How Researchers Could Miss the Real Energy Story

I have been telling a fairly different energy story from most energy researchers. How could I possibly be correct? What have other researchers been missing?

The “standard” approach is to start from the amount of resources that we have of a particular type, for example, oil in the ground, and see how far these resources will go. Growing development of technology seems to allow increasing amounts of these resources to be extracted. Thus, limits seem to be farther and farther in the distance, especially if a person starts out with an optimistic bias. It is easy to get this optimistic bias, with all research funds going in the direction of, “What can we do to solve our energy problems?”

Approaches for forecasting future supply problems that start from the amount of resources in the ground suffer from the problem that it is hard to draw a sharp line regarding when we will run into difficulties. It is clear that at some point, there will be a problem–EROEI (Energy Return on Energy Investment) will be too low–but exactly when is hard to pinpoint. If a person starts from an optimistic viewpoint, it is easy to assume that as long as Energy Output is greater than Energy Input for a given process, that process must be helpful for solving our energy problem.

In fact, in my opinion, the story is very different. The very thing that should be saving us–technology–has side effects that bring the whole system down. 

The only way we can keep adding technology is by adding more capital goods, more specialization, and more advanced education for selected members of society. The problem, as we should know from research regarding historical economies that have collapsed, is that more complexity ultimately leads to collapse because it leads to huge wage disparity. (See TainterTurchin and Nefedov.) Ultimately, the people at the bottom of the hierarchy cannot afford the output of the economy. Added debt at lower interest rates can only partially offset this problem. Governments cannot collect enough taxes from the large number of people at the bottom of the hierarchy, even though the top 1% may flourish. The economy tends to collapse because of the side effects of greater complexity.

Our economy is a networked system, so it should not be surprising that there is more than one way for the system to reach its end.

Slide 5

Figure 1

I have described the problem that really brings down the economy as “too low return on human labor,” at least for those at the bottom of the hierarchy. The wages of the non-elite are too low to provide an adequate standard of living. In a sense, this is a situation of too low EROEI: too low return on human energy. Most energy researchers have been looking at a very different kind of EROEI: a calculation based on the investment of fossil fuel energy. The two kinds of EROEI are related, but not very closely. Many economies have collapsed, without ever using fossil fuel energy,

While what I call “fossil fuel EROEI” was a reasonable starting place for an analysis of our energy problems back in the 1970s, the calculation now gets more emphasis than it truly deserves. The limit we are reaching is a different one: falling return on human labor EROEI, at least for those who are not among the elite. Increasing wage disparity is becoming a severe problem now; it is the reason we have very divisive candidates running for political office, and many people in favor of reduced globalization.

Overly Simple Models Give Misleading Answers

People who don’t work with models very much can easily assume that a model is telling them more than it really is. I discussed this issue in my recent article Overly Simple Energy-Economy Models Give Misleading Answers. It is quite possible to make a model that works some of the time, but not always. A researcher who is unaware of this problem is likely to overuse the model. As the saying goes, “If a person’s only tool is a hammer, every problem is a nail.”

If a system has multiple parts to it, as is the case with the system that controls energy extraction and energy prices, it is likely that a fairly complex model is needed to make a model that really represents the situation. The earliest models were in a sense one dimensional, when they needed to be multi-dimensional. With these additional dimensions, the model would include such characteristics as the fact that demand is controlled by a financial system, and the fact that the level of demand (and thus prices) depends on the ability of even the lowest-paid workers to afford the output of the system.

The model could also include what is essentially a physics problem–if there is not enough energy to go around, the usual solution is “more technology” or “more complexity.” What more technology and more complexity add is more concentrations of energy in various ways: in capital goods such as machinery and vehicles, in larger businesses to own these devices, in high-paid management officials, and in workers with specialized training.

These concentrations of energy are what lead to wealth disparity–some people “own” businesses and capital goods, and some people (but not others) receive advanced education or other specialized training. All of these things allow a relatively small number of privileged people to receive a greater share of the output of the economy. This leaves less for the rest.

As the result of this wage disparity, the economy ends up with too many people either dropping out of the work force, or earning low wages. It is lack of the ability of these people to afford the output of the economy that brings the economy down. Demand is closely related to affordability of goods made using fossil fuels, such as homes and cars. Many people miss the connection between demand and affordability.

Of course, if we didn’t have this falling demand problem (or low price problem) caused by increased concentrations of wealth leaving too large a share of the population too poor, we would eventually get to something similar to the problem that many have been concerned about: fossil fuel EROEI would eventually fall too low.

Hubbert Tells Part of the Story

When talking about resource limits, the thing that tends to confuse most people is the large quantity of energy resources that seems to be available. We can get some of these resources out with today’s technology. Logic would seem to suggest that with improved technology, we should be able to keep moving on to increasingly difficult-to-extract fossil fuel resources. We should also be able to create increasing quantities of substitutes.

M. King Hubbert gave an answer that only went partway in telling the extent of our problems. Basically, he said that once we had extracted 50% of a particular resource, the quantity we could extract would tend to decline in a more or less symmetric curve.

Figure 2. M. King Hubbert symmetric curve from Nuclear Energy and the Fossil Fuels.

Figure 2. M. King Hubbert’s indicated symmetric curve of resource extraction from Nuclear Energy and the Fossil Fuels, published in 1956.

Hubbert described the situation of a single well or field, when there were other wells or fields taking the place of the wells and fields depleting. In this situation, demand (and thus price) stays pretty much the same. If investment in the well remains the same, production will tend to follow a symmetric curve.

We are clearly reaching a different limit at this time. We have a two-way tug:

  1. Low demand. We have wages that show increasing disparity. Wealthy people tend to spend their incomes on goods that are not very energy-intensive, such as education and financial services, while less wealthy people tend to spend a larger share of their incomes on energy-intensive products such as food, basic transportation, and basic housing. Thus, this shift in wage patterns tends to reduce energy demand, and thus energy prices.
  2. Government attempts to fix low demand. Low demand leads to low economic growth, so governments and central banks are doing everything that they can to raise demand. Their approaches include ultra-low interest rates and deficit spending. The hope is that even if citizens don’t have sufficient wages to buy expensive goods such as cars and homes, the additional debt at low interest rates will make these goods, more affordable and thus spur demand.

We can keep increasing oil and other fossil fuel extraction, as long as our current system continues to “work.” In particular, prices need to be high enough for those extracting oil to make a reasonable profit, to cover reinvestment needs. The profit has to be high enough, too, so that the companies can pay taxes to their governments, so that governments can continue programs that mostly benefit the 99% of the citizens who don’t have high incomes. This is a major way that the net energy that is generated by fossil fuels gets back to benefit the government and the many poorer citizens who benefit from government programs.

Misinterpretation of Hubbert by Peak Oilers and The Powers That Be

Neither Peak Oilers nor The Powers That Be (TPTB) figured out the real story. The Peak Oilers were “tripped up” by the overly simple model problem I described above. They assumed that 50% of remaining fossil fuels could be extracted after peak, regardless of whatever other circumstances might hold. Economists provided one part of this overly simple model: they postulated that if there were a shortage of some product, prices would rise. This view is true when there is not too much wage disparity, but it is not true in general.

The combination of these overly simple assumptions leads to the belief that we can continue to pump quite a lot of fossil fuels, even after the decline begins. These remaining fossil fuels together with renewables can lead to some sort of civilization at a lower level after collapse. High prices will point the way to economizing.

TPTB were even more confused. They listened only to economists, with their overly simple model about future prices, and paid no attention to Hubbert and his message that extraction would become more difficult after 50% of a given resource was extracted. Instead, they assumed that the recent pattern of adding new extraction at ever-higher cost would continue indefinitely, as a result of improved technology. Prices would probably rise moderately, as well.

Figure 3. Figure from Jeremy Grantham article published on The Oil Drum in 2011.

Figure 3. Figure from Jeremy Grantham article published on The Oil Drum in 2011.

Figure 4. US crude oil production, separated into tight oil (from shale formations), oil from Alaska, and other oil, based on EIA data.

Figure 4. US crude oil production, separated into tight oil (from shale formations), oil from Alaska, and other oil, based on EIA data.

If there is an increasing wage disparity problem, the whole idea of ever-rising prices because of more technology doesn’t really work. At some point, there is an affordability problem, leading to low prices rather than high prices. Ever more debt at lower interest rates cannot cover up a problem of stagnating wages for the masses.

What Does Falling Fossil Fuel EROEI Tell Us?

Quite a few commenters on like to use “falling EROEI” as a synonym for “reaching diminishing returns.” EROEI (really “fossil fuel EROEI”) as developed by Energy Researcher Charles Hall, is calculated by dividing “Energy Produced” by “Fossil Fuel Energy Used to Deliver that Energy.” The easiest-to-extract oil or coal or natural gas tends to be extracted first, and the later-to-be-produced fuel tends to have lower EROEI. Thus, lower EROEI is a handy numerical way of quantifying diminishing returns with respect to the production of energy using fossil fuel inputs.

The Paradox of Falling Energy Consumption Relative to GDP, Despite Falling EROEIs

We quickly get to a paradox: if falling EROEI is raising the cost of extraction for all fossil fuels, are we using an increasing share of the output of the economy for energy production? The answer for historical periods has been, “No.” Energy Researcher Carey King has reported on this in an academic paper.

Figure 5. Figure by Carey King from "Comparing World Economic and Net Energy Metrics Part 3: Macroeconomic Historical and Future Perspectives," published in Energies in Nov. 2015.

Figure 5. Figure by Carey King from “Comparing World Economic and Net Energy Metrics Part 3: Macroeconomic Historical and Future Perspectives,” published in Energies in Nov. 2015.

In fact, recent United Nations’ research seems to indicate that this pattern of falling energy consumption as a percentage of GDP continues to hold through 2013 for the world as a whole:

Figure 6 shows that the bottom two sectors, namely “Agriculture, hunting, forestry, fishing,” and “Mining and utilities” continue to fall to lower levels as a percentage of the world economy, through the last year shown, 2013.

The way that these falling percentages seem to take place is through rebalancing of energy supply toward countries with a lower-cost energy mix. See the Appendix for more information on how this seems to occur.

Aude Illig and Ian Schindler, who are specialists in mathematics and economics working at the Toulouse School of Economics, have been examining how oil prices can be expected to behave, both before and after the share of the world’s resources  devoted to energy extraction hits the low point (nadir) and begins rising again, if Figures 5 and 6 were extended forward. They explain their findings in a working paper called Oil Extraction and Price Dynamics. It shows that prior to the nadir, oil prices can be expected to generally rise, with some temporary spikes. Once we are past the nadir, the dynamics are the opposite. Prices tend to fall, exacerbating the decline.

Does US Drilling for Oil Add to US Industrial Energy Consumption? 

One of the commenters on recently asked what impact the rise and fall of US oil production would have on US energy consumption. In his view, if extraction of oil from shale has low EROEI, surely US industrial consumption of oil or of total energy must rise and fall in response to the greater production. When we looked, any impact seemed to be too small to measure (Figure 7).

Figure 3. Comparison of US oil extraction with industrial consumption of total energy and of oil by itself, based on EIA data (monthly amounts).

Figure 7. Comparison of US oil extraction with industrial consumption of total energy and of oil by itself, based on EIA data (monthly amounts, converted to average daily amounts).

Transportation energy is not included in industrial energy, so we looked at diesel energy consumption, to see whether it had changed materially in response to all of the drilling activity. Again, it was hard to discern any impact (Figure 8).

Comparison of US oil produced with diesel plus residual fuel oil consumed, based on EIA data. Monthly data, converted to daily averages. (Residual fuel oil combined with diesel, because of law changes on types of fuel ships can use.)

Figure 8. Comparison of US oil produced with diesel plus residual fuel oil consumed, based on EIA data. Monthly data, converted to daily averages. (Residual fuel oil combined with diesel, because of law change on types of fuel ships can use.)

Thinking about the situation, the energy consumed is quite possibly not consumed in the US. For example, a great deal of steel pipeline will be used. This pipeline could be made with coal and imported from China. The timing could vary as well, if the pipeline and the machines drilling the wells were made some time in advance. Some natural gas or oil is no doubt burned when wells are drilled, but, in the whole scheme of things, the amount isn’t large enough to cause even a tiny hump in the data.

If we think about the situation, it is not really the “energy consumed” (and thus EROEI) that affects “demand.” Instead, it is the selling price of the oil that affects demand for energy products. This selling price of oil is shared many ways. This selling price includes not only the direct cost of energy used in extraction, but many other costs, as well: wages, leases, dividends, royalties and taxes of various sorts. In many cases, the royalties and taxes go to provide benefits for the non-elite–in other words, the 99%. The selling price acts as stimulus for the entire world economy, not just the part related to EROEI.

If the price of oil drops, what tends to be cut first is taxes–the money that goes to help the non-elite 99% of the economy. Besides taxes, wages and pension benefits tend to be cut very early, in an attempt to keep the company operating. These comprise a large share of costs, so are easy to cut. Strange as it may seem, oil extraction may not be cut back, even in bankruptcy. Creditors want as much value to be retained as possible after bankruptcy.

So What Does EROEI Tell Us?

EROEI as a way of allocating limited fossil fuel energy supplies. One way of thinking about EROEI is that it can be used to show the optimal way of stretching a given supply of fossil fuels; all a person needs to do is select new approaches for producing energy products with the highest EROEI values, to be able to leverage available fossil fuels as much as possible.

The EROEI calculation seems to be oriented in the direction of allocating scarce resources. Energy is counted using its Btu value. Thus, oil is viewed as having the same “value” as coal (based on its Btu content), and intermittent electricity is viewed as having the same value as electricity that is suitable for distribution to customers. Since the focus is on fossil fuels “running out,” some researchers leave out hydroelectric power from EROEI calculations; it does not represent the use of fossil fuel energy. Human labor is generally left out, as are taxes, interest payments, lease payments, and many other components of costs.

“Boundaries” on what energy inputs are to be included vary considerably from researcher to researcher, making comparisons among analyses difficult. For example, is energy used in the irrigation of biofuel crops included in calculations? Reports prepared by researchers from certain universities tend to give higher EROEIs than those from other universities. There is sometimes a suspicion that the funding source for a particular university biases the results of its EROEI calculations. This situation is not too different from the independence problems experienced in other types of academic studies.

Back door to estimating costs. EROEI can also be considered as a backdoor approach for estimating the approximate cost of extraction. Researchers working in a university are unlikely to be able to obtain information on the true total cost of extraction. On the other hand, if they can develop a new metric, they have the possibility of building a tool that they can keep updating with company information. There seems to have been early hope that the new metric would be more objective than other available cost information.

Doesn’t behave like the cost metric we are used to. There often is an economic reason to make a highly valued liquid fuel from less valuable coal or natural gas, but the calculation does not take this into account. This is one reason that the EROEIs for ethanol tend to be very low; ethanol production tends to use quite a bit of electricity from coal or natural gas to produce somewhat higher-valued ethanol.

Another catch in trying to use EROEI for comparison purposes is that EROEIs for capital goods (such as wind and solar) behave differently from EROEIs of fuels that are burned. With capital goods, society first “digs an EROEI hole,” and over time, must dig itself out. (I expect that this is one of the reasons for our debt problem.) Energy Researcher Graham Palmer has developed “Dynamic EROEI” to deal with this problem.

Figure 7. Graham Palmer's chart of Dynamic Energy Returned on Energy Invested from "Energy in Australia."

Figure 9. My explanation of Graham Palmer’s chart of Dynamic Energy Returned on Energy Invested from “Energy in Australia.”

Wind and solar have a second problem, besides the use of capital goods problem, and that is an intermittency problem that is difficult for the grid to correct, especially when more than a small amount is added to the grid. In Figure 9, Graham Palmer has added batteries, and replaced them three times during the 30-year lifetime of the solar panels, to correct the intermittency problem. I would argue that other costs should also be included–the cost of building and operating an inverter and replacement inverter(s), for example, plus any type of installation costs.

Interest costs are not typically included in EROEI calculations, but it would seem like they should be, whenever the delivery of energy is substantially delayed, as it is when some type of capital good is used to capture energy from the sun.

Alternatively, instead of adding battery costs, it would theoretically be possible to revise the calculation to include the energy cost of adjusting the electric grid to handle the intermittency. All of these issues have to do with selecting proper “boundaries” for the calculation.

Intermittent Renewables Seem to Give Funding to the 1% and Raise Costs for the 99%, Unlike Fossil Fuels

Something that we don’t often think about is that individual types of energy production can be evaluated from the point of view of the extent to which they provide funding for the 99%, versus funding for the elite 1%. EROEI, of course, cannot consider this at all.

Fossil fuels would seem to favor the 99% because the fossil fuel industry has traditionally has been heavy payers of taxes. These taxes go to help the vast majority. It is rare to find reports showing taxes paid by fossil fuel producers, however. Instead, reports tend to show subsidies, which are offsets to the high tax payments. These offsets are frequently payments for such purposes as helping low income people pay their winter heating bills. While these payments are called “subsidies,” in a true sense they are often ways of helping the 99%.

Wind and solar tend to be financed in the US with tax credits. These tax credits help concentrate wealth among the already wealthy. In Europe, the high cost of intermittent renewables tends to be paid by individual households. This leads to a situation where businesses, and the owners and operators of these businesses, benefit at the expense of those who are financially less well off.

The debt level with wind and solar (and all of their related paraphernalia that often gets left out of EROEI calculations) also tends to be high. Interest on this debt transfers money from the 99% to the 1%. The grid likely will need upgrading to handle intermittent renewables. This cost, too, will be borne by the 99% through higher electricity rates or higher taxes.

What Should the Role of EROEI Be?

EROEI is now well established as a tool to try to see how much energy is being consumed in making an energy product. I think that many people have expectations for EROEI beyond what it really can do. For example, I don’t think that EROEI calculations can predict when the economy will collapse, because the mechanics for reaching collapse come from a different direction–namely, increasing wage disparity and low commodity prices.

EROEI doesn’t consider whether a high-valued product is being used to produce a low-valued product, or vice versa. The solution here is to look at the actual cost involved in producing the energy product, as a supplement to EROEI calculations. This is important if our real energy problem is high cost and lack of affordability, rather than “running out” of fossil fuels.

EROEI calculations also are not designed to look at the required growth in debt, and the required transfer of wealth from the 99% to the 1%. Clearly, it would be helpful to add some new tools to the tool set, to look at these problems.

As a check on whether EROEI calculations are really producing reasonable results, any energy product that is producing net energy should be able to support the government with taxes, rather than being dependent on subsidies. If an energy product is dependent upon continued subsidies, this should be considered as likely evidence that it is, in fact, a net energy sink.

EROEI studies do have a continued role, but they need to be used with care.

How Did I Get Involved in this Whole Discussion?

I have been what a person might call a “financial detective” for a long time. I started working for CNA Insurance Group as an actuarial trainee in 1970. This was about the time that inflation started to affect insurance companies. After I had been at CNA only a short time, I was the one who figured out how inflation would affect reserves set by claims adjustors. When my predictions proved to be correct, my supervisors were very surprised; they had never considered the possibility that there would be an impact.

I soon moved on to a smaller insurance company, where I reported directly to the president of the company. The position was supposed to report to a lower level in the organization, but the president was shocked at what I had been able to figure out about the company from its financial statements, and decided he wanted me to report to him instead. As a result, I had an opportunity to see the impact of the 1973-1974 oil price spike on an insurance company, from a front-row seat. I also got a chance to see what impact rapidly changing interest rates had on an insurance company. I later went back to CNA, and observed the problems they were also having.

I later moved into consulting. I was always the “go-to” person for trying to figure out answers to questions that had never come up before. If someone needed a model for something really weird, they would come to me. I would often develop material for expert witness assignments. When new companies were set up, I would set up models of how they might be expected to behave under various scenarios. I worked a lot with “long tail” business, where claims were reported and paid long after the time an injury occurred.

I didn’t get involved with oil limits until 2005, and began writing articles about it in 2006. I was near the age where I could take early retirement, so I left in 2007, with the plan to look into the subject further. Editors at The Oil Drum saw some of my articles, and invited me to write articles for them, under the pen name Gail the Actuary. Not too much later, they asked me to be an editor. I soon found myself corresponding with authors, fixing mistakes in articles, and becoming acquainted with many people in the energy field.

One of the articles I wrote fairly early was Peak Oil and the Financial Markets: A Forecast for 2008. In it, I forecast the 2008 financial crash. Prof. Charles Hall (of EROEI fame) saw the post, and invited me to come to Syracuse, New York, and give a presentation at the next Biophysical Economics Conference. I soon met many other researchers, either through the Biophysical Economics community, or through my work at The Oil Drum. I was invited to give many talks, including one in Barcelona, Spain, in 2010, which ultimately led to the publishing of my article Oil Supply Limits and the Continuing Financial Crisis in the journal Energy. All of this further led to my becoming more involved with the research and journal end of the oil limits story. I now get quite a few invitations related to the research end of my work.

One of the things that led to conflict between the Peak Oil community and me was that I wasn’t really telling the “Peak Oil” story. I was telling something different. By late 2010, the conflict was sufficiently great that I started writing my articles on, and let re-publish the ones they chose to. I continued to be an editor at, however, until its close in 2013.

My general approach has been to learn as much as I can, in as many ways as possible. When various groups would want to sponsor conference phone calls, I would always participate, regardless of whether the group was a renewable group or one from the oil industry. I tend to interact with the commenters on my site, and get quite a few ideas from them. I don’t accept donations on my site, but I do accept invitations to give talks when people offer to at least pay my expenses. I also have had quite a few opportunities to visit installations of various types–geothermal as well as oil and gas. My only official affiliation is that I am Director of Energy Economics for the Space Solar Power Institute–an unpaid position.

All of this puts me in an odd position. The research community seems to accept me as one of their own. But Richard Heinberg of the Post Carbon Institute can’t understand why my view differs so much from the view that the Post Carbon Institute is trying to sponsor. He refers to me as an “energy writer” and says, “Her critiques of renewables appear to be based almost entirely on literature from fossil fuel and utility companies; she doesn’t seem to cite much data from solar and wind engineers.” I do talk to everyone. But I certainly don’t get my views from literature from fossil fuel and utility companies. I expect that having someone give a different view than PCI’s preferred view is threatening, especially if it is having an adverse impact on donations.

Appendix: How Rebalancing of Energy Supply Occurs

How does rebalancing of energy supplies occur? The answer seems to be, “Expansion of economies that use a fuel mix that is disproportionately weighted toward cheaper fuels, and contraction of economies that use more expensive fuels.”

This following slide shows a simple grouping of fuels I made based on my perception of which fuels are more or less expensive.

Appendix, Figure 1. Slide showing groupings of low, medium, and high priced fuels.

Appendix, Figure 1. Slide showing groupings of low, medium, and high priced fuels.

Growth in energy consumption seems to take place almost entirely in parts of the world that use a disproportionate amount of low-priced fuel. These countries also tend to have low wages, to go with the low fuel costs.

Figure 8. Note that the scales of the last three slides are all the same. Also note that the last of the four groupings is World Minus US Minus EU. It its thus the remainder of the world grouping.

Appendix, Figure 2. Note that the scales of the last three slides are all the same. Also note that the last of the four groupings is World Minus US Minus EU. It its thus the remainder of the world grouping.

What happens is that the world’s energy mix rebalances away from the countries that use a large share of high-cost fuels in their energy mix.

Figure 9.

Appendix, Figure 3.

In the end, the low-cost fuels (coal and hydroelectric) hold their own, as a share of total production; countries using a disproportionate share of high-cost fuels tend to lose out in the world marketplace.

Figure 10

Appendix, Figure 4

Once the world “runs out” of cheap fuels to keep adding to the energy mix (or finds the cheap fuels too polluting), the situation changes. The world economy cannot maintain its shift in mix toward products that have a better return relative to their cost simply by rebalancing toward countries with a lower-cost fuel mix.

Instead, the price of energy products must fall below the cost of production, to maintain this pattern. We seem to be seeing such a drop in prices below the cost of production, starting in 2014. Proving that this is the reason for the price drop might be difficult, but it certainly is a strong suspicion.

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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.

1,836 thoughts on “How Researchers Could Miss the Real Energy Story

  1. I appreciate your insights and the hard work involved in describing them. It helps so much in understanding the world falling apart around me.

  2. Very few of my posts are getting through. Gail, if you censor discussion you will miss a big part of the story. Nothing should be off limits while discussing collapse.

  3. one would think that the Obama administration should not be collapsing the U.S. coal market, because of its cheap energy value in relation to oil …obviously they have other motives, rather than to enhance u.s. productivity.

    • Sounds like you have fallen prey to the “war on coal” propaganda campaign. Between expanding wind and solar and tons of cheap fracked natgas, it’s just a matter of economics. The only war coal is in is a propaganda war that they started out of desperation,

      Shale gas, not EPA rules, has pushed decline in coal-generated electricity, study confirms

    • I tend to agree with you, but there is an issue that you are probably not aware of. US coal production has been collapsing since 2008. It doesn’t seem to be economic to extract it any more. I think that the issue is more than environmental laws. We started to extract the best quality coal very early, and now it is mostly gone. We are now dealing with poorer quality coal that must be transported longer distances. Also, natural gas, at its give-away prices (selling price below the cost of extraction), is making electricity companies switch to natural gas. Building new gas plants is very cheap as well. But the gas supply cannot be sustained, without higher prices. This is another dimension of the problem. Having more choices might keep things going a bit longer.

  4. “The wages of the non-elite are too low to provide an adequate standard of living.”

    Just some thoughts:

    To focus on this point in abstractio it seems that the system could readjust with a dimunition of the population level. If the system relies ever more on a specialised elite and is unable to provide for quite so many non-elite persons, then the system may survive by adjusting the quantity of the non-elite.

    The non-elite contribute essential work to the functionality of the overall system but a lot of their work is likely unessential to the functioning of the system. The non-elite could simply be reduced to a level that allows the system to continue without the excessive strain that too many of them place on the system. If there is insufficient taxes to maintain such a large population then those taxes could support a smaller population.

    That population reduction is likely to happen as a consequence of system readjustment rather than by deliberate policy. I saw on the news just a few minutes ago that millions face starvation in Yemen because of the war. Yet we also know that Yemen is largely depleted of its resources and that it cannot possibly maintain its current population without massive outside aid on a permanent basis.

    Much of MENA is passing peak oil production of much of it is ravaged by war. The UN, NATO and EU continue to resettle millions of refugees. So it seems that underlying economic decline will for the time being manifest as war and starvation that will reduce the population without any deliberate policy to reduce it.

    Of course the starving masses of the developed world may ultimately rise up and destroy everything. The states will defend themselves from the masses and many of the masses will die. The system will only take a hard line when it is unavoidable. Or they may not rise up, they may just die.

    However the financial system is likely to collapse and there is no guarentee that the system will be able to readjust. Very likely the whole thing will just collapse.

    • Most people who have looked at the problem think that there has to be a diminution of population.

      I think you are right about, “Very likely the whole thing will just collapse.” There are a lot of things we can’t know exactly. Will there be some kind of outside intervention, in some religious or quasi-religious fashion, for example? Or will a combination or war, disease, nuclear power plant problems, and lack of clean fresh water do most of us in?

  5. Clay

    Started reading about peak oil around 2003. Too bad these poor fools who keeping out babies just don’t seem to understand the post WWII model fizzled out about 40 plus years ago. Ever since early 70s we’ve been living off the fiat petrodollar which has steadily been losing its purchasing power. We’re long overdue for population die off.

    Sent from my iPad


  6. Gail,
    Very well thought through. Definitely will review my energy portfolio and look at government policy in energy matters from a different perspective. Your right, there is a tendency to push for very simple explanations and in some cases solutions to complex problems.

  7. I don’t know if many of your readers appreciate if I point this out, but what you do in the first part of your article is to describe a marxian critique of capitalism. The problem that “lower return of labour” will decrease demand is basically covered in Marx capital volume 1 ans 2! I really appreciate that you bring together this marxist approach with the role of energy in our economic system. It also brings together your model view of the world system with the theories of the founder of “world system theory”, Immanuel Wallerstein (yes, as most sociologists he is very much influenced by Marx).

    His analysis is pretty close to yours, See his Paper on “Crisis of Capitalism”

    • Yeah, this place indeed got that Marxist vibe.
      It springs from, a quite arrogant and generally uninteresting, human chauvinism.

      “Western culture, according to which human beings are the only subjects of moral consideration and are the only objects with intrinsic values.”

          • I like the quote, “For every complex problem, there is a solution that is simple, neat, and wrong.” – even if I don’t agree with your previous statement. I do agree that there are things we don’t understand about what is ahead, however.

        • Smite is into hot robot chicks…. that I know…

          I understand that he has a fetish for the solar powered ones….

      • Dear smite
        Your comment has no argument wharsoever, I dont understand it? I am not american, is this the thing when you try to win arguments by pussygrabbing everybody else?

        From where I live, it seems to be the american way.

        • I am glad you are in charge of the narrative.

          Yes, I live in the 51:st state: Namely Sweden. So you could rightfully say I’m ‘american’.

          • I used to live there. I thought Canada was the 51st state. Though I have to agree that Sweden is pretty darn americanized by now!

            • Wasn’t there some survey a while ago where Swedish youth trounced US youth in English skills. It just goes to show the amount of U.S. soft power in Sweden.

              Although, with the exception for english skills, the Swedish PISA scores are pretty much abysmal. But it’s perhaps a sign of the kid’s mental health. Swedish elementary and upper secondary school sucks. What a mind numbing piece of leftist PC brainwash waste of time that was. Luckily for this country our sci/tech universities are still decent.

            • “Luckily for this country our sci/tech universities are still decent.”

              Are they? Five years ago I used to do some teaching in one of those places. Not an impressive clientele. In fact a catastrophe… The skills have gradually been sinking each year since the early 90ies, according to diagnostic tests on first year students.

            • I didn’t say good, I said decent. At least that’s my impression from interacting with newly graduated students.

              However, my older and similar age fellow engineers, on the other hand. Now that is mostly a bunch of self entitled, elitist and halfwit dullards. No wonder corporations like Ericsson is going down the tubes.

            • The way the energy system is set up, Canada might as well be the 51st state. Up until a few years ago, a person could just drive across the border, without any particular kind of controls.

  8. Gail, going forward: do you expect inflation or deflation? Which countries will experience which?

    • I expect a break in the system. Banks will be closed. Or maybe the electric power will be off, and no one will remember your bank balance.

      Before this happens, some countries will go first. I suggest watching the problems in Venezuela as an example.

      • Japan and Sweden are good test cases also. No domestic energy supplies and their own currencies.

        • Japan is 20 years (or so) before on the demography. Homogenous population and nationalists. But I think they are much more overpopulated.

          Sweden is probably interesting because of the question:
          what happens if free everything ends?

          • And also. In a cold and dark winter climate. Where it’s not very windy some winter days. How’s that renewable transformation going? And enjoy your electric car in -20C. That ‘waste heat’ from the ICE sure doesn’t seem like waste at all!

            • Still. Sweden is James Hansen’s poster child since it’s 50/50 nuclear, hydro on the electricity side of things.

            • Baltic sea on one side and gulf stream on the other.

              We have a short episode of -15C or colder every winter. But that is what furniture is for.

            • And for the parts of Sweden where it IS cold there is enough trees.

              My guess: Swedens population through ages has been limited by, in order:
              1. Starvation
              2. Sickness caused by starvation
              3. Weakness caused by starvation
              4. Disease
              5. War

              No one freezes to death unless some kind of accident and no one thirsts.

            • Less than 1% of all land in Sweden is farmed organically…. so even if collapse hits at harvest time there will soon be virtually no food available.

              Millions of people will be fighting over scraps… ripping everything that grows out of the ground.

              Every animal will be killed and eaten – even those on two legs.

              I would argue that northern countries would be the worst places to be when BAU ends… climate is one issue — but most fuel ponds are north of the equator…. so you get to eat the radiation before everyone else….

              The radiation will probably take a few weeks to reach me here in NZ…. so when you guys up there are vomiting blood … and your skin is sloughing off…. and teeth falling out…

              Just picture me in my 20ft container…. disco ball flashing…. battery powered stereo wailing….40 gallon barrel of booze…. as I toast the end of the world….

            • How about a dress rehearsal…. wait another month … till the temperature in Sweden drops to below zero….

              And turn off your electricity for a week – buy no petrol — buy nothing from a shop….

              Then imagine that being forever….

              I bet you will wish you were dead.

            • Once we fed 5M with organic farming. Admittedly this was at the limit with famine every generation.

              If you get your instadoom of course everything goes down instantly, it wouldnt be instadoom otherwise.

            • Yep – during the time of Malthus we fed hundreds of millions with organic farming methods..

              But then when we realized that using petro chemical fertilizers… irrigation … pesticides… tractors etc… would allow us to feed billions …. we commenced killing out soils …

              And now nearly 100% of all soil everywhere will support no crop when the chemicals are not available.

              You cannot look at what was — for guidance on what will be.

              This is an extinction event.

              The bill I have run up learning this lesson is well over USD100k …

              I am giving away the answers to the exam for free here on FW 🙂

            • Back in they day when I had not realized this was an extinction event… one of the reasons I chose not to return to Canada was the cold.

              Month after month of misery ….

              Anyone who is caught up in the romance of the north — go out to the forest with your axe — cut down a tree — then split it into firewood — carry it back to your home — and stack it.

              Then report back on how romantic that was.

            • Unless you want to get rid of the tree you probably don’t have to cut it down, find a fallen. Using saw, wheelbarrow and axe it is not so bad. You don’t do it in the middle of winter.

              A few month ago you said the bugs would kill the Scandinavians.

              Nuclear war maybe, climate change probably not. Most likely starvation.
              Not cold. Not water. Not bugs.

            • What happens when the fallen trees near your house are all burned up … and you need to walk a km … then 2km….then 5km….

              What happens if your wheelbarrow breaks?

              Bugs? I don’t recall a bug discussion — but of course there are those billions of black flies and mosquitoes… driving you out of your mind as you trudge off into the woods with your wheelbarrrow to collect wood.

              You know how I concluded that this was not a feasible way forward?

              I actually tried a ‘Lite’ version — setting up an organic operation with 200 square metres of raised beds (the largest organic garden in my area) and guess what — there is no farking way in hell I could feed the 4 people who live in this house off of that garden — and I live in a temperate zone where food can be grown in the ‘winter’

              I also read a couple of books written by pioneers in Canada — these were hard men and women who knew how to farm — who knew hardships in Europe — who moved to Canada..

              And they frequently starved — the suffered miserably. They had the skills required to live such a life and still… they perished.

              Not only do I not have the skills … I have absolutely zero desire to live if that is what is what life looks like…. not to worry though …. there is no way I would be capable of staying alive for long without my darling BAU.

              Speaking of having the biggest garden in the hood — I also realized that I’d be asked to feed a lot more than 4 people post BAU…. the hordes would be over the fence ripping up my measly crop within days of the shops going empty…

              What I fool I was to believe this was a survivable event. A complete utter idiot. Silly me.

            • “How about a dress rehearsal…. wait another month … till the temperature in Sweden drops to below zero…. And turn off your electricity for a week – buy no petrol — buy nothing from a shop…. Then imagine that being forever…. I bet you will wish you were dead.”

              Below zero, that’s petty. o_O

              Below -40 C once you press onwards way north of the arctic circle. That’s proper winter for you weaklings.

              Probably the safest place to be post a hypothetical BAU/collapse. That and with lots of ammo and a reliable rifle. Plenty of space and nothingness. The hordes will freeze to death, and potatoes grow like crazy under the midnight sun.

              It sucks, but in a, harsh, hard and pure kind of way. An acquired taste.

          • “Sweden is probably interesting because of the question:
            what happens if free everything ends?”

            This would be interesting. What would the reactions be? Like Fast Eddys black friday movies, something worse or something more peacful?

            • I think they will mostly riot in their own neighborhoods. Which is what is already happening at low intensity.

              I think Sweden has ok odds. Fossil free electricity, for practical purposes unlimited fresh water, a population not too out of proportion to arable land, a ethnic population that accepts most anything.

              I think we can expect peak oil refugees from continental europe before the reverse.

            • ‘Fossil free electricity’

              Ha ha ha ha…. hahahahahahahahaha…. hahahahahaha.. ha … ho ho hee hee haw haw ….

              Oh … look …. hahahahahahaha… I have p.issed myself ha … hahahahaha hooo haw heeyoo….

              Hang on … yeeee hooo hawwww haw…. let me get some duct tape…. hooo ha that’s go-dam-funny… hoo hoo…. zrrrrrrrrppp… ah… that’s better… hahah heee hee…. my entrails were hanging out that nasty gut bust…. hoo hoo haw hee ha…..

              fossil free electricity….sum bitch dats a funny one …. hooo hoooo haha hahaha….

            • Yes … give me some slack. I know it takes diesel to maintain, but most of the fossil fuels has been sunk into the production.

              No fuel burnt directly for electricity and not much for heat.

            • No slack.

              A single part in a system with many thousands of parts breaks — and the entire system is rendered permanently useless.

              I would imagine that in such a complex system — parts break every single day.

            • I think there are some Fossil Fuels / Thermal power used for electricity generation in Sweden. Not much but anyway.

              However, hydrocarbons are very much a crucial resource for maintaining our mostly Nuclear and Hydro powered electricity generation and infrastructure.

            • I expect we will both live to see. Unfortunately there will be no internet so we can’t agree on if 2015 or 2030 or something was the last year of the christmas turkey.

        • Sweden has got plenty of hydroelectric and wood. In this regard not really comparable to Japan. Still for other reasons an interesting test case.

          • I am surprised we’re having a discussion of whether Sweden or Japan collapses first, when we will have at least hundred countries go before both.

            • In Greece and parts of Italy you can almost sleep under a tree. That’s nice. Try that in Malmö, Sweden on a cold night in Jan. I basically think that these territories are not habitable if it wasn’t for FF/nuclear. Same goes for most of Canada and interior US. But at last those places have resources.

            • Exactly! When civilization started out, it was only in the warm parts of the world. It could only spread to cold areas, to any significant extent, when fossil fuel energy resources became available, so it was not necessary to cut down the trees to have metals and other desired products. If some remnant of civilization survives, it will likely be in a fairly hospitable area of the world, climate-wise.

            • Sweden had a population of aprox. 4.5 mil. in the later half of 1800 (todays population is more than twice of that). That was before FF. People emigrated to America, but a population of 4 mil or so was probably sustainable. Climate change will increase crop yields in Sweden but like many other countries, Sweden lacks the technology and human skills required to feed its population without FF. 20th century in reverse would be painful.

              There is a reason why you don´t see homeless cats in cold countries. W/O social benefits you wouldn´t see many homeless people either in those countries.

            • Could you give an example of a country where 20th century in reverse would not be painful? A country where 2016 is not already painful.

              I was in no way suggesting Swedens current population could go back to 1870 and live happily ever after.

              Only that, providing the whole earth is not uninhabitable, Swedens population probably could climb back up to 3-5M and live sustainably unhappily ever after, kept in check by famine.

          • Japan has some hydroelectric and plenty of wood too. During and after WW2, a lot of the mixed woodlands were cut to make charcoal and then planted with cedar and cypress. Neither of these softwoods has the energy density of harder woods such as oak, chestnut,beech, or cherry, but there’s enough of it to last a few years.

            • The thing is…

              Japan’s chief cabinet secretary called it “the devil’s scenario.”

              Japan’s chief cabinet secretary called it “the devil’s scenario.” Two weeks after the 11 March 2011 earthquake and tsunami devastated the Fukushima Daiichi Nuclear Power Plant, causing three nuclear reactors to melt down and release radioactive plumes, officials were bracing for even worse.

              They feared that spent fuel stored in the reactor halls would catch fire and send radioactive smoke across a much wider swath of eastern Japan, including Tokyo.

              Thanks to a lucky break detailed in a report released today by the U.S. National Academies, Japan dodged that bullet. The near calamity “should serve as a wake-up call for the industry,” says Joseph Shepherd, a mechanical engineer at the California Institute of Technology in Pasadena who chaired the academy committee that produced the report.

              Spent fuel accumulating at U.S. nuclear reactor plants is also vulnerable, the report warns. A major spent fuel fire at a U.S. nuclear plant “could dwarf the horrific consequences of the Fukushima accident,” says Edwin Lyman, a physicist at the Union of Concerned Scientists, a nonprofit in Washington, D.C., who was not on the panel.

              After spent fuel is removed from a reactor core, the fission products continue to decay radioactively, generating heat. Many nuclear plants, like Fukushima, store the fuel onsite at the bottom of deep pools for at least 5 years while it slowly cools. It is seriously vulnerable there, as the Fukushima accident demonstrated, and so the academy panel recommends that the U.S. Nuclear Regulatory Commission (NRC) and nuclear plant operators beef up systems for monitoring the pools and topping up water levels in case a facility is damaged. It also calls for more robust security measures after a disaster. “Disruptions create opportunities for malevolent acts,” Shepherd says.

              At Fukushima, the earthquake and tsunami cut power to pumps that circulated coolant through the reactor cores and cooled water in the spent fuel pools. The pump failure led to the core meltdowns. In the pools, found in all six of Fukushima’s reactor halls, radioactive decay gradually heated the water. Of preeminent concern were the pools in reactor Units 1 through 4: Those buildings had sustained heavy damage on 11 March and in subsequent days, when explosions occurred in Units 1, 3, and 4.

              The “devil’s scenario” nearly played out in Unit 4, where the reactor was shut down for maintenance.

              The entire reactor core—all 548 assemblies—was in the spent fuel pool, and was hotter than fuel in the other pools. When an explosion blew off Unit 4’s roof on 15 March, plant operators assumed the cause was hydrogen—and they feared it had come from fuel in the pool that had been exposed to air.

              They could not confirm that, because the blast had destroyed instrumentation for monitoring the pool. (Tokyo Electric Power Company, the plant operator, later suggested that the hydrogen that had exploded had come not from exposed spent fuel but from the melted reactor core in the adjacent Unit 3.)

              But the possibility that the fuel had been exposed was plausible and alarming enough for then-NRC Chairman Gregory Jaczko on 16 March to urge more extensive evacuations than the Japanese government had advised—beyond a 20-kilometer radius from the plant.

              Later that day, however, concerns abated after a helicopter overflight captured video of sunlight glinting off water in the spent fuel pool. In fact, the crisis was worsening: The pool’s water was boiling away because of the hot fuel.

              As the level fell perilously close to the top of the fuel assemblies, something “fortuitous” happened, Shepherd says. As part of routine maintenance, workers had flooded Unit 4’s reactor well, where the core normally sits. Separating the well and the spent fuel pool is a gate through which fuel assemblies are transferred.

              The gate allowed water from the reactor well to leak into the spent fuel pool, partially refilling it. Without that leakage, the academy panel’s own modeling predicted that the tops of the fuel assemblies would have been exposed by early April; as the water continued to evaporate, the odds of the assemblies’ zirconium cladding catching fire would have skyrocketed.

              Only good fortune and makeshift measures to pump or spray water into all the spent fuel pools averted that disaster, the academy panel notes.

              At U.S. nuclear plants, spent fuel is equally vulnerable. It is for the most part densely packed in pools, heightening the fire risk if cooling systems were to fail. NRC has estimated that a major fire in a U.S. spent fuel pool would displace, on average, 3.4 million people from an area larger than New Jersey. “We’re talking about trillion-dollar consequences,” says panelist Frank von Hippel, a nuclear security expert at Princeton University.


              Citing a little-noticed study by the Nuclear Regulatory Commission, the Academies said that if an accident or an act of terrorism at a densely-filled pool caused a leak that drains the water away from the rods, a cataclysmic release of long-lasting radiation could force the extended evacuation of nearly 3.5 million people from territory larger than the state of New Jersey. It could also cause thousands of cancer deaths from excess radiation exposure, and as much as $700 billion dollars in costs to the national economy.


              At this very moment there are pumps hurling tonnes of sea water onto the active fuel rods of the Fukushima reactors…. these are not the fuel ponds … just a relatively small amount of fuel vs what is in the ponds…

              If the pumps were for some reason to stop working…. a nightmare scenario would play out… with radiation spewing across the country….

              Note: this is ONE facility only. And it is not a spent fuel pond – which is a far more dangerous animal.

              As for the fuel ponds these are not static ponds – computers and pumps and valves and all sorts of high tech gear are involved in keeping them safe – all of this needs an energy supply….

              Post BAU — how does one keep those pumps running and pouring water onto the melted cores? How does one keep the high tech gear operational in the spent fuel pond facilities?

              I don’t think finding wood for a fire will be much of a problem post BAU…. we’ll all be dead long before we burn up the low hanging dead wood….

      • I am working on a screen play for Being There 2 – The End of BAU

        Chauncey Gardiner: ‘The body can function even if you cut off a leg that has gangrene — a finger — an arm…. but if you cut off any of the core components such as the brain, or heart or liver or kidneys… the body will die — and you definitely cannot hack out the spinal cord and expect the body to function’

  9. Regards Gail.
    I am sure that you have got everything about right. I cannot fault your analysis, nor Putin’s analysis that global war might ensue from the battle over resources/US hegemonic pretensions, mostly to do with “energy” and the petrodollar.

    • I don’t share you sureness in Gail’s analysis, or anyone’s for that matter. It is just so hard to predict specific events in chaotic systems. I’m pretty sure that the future doesn’t involve a panacea, but Armageddon doesn’t seem likely to my eye either.

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