Will China Bring an Energy-Debt Crisis?

It is easy for those of us in the West to overlook how important China has become to the world economy, and also the limits it is reaching. The two big areas in which China seems to be reaching limits are energy production and debt. Reaching either of these limits could eventually cause a collapse.

China is reaching energy production limits in a way few would have imagined. As long as coal and oil prices were rising, it made sense to keep drilling. Once fuel prices started dropping in 2014, it made sense to close unprofitable coal mines and oil wells. The thing that is striking is that the drop in prices corresponds to a slowdown in the wage growth of Chinese urban workers. Perhaps rapidly rising Chinese wages have been playing a significant role in maintaining high world “demand” (and thus prices) for energy products. Low Chinese wage growth thus seems to depress energy prices.

(Shown as Figure 5, below). China’s percentage growth in average urban wages. Values for 1999 based on China Statistical Yearbook data regarding the number of urban workers and their total wages. The percentage increase for 2016 was based on a Bloomberg Survey.

The debt situation has arisen because feedback loops in China are quite different from in the US. The economic system is set up in a way that tends to push the economy toward ever more growth in apartment buildings, energy installations, and factories. Feedbacks do indeed come from the centrally planned government, but they are not as immediate as feedbacks in the Western economic system. Thus, there is a tendency for a bubble of over-investment to grow. This bubble could collapse if interest rates rise, or if China reins in growing debt.

China’s Oversized Influence in the World

China plays an oversized role in the world’s economy. It is the world’s largest energy consumer, and the world’s largest energy producer. Recently, it has become the world’s largest importer of both oil and of coal.

In some sense, China is the world’s largest economy. Usually we see China referred to as the world’s second largest economy, based on GDP converted to US dollars. Economists use an approach called GDP (PPP) (where PPP is Purchasing Power Parity) when computing world GDP growth. When this approach is used, China is the world’s largest economy. The United States is second largest, and India is third.

Figure 1. World’s largest economies, based on energy consumption and GDP based on Purchasing Power Parity. Energy Consumption is from BP Statistical Review of World Energy, 2017; GDP on PPP Basis is from the World Bank.

Besides being (in some sense) the world’s largest economy, China is also a country with a very significant amount of debt. The government of China has traditionally somewhat guaranteed the debt of Chinese debtors. There is even a practice of businesses guaranteeing each other’s debt. Thus, it is hard to compare China’s debt to the debt level elsewhere. Some analyses suggest that its debt level is extraordinarily high.

How China’s Growth Spurt Started

Figure 2. China’s energy consumption, based on data from BP Statistical Review of World Energy, 2017.

From Figure 2, it is clear that something very dramatic happened to China’s coal consumption about 2002. China joined the World Trade Organization in December 2001, and immediately afterward, its coal consumption soared.

Countries in the OECD, whether they had signed the 1997 Kyoto Protocol or not, suddenly became interested in reducing their own greenhouse gas emissions. If they could outsource manufacturing to China, they would be able to reduce their reported CO2 emissions.

Besides reducing reported CO2 emissions, outsourcing manufacturing to China had two other benefits:

  • The goods being manufactured in China would be cheaper, allowing Americans, Europeans, and Japanese to buy more goods. If more “stuff” makes people happy, citizens should be happier.
  • Businesses would suddenly have a new market in China. Perhaps the people of China would start buying goods made elsewhere.

Of course, a major downside of moving jobs to China and other Asian nations was the likelihood of fewer jobs elsewhere.

Figure 3. US Labor Force Participation Rate, as prepared by Federal Reserve Bank of St. Louis.

In the early 2000s, when China started competing actively for jobs, the share of people in the US workforce started shrinking. The drop-off in labor force participation did not level out until mid-2014. This is about when world oil prices began to fall, and, as we will see in the next section, when China’s growth in average wages began to fall.

Another downside to moving jobs to China was more CO2 emissions on a worldwide basis, even if emissions remained somewhat lower locally. CO2 emissions on imported goods were not “counted against” a country in its CO2 calculations.

Figure 4. World carbon dioxide emissions, split between China and Rest of the World, based on BP Statistical Review of World Energy, 2017.

At some point, we should not be surprised if countries elsewhere start pushing back against the globalization that allowed China’s rapid growth. In some sense, China has lived in an artificial growth bubble for many years. When this artificial growth bubble ends, it will be much harder for China’s debtors to repay debt with interest.

China’s Rapid Wage Growth Stopped in 2014

Rising wages are important for making China’s growth possible. With rising wages, workers can increasingly afford the apartments that are being built for them. They can also increasingly afford consumer goods of many kinds, and they can easily repay debts taken out earlier. The catch, however, is that wage growth cannot get ahead of productivity growth, or the price of goods will become too expensive on the world market. If this happens, China will have difficulty selling its goods to others.

China’s wage growth seems to have slowed remarkably, starting in 2014.

Figure 5. China’s percent growth in average urban wages. Values for 1999 based on China Statistical Yearbook data regarding the number of urban workers and their total wages. The percentage increase for 2016 was estimated based on a Bloomberg Survey.

This is when China discovered that its high wage increases were making it uncompetitive with the outside world. Wage growth needed to be reined in. Its growth in productivity was no longer sufficient to support such large wage increases.

China’s Growth in Energy Consumption Also Slowed About 2014 

If we look at the annual growth in total energy consumption and electricity consumption, we see that by 2014 to 2016, their growth had slowed remarkably (Figure 6). Their growth pattern was starting to resemble the slow growth pattern of much of the rest of the world. Energy growth allows an economy to increasingly leverage the labor of its workforce with more energy-powered “tools.” With low energy growth, it should not be surprising if productivity growth lags. With low productivity growth, we can expect low wage growth.

Figure 6. China’s growth in consumption of total energy and of electricity based on data from BP Statistical Review of World Energy, 2017.

It is possible that the increased rate of electricity consumption in 2016 is related to China’s program of housing migrant workers in unsalable apartments that took place at that time. The fact that these apartments were otherwise unsalable was no doubt influenced by the slowing growth in wages.

This decrease in energy consumption most likely occurred because the price of China’s energy mix was becoming increasingly expensive. For one thing, the mix included a growing share of oil, and oil was expensive. The proportion of coal in the mix was falling, and the replacements were more expensive than coal. There was also the issue of the general increase in fossil fuel prices.

Lower Wage Growth in China Likely Affected Fossil Fuel Prices

Affordability is the big issue with respect to how high fossil fuel prices can rise. The issue is not just buying the oil or coal or natural gas itself; it is also being able to afford the goods made with these fuels, such as food, clothing, appliances, and apartments. If wages were depressed in the developed countries because of moving production to China, then rising wages in China (and other similar countries, such as India and the Philippines) must somehow offset this problem, if fossil fuel prices are to remain high enough for extraction to continue.

Figures 7 and 8 (below) show that oil, natural gas, and coal prices all started to slide, right about the time China’s urban wages growth began shrinking (shown in Figure 5).

Figure 7. Oil and natural gas prices, based on BP Statistical Review of World Energy data.

Figure 8. Coal prices between 2000 and 2016 from BP Statistical Review of World Energy. Chinese coal is China Qinhuangdao spot price and Japanese coal is Japan Steam import cif price, both per ton.

The lower recent increases made China’s urban wage growth look more like that of the US and Europe. Thus, in 2014 and later, Chinese urban wages present much less of a “push” on the growth of the world economy than they had previously. Without this push of rising wages, it becomes much harder for the world economy to grow very rapidly, and for it to have a very high inflation rate. There is simply not enough buying power to push prices very high.

It might be noted that the average Chinese urban wage increases shown previously in Figure 5 are not inflation adjusted. Thus, in some sense, they include whatever margin is available for inflation in prices as well as the margin that is available for a greater quantity of purchased goods. Because of this, these low wage increases may help explain the recent lack of inflation in much of the world.

Quite likely, there are other issues besides China’s urban wage growth affecting world (and local) energy prices, but this factor is probably more important than most people would expect.

Can low prices bring about “Peak Coal” and “Peak Oil”?

What does a producer do in response to suddenly lower market prices–prices that are too low to encourage more production?

This seems to vary, depending on the situation. In the case of coal production in China, a decision was made to close many of the coal plants that had suddenly become unprofitable, thanks to lower coal prices. No doubt pollution being caused by these plants entered into this decision, as well. So did the availability of other coal elsewhere (but probably at higher prices), if it is ever needed. The result of this voluntary closure of coal plants in response to low prices caused the drop in coal production shown in Figure 8, below.

Figure 8. China’s energy production, based on data from BP Statistical Review of World Energy, 2017.

It is my belief that this is precisely the way we should expect peak coal (or peak oil or peak natural gas) to take place. The issue is not that we “run out” of any of these fuels. It is that the coal mines and oil and gas wells become unprofitable because wages do not rise sufficiently to cover the fossil fuels’ higher cost of extraction.

We should note that China has also cut back on its oil production, in response to low prices. EIA data shows that China’s 2016 oil production dropped about 6.9% compared to 2015. The first seven months of 2017 seems to have dropped by another 4.2%. So China’s oil is also showing what we would consider to be a “peak oil” response. The price is too low to make production profitable, so it has decided that it is more cost-effective to import oil from elsewhere.

In the real world, this is the way energy limits are reached, as far as we can see. Economists have not figured out how the system works. They somehow believe that energy prices can rise ever higher, even if wages do not. The mismatch between prices and wages can be covered for a while by more government spending and by more debt, but eventually, energy prices must fall below the cost of production, at least for some producers. These producers voluntarily give up production; this is what causes “Peak Oil” or “Peak Coal” or “Peak Natural Gas.”

Why China’s Debt System Reaches Limits Differently Than Those in the West

Let me give you my understanding regarding how the Chinese system works. Basically, the system is gradually moving from (1) a system in which the government owns all land and most businesses to (2) a system with considerable individual ownership.

Back in the days when the government owned most businesses and all land, farmers farmed the land to which they were assigned. Businesses often provided housing as part of an individual’s “pay package.” These homes typically had a shared outhouse for a bathroom facility. They may or may not have had electricity. There was relatively little debt to the system, because there was little individual ownership.

In recent years, especially after joining the World Trade Organization in 2001, there has been a shift to more businesses of the types operated in the West, and to more individual home ownership, with mortgages.

The economy acts rather differently than in the West. While the economy is centrally planned in Beijing, quite a bit of the details are left to individual local governments. Local heads of state make decisions that seem to be best based on the issues they are facing. These may or may not match up with what Beijing central planning intended.

Historically, Five-Year Plans have provided GDP growth targets to the various lower-level heads of state. The pay and promotions of these local leaders have depended on their ability to meet (or exceed) their GDP goals. These goals did not have any debt limits attached, so local leaders could choose to use as much debt as they wanted.

A major consideration of these local leaders was that they also had responsibility for jobs for people in their area. This responsibility further pushed them to aim high in the amount of development they sought.

Another related issue is that sales of formerly agricultural land for apartments and other development are a major source of revenue for local governments. Local leaders did not generally have enough tax revenue for programs, without supplementing their tax revenue with funds obtained from selling land for development. This further pushed local leaders to add development, whether it was really needed or not.

The very great power of local heads of state and their administrators made these leaders tempting targets for bribery. Entrepreneur had a chance of getting projects approved for development, with a bribe to the right person. There has been a recent drive to eliminate this practice.

We have often heard the comment, “A rising tide raises all boats.” When the West decided to discourage local industrialization because of CO2 concerns, it gave a huge push to China’s economy. Almost any project could be successful. In such an environment, local rating agencies could be very generous in their ratings of proposed new bond offerings, because practically any project would be likely to succeed.

Furthermore, without many private businesses, there was little history of past defaults. What little experience was available suggested the possibility of few future defaults. Wages had been rising very rapidly, making individual loans easy to repay. What could go wrong?

With the central government perceived to be in control, it seemed to make sense for one governmental organization to guarantee the loans of other governmental organizations. Businesses often guaranteed the loans of other businesses as well.

Why the Chinese System Errs in the Direction of Overdevelopment

In the model of development we are used to in the West, there are feedback loops if too much of anything is built–apartment buildings (sold as condominiums), coal mines, electricity generating capacity, solar panels, steel mills, or whatever else.

In China, these feedback loops don’t work nearly as well. Instead of the financial system automatically “damping out” the overcapacity, the state (or perhaps a corrupt public official) figures out some way around what seems to be a temporary problem. To understand how the situation is different, let’s look at three examples:

Apartments. China has had a well-publicized problem of  building way too many apartments. In about 2016, this problem seems to have been mostly fixed by local governments providing subsidies to migrant workers so that they can afford to buy homes. Of course, where the local governments get this money, and for how long they can afford to pay these stipends, are open questions. It is also not clear that this arrangement is leading to a much-reduced supply of new homes, because cities need both the revenue from land sales and the jobs resulting from building more units.

Figure 9 shows one view of the annual increase in Chinese house prices, despite the oversupply problem. If this graph is correct, prices have increased remarkably in 2017, suggesting some type of stimulus has been involved this year to keep the property bubble growing. The size of an apartment a typical worker can now afford is very small, so this endless price run-up must end somewhere.

Figure 9. Chinese house price graph from GlobalPropertyGuide.com.

Coal-Fired Power Plants. With all of the problems that China has with pollution, a person might expect that China would stop building coal-fired power plants. Instead, the solution of local governments has been to build additional power plants that are more efficient and less polluting. The result is significant overcapacity, in total.

May 2017 article says that because of this overcapacity problem, Beijing is forcing every coal-fired power plant to run at the same utilization rate, which is approximately 47.7 % of total capacity. A Bloomberg New Energy Finance article estimates that at year-end 2016, the “national power oversupply” was 35%, considering all types of generation together. (This is likely an overestimate; the authors did not consider the flexibility of generation.)

Beijing is aware of the overcapacity problem, and is cancelling or delaying a considerable share of coal-fired capacity that is in the pipeline. The plan is to limit total coal-fired capacity to 1,100 gigawatts in 2020. China’s current coal-fired generating capacity seems to be 943 gigawatts, suggesting that as much as a 16% increase could still be added by 2020, even with planned cutbacks.

It is not clear what happens to the loans associated with all of the capacity that has been cancelled or delayed. Do these loans default? If “normal” feedbacks of lower prices had been allowed to play out, it is doubtful that such a large amount of overcapacity would have been added.

If China’s overall growth rate slows to a level more similar to that of other economies, it will have a huge amount of generation that it doesn’t need. This adds a very large debt risk, it would seem.

Wind and Solar. If we believe Darien Ma, author of “The Answer, Comrade, Is Not Blowing in the Wind,” there is less to Beijing’s seeming enthusiasm for renewables than meets the eye.

According to Ma, China’s solar industry was built with the idea of having a product that could be exported. It was only in 2013 when Western countries launched trade suits and levied tariffs that China decided to use a substantial number of these devices itself, saving the country from the embarrassment of having many of these producers go bankrupt. How this came about is not entirely certain, but the administrator in charge of wind and solar additions was later fired for accepting bribes, and responsibility for such decisions moved higher up the chain of authority.

Figure 10. China current view of solar investment risk in China. Chart by Bloomberg New Energy Finance.

Ma also reports, “Officials say that they want ‘healthy, orderly development,’ which is basically code for reining in the excesses in a renewable sector that has become yet another emblem of irrational exuberance.”

According to Ma, the Chinese National Energy Administration has figured out that wind and solar are still about 1.5 and 2.5 times more expensive, respectively, than coal-fired power. This fact dampens their enthusiasm for the use of these types of generation. China plans to phase out subsidies for them by 2020, in light of this issue. Ma expects that there will still be some wind and solar in China’s energy mix, but that natural gas will be the real winner in the search for cleaner electricity production.

Viewed one way, we are looking at yet another way Chinese officials have avoided closing Chinese businesses because the marketplace did not seek their products. Thus, the usual cycle of bankruptcies, with loan defaults, has not taken place. This issue makes China’s total electricity generating capacity even more excessive, and reduces the profitability of the overall system.


We have shown how low wages and low energy prices seem to be connected. When prices are too low, some producers, including China, make a rational decision to cut back on production. This seems to be the true nature of the “Peak Coal” and “Peak Oil” problem. Because China is reacting in a rational way to lower prices, its production is falling. China is already the largest importer of oil and coal. If there is a shortfall elsewhere, China will be affected.

We have also given several examples of how the current system has been able to avoid defaults on loans. The issue is that these problems don’t really go away; they get hidden, and get bigger and bigger. At some point, all of the manipulations by government officials cannot hide the problem of way too many apartments, or of way too much electricity generating capacity, or of way too many factories of all kinds. The postponed debt collapse is likely to be much bigger than if market forces had been allowed to bring about earlier bankruptcies and facility closures.

Chinese officials are now talking about reining in the growth of debt. There is also discussion by heads of Central Banks about raising interest rates and selling QE securities (something which would also tend to raise interest rates). China will be very vulnerable to rising interest rates, because of stresses that have been allowed to build up in the system. For example, many mortgage holders will not be able to afford the new higher monthly payments if rates rise. If interest rates rise, factories will find it even harder to be profitable. Some may reduce staff levels, to try to reach profitability. If this is done, it will tend to push the system toward recession.

We likely now are in the lull before the storm. There are many things that could push China toward an energy or debt crisis. China is so big that the rest of the world is likely to also be affected.



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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1,825 Responses to Will China Bring an Energy-Debt Crisis?

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  3. Baby Doomer says:

    How the American dream turned into greed and inequality – World Economic Forum

    • This is a physics problem. If there is not enough energy to go around, greater wage disparity occurs. As a practical matter, this happens through technology and greater specialization.

      • Artleads says:

        I know that energy can be used a lot more wisely, but am told that this doesn’t matter, or that it works at the expense of something else, etc. But nothing that isn’t in pursuit of the beautiful can work for long anyway. . .

        • If you truly figure out a way to use energy more efficiently, the product will be cheap, so many can afford it. It will raise demand, and the total amount to energy consumed will be higher.

          • Fast Eddy says:

            William Stanley Jevons

          • Tim Groves says:

            WS Jevons was also a proponent of the sunspot theory of economic cycles, for which he is still taken to task for by lesser minds. He shared this interest with British astronomer William Herschel, who had suggested a link between sunspots and wheat prices in 1801.

            Jevons’s romance with statistical investigations unfortunately carried him to the most fanciful and, unfortunately, the most ridiculed idea of his life, the explanation of commercial crises on the basis of the periodic alteration of spots on the sun. The “sunspot theory” integrated Jevons’s earlier work on prices with his lifelong inter­est in astronomical and meteorological phenomena. In “The Solar Period and the Price of Corn” (1875), he put the matter succinctly:

            “If the planets govern the sun, and the sun governs the vintages and harvests, and thus the prices of food and raw materials and the state of the money market, it follows that the configurations of the planets may prove to be the remote causes of the greatest commercial disasters.” (Inves­tigations, p. 185)

            Jevons’s meteorological research had convinced him that the sunspot period was 11.11 years in length. Parts of James E. Thorold Rogers’s great work, A History of Agriculture and Prices in England, had begun to appear, giving Jevons a source of raw data. But in 1875, Jevons did not believe that the information he had in hand justified a firm belief in a causal relation between sunspots and commercial activ­ity. Still, in noting that the electric telegraph was a favorite dream of sixteenth- and seventeenth-century physicists, Jevons pointed out:

            “It would be equally curious if the pseudo-science of astrology should, in like manner, fore­shadow the triumphs which precise and methodical investigations may yet disclose, as to the obscure periodic causes affecting our welfare when we are least aware of it.” (Investigations, p. 186)

            In 1878 Jevons returned to the subject of sunspots with renewed vigor, first in a paper to the British Association (“The Periodicity of Commercial Crises and Its Phys­ical Explanation”) and then in an article in Nature (“Commercial Crises and Sun-Spots”). Jevons was convinced by new evidence that the duration of the sunspot cycle was 10.44 years instead of 11.11, a dating that more closely correlated with the com­mercial cycle of crises. The coincidence was just too much for Jevons, and he lunged to a conclusion:

            “I can see no reason why the human mind, in its own spontaneous action, should select a period of just 10.44 years to vary in. Surely we must go beyond the mind to its industrial environment. Merchants and bankers are continually influenced in their dealings by accounts of the success of harvests, the comparative abundance or scarcity of goods; and when we know that there is a cause, the variation of the solar activity, which is just of the nature to affect the produce of agriculture, and which does vary in the same period, it becomes almost certain that the two se­ries of phenomena, credit cycles and solar variations, are connected as effect and cause.” (In­vestigations, p. 196)


            • Jevons got some things right; other things, not so much.

            • Tim Groves says:

              Modern research into the link during medieval/early modern times times has lent support to Herschel’s and Jevons’s claims.

              Two researchers in Israel have found a statistical link between the activity of the Sun and the price of wheat in seventeenth-century England. At the point in the solar cycle when sunspots were least likely, wheat prices tended to be high, report Lev Pustilnik of Tel Aviv University and Gregory Yom Din of the Golan Research Institute in Kazrin.

              For a medieval peasant, this could mean the difference between life and death: bad harvests and famine were common; high grain prices sometimes triggered riots in Europe.

              So, what’s changed since the Middle Ages? One big thing is that nowadays we have a globalized food supply and international markets, which means we don’t have to rely nearly as much on farmers in the local region getting good harvests. We also have insecticides, herbicides, fungicides, mechanized harvesting, artificial drying, refrigerated/air-conditioned food storage, etc. So we can handle the capriciousness of the weather a lot more successfully than the medieval peasants ever could.

              The researchers suppose that in medieval England, high cloudiness – and therefore harsh winters and lots of rain – posed more risk than low cloudiness, as drought was rare. So they expect to see unstable wheat prices during periods of low solar activity. They looked at grain price records and at the amount of beryllium-10 in Greenland ice sheets. This isotope is produced by cosmic rays in the atmosphere and so is a record of solar activity.

              For all ten solar cycles between 1600 and 1700, high wheat prices coincided with low activity, and vice versa. The probability of this happening by chance is less than 1 in 500, the researchers say.

              Globalization of international food markets probably eliminates this effect in most of the modern world. But countries where agricultural production remains precarious and which cannot afford to import food in times of shortage could still be at risk of such a solar influence.


            • And of course is we leave our time of globalization, this is one of the kind of cycles that we will need to become aware of again. Farmers somehow need to plan ahead, and grow sufficient grain in good years to have some stored up for bad years. They also have to prevent animals and insects from eating it before we need it.

          • Artleads says:

            I don’t envision using energy efficiently. I only consider using it rationally. I’m familiar with third world conditions that are very simple while growing more complex due to population growth due to a religion of progress. Third world people have a memory of the simple despite growing addiction to the complex.

            Why did they grow in population? You have explained how providing a certain kind of housing could contribute to greater or less growth. I didn’t understand that before but I’ve been sure the planning of the built environment was an essential factor. So you have improved my understanding in a way that is consistent with what I had been thinking before. So the religion of modernism in its numerous characteristics–housing, lifestyle, efficiency, etc. had a role in increasing population. When missionaries go to Africa and insist on civilizing remote tribal people, they infect them with all the attributes of civilization that increase population. I know the prevailing ideology attributes that to the inevitable result of human psychology. Very well, let western people think so if they wish. Third world people might find it easier to think a different way.

            To me, this religion of modernism and progress was due to cultural misunderstanding. I keep saying this like a broken record. The west has hit limits due to its religion of progress that the third world hasn’t hit in the same way. It seems like a cultural decision not to apportion the pittance of technology that could make third world ‘simple’ acceptable again. It’s like changing the religion of progress for something else. Maybe it’s because I didn’t grow up in the first world why I can’t understand why this is supposed to be impossible. The third world is the new standard for life style. If people prefer to die instead of adapting, that’s their choice.

            • Tim Groves says:

              I agree with you that we should be using the energy at our disposal rationally. And all around me I see all kinds of examples where this isn’t happening in my opinion. But in the industrialized world we’ve developed this economic system in which the rules of the game imply that any activity that involves the movement of money legitimately between individuals or organizations is good for the economy, regardless of whether it is of any tangible benefit to society as a whole. So consuming lots of alcohol, tobacco and junk food, gambling and commuting along congested highways in a two-ton SUV five hours a day are all considered good for the economy. And in a sense they are because those various activities help to support a lot of industries and provide a lot of other people with paid work. They are all vital sticks in the Leonardo dome we’re living in.

            • What the West did was greatly extend life expectancies, even in Africa. They did this by bringing better sanitation, and by bringing antibiotics, and perhaps a few other simple treatments.

              The pattern women (and society) had learned in the past, of having five to seven children, so that two would live to maturity, no longer made sense. But the people did not understand this, and no one taught them this simultaneously. There might have been some chance that this pattern would have been taught, if more organized leadership were available, such as has been the case in China, and such as was the case when colonial rule was in place. But once this rule was gone, the West’s main concern was, “How can be make money from Africa, India, and all of the other “underdeveloped” countries?” More population was better. Telling the new rulers to stop having so many children was not politically correct. So no one explained to people that too much population would be a big problem.

              They also didn’t explain to the people that importing nearly all of their country’s food is not a winning strategy. Certainly, it is cheaper. But it leaves most of the population without jobs. So the governments really cannot do much for their people. Africa, in general, does not have a cheap source of energy products. Adding solar is sort of a joke, unless the country’s highest expectation is having TVs in every home. It doesn’t bring jobs, as far as I can see, except for those who make solar panels and batteries. They tend to live in China and other industrial nations.

            • that summary fits neatly with the current chaos in Yemen

              Currently they have to import 80% of their food, and that’s irrespective of their current war with saudi.

              they cannot possibly buy it, because they produce nothing to buy it with, so like Syria, Yemen is also a dress rehearsal for our future.

            • Artleads says:

              Tim Groves,

              I think I’ve already grasped what you’re saying…to a significant degree anyway. I hope the following makes a valid point to the effect that you can have your cake and eat it too. I have a problem with looking at the money system in a simple, isolated way. There are many other considerations that the money argument tends to ignore. Those, like energy that no one considers, ultimately affect the money system too. So I look at a typical mega hotel beach design, and comment about it (one with similar design issues) beneath.


              Depriving the beach of natural vegetation seems to be a cultural decision and not an economic one. You could argue that this bare-beach style is popular around the world, and is what tourists expect. I would argue that there are (admittedly fewer) examples of tourists enjoying beaches with their original natural vegetation. I could argue that this would be better for the wildlife and aesthetics, and that there are tourists who would like that too. I could also conclude that the mass culture mentality–treat people like cattle and cater to their basest instincts–is not a winning strategy over all, and can successfully be opposed. So no, thumbs down on this beach.

            • Artleads says:

              I was pointing to it as an insensitive design–huge environmental destruction, loss of local nature and beauty–not having anything to do with making money. I argue that you can train tourists to fit in with a more natural setting. I find that being sensitive means you consider more things, including innovative ways to cater to a diversity of income levels.

  4. interguru says:

    Electric cars’ green image blackens beneath the bonnet

    The humble Mitsubishi Mirage has none of the hallmarks of a futuristic, environmentally friendly car. It is fuelled by petrol, runs on an internal combustion engine and spews exhaust emissions through a tailpipe.

    But when the Mirage is assessed for carbon emissions throughout its entire lifecycle — from procuring the components and fuel, to recycling its parts — it can actually be a greener car than a model by Tesla, the US electric vehicle pioneer, in regions with particularly high carbon emissions from electricity.

    From a government standpoint, all electric vehicles are equally green — regardless of whether they are big or small, produced efficiently or with great waste, or powered by electricity generated by solar energy or coal.

    “Electric vehicles are zero-emission by definition,” says Roland Doll, innovation officer at InnoEnergy, a group supporting sustainable energy. “[Regulators] only measure what comes out of the exhaust pipe. Well, there is no exhaust pipe.”

    Au contraire …………..

    According to the Union of Concerned Scientists, the average electric car in the US already produces less than half the carbon emissions of a conventional car over its lifetime. As more renewable energy from the likes of wind and solar displace coal in the electricity grid, the reductions will become greater.

    “They are good today, and they could be even better tomorrow,” says UCS researcher Don Anair.

    Jessika Trancik, a professor of energy studies at MIT, has compiled data on dozens of cars. They show that all electric vehicles produce fewer emissions over the lifecycle than conventional cars of the same weight class, and this holds true even when the electricity grid that powers them is mostly generated by fossil fuels, such as in Poland.

    Read the whole thing

    • Greg Machala says:

      “As more renewable energy from the likes of wind and solar displace coal in the electricity grid, the reductions will become greater.” – That is wishful thinking.. Just look at Germany for an example of what really happens. The reality is that solar PV and wind do not displace fossil fuels. For every new PV and wind turbine, more dispatachable fossil fuel power plants must be built to offset the indeterminacy. Thus, increasing the cost of consumer electricity. And if you want to add batteries to tame indeterminacy then that is another beast of fossil fuel consumption as well. There is no free lunch.

      • xabier says:

        We are (fast?) approaching the stage when whether the lunch is free or not will not be the question.

        What will be, is;

        ‘Is there any lunch today?’

      • Fast Eddy says:

        In fact… because you end up with two power generating systems — solar and wind (which do not grow on trees) and coal or maybe nuclear to back them up … you end up with MORE pollution and much HIGHER costs…

        But then a 7 year old could be made to understand this …

        The FT is just doing its job — it is telling people what to think…. it is keeping them calm….

        Just like Bloomberg is doing its job with the shale revolution discussion….

        Everything is fine… we are transitioning to the a clean eternally prosperous world… don’t worry about your children’s future.. Elon has it all worked out…

        Look away … NOW

    • Lastcall says:

      Its amazing how the analysis stops at the mention of solar panels and windmills; its as if these things fall off trees.
      The carbon-life cycle of these is lurking in the shadows behind the green facade. Take a deeper/wider look.

    • Fast Eddy says:

      Solar panels… and EVs…. that’s a great formula!

      The FT is on it! I am feeling more positive after reading that!!!

  5. I see oil prices are down over 2% today, after the IEA issued a report lowering its demand forecast for 2017 and 2018.

    The Wall Street Journal reports, Oil Prices Slide Amid Clashing Demand Outlooks IEA lowers its forecast; OPEC raises its price.

    There is another article specifically on the IEA report. https://www.wsj.com/articles/oil-price-recovery-threatened-by-weak-demand-says-iea-1510650001

    • Brent is at $61.48. So much for “heading for $70 per barrel.”


      • Theophilus says:

        Weak demand raises its ugly head again.

        It makes me happy whenever I read an article that identifies the role of “demand” in our finite energy predicament. It’s a big step forward for most people to realize that a healthy market only exists between the competing forces of supply and demand. Often supply grabs all the attention; while demand is unrecognized. But even when both sides of the supply and demand model are recognized the model leaves a lot to be desired.

        Before being a loyal reader of Our Finite World, I did not understand the critical role of affordability in economics. Like many I believed that prices would always increase as supplies decreased. But what happens when people can no longer afford higher prices? This simple question reveals the weakness of infinite resource supply-demand models.

        Models are supposed to be a mental construct that can accurately predict future outcomes. Our current models are failing to recognize the role of affordability to finite resources. That’s why so many recent predictions have been wrong about energy and the economy.

        I would like to replace supply and demand with production and consumption. Supply and demand models assume an infinite ability to increase both supply and demand. Infinite growth cannot exist on a finite world. We can’t increase supply beyond the limits of the resource base by snapping our fingers or drawing charts where supply growth just miraculously rises off the top of the paper. We can’t increase demand by simply declaring that we deserve more or by having an emotional tantrum when our needs are not met. Production and consumption exist in the real world of finite resources. Both are just as limited as the underlying resource they depend on.

        Also, I would like to insert the word affordable in front of production and consumption. Affordability effects both.

        Production can’t be sustained unless it’s affordable. If a business doesn’t make profits it afford to stay in business. If a country doesn’t raise enough in taxes it can’t afford to remain a country. Affordable production is necessary for a healthy market.

        Affordable consumption is the other half of a healthy market. Goods and services can only be bought by those who can afford them. People will always want more. But people will not always be able to afford more. Without rising wages you can’t have rising sustainable consumption.

        As we approach resource limits the market contracts to the size of the resources that can be affordably produced and affordably consumed. No amount of market manipulation can change this. Attempts to alter this by increasing free and easy money supply only delay the inevitable and increase the destructive consequences.

        Love to know what you think Gail, What would you add or subtract from my statements?

        • The place I would tend to disagree with you is at the very end. “Attempts to alter this by increasing free and easy money supply only delay the inevitable and increase the destructive consequences.”

          The only thing we can possibly do is possibly delay the inevitable a bit. Free and easy money supply is part of this. “Increasing the destructive consequences” is not really for us to judge. If we are dead, we are dead; we are not “more dead.” Other species have been affected by our rapid growth rate for many, many years. If it is to be that some humans will survive, that will happen, one way or another. If not, the Earth and the Universe will rebalance without us. We are not the guardians of the rest of the Universe.

        • Tim Groves says:

          Good post, Theo!

          I grapple quite a bit with these issues of supply and demand, production, consumption and affordability, and I remain rather confused about their relationship to each other. I also tend to get mixed up about ohms, watts, amps and volts. So I would probably benefit from some refresher courses in economics and electrical engineering.

          Regarding demand, at present I am demanding a lot of stuff, but to no avail as I can’t afford it psychologically. In other words, I suffer from the miser’s dilemma: I’d rather sit on my pile of pennies than spend them all on the things I want to have. Silly really, as the value of my hoard of may well plummet to zero before I get a chance to spend them. But visions of me sitting begging on the streets if I let them go keep me holding onto them.

          • Fast Eddy says:

            My demand for a private jet is verging on resembling one of those petulant child in the grocery store take out who demands a chocolate bar and his mother refuses to fulfill.

            I am beside myself with rage… at times I throw things… I scream… I cry … I sit in the corner rocking back and forth mumbling private jet… private jet… the neighbours have called the police twice know thinking I am beating Madame Fast…

            Mental health professionals have knocked on the door as well with strait jacket in hand…..

            I explain wide-eyed to them the huge hassle of having to fly from Nelson to Auckland… then onwards to wherever I am going … say Hong Kong… then another flight from there … sometimes two….

            Am I unreasonable???? Well – am I!!!! How would you feel if you were trying to bucket list and time was short and the world was ending and you were held up in airport after airport waiting for connecting flights when you could be living f789ing large at your final destination????

            They look at each other with that look … you know the look… that look that says this guys is f789ing nuts but not really truly nuts… then they tell me there is nothing they can do to help but could I please close the windows if I feel the need to throw another tantrum…

            Oh I am sure they go back to the nut house and live off that story for weeks…. bloody buggers… swap spots with Fast Eddy and see how they feel!!!! Fast Eddy is misunderstood. Not respected even….

            So as you can see my demand could not be more virulent …..my yearning could not be more intense… yet….. nothing….

            • Theophilus says:

              Dear Mr FE,

              Although I am only an amateur psycholigist, and an aspiring gynecologist, and have difficulty determining fantasy from reality myself, I believe I have a modern solution to your private jet fixation. Had I studied Freud I would have jumped to the conclusion that the private jet was a subconscious manifestation of unrealized desire for performance of a certain private body part of yours. Which will remain unmentioned.

              No, fortunately we live in a time where we are not constrained by the miserly laws of reality and physics. Our great leader has shown us the photovoltaic light. I refer to none other than Mr. Musk himself. A man who’s immense ego cannot be contained in just one world. We must follow the green path he has revealed by the magnificents of his boundless imagination.

              Every time our exalted leader runs into that pesky obstacle known collectively as reality, he simply dreams of greater grandiose visions. For example, when he fails to run a profitable company, he doesn’t bother to fix it. No, that would be to common for him. Instead he diverts himself, and his loyal worshippers, by promising even greater exploits. How about revolutionizing transportation itself by promising to transport people a thousand miles an hour in vacuum tube, or saving an entire country’s electric grid by providing renewable power, that is intermittent and many times more expensive than those boring, cheap and dependable fossil fuel grids. When those plans don’t work does he admit defeat? NEVER! Our glorious messiah simply promises life in another world. One where pizzas are delivered to millenials, who have never worked a day in their life, via hyperloop across a vast Martian landscape. Can you see the vision my brother?

              Your demands for a private jet are reasonable and modest by Muskonian standards. All you must do now is conjure an even greater vision for your future. Possibly one that would include an Intergalactic Space Port with millions of private space jets transporting at light speed, the hottest women in the Universe to you Galactic Space Harem.

              No Sir, you are not crazy. You have the potential of unlimited genius.
              This first consultation is free. Future consultation will cost 100 Tesla shares of Two Bitcoins, whichever is greater. Best Wishes.

            • Fast Eddy says:

              The thing is…

              You are reading too much into my desire…. I assure you … it has everything to do with convenience…

              As for Musk… he is not a real entity … well he is real in that he is flesh and bones… but he is no more than the front man for Tesla — he is not running the company — not so different than how George Clooney is the front man for Omega watches….

          • Tim Groves says:

            I can’t resist quoting some dialogue from the Mel Brooks directed movie, Dracula: Dead and Loving It:

            Dr. Seward: Allow me to introduce Professor Abraham Van Helsing. He’s a doctor of rare diseases as well as a man of theology and philosophy.
            Van Helsing: And gynecology.
            Dr. Seward: Oh, I didn’t know you have your hand in that, too.

  6. Baby Doomer says:

    The US Shale Business is NOT PROFITABLE and can’t fund itself whether oil is at 100 or 50 dollars a barrel

    • Greg Machala says:

      I thought Permian Shale was doing better that the others. Maybe it is Permian conventional that I am thinking of.

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  8. yt75 says:

    I suppose below has been mentioned here already : About recent “moves” in KSA and possible realtionship with oil :

    or direct source :

    This article may well be right, and if it is, what would be quite Ironic is that MBS (the son of current king and actual ruler), has a “modern” image in Saudi Arabia (allowing women to drive, giving jobs back to saudis, “great” projects like new eco cities NEOM etc), and if the article is right, it means he will be the one slashing welfare and subsidies (on gas, even electricity is almost free today in KSA, as well as water even if 75% of it is desalinized using oil/gas energy for the process)…

    • Thanks! So Charles Hugh Smith is coming to a similar conclusion about the takeover, as I suggested was the answer to the Saudi announced cutback in oil production–they really have no option; their production is declining. It may be that this whole puzzle fits together. Selling off part of Saudi Aramco only makes sense if they can make more money by selling it than by keeping it.

      It was nice of Charles Hugh Smith to mention me and to link to my latest post, in the original version of the article.

      • Fast Eddy says:

        5. The only way out is to grab the power now that will be needed to slash domestic welfare and domestic consumption of oil/gas, i.e. the power to overcome resistance within the royal family to severe reductions in royal/central state budgets.

        I am not buying that…

        I am buying the theory that pro American elements in the KSA are being purged as the country recognizes there is no value in remaining under the protection of America (and the el ders) and pivots towards Russia and China…

        Either way it does not matter — when you are running out of oil you are running out of oil… it’s all just rearranging the deck chairs…

        • yt75 says:

          Don’t think so, the USA/KSA alliance is too strong for that, maybe an “anti trump” purge somehow, for some of them, and Iran remains the focal point for the Souds anyway.
          (plus 90% of KSA weaponry is still American anyway)

          • Fast Eddy says:

            I suspect Trump is either an actor (as are all presidents)… or he is the front man for a faction that has teamed up with the Russians and Chinese (and now perhaps KSA) to kill the el ders….

          • Tim Groves says:

            Or one faction among the El-ders is gearing up to eliminate a rival faction. There seems to be a lot of stuff going down right now. Harvey, Kevin and the Hollywood set suddenly being called to account for some of their perversions, Netanyahu and wife under investigation by Israeli prosecutors for being naughty, Mr. Soros wanted by the criminal prosecution authorities in Israel and Hungary, the defeat of ISIS and the virtual victory of the Syrian Government in that country’s civil war, the twilight of Iraqi-Kurdish leader Barzani’s grip on power and of the Kurd’s most recent bid for statehood, the huge trade deal between the US and China, the public outing by Donna Brazille of the Clinton campaign’s stealing of the Democratic nomination from Sanders, this night of the long knives in KSA that has removed some of the Neocon’s favorite princes from the Grand Chessboard, and new Editors-in-Chief for both Vanity Fair and British Vogue!!

            Some of these things are connected and others coincidental, obviously, but how many of them are being rolled out in concert?

            • Reminds me about what Turchin and Nefedof talked about in Secular Cycles. When resources got too tight, suddenly there was a lot of infighting among the ruling class. There didn’t seem to be enough to go around among this group either.

            • Greg Machala says:

              I too think there is a lot of infighting amongst the ruling class. Fighting over the scraps of what once was plenty. Part of the problem for the ruling classes may be that they have money but, they cannot buy what they want with it.

            • Artleads says:

              I’ve heard talk from a conspiracy-theory type friend of how there’s a deeply planned shift of power, some wonderful force (possibly having to do with outer space…or somewhere, and something about Atlantis) is on the verge of displacing “the cabal”–Clintons, Soros, et al– that has ruled for however long. I don’t argue, thinking there is possibly a grain of truth as to the plan and the displacement. A better world is promised, which is certainly necessary, whatever bizarre trappings come with it. 🙂

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  10. Baby Doomer says:

    U.S. SHALE OIL PRODUCTION UPDATE: Financial Carnage Continues To Gut Industry

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