Why we get bad diagnoses for the world’s energy-economy problems

The world economy seems to be seriously ill. The problem is not overly high oil prices, but that does not rule out energy as being a major underlying problem.

Two of the symptoms of the economy’s malaise are slow wage growth and increasing wage disparity. Tariffs are being used as solutions to these issues. Radical leaders are increasingly being elected. The Bank for International Settlements and the International Monetary Fund have raised concerns about the world’s aggregate debt levels. The IMF has even suggested that a second Great Depression might be ahead if major banks should fail in the manner that Lehman Brothers did in 2008.

Figure 1. Ratio of Core Debt Growth (non-financial debt including governmental debt) to GDP, based on data of the Bank of International Settlements.

If the economy were a human being, we would send it to a physician for a diagnosis regarding what is wrong. What really is needed is a physician who has a wide overview, and thus can understand the many symptoms. Hopefully, the physician can also provide a reasonable prognosis of what lies ahead.

Individual specialists studying the world’s economic and energy problems tend to look at these problems from narrow points of view. Some examples include:

  •  Curve fitting and cycle analysis using economic data by country since World War II, as is often performed by economists
  • Analysis of oil supply based on technically recoverable reserves or resources
  • Analysis of fresh water supply problems
  • Analysis of population problems, including rising population relative to arable land, and rising retiree population relative to working population
  • Analysis of ocean problems, including rising acidity and depleting fish stocks
  • Analysis of the expected impact of CO2 production from fossil fuels on climate
  • Analysis of rising debt levels

In fact, we are facing a combined problem, but most analysts/economists are looking at only their own piece of the problem. They assume that the other aspects have little or no influence on their particular result. What we really need is an analysis of the overall economic malady from a broader perspective.

In some ways, the situation is analogous to having no physician with a sufficient overview of where the world economy is headed. Instead, we have a number of specialists (perhaps analogous to a psychiatrist, a urologist, a podiatrist, and a dermatologist), none of whom really understands the underlying problem the patient is facing.

One point of confusion regarding whether today’s oil prices should be of concern is the fact that the maximum affordable oil price seems to decline over time. This happens because workers around the world increasingly cannot afford to buy the goods and services that the world economy produces. Inadequate wage growth within countries, growing globalization and rising interest rates all contribute to this growing affordability problem. To make matters confusing, this growing affordability problem corresponds to “falling demand” in the way economists frame the issues we are facing.

If we believe the technical analysis shown in Figure 2, the maximum affordable West Texas Intermediate oil price has declined from $147 per barrel in July 2008 to $76 per barrel recently. The current price is about $62 per barrel. The chart suggests that downward price resistance might be reached at $55 per barrel, assuming no major event occurs to change the current trend line. Any upward price bounce would appear to leave the price still much lower than oil producers need in order to reinvest sufficiently to allow future oil production to be maintained at current levels.

Figure 2. Down sloping diagonal line at the top of chart gives an estimate of the trend in maximum affordable West Texas Intermediate (WTI) oil prices. The downward trend line starts in July 2008, when oil prices hit a maximum. This high point occurred when the US real estate debt bubble started unwinding. Later maximum points correspond to points when oil prices stopped rising and crude oil reservoirs started refilling. Chart prepared by Amit Noam Tal.

Thus, our concern about adequate future oil supplies should perhaps be focused on keeping oil prices high enough. It takes a growing debt bubble to keep oil demand high; perhaps our concern should be keeping this debt bubble high enough to allow extraction of commodities of all kinds, including oil. Figure 1 seems to show a recent downward trend in Debt to GDP ratios for the Eurozone, the United States and China. This may be part of today’s low price problem for commodities of all types.

Needless to say, climate analyses do not consider the severity of our energy problems, nor do they consider the extent to which there is a connection between energy supply and the ability of the economy to operate as usual. If the real issue is a near-term financial crash that will radically affect future fossil fuel consumption, the climate analysis will certainly miss this event.

The Real Nature of the Limits to Growth Problem

To truly understand the headwinds that the economy is facing, we should be looking at the combined effect of all of the limits that the individual specialists have been studying. We might also include other issues not listed. The 1972 book The Limits to Growth presents an early computer model of how at least some of the limits of a finite world might be expected to play out.

Figure 3. Base scenario from 1972 Limits to Growth, printed using today’s graphics by Charles Hall and John Day in “Revisiting Limits to Growth After Peak Oil” http://www.esf.edu/efb/hall/2009-05Hall0327.pdf

This early approach reflected an engineering view of the problem, considering expected diminishing returns with respect to resources of all types. Other considerations included likely resource needs based on prior economic and population growth trends and efficiency gains. The Base Scenario shown in the 1972 book (Figure 3) showed collapse taking place about now–in other words, in the early part of the 21st century.

In the time since the 1972 Limits to Growth analysis was prepared, there has been a major discovery relating the importance of energy to the economy. Ilya Prigogine tackled the problem of the physics of thermodynamically dynamic open systems, earning a Nobel Prize for his efforts in 1977. When energy flows are available, many structures, called dissipative structures, can grow and change over time. Examples include plants and animals, hurricanes, stars (they expand in size, then collapse at the end of their lives), ecosystems, and economies. These structures are utterly dependent on energy flows. The economy needs energy in almost the same way that humans need food. Without sufficient energy flows, the world economy will collapse.

It is because of the laws of physics and energy flows that markets are able to set price levels. Indirectly, physics sets the maximum affordable price for energy products based upon the total quantity of goods and services individual workers can afford. These maximum affordable prices may be invisible, but they are very real. Economists may talk about “demand” for energy products, but the real issue is affordability: “Will the laws of physics allow prices to stay high enough to provide the commodities the world economy needs?”

It is because of the laws of physics that debt can play a major role in the economy. Debt can provide time-shifting services if an economy does not have sufficient energy supplies to permit the equivalent of bartering of finished goods and services for new capital goods. Debt can allow future goods and services (manufactured with energy products) to serve as payment for capital goods and other goods purchased using debt. Thus, debt acts as a promise of future energy supplies. These future energy supplies may not, in fact, actually be available at prices that consumers can afford. This is why debt bubbles so often collapse and have a devastating impact on economies.

In theory, the new physics discoveries might also be added to the Limits to Growth model. If this were done, I would expect the downslopes in Figure 3 to be much steeper. Also, the date when the population decline starts would likely move forward, relative to other declines. The actual dates of the declines would of course be expected to change as well, because of updated knowledge regarding resources, population, and other factors.

Including the physics aspect of the economy would lead to many periods when sharp changes take place. When these sharp changes take place, there might be wars, collapsing governments, and epidemics, all causing large numbers of deaths. Debt bubbles might pop, causing deflation and widespread banking problems. These types of events are similar to those that economies have experienced in the past. There is no reason to expect that today’s world economy will have unusual lasting power.

Of course, modeling one piece of the economy at a time, as described at the beginning of this post, leaves out such troublesome implications. Economists tell us all we need to worry about is price fluctuations as the economy substitutes one product for another. If a person has blinders on, perhaps this a good description of the world we live in. Otherwise, the model leaves a lot to be desired.

Implication of the Laws of Physics Being in Charge of How the Economy Operates

Politicians would very much like us to believe that they are in charge. They would like us to believe that adding more technology can solve all of our problems. They would like us to believe that citizens can make a significant difference by voluntarily cutting back on their own energy consumption. They would also like us to believe that countries can cut back on their debt levels without the whole Ponzi Scheme unraveling.

Anyone who has watched bread rise in a bowl can see the implications of growth within a finite structure. It doesn’t take very long for the volume growth of bread dough to exceed the space available. Even if the bread maker pushes the dough back down again, the effect is only temporary. The bread dough quickly rises again to overfill the bowl it is in.

One possible implication of the 2008 financial (and oil price) crash is that we are very close to limits, right now. Regulators can try to fine tune how the economy operates by raising and lowering interest rates (sometimes using Quantitative Easing (QE) in the process), but they are, in some sense, playing with fire. Figure 4 shows the dramatic impact that popping the real estate debt bubble seems to have had in 2008. It also shows the impact that adding and removing QE has had.

Figure 4. Figure showing collapsing debt bubble at the time US oil prices peaked. Figure also shows the use of Quantitative Easing (QE) to stimulate the economy, and thus bring oil prices back up again. Ending US QE seems to have had the reverse effect.

By raising interest rates, regulators could easily send part, or all, of the world’s economy to a financial crash that is worse than 2008’s. Or the economy could again reach limits, by itself, with just a little economic growth. In some sense, the world economy is very close to filling the bread bowl, as it was before the 2008 crash pushed it back down.

The World Economy Is Reaching Limits in Many Areas Simultaneously

Many people believe that we are reaching limits in at most a few areas of the economy, such as “running out of oil.” The evidence suggests that because of the networked nature of the economy, we are really reaching limits in many places, simultaneously. The following represent some problem areas:

(1) Too Low a Return on Labor for Workers Whose Jobs Are Easily Exportable. With globalization, workers are indirectly competing with workers around the world regarding who can produce goods and services most cheaply. They are also competing with computers and robots that can easily replicate their functions. The net impact is a world where a large share of the citizens find themselves living at a level not much above the subsistence level. In more developed countries, young people may live with their parents longer and may delay having children almost indefinitely, because wages are not keeping up with living costs. Many studies have shown rising wage disparity. In some ways, the wage disparity now seems to be as bad as in the 1930s.

Figure 5. U. S. Income Shares of Top 1% and Top 0.1%, Wikipedia exhibit by Piketty and Saez.

(2) Interest Rates. Interest rates are the lever that economists like to adjust upward or downward to try to stimulate the economy or push the economy downward. Short term interest rates, up until about the end of 2015, were at the level they were at during the Depression of the 1930s.

Figure 6. Monthly average 3-month term treasury bill rates in chart prepared by FRED. Amounts shown through October 2018. Grey bars indicate recessions.

Raising interest rates is like adding a little more dough to the already over-full bread bowl. With these higher interest rates, borrowers need to pay more for monthly payments, making the strain on their finances even worse than it was previously. Figure 6 shows that raising interest rates very often creates a recession. In fact, the Great Recession of 2008-2009 seems to be the result of an increase in short term interest rates. This time we are being told that the increase will be gentle, but if the bread bowl is already overly full (in the sense that affordability of the output of the economy is already way too low, for many workers), what difference does “gentle” make?

(3) Return on Capital Investment/Added Debt. Falling long-term interest rates between 1981 and 2016 seem to be an indirect reflection of falling long-term return on capital investment. If capital returns had been higher, there would be more demand for debt, forcing interest rates up to levels closer to where they had been when the economy was growing more quickly.

Figure 7. Monthly average 10-year US Treasury interest rates in chart prepared by FRED. Amounts shown through October 2018. Grey bars indicate recessions.

Another way we can look at how productive the addition of debt has been is by comparing the debt increase each year with the GDP increase (including inflation) each year. We use current year GDP as the denominator in both calculations. Figure 8 shows the indications for what the Bank for International Settlements calls “Core Debt” (that is, Total Non-Financial Debt, Including Government Debt).

Figure 8. Dollar Increase in US Core Debt as % of GDP, shown beside GDP dollar increase, as percentage of ending GDP. Amounts based on FRED data.

Comparing the red and blue lines on Figure 8, GDP rose fairly reliably in the pre-1981 period, as the amount of core debt rose. The core debt increases tended to be higher than the GDP increases, but not a great deal higher. Thus, the US ratios on Figure 1 could be close to 1.0 in early years.

Once interest rates started falling after 1981 (see Figures 6 and 7), core debt growth and GDP growth greatly diverged. I expect that quite a bit of this change was related to asset price inflation as interest rates fell. With lower interest rates, assets of all types started becoming more affordable. Thus, a greater number of buyers could be expected, driving up prices of assets of all kinds, including homes, stores, and factories. Owners of these assets could “take the equity out” as prices rose and could use the equity to purchase other goods and services. In theory, these activities might somewhat stimulate the economy. Figure 8 suggests that the benefits of these activities with respect to the “goods and services” portion of the economy (red line) were slight at best, however.

Figure 9. Dollar Increase in US Financial Debt as % of GDP, shown beside GDP dollar increase % of ending GDP. Amounts based on FRED data.

Figure 9 shows Financial Debt amounts corresponding to the Core Debt amounts shown in Figure 8. At first glance, it appears that Financial Debt (blue line ) has provided no benefit whatsoever for the Goods and Services part of the economy (red line). But clearly the bankers who created these financial products benefitted from the income they received from them. So did the low-income home buyers who bought homes that they could not really afford in the early 2000s. Home building was stimulated, and inflation in home prices was stimulated. Banks benefitted by being able to transfer their problem home loans to unsuspecting buyers. Whether this whole arrangement had any net benefit to the economy, other than to create pseudo-solutions for people who could not really afford the homes they were purchasing, is doubtful. But when the economy is near limits, strange solutions to stimulating the economy are attempted.

(4) Commodity Prices. If we have a supply problem with one kind of commodity, we likely have a supply problem with many kinds of commodities at the same time. The reason why this happens is because the prices of many types of commodities tend to move together, in response to general market conditions. This is why the US government talks about inflation in oil and food prices as a separate category of Consumer Price Inflation.

If prices for commodities are generally low, as they have been since 2014, this means that commodity investors have received low rates of return for several years. With low rates of return, producers of many commodities have cut back on reinvestment. With inadequate reinvestment, supply crunches are likely to occur across a broad spectrum of commodities simultaneously. A recent Wall Street Journal article says, Supply Crunch Looms in Commodities Markets. The article mentions copper, zinc, aluminum and nickel. Other articles talk about oil in a similar fashion.

The question becomes, “Can consumers bid up the prices of all of these minerals sufficiently, to encourage enough reinvestment to solve the world’s commodity supply problem?” Food prices would likely need to be bid up as well, because oil is used heavily in the production and transport of food.

It was possible to bid up commodity prices in the 1970s, because the economies of the United States, Europe, Japan, and the Soviet Union were all growing rapidly. Also, women were joining the labor force in large numbers. It was possible to bid up commodity prices in the 2002 to 2008 era, because China and other Asian nations were rapidly ramping up their demand for goods and services of all kinds.

Figure 10. China energy production by fuel plus its total energy consumption, based on BP Statistical Review of World Energy 2018 data. The difference between the production figures shown and the black line consumption total is imports.

Now we are facing a much different situation. China is in much worse shape than most people recognize because its coal supply seems to have passed peak production. This has happened because the cheap-to-extract coal is mostly depleted, making it unprofitable to increase coal production without significantly higher prices. Imported coal and natural gas are expensive options. China also has a serious debt problem.

Because of China’s problems, the country will necessarily need to cut back on manufacturing, road building and home building in the years ahead. (This would happen, with or without Trump’s tariffs!) For some minerals, China currently represents over 50% of the world’s demand. China is the largest oil importer in the world. It is doubtful that China can make major cutbacks in its use of commodities without lowering prices for many commodities worldwide.

Persistence of Outdated Models

We are dealing with a situation where a large number of people suspect, at least vaguely, that the world economy is like bread dough about to outgrow its bowl, but this is not an issue anyone really wants to quantify. Everyone wants solutions; they don’t want a better delineation of the problem. Repeated publication of climate change forecasts is, in a sense, a denial of the possibility that we may be facing resource limits that are close at hand. Such publication is saying, in effect, that the closest limit that citizens need to worry about is the climate limit.

Also, the reliance of researchers on the past work by others in the same field tends to reinforce what are essentially incorrect models. Cross-pollination across fields is difficult, given the technical nature of today’s academic research. Furthermore, it becomes increasingly difficult to properly model a situation that is very complex and depends upon non-linear interactions.

Putting All of These Issues Together

The focuses of today’s narrow research can give a surprisingly distorted overview of where the economy is. A few areas in particular stand out:

(a) The choice of the word “Demand” instead of “Affordable Quantity” makes it sound like the buyer has more control over purchases than he really does. Growing demand seems to depend on continually increasing debt. This is the reason for the debt bubble problem.

(b) Framing the energy problem as “running out of oil” makes it sound like searching for substitutes will be a fruitful area for solution. Because of the affordability issue, this search is futile unless the substitutes are truly cheaper, when all costs are considered. Declining availability of many minerals because of persistently low commodity prices could be an issue as well.

(c) If limits are being reached in many areas simultaneously, incentives for countries to co-operate seem likely to go downhill quickly. Bullies who claim to be able to obtain a bigger share of the shrinking total supply will tend to be elected.

(d) The physics tie between energy and the economy makes major energy consumption cutbacks virtually impossible, without risking economic collapse.

(e) Adding technology isn’t really a solution to the debt problem, because it tends to make the affordability problem worse. The problem is that while adding technology seems to lead to more employment for a few elite workers, it tends to displace lower-wage workers at the same time. The spending of lower-wage workers is really needed if adequate demand for commodities is to be maintained. Additionally, the ownership of the technology-related capital goods tends to be concentrated among the elite; this further shifts wealth from the non-elite to the elite.

The long term prognosis for the world economy seems pretty grim, when all of these issues are put together. Defaulting debt and a resulting collapse in asset prices of all kinds is of particular concern. The default of subprime housing debt was an issue in the US at the time of the Great Recession; the next round of defaults is likely to start elsewhere. Debt defaults could start fairly soon, perhaps in the next 6 to 12 months. The more hostile political situation we have been seeing recently seems to be evidence that limits are close at hand.

 

 

 

 

 

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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1,576 Responses to Why we get bad diagnoses for the world’s energy-economy problems

  1. migloptor says:

    Dear Gail,
    Reading your posts is like listening to Bach: you know that It is the same basic melody but you enjoy every variation. Sad melody for us humans. I hope you are right about the Great Intelligence but I’m sure you’re right about loving our friends and family as much as we can while it’s possible. Thank you for your effort.

    • SomeoneInAsia says:

      With all due respect to everyone here, I find this comparison of Gail’s posts to Bach’s music somewhat… jarring. Bach’s music bespeaks a universe of order and beauty (and I don’t think it’s that repetitive either), whereas Gail’s posts are dire predictions of imminent chaos.

      • Fast Eddy says:

        It will be magnificent chaos though…. The Crescendo of Hell in D(oom) major

      • Tim Groves says:

        Would you mind if I compared Gail’s posts to The Kinks (my favorite band)?
        This one’s a classic doomer anthem.

        Wall of Fire

        Standing at the end of the horizon
        Looking at another setting sun
        Nature gave us all these toys to play with
        But we’ve abused them, each and every one
        They stretched the chord, snapped the wire
        Lit the fuse but can’t retire
        We’re going to the wall of fire
        Tip-toeing on the great high wire
        Let’s have a real fire….

  2. Bill Simpson says:

    If I had to speculate, I would say that soon after global oil production begins to decline, economic collapse will follow, as less energy available for transportation forces the global economy to contract. That is physics which we can’t change.
    With the record amount of debt everywhere, a permanently shrinking economy will cause so many bankruptcies that the financial system will collapse, like it very nearly did in 2008 from subprime housing debt that went into default. Imagine how much worse a global transportation shortage will be.
    We can create money. But we can’t put more oil in the ground. So watch out for peak global oil output. And it doesn’t matter what caused the peak. Oil could get so expensive as to become unaffordable, which will result in the same economic contraction. You’ve got to figure that since oil is so critical in transportation, people will try to pay whatever it takes to get some. That has to eventually raise the price a lot, which itself could cause economic problems by reducing demand for everything else.
    So the economy won’t last too many years after total oil output begins to decline for any reason.
    When will it happen? Probably before 2030.

    • Everything is so tightly networked that the outcome doesn’t need to look like that. Collapsing debt causes prices to drop very early, because buyers are not able to afford goods and services. Look at oil prices in the second half of 2008. Oil prices rise, when the economy is doing very well. For example, before the debt bubble pops, in the years leading up to 2008.

      I think it is really the average price of all energy products that matters. Coal is very much needed to help “average-down” the overall price. Its proportion of the total has been falling. This, by itself, could be a major problem.

      Most oil use is hidden. Will trucking companies be able to pay double their current price, if they can’t pass it on to customers? Will farmers be willing to raise the cost of the crops they grow, by paying a high price for diesel, if they cannot pass on those higher costs to customers? Perhaps in the US they can, because food is truly a necessity, and incomes are high enough in the US to accommodate somewhat higher food prices. But not in India, for example.

      The amount you use in your car is a surprisingly small share of the total petroleum consumption. The US is likely an outlier on the high side in this regard. Most commuters, worldwide, do not use cars.

  3. Dave Kimble says:

    Gail, you seemed to be setting up an introduction for David Korowicz’s “Financial System Supply-Chain Cross-Contagion: a study in global systemic collapse” (2012) http://www.feasta.org/wp-content/uploads/2012/10/Trade_Off_Korowicz.pdf , but then he didn’t appear.

    An open source model of the situation by Josh Floyd is given at http://beyondthisbriefanomaly.org (you will have to start at the very beginning). The software is easy compared to describing the assumptions made over the values and the relationships between the inputs. If anyone can explain it properly, you can.

    Frackers in the US have NEVER made a profit. They have collectively rung up a debt of $280 billion, but banks and investors seem happy enough, so long as the energy keeps flowing. I suppose they have been given the backing of the Fed.

    Meanwhile China has to buy its increasing imports from abroad and ship them through the South China Sea. Australia is being squeezed by US pressure to take part in “Freedom of Navigation” exercises, and China’s willingness to buy our coal, iron ore, aluminium, copper, lead, etc and sell us solar panels and mobile phones. The Australian ABC continues to toe the Government line of “neutrality and US ally”, but now has to advertise itself as “Australia’s most trusted news source”. Propaganda still works.

    • Thanks for reminding me of this article. I like the work of David Korowicz. I have been able to meet him as well. The overview says,

      We consider one scenario to give a practical dimension to understanding supply-chain contagion: a break-up of the Euro and an intertwined systemic banking crisis. Simple argument and modelling will point to the likelihood of a food security crisis within days in the directly affected countries and an initially exponential spread of production failures across the world beginning within a week.

      In the not too distant future, we may get to see how the breakup of the Euro really works. Actually, we may get some insights just from the UK trying to leave the European Union even sooner.

      I am afraid I wasn’t able to figure the link you were talking about.

  4. Fast Eddy says:

    This just arrived in my mail box…… I am posting it in advance … so that when drought hits NZ…. and you read about how burning coal caused it….. you might… you just might …. think that you are being toyed with ….. being played… being suckered….

    Being treated as if you are an unthinking, MORE onic…. Re f789ing tard ed …. im be cile….

    And stand up for yourself and say

    El Nino Predicted This Summer

    With the El Nino weather pattern predicted this summer, it could be’ one of the driest summers on record. An un-mulched garden lets the sun beat on the soil and hot soils evaporate water fast.

    Right from the beginning, under trees in nature, there was a very unique layer of leaves, branches and sticks that allowed many nutritious ingredients to embed into the precious rich soils.

    This cover stopped exotic weed growth allowing young trees to spawn, helped the soil increase its humus level to deep rich soil and helped store the rain in the soil over dry months.

    A 10cm layer of organic mulch can cut water needs in half. Mulch keeps water from evaporating quickly from the soil. Organic mulches hold water and increase the humidity.

    The modern version of this product is available today in Forest Floor mulch.

    Forest Floor can be used for an excellent substitute for pea straw, as it is easier to spread (and looks great too!)

    Be proactive and order Forest Floor mulch bark today for your garden. By placing this bark on now, it will preserve the plants for this coming summer.

    It’s now you need to act, waiting until the heat of summer will hurt your plants more as there won’t be the rainfall needed for the mulch to conserve the water around the plants.

    • doomphd says:

      i put some bark mulch in the front of our house, under the city shade trees. it was very costly, bought by the bagful at the local hardware store/garden shop. looked nice, for awhile. then, we had a heavy rainfall, and the expensive bark mulch floated away, down the street.

      next stop, ugly gray gravel cover over black plastic. worked.

  5. tottenmichael says:

    Thank you for a most illuminating analysis, as I find you always do, Gail. The crux of the climate issue is using the atmosphere and oceansphere as dumping grounds for fossil and biomass emissions. This is another form of debt accumulation that has exceeded humanity’s ability to “pay off” given that even a shift over the next several decades completely off fossil combustion and on to ultra-efficient electrification services delivered through affordable efficiency gains, solar PV, and wind power, still leaves a carbon debt that will drive the global temperature past 2 degrees C.

    Negative Emission Technologies (NETs) have yet to be commercialized at affordable costs, except perhaps, large-scale prevention of deforestation, large-scale ecological restoration, and increasing the heat-reflecting albedo of urban areas (this last option could prevent/reduce global CO2e emissions by 50 billion tons according to LBNL analyses, while accruing several trillion dollars in savings and avoided damage costs). Most other NET options, especially BECCS (biomass energy with carbon capture and storage), require vast amounts of land, water and agrichemical inputs. Both fossil and biomass CCS pose long-term risks of leakage. And sucking CO2 out of the atmosphere combined with CCS is prohibitively expensive.

    More positively, the combustion-to-electrification shift noted above has been assessed by several independent groups, one estimating annual global benefits by 2050 at $50 trillion per year in direct savings and avoided damage costs (Jacobson, Delucchi et al Stanford-UC Berkeley assessment, 2018).

    Another global energy assessment (Breyer et al 2018) estimate “the switch will bring the total levelized cost of electricity on a global average down to €52 ($61) per megawatt-hour (including curtailment, storage and some grid costs) compared to €70 (82) megawatt-hour in 2015. A full decarbonization of the electricity system by 2050 is possible for lower system cost than today based on available technology.”

    Paul Hawken et al (Drawdown, 2017) analyzing both energy and non-energy global GHG emission reductions towards zero, concluded total cost of implementation (“first cost”) at $129 trillion over the 30 years. This is roughly $27 trillion of additional investment (“net cost”) above and beyond the $102 trillion required for business as usual (BAU). However, the “drawdown” investments would reap $74 trillion in net operating savings over 30 years, resulting in global accrued gains of $47 trillion. This is very positive news: on average, the global economy would accumulate one dollar of savings for every 34 tons of CO2 reductions!”

    Given these optimistic assessments, which essentially eliminate continued carbon debt accumulation and on to “current account” with solar and wind, at negative costs relative to business-as-usual, while continuing to deliver expanding affordable energy services (as well as food and other commodities), I’m wondering how all of this figures in your financial debt assessment? thanks so much! Michael P Totten

    • Fast Eddy says:

      Are you on drugs????

      Do NOT assume we are.

      Let me give you the antidote to your poisonous line of thought:

      Renewable energy ‘simply won’t work’: Top Google engineers

      Two highly qualified Google engineers who have spent years studying and trying to improve renewable energy technology have stated quite bluntly that whatever the future holds, it is not a renewables-powered civilisation: such a thing is impossible.

      Both men are Stanford PhDs, Ross Koningstein having trained in aerospace engineering and David Fork in applied physics. These aren’t guys who fiddle about with websites or data analytics or “technology” of that sort: they are real engineers who understand difficult maths and physics, and top-bracket even among that distinguished company.

      Even if one were to electrify all of transport, industry, heating and so on, so much renewable generation and balancing/storage equipment would be needed to power it that astronomical new requirements for steel, concrete, copper, glass, carbon fibre, neodymium, shipping and haulage etc etc would appear.

      All these things are made using mammoth amounts of energy: far from achieving massive energy savings, which most plans for a renewables future rely on implicitly, we would wind up needing far more energy, which would mean even more vast renewables farms – and even more materials and energy to make and maintain them and so on. The scale of the building would be like nothing ever attempted by the human race.

      In reality, well before any such stage was reached, energy would become horrifyingly expensive – which means that everything would become horrifyingly expensive (even the present well-under-one-per-cent renewables level in the UK has pushed up utility bills very considerably).

      http://www.theregister.co.uk/2014/11/21/renewable_energy_simply_wont_work_google_renewables_engineers/

      Oh and btf789ing way — you seem to have missed the message ….. we are going extinct very very soon!!!

      And all environmental problems … will disappear when that happens …(except for the spent fuel ponds)…

      • shastatodd says:

        thanks eddy… my 35 year career with “renewable” solar pv yielded a similar realization… but the techno-cornucopian faithful enjoy their “stage #3” bargaining.

        regardless, thanks for explaining reality to the folks who don’t see it yet.

        • trouble is—when you set out the step by step logic in simple easy to understand terms, that renewables can’t work—–

          the realisation dawns that whoever you’re explaining it to is suddenly blaming it all on YOU

    • Tim Groves says:

      What little high-quality long-term data there is suggests cooling from now until 2030-40, although no doubt the Scribes of the Church of Clim-ate-scien-tology will adjust any cooling away through the Holy Sacrament of Data Tampering.

      • shastatodd says:

        ^ do not feed the troll

      • JesseJames says:

        “Major Math Error Puts Widely-Cited Global Warming Study On IcE”
        On zerohedge.
        An widely-circulated study which concluded that global warming is far worse than previously thought has been called into question by a math error, reports the Daily Caller’s Michael Bastasch.
        Princeton scientist Laure Resplandy and researchers at the Scripps Institution of Oceanography concluded in October that the Earth’s oceans have retained 60% more heat than previously thought over the last 25 years, suggesting global warming was much worse than previously believed.
        Unfortunately for the Princeton-Scripps team, it appears that their report has been proven inaccurate.

        Independent scientist Nic Lewis found the study had “apparently serious (but surely inadvertent) errors in the underlying calculations.” Lewis’ findings were quickly corroborated by another researcher. -Daily Caller
        After correcting the math error, Lewis found that the paper’s rate of oceanic warming “is about average compared with the other estimates they showed, and below the average for 1993–2016.”

        I find it this amusing that the errors in calculations, in models , etc ALWAYS indicate Gggg Www is going to kill us.
        But…..the sky is falling pronouncements are all fake.

        • Fast Eddy says:

          (but surely inadvertent) … yes surely…. as in surely faked… with the expectation that surely nobody was going to check…

          This really is ridiculous….

          As I have stated – if Al Gore were to state that the whole ____ ______ thing was a ho ax… the groopies would be on the attack …. accusing him of selling out to big oil and coal…. there would be two minutes of hate every day for Al ….

          This is proof that the MSM is capable of making 1+1=4. A circle becomes a square… up is down … really.. it is…..

      • Fast Eddy says:

        First we had g..llllllloooooobbbbballlll w…aaaaarrrrrrmmmmiiiinggggg

        Then when that was not happening we got kkkkk…llll…ma…te ….c hhhhan…ge

        And when the earth tilts and we get abnormally cold temps… Don Draper will give us … g…lllo…bal coooooling…..

        And he will tell us that it’s all so difficult to predict however the science is settled once and for all… burning coal will not burn up the planet rather — scientists now concur … that the final stage will now be freezing temperatures as our coal burning turns the earth into another Neptune

        https://www.universetoday.com/65353/what-is-the-coldest-planet-of-our-solar-system/

        And …. drum roll…. we’ll get another Kyoto Conference where dozens of countries sign up … and then continue to burn more coal…. because they all know this is an outrageous hoa x… that gets more outrageous by the day … but if they keep having these conferences and the MSM continues to publish this rubbish …

        The Stoooopid Humans will believe whatever they are TOLD TO BELIEVE

    • JesseJames says:

      tottenmichael….rubbish….who gave you your talking points?

      • Fast Eddy says:

        Kill the Troll!
        Cut his Throat!
        Kill the Troll!
        Bash Him In!

        Kill the Troll!
        Cut his Throat!
        Kill the Troll!
        Bash Him In!

        Kill the Troll!
        Cut his Throat!
        Kill the Troll!
        Bash Him In!

        Kill the Troll!
        Cut his Throat!
        Kill the Troll!
        Bash Him In!

    • Jacobson and Delucchi are completely clueless in their models. Politicians are so interested in happy ever after endings that practically anything gets published. Their work has been subject to many rebuttals and, for a while, Jacobson and Delucchi were trying to sue those who pointed out (some of the ) flaws in their analysis. https://en.wikipedia.org/wiki/Mark_Z._Jacobson

      These papers are basically untrue. We will all be dead, if GHG emissions go to zero. There are so many assumptions in the papers that it becomes difficult for reviewer to see the flaws. Also, virtually no-one understands the extent to which the economy requires energy consumption.

  6. jupiviv says:

    @Gail thanks for the article – succinct bird’s eye summing up of the current situation. By the way, what is the source for the China energy prod graph?

  7. piers says:

    From “Life 3.0 – Being Human in the Age of Artificial Intelligence” by Max Tegmark.

    ——————————————————————————————————-
    Although there’s broad agreement among economists that inequality is rising,
    there’s an interesting controversy about why and whether the trend will continue.
    Debaters on the left side of the political spectrum often argue that the main cause
    is globalization and/or economic policies such as tax cuts for the rich. But Erik
    Brynjolfsson and his MIT collaborator Andrew McAfee argue that the main
    cause is something else: technology. Specifically, they argue that digital
    technology drives inequality in three different ways.

    First, by replacing old jobs with ones requiring more skills, technology has
    rewarded the educated: since the mid-1970s, salaries rose about 25% for those
    with graduate degrees while the average high school dropout took a 30% pay
    cut.

    Second, they claim that since the year 2000, an ever-larger share of corporate
    income has gone to those who own the companies as opposed to those who work
    there—and that as long as automation continues, we should expect those who
    own the machines to take a growing fraction of the pie. This edge of capital over
    labor may be particularly important for the growing digital economy, which tech
    visionary Nicholas Negroponte defines as moving bits, not atoms. Now that
    everything from books to movies and tax preparation tools has gone digital,
    additional copies can be sold worldwide at essentially zero cost, without hiring
    additional employees. This allows most of the revenue to go to investors rather
    than workers, and helps explain why, even though the combined revenues of
    Detroit’s “Big 3” (GM, Ford and Chrysler) in 1990 were almost identical to
    those of Silicon Valley’s “Big 3” (Google, Apple, Facebook) in 2014, the latter
    had nine times fewer employees and were worth thirty times more on the stock
    market.

    Third, Erik and collaborators argue that the digital economy often benefits
    superstars over everyone else. Harry Potter author J. K. Rowling became the first
    writer to join the billionaire club, and she got much richer than Shakespeare
    because her stories could be transmitted in the form of text, movies and games to
    billions of people at very low cost. Similarly, Scott Cook made a billion on the
    TurboTax tax preparation software, which, unlike human tax preparers, can be
    sold as a download. Since most people are willing to pay little or nothing for the
    tenth-best tax-preparation software, there’s room in the marketplace for only a
    modest number of superstars. This means that if all the world’s parents advise
    their kids to become the next J. K. Rowling, Gisele Bündchen, Matt Damon,
    Cristiano Ronaldo, Oprah Winfrey or Elon Musk, almost none of their kids will
    find this a viable career strategy.

  8. roc says:

    Dear Gail Thank you for this wonderful article. What would be the best investment to continue to receive a pension after 2025 2030 ?

    • Cultivate very good relationships with your children. Move in with them. I don’t think you can get any guarantees that really work.

      The other idea is diversify your investments. Maybe something will work, so that you will have something.

      Otherwise, enjoy the time you have now. We never have any guarantees regarding the future.

    • wpecoreality says:

      What would be the best investment to continue to receive a pension after 2025 2030?

      Learn how to produce your own food. And then take in a bunch of young people and train them.

      The only viable “pension” I can see is to make yourself invaluable to young people. Make sure they know that their muscles need your mind.

      • xabier says:

        Hmm, it’s a comforting plan, but it ignores the fact that in many peasant cultures the inheriting son usually can’t wait to knock dad on the head and push him off the farm.

        Even in Europe there were traditional ways of getting rid of the elderly through ‘accidents’: in Spain, feeding them something that causes lung congestion and makes them choke to death, in all areas having ‘domestic accidents’ – ‘How tragic! Dad was behind the door when I opened it suddenly…..’

        In India, sons were able to bribe officials to register their fathers as dead, so that they could inherit. Try to get yourself declared alive again when your son has all your assets!

        As for knowledge: once one has been in an area for a certain period, and know the ropes, there is little that an older head can add that would be of much use.

        There must come a time when you not only are but also feel useless, and there are always traditional ways in which old peasants kill themselves -usually hanging or jumping down a well.

        Anyway, planning to live off the young is a bit vampiric, isn’t it?

        The aim should perhaps be the pleasure ad duty of passing on useful knowledge, and then moving on to what awaits us all.

        No one stays grateful to the old forever….

    • I would also point out, “Take care of your health.” This is both food and exercise, as far as I can tell. If you are in good health, you can help others. You may even be able to hold down a job at an advanced age. If you don’t take care of your health, it doesn’t matter how much wealth you seem to have.

      • Fast Eddy says:

        Or…. eat pizza, potato chips, and cheez wiz for breakfast lunch and dinner… drink wine and beer and whiskey by the truck load…. and sit in front of the teevee and watch drivel…. in anticipation of no future.

  9. China also has a serious debt problem? According the Bank for International Settlements, China’s debt-to-GDP ratio in 4Q 2017 was about the same as the US and the EU (with much lower shadow banking exposure), but
    1. China’s economy is growing three times faster than theirs and growth eats debt.
    2. China’s debt is 98% domestic.
    3. China’s asset to debt ratio is 3.8:1
    4. China’s debt is productive, and of very high quality.
    5. China can turn on a dime: everyone cooperates.
    6. 95% of Chinese trust their government.

    • We will see how this turns out. The mortgages of people in Beijing and Shanghai are very high in relationship to their income, for example. Falling asset prices would be a problem there, just as they were in the US. I know that equity amounts tend to be higher, however.

    • Fast Eddy says:

      I hear this rubbish all the time when I am in Hong Kong … China can’t implode because it’s too big — the leaders can do whatever they want blah blah blah blah….

      China’s debt-to-GDP has ballooned to more than 300 percent from 160 percent a decade ago.
      https://www.cnbc.com/2018/04/24/trade-war-with-us-may-be-tipping-point-for-chinas-debt-ridden-economy.html

      Soaring debt levels and increasing complexity of the financial system have been a source of heightened concern among China watchers in recent months. A number of global bodies, like the International Monetary Fund (IMF), have warned the problems could lead to “financial distress” in the world’s second-biggest economy if the government doesn’t put in place remedial measures.

      The IMF estimates China’s overall debt figure to be about 234 percent of gross domestic product (GDP) and predicts it to rise to 300 percent by 2022. Corporate debt currently stands at around 165 percent of GDP, and household debt is also spiraling upward at a rapid pace.
      https://www.dw.com/en/will-chinas-high-debt-levels-spark-a-financial-crisis/a-42976238

      The rapidity and size of China’s debt boom in the past decade has been almost entirely without precedent. The few precedents that do exist — Japan in the 1980s, the US in the 1920s — are not encouraging.

      Most coverage has rightly focused on China’s corporate sector, particularly the debts that state-owned enterprises owe to the big four state-owned banks. After all, these liabilities constitute the biggest bulk of the total debt outstanding, and also explain most of the total growth in Chinese debt since the mid-2000s.

      Chinese households, however, are quickly catching up. This is bad news.

      The simple story of China’s debt boom is that government-backed companies borrow from government-controlled banks to pay for wasteful investments to support jobs and other political objectives. This creates lots of problems for China today and in the future, but it does have one virtue: the losses from centralised credit allocation can be distributed over a broad population over a long period of time. While liquidating everything in one go and starting fresh may be the ideal approach, the likeliest outcome of China’s corporate debt binge still looks a lot better than the chaotic wrangling between debtors and creditors that happens in most other places at most other times.

      Household debt is different. Borrowers are widely dispersed and lack political power. The lenders are often newer finance companies or loan sharks. Worst of all, there is essentially zero chance that additional household borrowing pays for productive investment. Some of China’s additional infrastructure and manufacturing capacity may prove valuable one day. Household debt probably won’t. Atif Mian and Amir Sufi have ably shown that increases in household borrowing tend to predict slower income growth and higher joblessness.
      https://ftalphaville.ft.com/2018/03/06/2199125/chinas-household-debt-problem/

      China is a bug waiting for a windshield…

      And if it makes you feel better — so are the US and the EU….

      • Tim Groves says:

        Apologies for mixing my metaphors, but as I see it, China and America will have to duke it out mano a mano in the sumo ring, in the woodshed, or at Thunderdome, with the winner being the side that achieves two falls, two kowtows, or a knockout, because this finite world ain’t big enough for the both of ’em to be lording it over us lesser mortals as Top Dog and lecturing us that they’re an empire now, they make their own reality, blah, blah, blah.

    • Tim Groves says:

      How many of Godfree’s points ring true to my fellow Finite Worlders?

      1. China’s economy is growing three times faster than theirs and growth eats debt.
      2. China’s debt is 98% domestic.
      3. China’s asset to debt ratio is 3.8:1
      4. China’s debt is productive, and of very high quality.
      5. China can turn on a dime: everyone cooperates.
      6. 95% of Chinese trust their government.

      1. Growth may eat debt but certainly debt drives growth. And the growth in China’s debt is far outpacing the growth in its economy. According to a recent Bloomberg article:

      In 2008, China’s total debt was about 141 percent of its gross domestic product. By mid-2017 that number had risen to 256 percent. Countries that take on such a large amount of debt in such a short period typically face a hard landing. That’s why everyone—academics, private banks, the International Monetary Fund, the Organization of Economic Cooperation and Development, the Bank for International Settlements, and People’s Bank of China Governor Zhou Xiaochuan—is sounding the alarm.

      2. China’s debt may well be 98% domestic. Given China’s enormous borrowings, that tells me that nobody else wants to lend money to China.

      3. Is that a fact?

      4. What about all those productive high-quality empty cities China has been building?

      5. I’d cooperate to if the alternative was a Naughty Mark on my social score.

      6. And how would Godfree know? Has he talked personally to all 1.4 billion of these trusting souls and confirmed the veracity of their responses? In fact, do Chinese people under Communism have souls—what with the country’s ruling ideology being based on dialectical materialism? And is having a 95% trusting population necessarily a good thing for a government?

      • Fast Eddy says:

        The minute things go south in China… the masses will tear all ‘communist’ party members to shreds… and make soup from them

      • Great insight: “2. China’s debt may well be 98% domestic. Given China’s enormous borrowings, that tells me that nobody else wants to lend money to China.”

        Regarding (3), who values the assets? Aren’t they worth what workers can afford?

  10. Pingback: Why we get bad diagnoses for the world’s energy-economy problems – Olduvai.ca

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