compared with an average of 20% to 26% in previous years. No one had planned for this kind of three-month shortfall.

In 2021, China experienced dry, windless weather, resulting in both its generation from wind and hydro being low. The country found it needed to use rolling blackouts to deal with the situation. This led to traffic lights failing and many families needing to eat candle-lit dinners.

Even viewed on a nationwide basis, US wind generation varies considerably from month to month.

Figure 6. Total US wind electricity generation through June 20, 2022, based on EIA data.

US total wind electricity generation tends to be highest in April or May. This can cause oversupply issues because hydro generation tends to be high about the same time. The demand for electricity tends to be low because of generally mild weather. The result is that even at today’s renewable levels, a wet, windy spring can lead to a situation in which the combination of hydro and wind electricity supply exceeds total local demand for electricity.

[4] As more wind and solar are added to the grid, the challenges and costs become increasingly great.

There are a huge number of technical problems associated with trying to add a large amount of wind and solar energy to the grid. Some of them are outlined in Figure 7.

Figure 7. Introductory slide from a presentation by power engineers shown in this YouTube Video.

One of the issues is torque distortion, especially related to wind energy.

Figure 8. Slide describing torque distortion issues from the same presentation to power engineers as Figure 7. YouTube Video.

There are also many other issues, including some outlined on this Drax website. Wind and solar provide no “inertia” to the system. This makes me wonder whether the grid could even function without a substantial amount of fossil fuel or nuclear generation providing sufficient inertia.

Furthermore, wind and solar tend to make voltage fluctuate, necessitating systems to absorb and discharge something called “reactive power.”

[5] The word “sustainable” has created unrealistic expectations with respect to intermittent wind and solar electricity.

A person in the wind turbine repair industry once told me, “Wind turbines run on a steady supply of replacement parts.” Individual parts may be made to last 20-years, or even longer, but there are so many parts that some are likely to need replacement long before that time. An article in Windpower Engineering says, “Turbine gearboxes are typically given a design life of 20 years, but few make it past the 10-year mark.”

There is also the problem of wind damage, especially in the case of a severe storm.

Figure 9. Hurricane-damaged solar panels in Puerto Rico. Source.

Furthermore, the operational lives for fossil fuel and nuclear generating plants are typically much longer than those for wind and solar. In the US, some nuclear plants have licenses to operate for 60 years. Efforts are underway to extend some licenses to 80 years.

With the short life spans for wind and solar, constant rebuilding of wind turbines and solar generation is necessary, using fossil fuels. Between the rebuilding issue and the need for fossil fuels to maintain the electric grid, the output of wind turbines and solar panels cannot be expected to last any longer than fossil fuel supply.

[6] Energy modeling has led to unrealistic expectations for wind and solar.

Energy models don’t take into account all of the many adjustments to the transmission system that are needed to support wind and solar, and the resulting added costs. Besides the direct cost of the extra transmission required, there is an ongoing need to inspect parts for signs of wear. Brush around the transmission lines also needs to be cut back. If adequate maintenance is not performed, transmission lines can cause fires. Burying transmission lines is sometimes an option, but doing so is expensive, both in energy use and cost.

Energy models also don’t take into account the way wind turbines and solar panels perform in “real life.” In particular, most researchers miss the point that electricity from solar panels cannot be expected to be very helpful for meeting our need for heat energy in winter. If we want to add more summer air conditioning, solar panels can “sort of” support this effort, especially if batteries are also added to help fine tune when, during the 24-hour day, the solar electricity will be utilized. Unfortunately, we don’t have any realistic way of saving the output of solar panels from summer to winter.

It seems to me that supporting air conditioning is a rather frivolous use for what seems to be a dwindling quantity of available energy supply. In my opinion, our first two priorities should be adequate food supply and preventing freezing in the dark in winter. Solar, especially, does nothing for these issues. Wind can be used to pump water for crops and animals. In fact, an ordinary windmill, built 100 years ago, can also be used to provide this type of service.

Because of the intermittency issue, especially the “summer to winter” intermittency issue, wind and solar are not truly replacements for electricity produced by fossil fuels or nuclear. The problem is that most of the current system needs to remain in place, in addition to the renewable energy system. When researchers make cost comparisons, they should be comparing the cost of the intermittent energy, including necessary batteries and grid enhancements with the cost of the fuel saved by operating these devices.

[7] Competitive pricing plans that enable the growth of wind and solar electricity are part of what is pushing a number of areas in the world toward a “freezing-in-the-dark” problem.

In the early days of electricity production, “utility pricing” was generally used. With this approach, vertical integration of electricity supply was encouraged. A utility would make long term contracts with a number of providers and would set prices for customers based on the expected long-term cost of electricity production and distribution. The utility would make certain that transmission lines were properly repaired and would add new generation as needed.

Energy prices of all kinds spiked in the late 1970s. Not long afterward, in an attempt to prevent high electricity prices from causing inflation, a shift in pricing arrangements started taking place. More competition was encouraged, with the new approach called competitive pricing. Vertically integrated groups were broken up. Wholesale electricity prices started varying by time of day, based on which providers were willing to sell their production at the lowest price, for that particular time period. This approach encouraged providers to neglect maintaining their power lines and stop adding more storage capacity. Any kind of overhead expense was discouraged.

In fact, under this arrangement, wind and solar were also given the privilege of “going first.” If too much energy in total was produced, negative rates could result for other providers. This approach was especially harmful for nuclear energy. Nuclear power plants found that their overall price structure was too low. They sometimes closed because of inadequate profitability. New investments in nuclear energy were discouraged, as was proper maintenance. This effect has been especially noticeable in Europe.

Figure 10. Nuclear, wind and solar electricity generated in Europe, based on data of BP’s 2022 Statistical Review of World Energy.

The result is that about a third of the gain from wind and solar energy has been offset by the decline in nuclear electricity generation. Of course, nuclear is another low-carbon form of electricity. It is a great deal more reliable than wind or solar. It can even help prevent freezing in the dark because it is likely to be available in winter, when more electricity for heating is likely to be needed.

Another issue is that competitive pricing discouraged the building of adequate storage facilities for natural gas. Also, it tended to discourage purchasing natural gas under long term contracts. The thinking went, “Rather than building storage, why not wait until the natural gas is needed, and then purchase it at the market rate?”

Unfortunately, producing natural gas requires long-term investments. Companies producing natural gas operate wells that produce approximately equal amounts year-round. The same pattern of high winter-consumption of natural gas tends to occur almost simultaneously in many Northern Hemisphere areas with cold winters. If the system is going to work, customers need to be purchasing natural gas, year-round, and stowing it away for winter.

Natural gas production has been falling in Europe, as has coal production (not shown), necessitating more imports of replacement fuel, often natural gas.

Figure 11. Natural gas production in Europe, based on data of BP’s 2022 Statistical Review of World Energy.

With competitive rating and LNG ships seeming to sell natural gas on an “as needed” basis, there has been a tendency in Europe to overlook the need for long term contracts and additional storage to go with rising natural gas imports. Now, Europe is starting to discover the folly of this approach. Solar is close to worthless for providing electricity in winter; wind cannot be relied upon. It doesn’t ramp up nearly quickly enough, in any reasonable timeframe. The danger is that countries will risk having their citizens freeze in the dark because of inadequate natural gas import availability.

[8] The world is a very long way from producing enough wind and solar to solve its energy problems, especially its need for heat in winter.

The energy supply that the world uses includes much more than electricity. It contains oil and fuels burned directly, such as natural gas. The percentage share of this total energy supply that wind and solar output provides depends on how it is counted. The International Energy Agency treats wind and solar as if they only replace fuel, rather than replacing dispatchable electricity.

Figure 12 Wind and solar generation for a category called “Wind, Solar, etc.” by the IEA. Amounts are for 2020 for Germany, the UK, Australia, Norway, the United States, and Japan. For other groups shown in this chart, the amounts are calculated using 2019 data.

On this basis, the share of total energy provided by the Wind and Solar category is very low, only 2.2% for the world as a whole. Germany comes out highest of the groups analyzed, but even it is replacing only 6.0% of its total energy consumed. It is difficult to imagine how the land and water around Germany could tolerate wind turbines and solar panels being ramped up sufficiently to cover such a shortfall. Other parts of the world are even farther from replacing current energy supplies with wind and solar.

Clearly, we cannot expect wind and solar to ever be ramped up to meet our energy needs, even in combination with hydro.

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