New IMF Working Paper Models Impact of Oil Limits on the Economy

The International Monetary Fund (IMF) recently issued a new working paper called “The Future of Oil: Geology versus Technology” (free PDF), which should be of interest to people who are following “peak oil” issues. This is a research paper that is being published to elicit comments and debate; it does not necessarily represent IMF views or policy.

The paper considers two different approaches for modeling future oil supply:

  1. The economic/technological approach, used by the US Energy Information Administration (EIA) and others, and
  2. The geological view, used in peak oil forecasts, such as forecasts made by Colin Campbell and forecasts made using Hubbert Linearization.

The analysis in the IMF Working Paper shows that neither approach has worked perfectly, but in recent years, forecasts of oil supply using the geological view have tended to be closer than those using the economic/technological approach.  Since neither model works perfectly, the new paper takes a middle ground: it sets up a model of oil supply where the amount of oil produced is influenced by a combination of (1) geological depletion and (2) price levels.

This blended model fits recent production amounts and recent price trends far better than traditional models. The forecasts it gives are concerning though.  The new model indicates that (1) oil supply in the future will not rise nearly as rapidly as in the pre-2005 period and (2) oil prices are likely to nearly double in “real” (inflation-adjusted) terms by 2020. The world economy will be in uncharted territory if this happens.

It seems to me that this new model is a real step forward in looking at oil supply and the economy. The model, as it is today, points out a definite problem area (namely, the likelihood of oil high prices, if growth in oil production continues to be constrained below pre-2005 rates of increase). The researchers also raise good questions for further analysis.

At the same time, I am doubtful that the world GDP forecast of the new model is really right–it seems too high. The questions the authors raise point in this direction as well. Below the fold, I discuss the model, its indications, and some shortcomings I see. 

The Two Models

Economic /Technological Approach. With the economic/ technological approach, the assumption is made that high oil prices will encourage substitution and/or new oil production. Because of this, high oil prices are not expected to persist. Instead, the most important consideration in determining future oil supply is the level of future demand. The level of future demand, in turn, is primarily driven by  anticipated GDP growth, since world GDP growth and world oil production growth tend to be highly correlated.

In effect, models of this type assume that whatever oil supply is needed will be available; they don’t consider the possibility that geological considerations may limit oil supply over the long term. As an example of how well these models have worked for prediction, the paper shows a graph of historical EIA forecasts (Figure 1, below).

Figure 1. Graph showing that oil production forecasts by the US Energy Information Administration have been revised downward, year after year, from paper.

Each year, EIA’s forecasts have been adjusted downward, because actual oil supply growth was lower than forecast.

Models Based on the Geological View. The paper considers forecasts of oil supply such as those of Colin Campbell (shown in ASPO-Ireland Newsletters) and forecasts based on Hubbert Linearization to be models based on the Geological View. The paper observes that forecasts of oil supply based on geological view have tended to be too low, but not by as big a margin as those made using the economic/technological approach. As an example, it gives the following graph of changes in forecasts by Colin Campbell.

Figure 2. Colin Campbell Forecasts of Future Oil Supply, from paper.

A review of the two methods by the IMF group indicates that neither works precisely as hoped, but each has some validity. While oil production did not rise as fast as the economic/technological view would predict, higher oil prices have allowed oil production to stay on more or less a plateau after 2005, rather than declining as predicted by geological methods. The new model in the IMF Working Paper combines indications from both points of view, using an approach that allows them to estimate the relative contribution of geological impacts vs higher prices.

How the Two Methods are Combined

The oil supply equation in the new model is set up so that there are two different ways that the forecast oil supply can change. There is a downward tug from oil depletion at the same time that there is an upward tug from oil prices. It is expected that in the short run, high prices will get producers to utilize spare capacity, and over a longer period (estimated at 4 to 6 years), it will get producers to add new capacity. I will not try to explain all the variables and coefficients, but the blended supply equation is

Figure 3. Oil Supply Equation

In the above equation, qt is the quantity of oil produced in year t and Qt is the cumulative quantity produced in year t, so the ratio qt / Qt produces the familiar downward-sloping line one sees in charts used for Hubbert Linearization. The first two terms to the right of the equal sign are the ones based on the geological approach to depletion. The later terms depend on pt, which is price of oil at the time “t”. Adding the  pt terms tends to raise the line at later periods so it does not slope downward as quickly as if depletion were the only factor affecting the relationship.

Growth Rate of GDP

In the model, high oil prices have some impact on GDP, but as we will see in Figure 5, below, not very much. There are two places in modeling GDP where high  oil prices come into play. The first is in the Potential Growth Rate of GDP. According to the paper,

The growth rate of potential world GDP is specified as fluctuating around an exogenous long-run trend, with oil price changes making the fluctuations more severe. Oil prices are allowed to have persistent but not permanent effects on the growth rate of GDP. . . The estimated steady state world potential growth rate of potential GDP equals four percent. The average annual growth rate of real oil prices, which is the growth in oil prices at which the model assumes zero effect of oil prices on output growth, is seven percent. The results indicate that an oil price growth that is higher than that historical average has a small but significant negative effect on the growth rate of potential. [emphasis added]

Interesting–the model assumes real oil price growth of 7% per year has no impact growth rate of GDP. Perhaps this is supposed to be picked up by the second place where high oil prices come into forecasting GDP, called Output Gap. This is an excerpt from what the paper says about Output Gap:

Apart from allowing for an effect of higher oil prices on the growth rate of potential output, the model also allows for the possibility that higher oil prices can cause fluctuations in the amount of excess demand in the economy. . . . Similar to the equation for potential, the coefficient estimates show that high oil prices have a small but significant negative effect on excess demand, and that this effect is highly persistent.

Model Output

When all is said and done, what does the IMF model forecast?

Figure 4. Oil Output Forecast with Error Bands, (in gigabarrels per year), from report.

The forecast for future world oil supply, shown in Figure 4 above, is similar to EIA’s most recent forecast of world oil supply (but lower than earlier EIA estimates). Oil supply is expected to rise a 0.9% per year. An alternate tighter oil supply forecast is given as well.

The forecast for world GDP growth (shown in Figure 5 below) is not too much different from standard estimates, either. The point forecast is about four percent per year.

Figure 5. World GDP (in logs) forecast with error bands, with 2011 world GDP normalized to 1.00, from report.

The thing that is different in this analysis is oil prices (in inflation adjusted dollars). Forecast oil prices are expected to be much higher that what the EIA is estimating.

Figure 6. Oil price forecast with error bands (in 2011 Real $) from report.

The report points out that these high oil prices are a real concern. The report says:

The predicted average annual growth rates of oil output are well below the historical forecasts of EIA, but above the forecasts of proponents of the geological view. . . . However, this projected positive trend in oil production comes at a steep cost, because the model finds that it requires a large increase in the real price of oil, which would have to nearly double over the coming decade to maintain an output expansion that is modest in historical terms. Such prices would far exceed even the highest prices seen in 2008, which according to Hamilton (2009) may have played an important roll in driving the world economy into a deep recession.

Need for Enhancements /Areas of Concern Pointed Out by Authors of Paper

The authors raise of the IMF Working Paper raise the following issues:

1. Impact of high oil prices on GDP growth. The expected impact of a continued rise in oil prices on forecast GDP is small, according to the model as constructed. Perhaps the relationship should be non-linear (convex) instead of linear. More generally, what is the importance of the availability of oil inputs for continued overall GDP growth? The report mentions studies showing the close connection between energy growth and GDP growth, such as by Ayers and Warr.

2. Substitutability for oil. What is the substitutability between oil and other factors of production? Is it reasonable to assume that elasticities of substitution will become greater over time? Or is there a possibility that there are limits to the extent of substitutability of machines and labor for energy?

3. Is there a pain barrier? At some point, does the effect of high oil prices on the economy change, and become much worse?

4. Independence of Technology from Fossil Fuel Availability. Perhaps a reduction in fossil fuel availability will negatively affect the availability of future technology improvements since, for example, it takes fossil fuels to make new more efficient cars. This has not been reflected in the model.

5. Smaller Amounts of “Spare” Oil Capacity Available in the Future. The model reflects amounts of OPEC spare oil production capacity available in the past. In the future, less spare production capacity seems likely.

My Comments on the Paper

The IMF is to be commended on putting together this analysis. To me, the big step forward is that questions about the impact of geological depletion of oil on the economy are starting to be addressed. The fact that the paper also points out the level to which oil prices will need to rise, if oil production is to rise at 0.9% a year between now and 2020, is important as well.

Some of the issues I see that aren’t addressed in the paper:

1. Factors underlying world long term growth rate, other than energy. It would seem to me that there are a number of factors which have permitted long term world economic growth, over and above the economic growth enabled by fossil fuels. Some of the following seem to be diminishing in importance, so perhaps the forecast of a 4% world GDP growth rate going forward is too high, apart from oil supply issues:

a. Trend Toward Globalization. The trend toward globalization has allowed greater synergies to occur, and thus has contributed to world GDP growth. The trend toward globalization started over 4,000 years ago, with trade from northwest India to the Mediterranean region (Chew). In recent years, we seem to be  approaching a maximum level of world globalization. In fact, higher price of oil has been raised as an issue cutting back on trade of bulky, low valued items (Rubin). Higher cost of oil may also have an adverse impact of commercial airline flights for international companies to oversee their distant operations, because the costs of these flights is now supported by a large number of international tourists, and this international tourist trade may dry up. Thus, the trend toward globalization that has been supporting world GDP growth in the past may not persist, and may even reverse.

b. Growth in Education. Part of what has supported world GDP growth is likely growth in education, since literate workers are better able to use technology. There is evidence that the advanced economies are now plateauing in terms of educational level of new workers, relative to the existing work force. Even less advanced economies, such as China, are showing much higher levels of literacy. (See this post). To the extent that educational levels are reaching a plateau, the “boost” to historical GDP rates that came from this factor can be expected to be lessened.

c. Growth in Debt. GDP growth is enabled by debt growth. Consumers are able to purchase more goods and services, with increased levels of debt; businesses are able to increase their investment in new plants and equipment through more debt; and governments are able to undertake the development of new construction, roads, and other development, through the addition of more debt. But we seem to be reaching limits on debt growth. Theory also suggests that higher levels of debt are enabled by higher economic growth rates (Tverberg). Governments have been aware that increased borrowing can be used to pump up economic growth, but limits are being reached on the amount of debt that can be added. To the extent that debt fails to grow as quickly in the future as it has in the past, this can be expected to have an adverse impact on world GDP growth rates.

d. Quantitative Easing and Extraordinarily Low Interest Rates. An argument can be made that GDP growth of advanced economies in recent years has been held up by quantitative easing and extraordinarily low interest rates. These would seem to be a temporary fixes that cannot be continued long-term. If this is the case, world GDP rates can be expected to be lower in the future, regardless of oil supply growth.

2. Limits on Substitutability of Other Fossil Fuels for Oil. The paper does not address the issue of whether there are limits of substitutability of other fossil fuels for oil. Stationary (as opposed to transportation) uses of oil have been substituting away from oil for years. There are millions of vehicles and other machines that use oil currently in operation. There will be a high cost in replacing these before the end of their normal lifetimes. Also, significant fossil fuels will be required for making vehicles and supporting infrastructure that use another fossil fuel source.

3. Limits on Capital Available for New Investment in Substitutes for Oil, and in New Oil Production. In recent years, we have made heavy use of debt financing for new investment. Government subsidies have also been used. To the extent that debt financing and government subsidies are less available, less investment can be expected in the future.

4. Impact of High Oil Prices on Diverse Parts of the Economy, Not Reflected in the Model. For example, prices of homes may be affected by high oil prices. People with less discretionary income are less likely to “trade up” to a more expensive homes, so high oil prices seem to be one of the reasons for the decline in home prices (Tverberg). Lower home prices affect ability of homeowners to borrow against the value of their homes for new purchases, so affect GDP, apart from oil price’s direct impact on the number of new homes built.

5. Which comes first: Oil Growth or Economic Growth? The assumption in the model is that GDP growth drives oil growth. While this is true, it is to some extent a “chicken” and “egg” situation. Perhaps the availability of inexpensive oil and other fossil fuels is one of the main drivers of economic growth (in addition to the other drivers I mention in the subparts of Item 1 above). Perhaps the cycle is started by the availability of cheap fossil fuels for industrial use and continued by the increased demand to which this growth gives rise.

* * *

I appreciate the work that has been done by the IMF in putting together this model and look forward to seeing further enhancements to the model. The work that has been done and the questions that are being raised are important ones.

I expect that commenters to this post will be able to point out other plusses and minuses of the model. The report itself is very interesting. Again, it can be found at The Future of Oil: Geology versus Technology.

About Gail Tverberg

My name is Gail Tverberg. I am an actuary interested in finite world issues - oil depletion, natural gas depletion, water shortages, and climate change. Oil limits look very different from what most expect, with high prices leading to recession, and low prices leading to financial problems for oil producers and for oil exporting countries. We are really dealing with a physics problem that affects many parts of the economy at once, including wages and the financial system. I try to look at the overall problem.
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119 Responses to New IMF Working Paper Models Impact of Oil Limits on the Economy

  1. jayinhawaii says:

    As always, nice work Gail.

  2. DrSardonicus says:

    Gail.. I have viewed several graphs pertaining to “total liquids” of supply, but feel that these do not tell the whole story. In light of ever-decreasing EROEI, a more accurate appraisal could be to
    sum up the net BTU’s of the raw and refined product (by subtracting extraction/transport/processing losses). After all, those rigs do use a lot of diesel and double-counting ethanol (negative eroei) as “other liquids” is misleading. Ideally, the best litmus of activity would be to sum up net BTU’s per capita (by planet, country, or region).. Has this work been produced before? Cheers, Ron

    • The EIA puts out Btu equivalent data, for the US, and with a very long lag, for the world, but this does not reflect costs of extraction and shipping.

      Ethanol is separated out in EIA numbers. Ethanol is mostly a “natural gas to liquids” operation, in my view. It helps us use our natural gas more quickly.

      I am not aware of information for subtracting out the processing and shipping costs.

      What has happened in recent years is that coal use has skyrocketed, particularly in China and the rest of Asia, as we have outsourced more production there. This use of coal has helped offset the plateaued level of “liquids”.

  3. Pingback: Chiffres-carbone » Archives » Quand le FMI s’intéresse aux ressources de pétrole

  4. La Curée says:

    Gail on trees.
    You are talking without sources about things not in your area of expertise, the Sweet Chestnut forest of Corsica planted by the Genoese centuries ago has an equivalent yield per acre as cereal crops grown without modern supplements.
    Much is no longer harvested to be made into a staple flour but it was and grows on land unsuitable for conventional agriculture.
    Now you are likely to meet huge pigs turned out to feast on the crop before becoming charcuterie.
    D- Gail! :¬)

    • La Curée says:

      Right about now

    • schoff says:

      Chestnuts of course to not grow here in the provinces (US), due to a virus. Though my barn is made out of ancient chestnut trees, well only 200 years old. We still run pigs through the oak forests here in pennsylvania for those who are crunchy hemp belt wearing people like moi. My wife and have on our punch list for this Fall to make flour from the acorns as (her) forefathers did, looks semi difficult (i’m an organic wheat farmer on the side), but there are some recipes we want to try. I’d really like to stay with the grain world of the past say 40,000 years, even with knowledge that Cicero was writing about the depletion of Italian soils only a couple of centuries ago. Lurking in the forests is oh so very declasse teutonic, my ancestors didn’t do too well in animal skins against the grain fed italians once upon a time. 🙂

      • La Curée says:

        Yes, that fake down to earth virus is a schmer for a culture, in fact you are more segregated by class and ethnicity than us reprobates in the UK.
        Your continent is the weaker partner to Europe soft and vulnerable just like your wildlife.;¬)
        There are many other tree crops possible, what kills them is the slash and burn mentality of us idiot apes
        That forest in Corsica survived initially because the Genoese overlords protected it and lately due to depopulation.
        What we lack is a leadership with the vision to give the orders and protect a new forest

      • La Curée says:

        I read somwhere that washing the tannins out only works on ‘White Oaks’ one technique mentioned was but them in the toilet cistern for weeks, perhaps a weighted sack in a stream would do the same?
        I’m just a pleb with no land to my name so jealous and out to cause troble probably nothing compared to the what the Native Americans and Mexicans feel :¬)

        • schoff says:

          My readings point to more than white oaks, and i’ve read about the toilet cistern method but i think i’ll pass, i’ve been thinking about gravity and rain water since at the moment we get six inches a month. You can come and infest one of my acres with your British ways, we can brew some mint tea using twigs for fire and pour it into my Spode (an earlier life affectation for tea in good china which will last hundreds of years).

          • La Curée says:

            Thanks ‘schoff’ for the offer coincidentally I have had a similar offer on a grander scale that I am giving some thought.
            Income is the issue, whilst you landowners might enjoy having a well educated hermit on your property to chat with perhaps even gifting a few acres I am used to the pleasures and benefits of an indulgent society. :¬)
            Not to mention the NHS, healthy as a horse now, spend 10 years out of the country, returning home, in the developing political climate I could be asked to pay if free health care still exists of course.
            Then there is the ‘Fucko’ incident to consider should it topple over the UK would be about the best place in the N. Hemisphere to be.
            Not forgetting global warming the models show the UK suffers less than just about anywhere north of the Antarctic.

          • schoff says:

            Well if you got caught on this side of the pond when the balloon goes up, come on over. I rented a country home in the cotswolds once upon a time with a few hectares, some sheep and a hermit in a bit of a cottage at the edge of the property who was writing his 10th book. The area was so full of eccentrics that for the first time in my life I felt average and normal (this is without medication). I’m thinking that England can’t feed itself and hasn’t been able to since the 18th? century, so I’d be careful with that dieoff thing, that never looked good in the petri dishes i used to work with.

            • Leo Smith says:

              I believe the pre-industrial population of Britain was about 2-5 million at the time of the Black Death and never exceeded that figure again until the onset of industrialization in the 17th century.

              It is currently an estimated 70 million.

              Remember, it takes wood or coal to even smelt as simple a thing as a harvesting scythe.

              The prospects for a non technological resource stripped massively overpopulated island are bleak.

            • schoff says:

              I think we’re fairly well aware of those messy industrial age things; however, in a grand fall, i wouldn’t be smelting from ore. I’d be melting stop signs to make my scythe, or even maybe cutting them. The interesting aspect of all of this is we have concentrated materials in various places which one could mine, I’m hoping to get rights on the town dump.

            • Leo Smith says:

              Not exactly ‘sustainable’ though, is it?


            • What would it take to make a harvesting scythe out of recycled metal parts–parts of cars or buildings for example?

              It seems like it would still take wood or coal to heat the recycled metal to a point where it would have a sharp enough edge. Using whatever mixture was available would limit the quality of blades a lot, it would seem like.

            • Leo Smith says:

              general scrap iron and steel is not the same as a decent high carbon steel that takes an edge.
              Car leaf springs rubbed on a bit of concrete might make a decent machete. Scythes are rather different as you need a certain balance.. Not a huge amount of wood, but definitely several bags of charcoal to cast and forge. 🙂

      • La Curée says:

        Organic is just a variety of business as usual so the cost of fuel will put an end to your little game by the end of the century.

        • schoff says:

          You think it will last that long? My scythe is 100 years old, passed down four generations, and i’m believing it is good for 200+, I tried to get a very good English company to make a duplicate of this provincial variant (it has a “basket”), but while he admired it, they needed 10’s of orders to proceed. I guess I will have to find some peacenik post-teutonic amishman with a straw hat to hand make me one. I’m sure this is an anglo-american oil company conspiracy…..

          • La Curée says:

            The Austrians make some excellent scythes according to my ex FB friend Sue Bullock.

            No doubt you could get one made in Sheffield a few people still have the required skills it would probably cost a weeks work though.
            I bought a carving knife from the one retail outlet in Sheffield for the artisan tool makers 12 years ago.
            Used everyday a steel blade with a wooden handle shows almost no age.
            I asked about sharpening tools and the bloke in the shop said it will be years before you need to sharpen it and it was 4 or 5 – a hand ground cutting edge.

        • The organic I have seen has an awfully lot of fossil fuel inputs. High cost could be a problem; so could interruption of supplies.

          • Leo Smith says:

            “The deserts of North Africa and Mesopotamia are the result of 10,000 years of organic farming” 🙂
            The facts are that all modern farming is energy intensive: we trade energy input for better per acre yields and that’s a fact. Organic farming is somewhat better, but not by much.

            Last year organic farming killed more people than atomic power did. No one died from Fukushima fallout. 22 people died from eating beansprouts contaminated with a bacterium found normally in the gut and faces of animals, including humans,..


            I just love facts.

          • schoff says:

            Permaculture designs contain organic components obviously, while it is less clear to me from my readings that North Africa is a result of organic farming and not climate change as well, there is good evidence that Greece and other peoples had to move from grain to olives/wine due to soil destruction. My vineyard in virginia is operating on what was once great soil that Tobacco culture destroyed, and was only good for grazing of beef, until 11 years ago when it became perfect for merlot et al. Here in Pennsylvania (aside from the vineyard) the goal is in fact organic within realistic permaculture. I run a market garden of 2 acres with no well, no water except which i steal from my neighbors roofs, and increasingly reliance on hugelkultur for vegetables. If there is one strategic investment that I would make as an individual for food security, this is it.

            • I had to look up hugelkultur. It is permaculture using waste wood as for composting at bottoms of raised beds. The wood retains moisture during dry periods.

              The issue I see with this is limits on the amount of waste wood available. It is a technique that works for a modest number of people in areas with a lot of trees, but it won’t replace American agriculture. In parts of the world where people are gathering sticks for firewood, as they fall, to burn for cooking, I would expect that the amount of waste wood would be pretty low.

        • schoff says:

          Thanks for the reference. I do love good English tools, unfortunately the Amish walked away from that, though I understand there is someone in the community just taking it up.

  5. Don Stewart says:

    I think we make a mistake if we automatically assume that nothing can be done to improve agriculture–as opposed to going back to agronomy (managing field and forest so as to offer more benefit to humans) or to hunting and gathering (taking what Mother Nature offers with little management by humans). For example, examine this workshop which will happen shortly in Asheville, North Carolina:

    Living Web Farms presents
    a Hands on Workshop
    with Professor Emeritus Dr. Ron Morse of VA Tech
    along with Pat Battle & Jon Nilsson

    Maximizing Profitability with Minimum Till and Biological Synergy
    At Mills River Educational Farm Saturday May 19th, 2012 from 3:30 – 8 PM

    v High Residue Cover Crops – Legume/legume-grass cover crops are the major source of organic nitrogen for organic growers with manure and compost as secondary sources or inoculants.

    v Soil Health – Soil health can be equated with the level of active soil organic matter that can be enhanced–in both quantity (intensity) and quality (multi-functionality, including pest management)–by strip interseeding cover crops on permanent, controlled-traffic beds.

    v Synergistic Supplements – Compost tea and “primed biochar” are key examples of synergistic beneficial microbial supplements that can support or energize natural systems, enabling enhancement of nutrient and water availability and pest management.

    Professor Emeritus, Dr. Ron Morse is a world-recognized specialist in no-till, low-till and organic based fertility systems for vegetable growers. Ron’s specialty is maximizing farm profitability by optimizing the synergy of successional cover crops, specialized small farm equipment, biological inoculants and tillage systems. At times this has meant the Ron has had to invent his own unique equipment which he will demonstrate and show how it works to optimize soil health and yield. As you will see, this system is ideal for fall broccoli production.

    Ron will be joined by 25 year organic grower Pat Battle and Soil Scientist Jon Nilsson who have been working with Ron for years to integrate his vast experience with new biological extracts and substrates that provide long term homes for beneficial soil microorganisms.

    If you have followed some of my previous posts, you will see some familiar themes. For example, the need to keep the land covered rather than bare; the use of specific plant choices to enhance soil fertility; promoting microbial life; minimize tillage and seldom turn the soil over.

    Here is a link to a Rodale Institute article with a sidebar outlining the advantages and disadvantages, as seen from almost 10 years ago.

    My point is that it is always work to arrest the development of land at a point most favorable to humans. But clever people with good intentions can frequently manage to do so with reasonable expenditures of energy. One thinks of the Farmers of Forty Centuries, of Masonobu Fukuoka, the grass fed beef farm I described, and Ron Morse. In short, we need to get about the work rather than wallow in despair.

    Don Stewart

    • ThanKs! There are indeed things that can be done to move upon the chain. They may still require inputs or transportation that isn’t available for the long term, so the question of how long they will work needs to be examined carefully.

  6. Don Stewart says:

    Everyone concerned about food and energy scarcity and what can be done about it should read Albert Bates’ review of Peter Bane’s The Permaculture Handbook–Garden Farming For Town and Country.

    Unfortunately, the book won’t actually be available until mid-July, I understand.

    Don Stewart

  7. Don Stewart says:

    Here is another illustration of what is actually being done today in terms of changing to a more sustainable farming system. I have earlier emphasized that ‘services’ are not only provided by humans, but also by solar powered wild creatures. This workshop addresses that subject.

    Don Stewart

    Habitat Establishment for Multiple Ecological Services
    May 23, 2012
    Center for Environmental Farming Systems, Goldsboro, NC

    This workshop will provide an overview of ecosystem services and practices and programs designed to enhance them. Practices for the farm and home landscapes will be presented. Field demonstrations will focus on establishment and maintenance of habitats to provide life cycle needs of native plants, wildlife, predatory and parasitic insects, and pollinators.

  8. Robin Datta says:

    GDP (the secondary economy) is “produced” from the primary economy (the resource base) by skilfully directed energy streams. “Growth” in GDP is an acceleration in the rate of this production. The products includes the sources of energy, viz. fossil fuels &c. that power the process of production. With declining ERoEI, a larger portion of that power (and the required fossil fuels) will have to be devoted to securing more fossil fuels. Less will be available to “produce” other products. Progression along this trend with declining ERoEI will ultimately result in ALL the power derived from fossil fuels being devoted to the production of ever-diminishing quantities of fossil fuels, and nothing else.

    Before such a situation obtains, the “production” of other essential products with fossil fuel energy will force a progressive drawdown of fossil fuel production feeding back to a drawdown in the “production” of the essential products. Efforts to maintain the production of essential products will leave even less fossil fuels available to produce more fossil fuels. Declining ERoEI will thus force a downward spiral. 

    The “price” of fossil fuels reflects the proportion of production that is devoted to the production of fossil fuels. Since it would make no sense to devote all of the energy obtained from fossil fuels to produce more fossil fuels, that will act as a constraint on fossil fuel prices. 

    The only way out of the dilemma is to find energy sources with constant or growing ERoEIs – as figured from scratch, including all fossil fuel inputs.

    • Leo Smith says:

      “The only way out of the dilemma is to find energy sources with constant or growing ERoEIs – as figured from scratch, including all fossil fuel inputs.”

      I only know of one such. Nuclear energy. The fuel is a very small fraction of the costs – its all in O & M and Capex.

      ERoEI is massive.

      • Robin Datta says:
        LFTRs not included in above.

        • Leo Smith says:

          Rather a poor article really. I haven’t time to dissect it in detail, but it looks like ‘an oil mans cursory glance at nuclear power, after having read up the anti nuclear mythology.’

          But three power stations to refine fuel? I don’t thinks so. Its largely a mechanical and chemical process – not like smelting iron, aluminum or lead. Or indeed making cement.
          Reactor fuel in the UK is around 0.1p – 1p contribution to a unit of electricity which is worth in raw oil terms about 5p. So its at LEAST 5:1 and probably better than 50:1 energy to mine/refine

          • The problem is not the amount of uranium used to create a unit of electricity; it is the huge amount of costs/energy that goes into the nuclear power plant to begin with, plus the costs of taking care of spent fuel properly, plus the costs of decommissioning. The costs of building nuclear power plants have escalated so much that I wonder whether early EROEI studies really considered current cost levels. Also, EROEI calculations leave out a lot of things. The cost of capital is one of these things. It makes a big difference if funding must be done on the front end for a very long operation and decommissioning period. If fossil fuels will be needed for decommissioning, and these are not likely to be available, this is a huge problem as well.

            • Leo Smith says:

              well it costs the same to build a 60 year lifetime 85% plus capacity nuclear reactor and decommission it as it does to build a 15 year offshore wind farm , of 30% capacity factor plus its attendant co-operating gas turbines, and leave it rusting in the sea when its no longer profitable.

              There are no easy answers.

              Chernobyl is just being wrapped in concrete. Most of thee adjoining towns are inhabitable now.
              It could be buried if people regarded that as a sane long term solution. (I do)

              But I suggest that you research the numbers yourself. Don’t take my word for it, or listen to the anti-nuclear lobby.

              I will say that after about three years doing that, I came to the conclusion that we don’t have any options BUT nuclear if we want to reduce fossil fuel consumption, or fossil runs out, and even that involves massive and radical changes in the way society works.

              In short: nuclear is not AN option, its the ONLY option left, post fossil.

              That doesn’t make me especially happy. And there are many issues that need to be resolved, but at least they CAN be resolved. The issues with ‘alternative’ energy are intrinsic to the energy source* and can’t be resolved with ‘better technology’ – that was my ultimate conclusion.

              Of all the materials and energies that we have access to, the one that is portable, safe to stockpile in huge quantities and is enough to run most of the civilized world is nuclear energy of one sort or another.

              I would say we have a choice: abandon nuclear and see a new dark age and a reversion to about 10% of current populations or less**, and sink back into barbarism, or rise to the nuclear challenge and move on with post industrial technological society.

              Opinions may differ, but let them be opinions based on understanding the nature of energy and technology and its absolute essentiality in our current society.

              In the UK the total power consumption to keep society alive is around 5kW (125kwh/day) per head total. I believe in the USA it’s around 10kW per head.


              That’s the place to start calculating how many wind driven prayer wheels, or vastly expensive solar panels, and lead acid batteries you need to supply a nation reliably. And the cost and the adverse environmental impact.

              There is no good solution. Nuclear is simply the least worst.

              *essentially low power density, meaning very large structures, and intermittency, meaning even bigger structures which are largely wasted, and the the need to create storage (which no technology exists, even in theory, for, at suitable scales and costs) or use inefficient co-operation with – you guessed it fossil fuel plant! ( Its totally pointless to co-operate intermittent renewables with nuclear. The nuclear is already paid for one assumes, and generates no more carbon no matter how hard its run, so adding renewables to it is pointless. All cost and no benefit.

              ** which is definitely ONE way of ‘reducing carbon emissions’ 🙂

            • I agree with you that the numbers for wind and solar don’t work. Too low capacity factors and life expectancies, too much intermittency.

              I am not sure nuclear is a real option either, given our ability to deal with tough situations and the downhill road the world will be on without fossil fuels. I am afraid that even if proper storage is theoretically possible, and proper safety measures theoretically are possible, and proper decommissioning is planned, those things won’t really happen in practice. There is also the issue of the unforeseeable. I know that there has been quite a bit of talk about the possibility of another earthquake causing further damage at Fukushima, including a great deal of radiation leakage. There is also discussion about radiation levels in Japan being much higher than admitted.

              See for example this report, or Arnie Gunderson’s Fukushima videos.

      • With nuclear energy, there needs to be some way of handling spent fuel, and the buildings need to be decommissioned, even without fossil fuel. These things seem to be major impediments to expanding nuclear. If thorium could be made to work, with little waste, it might be a partial solution. (Of course, our society is not all electric either, so it still would be only a partial solution.)

        • Leo Smith says:

          these are perception problems only – spent fuel is either stable and therefirre realtivelo lwo radioactyivity with lomg hald lives in which case it can be reprocessed into new fuel, or its short lived high radioactivity – which merely needs safe storage for a few tens of years.

          Governemnts dont want to face up to these challenges, and that means a myth that ‘there is no solution’ has arisen and been siezed on.

          Decommissionong is really a matter of making sure no one goes near a given place for a long enough time: burying the dismpantled (or otherwise) reactors under soil stops nearly all the emissions that could conceivably be called dangerous.

          We regularly deal with far more deadly wastes far more casually.

          • We are nowhere near balancing the US budget now. Trying to scrape together enough funds for simple things is not easy to do. Just because something can be done, doesn’t mean it will be done.

    • I pretty much agree with you.

      What we really built the United States on was very high EROEI oil, natural gas, and coal. Part of our problems today are related to declining EROEI of those products. What we really need to somehow come up with now (if we plan to maintain our lifestyle–a big if) is new very high EROEI products–but these don’t seem to be available.

  9. Jacob Zunot says:

    From an analytical point of view it is very interesting post. I have read many articles about peak oil, but recently I have found an article Which Resource Will Run Out First?, which argues that we should be more concerned about lack of other materials (as for example rhenium) than about peak oil. Do any of you know any interesting research paper that analyzes the situation around metals used in hi-tech industry?

    • I am afraid I don’t.

      Resource extraction usually uses oil products for earth moving and for transporting of ores, so a shortage of oil could make extraction of many ores more difficult. Some type of fossil fuel is often used in refining as well.

  10. Leo Smith says:

    Now there was one somewhere..that I came across in the Financial Times on rare earth’s at least.

    I am fairly sanguine about metals – Copper can be replaced with aluminum, and we don’t need that many specialized steels or indeed any blasted I phones at all…neodymium can be replaced with Cobalt, …the total market for rare earths is not huge, and as prices rise the mines that were not competitive will restart – I believe one is being pumped out in California, and there is another one in Colorado..

    plus an interesting deposit of rare earths and uranium in Greenland that was mentioned somewhere.

    Its like oil: if the price is right there is a load more of it there if you want it.

    What concerns me more is energy. Because of the ERoEI. That sets the limit not on what’s there, but what can be extracted with a positive energy return. Materials can be recycled..they are not necessarily consumed – and even oil can be synthesized if you need that sort of fuel and only that sort of fuel and are prepared to pay the price in another (and where aircraft are concerned, there seems little realistic alternative to some form of kerosene).

    Without a lot of primary energy the world as we know it comes to a halt: with energy, it may have to radically transform itself, but it survives as a technological society with a medium to high population density.

    The sad fact is that people seem to think that alternative energy sources will be there because they desire them to be: the actual fact is that we don’t have any that are effective and/ or acceptable right now.

    We have maybe 30-50 years of fossil left at spiralling prices: after that there really is only one more to go – nuclear. Andf that is maybe only 1-200 years of fissile material before we have to crack fusion, and buy ourselves a millenium.

    • La Curée says:

      One specific example, but a scan reveals it to be all idiot ape copy and paste fare.
      ‘However, aluminum metal also has its disadvantages such as it generates more heat compared to copper wire because of its high resistivity.’

      • schoff says:

        It is also difficult to make distilled spirits without copper. For small engines like my chain saw and later as a libation to ease the aches of my 50 something body doing firewood.

      • Leo Smith says:

        I am a qualified electrical engineer.
        Amongst other things, and I do not like your tone

        You will find, oddly enough that all grid cables are made of aluminum wound over a steel load bearing cable.

        This is because aluminum is the second best conductor to copper that is cheap enough to be used, and weight for weight, its actually better.

        Copper is the choice for many reasons, but its not mandatory to use it. Aluminum is used in some telephone cabling, nearly all high voltage catenaries, and occasionally for electrical work where weight is important, and the disdvantages of using it can be negated.

        Likewise cobalt (AlNiCo) magnets are not as high flux density as neodymium,. but are cheaper and can take more heat: often a better tradeoff in permanent magnet motors, for example.

        Now that not to say that some rare earths and other elements aren’t irreplaceable.. semiconductor dopants are chosen because they have precisely the correct properties and nothing else will do – but do we need so MANY semiconductors? No. we use them profligately because they ARE cheap.

        So transitioning away from increasingly scarce minerals won’t be simple, but it is at least possible.

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