A Forecast of Our Energy Future; Why Common Solutions Don’t Work

In order to understand what solutions to our energy predicament will or won’t work, it is necessary to understand the true nature of our energy predicament. Most solutions fail because analysts assume that the nature of our energy problem is quite different from what it really is. Analysts assume that our problem is a slowly developing long-term problem, when in fact, it is a problem that is at our door step right now.

The point that most analysts miss is that our energy problem behaves very much like a near-term financial problem. We will discuss why this happens. This near-term financial problem is bound to work itself out in a way that leads to huge job losses and governmental changes in the near term. Our mitigation strategies need to be considered in this context. Strategies aimed simply at relieving energy shortages with high priced fuels and high-tech equipment are bound to be short lived solutions, if they are solutions at all.

OUR ENERGY PREDICAMENT

1. Our number one energy problem is a rapidly rising need for investment capital, just to maintain a fixed level of resource extraction. This investment capital is physical “stuff” like oil, coal, and metals.

We pulled out the “easy to extract” oil, gas, and coal first. As we move on to the difficult to extract resources, we find that the need for investment capital escalates rapidly. According to Mark Lewis writing in the Financial Times, “upstream capital expenditures” for oil and gas amounted to  nearly $700 billion in 2012, compared to $350 billion in 2005, both in 2012 dollars. This corresponds to an inflation-adjusted annual increase of 10% per year for the seven year period. (If you have problems viewing the images, attached is a PDF of the article, including images: A Forecast of Our Energy Future; Why Common Solutions Don’t Work | Our Finite World)

Figure 1. The way would expect the cost of the extraction of energy supplies to rise, as finite supplies deplete.

Figure 1. The way would expect the cost of the extraction of energy supplies to rise, as finite supplies deplete.

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Ten Reasons Intermittent Renewables (Wind and Solar PV) are a Problem

Intermittent renewables–wind and solar photovoltaic panels–have been hailed as an answer to all our energy problems. Certainly, politicians need something to provide hope, especially in countries that are obviously losing their supply of oil, such as the United Kingdom. Unfortunately, the more I look into the situation, the less intermittent renewables have to offer. (Please note that I am not talking about solar hot water heaters. I am talking about intermittent renewables added to the electric grid.)

1. It is doubtful that intermittent renewables actually reduce carbon dioxide emissions.

It is devilishly difficult to figure out whether on not any particular energy source has a favorable impact on carbon dioxide emissions. The obvious first way of looking at emissions is to look at the fuel burned on a day-to-day basis. Intermittent renewables don’t seem to burn fossil fuel on day-to-day basis, while those using fossil fuels do, so wind and solar PV seem to be the winners.

The catch is that there are many direct and indirect ways that fossil fuels come into play in making the devices that create the renewable energy and in their operation on the grid. The researcher must choose “boundaries” for any analysis. In a sense, we need our whole fossil fuel powered system of schools, roads, airports, hospitals, and electricity transmission lines to make any of type of energy product work, whether oil, natural gas, wind, or solar electric–but it is difficult to make boundaries wide enough to cover everything.

The exercise becomes one of trying to guess how much carbon emissions are saved by looking at tops of icebergs, given that the whole rest of the system is needed to support the new additions. The thing that makes the problem more difficult is the fact that intermittent renewables have more energy-related costs that are not easy to measure than fossil fuel powered energy does. For example, there may be land rental costs, salaries of consultants, and (higher) financing costs because of the front-ended nature of the investment. There are also costs for mitigating intermittency and extra long-distance grid connections.

Many intermittent renewables costs seem to be left out of CO2 analyses under the theory that, say, land rental doesn’t really use energy. But the payment for land rental means that the owner can now go and buy more “stuff,” so it acts to raise fossil fuel energy consumption. Continue reading

Why EIA, IEA, and Randers’ 2052 Energy Forecasts are Wrong

What is the correct way to model the future course of energy and the economy? There are clearly huge amounts of oil, coal, and natural gas in the ground.  With different approaches, researchers can obtain vastly different indications. I will show that the real issue is most researchers are modeling the wrong limit.

Most researchers assume that the limit that they should be concerned with is the amount of oil, coal, and natural gas in the ground. This is the wrong limit. While in theory we will eventually hit this limit, because of the way fossil fuels are integrated into the rest of the economy, we hit financial limits much earlier. These financial limits include lack of investment capital, inability of governments to collect enough taxes to fund their programs, and widespread debt defaults.

One of the things I show in this post is that Economic Growth is a positive feedback loop that is enabled by cheap energy sources. (Economists have postulated that Economic Growth is permanent, and has no connection to energy sources.) Economic Growth turns to economic contraction as the cost of energy extraction (broadly defined) rises. It is the change in this feedback loop that leads to the financial problems mentioned above.  These effects tend to lead to collapse over a period of years (perhaps 10 or 20, we really don’t know), rather than a slow decline which is easily mitigated.

If, indeed, most analysts are concerned about the wrong limit, this has huge implications for energy policy:

1. Climate change models include way too much CO2 from fossil fuels. Lack of investment capital will bring down production of all fossil fuels in only a few years. The amounts of fossil fuels included in climate change models are based on “Demand Model” and “Hubbert Peak Model” estimates of fossil fuel consumption (described in this post), both of which tend to be far too high. This is not to say that the climate isn’t changing, and won’t continue to change. It is just that excessive fossil fuel consumption needs to move much farther down our list of problems contributing to future climate change.

2. It becomes much less clear whether high-priced replacements for fossil fuels are worthwhile. In theory, they might allow a particular economy to have electricity for a while longer after collapse, if the whole system can be kept properly repaired. Offsetting this potential benefit are several drawbacks:  (a) they make the economy with the high-priced replacements less competitive in the world marketplace, (b) they tend to run up debt, increase government spending, and decrease discretionary income of citizens, all limits we are reaching, and (c) they tend to push the economic cycle more quickly toward contraction for the country purchasing the high-priced renewables.

3. A large share of academic writing is premised on a wrong understanding of the real limits we are reaching. Since writers base their analyses on the wrong analyses of previous writers, this leads to a nearly endless supply of misleading or wrong academic papers.

This post is related to a recent post I wrote, The Real Oil Extraction Limit, and How It Affects the Downslope.

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Why a Finite World is a Problem

Why is a finite world a problem? I can think of many answers:

1. A finite world is a problem because we and all of the other creatures living in this world share the same piece of “real estate.” If humans use increasingly more resources, other species necessarily use less. Even “renewable” resources are shared with other species. If humans use more, other species must use less. Solar panels covering the desert floor interfere with normal wildlife; the use of plants for biofuels means less area is available for planting food and for vegetation preferred by desirable insects, such as bees.

2. A finite world is governed by cycles. We like to project in straight lines or as constant percentage increases, but the real world doesn’t follow such patterns. Each day has 24 hours. Water moves in waves. Humans are born, mature, and die. A resource is extracted from an area, and the area suddenly becomes much poorer once the income from those exports is removed. Once a country becomes poorer, fighting is likely to break out. A recent example of this is Egypt’s loss of oil exports, about the time of the Arab Spring uprisings in 2011 (Figure 1). The fighting has not yet stopped. 

Figure 1. Egypt's oil production and consumption, based on BP's 2013 Statistical Review of World Energy data.

Figure 1. Egypt’s oil production and consumption, based on BP’s 2013 Statistical Review of World Energy data.

The interconnectedness of resources with the way economies work, and the problems that occur when those resources are not present, make the future much less predictable than most models would suggest.

3.  A finite world means that we eventually run short of easy-to-extract resources of many types, including fossil fuels, uranium, and metals.  This doesn’t mean that we will “run out” of these resources. Instead, it means that the extraction process will become more expensive for these fuels and metals, unless technology somehow acts to hold costs down. If extraction costs rise, anything made using these fuels and metals becomes more expensive, assuming businesses selling these products are able to recover their costs. (If they don’t, they go out of business, quickly!) Figure 2 shows that a recent turning point toward higher costs came in 2002, for both energy products and base metals.

Figure 2. World Bank Energy (oil, natural gas, and coal) and Base Metals price indices, using 2005 US dollars, indexed to 2010 = 100.  Data source: World Bank.

Figure 2. World Bank Energy (oil, natural gas, and coal) and Base Metals price indices, using 2005 US dollars, indexed to 2010 = 100. Base metals exclude iron. Data source: World Bank.

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