$46 Trillion Infrastructure in USA, $6 Trillion is Transportation

James Howard Kunstler has written that Suburbia will be the largest waste of money and physical assets in human history.

The end of the age of oil means that just about everything will be useless too.  Below is just the transportation component of private and government assets.

$6.1 Trillion dollars of Transportation equipment and structures.

Total private and public fixed assets were $46.4 trillion in 2011 (current U.S. dollars). Transportation equipment and structures (private and public) accounted for nearly 12% percent of the total.

The components of transportation fixed assets and their values are

  • private transportation equipment ($1.04 trillion)
  • private transportation structures ($680 billion)
  • government transportation structures ($3.77 trillion)

Fixed assets include both passenger and freight transportation. See the Bureau of Economic Analysis at www.bea.gov/national/FA2004/index.asp, tables 2.1, 3.1s, and 7.1b.

2011
Private Sector
Transportation Equipment1 1,037
Transportation Structures2 680
Public Sector
Highways 3,132
Transportation Structures2 635
Federal 15
State and Local 621

 

1 Includes trucks, truck trailers, buses, automobiles, aircraft, ships, boats, and railroad equipment.

2 Includes physical structures for all modes of transportation. Source: U.S. Department of Commerce, Bureau of Economic Analysis, National Economic Accounts, Fixed Assests Tables, tables 2.1, 3.1s, and 7.1b

Posted in Transportation Infrastructure | Tagged , | 1 Comment

Gail Tverberg: How this collapse differs from past collapses

Converging Energy Crises – And How our Current Situation Differs from the Past

At the Age of Limits Conference, I gave a talk called Converging Crises (PDF), talking about the crises facing us as we reach energy limits. In this post, I discuss some highlights from a fairly long talk.

A related topic is how our current situation is different from past collapses.

The Nature of our Current Crisis

Figure 1

The first three crises are the basic ones: population growth, resource depletion, and environmental degradation. The other crises are not as basic, but still may act to bring the system down.

Figure 2

Humans have found a series of ways to keep deaths down, each adding more control of external energy.

  • Control of fire, starting over 1 million years ago. This allowed humans to cook their food, making it possible for more energy to go to develop the brain, and less to developing teeth and digestive apparatus. Humans could also extend their range into colder areas.
  • Agriculture, starting about 10,000 years ago. We grew desirable plants and animals and excluded other species, thus increasing the amount of food produced.
  • Coal, starting around 1800 C. E. With coal, we could make metals in quantity since we didn’t need to cut down trees for smelting. We could also make concrete and glass in quantity. With these, we could build hydroelectric power plants, and build electric transmission lines.
  • Oil, ramping up after World War II. Oil allowed the use of cars for personal transport, plus trucks to deliver goods precisely where they were needed. It also improved agricultural productivity through irrigation, refrigeration, herbicides, pesticides. The ability to use airplanes enabled globalization.

As humans’ control of energy improved, human population grew and the population of other species fell. According to Niles Eldredge, the Sixth Mass Extinction began 100,000 years ago, when there were fewer than 100,000 people on the planet, back in the days of hunter-gatherers. The extent of die-off of other species has grown as we added agriculture, and later added coal and oil use.

Humans are not doing anything “wrong.” Humans are reacting to the same instinct that all species have, namely to make use of available energy to allow more of the species to live to maturity. Population growth stops when a species reaches a limit of some sort–lack of food because the species eats too much of its would-be food supply; too much pollution; epidemics (related to crowding and poor nutrition); or limits associated with gathering external energy.

Individuals can change their personal actions, but built-in instincts tend to guide the direction of civilizations as a whole. Thus the population of civilizations tend to rise until bottlenecks are reached.

Resource Depletion is Particularly a Problem for Oil

We are seeing depletion in many areas right now, including fresh water aquifers, soil erosion, the number and size of fish in the ocean, the number of pollinators, and deforestation. The mineral concentration of ores we are mining keeps getting lower as well. For the purpose of the talk, I will concentrate on oil, however.

Right now, oil is suffering from depletion but prices don’t seem very high.

Figure 3.

The cost of extracting oil keeps rising, whether or not the prices consumers pay rise, because the cheapest to extract oil was pulled out first. The problem now is that oil prices are too low for producers, at the same time that they are very high for the consumer. The low prices for producers mean that oil companies must take extraordinary measures, such as adding more debt, or selling land they planned to develop, to have enough money to pay dividends. Companies extracting oil from shale formations are in particularly tough shape because they tend to be small and have poor credit ratings.

The low-price oil situation looks likely to reach a crisis stage in the near term. What has been holding the situation together is today’s low interest rates. With these low interest rates, investors who are desperate for higher yields will invest in “iffy” companies, like shale oil companies. In addition, oil producing companies can borrow at low rates, helping to keep costs down.

It is hard to see a fix for the problem oil producing companies are now having. If oil prices rise to help them, consumers will find that the higher oil prices “squeeze” their discretionary income. As a result, we will be pushed back into recession. So no oil price works.

How Decline in Oil Supply Can Be Expected to “Work”

Many people are of the view that if oil production declines, it will decline slowly, more or less over the same time-period it rose, in a symmetric “Hubbert” Curve. My expectation is that the downslope will be much steeper than the upslope. I also expect that all fuels will fall in use, more or less simultaneously. This pattern occurs because of the networked way the world economy is constructed and because of the role of debt, which I will describe later.

The Hubbert Curve was constructed in the special case where another fuel took over before fossil fuels started to decline (Figure 4), a situation which does not exist today.

Figure 4

In my view, a more realistic view of the expected downslope is shown in Figure 5, below.

Figure 5. Estimate of future energy production by author. Historical data based on BP adjusted to IEA groupings.

It is my expectation that the supply of all fuels will decrease in use, more or less together, because of credit related financial problems that will affect the economy as a whole.

Peter Turchin and Surgey Nefedov analyzed how eight agricultural civilizations collapsed  in the book Secular Cycles. First, there is a long period of growth and population expansion, as the group makes increasing use of a new resource available (such as land cleared for agriculture). This is followed by a “stagflation” period of 50 to 60 years after population reaches the carrying capacity of the new resource. Stagflation is followed by a crisis period of 20 to 50 years, when debt defaults became common, governments collapse, and population decreases. I show this pattern in Figure 6, below.

Figure 6

My forecast energy downslope in Figure 5 is  intended to follow roughly the shape of the curve of prior collapses, depicted in Figure 6. The sharpness of the points in Figure 6 occur because I plotted only 5-year points–annual points would have produced a smoother curve.

Environmental Degradation Takes Many Forms

Figure 7

The environmental degradation issue that gets the most “press” is climate change. If any one limit is modeled, whether it is soil problems, or the mass extinction of many species that seems to be currently taking place, or ocean acidification, it is likely to show that that particular problem is likely to take civilization down. To get a balanced view of what is ahead, a person would need to model all limits at once.

Climate change modelers are of course mainly interested in their limit. They have started to incorporate some information of the effect of other limits into the “low end” of their range (that is, the 2.6 degree scenario), but the “high estimate”–which gets much of the press–assumes no limits of any other sort. It includes far more carbon from fossil fuels than seems reasonable, in my view.

The Financial System is Terribly Important, and Debt Problems Can Bring it Down

Today’s economy is a network of interconnected businesses and consumers, regulated by governments. The financial system is extremely important to this network. In a way, the financial system is like the operating system of a computer. It telegraphs what products are needed, where, and what resources are available to meet these needs from one part of the economy to another. It allows businesses to profitably meet these needs.

Debt plays a surprisingly important role in our current economy. Increasing the amount of debt available increases the amount of goods a person can buy. For example, if a consumer has a job paying $40,000 a year, and gets a loan for $20,000 to buy a new car, the effect is similar to having $60,000 in income for that year. Similarly, if a business can borrow money for a new factory, it can add to jobs to the economy.

When the growth in debt turns to contraction (this happens if consumers default in large numbers, or if they buy fewer homes and cars), it has a huge impact on the economy. The shrinking debt tends to push the economy into contraction. Because there is less demand for commodities like oil, coal and natural gas, the prices of these commodities tend to fall. In fact, a credit contraction seems to be precisely what happened in July 2008, when oil prices took a steep drop. Prices of other fuels also dropped at the same time.

Figure 8

In fact, since 2008, the US economy is still struggling with inadequate growth in debt. The underlying reason is that consumers’ wages are lagging, so they cannot afford more debt. The government tries to make up for the lack of growth in consumer debt by borrowing more money itself and by keeping interest rates artificially low, through Quantitative Easing.

A basic underlying issue is the fact that our salaries don’t rise as oil prices rise. Similarly, our salaries don’t rise with rising interest rates. Both oil prices and interest rates very much affect what need to pay, however. Oil prices affect food and transportation costs, and interest rates affect mortgage and auto loan payments. If interest rates rise again, or if oil prices rise, many consumers will be forced to cut back on discretionary spending. As a result, the economy is likely to shift back into recession. Prices of commodities such as oil, gas, coal, and uranium are likely to fall again.  Ultimately production of these commodities can be expected to fall, because without debt, they become unaffordable for most consumers.

Government Funding Issues

One issue noted by Turchin and Nefedov is that in prior collapses, government funding is generally a problem. This occurs because the government is funded by surpluses of an economy. If an economy is reaching diminishing returns, citizens find it harder and harder to get good-paying jobs at the same time that the government needs more funding to handle the problems it is confronting, such as the need for a larger army. As a result, it becomes very hard to collect enough taxes. If tax rates are raised too high, citizens find themselves unable to afford an adequate diet. With poor nutrition, citizens become more vulnerable to epidemics–one of the major causes of die-offs in collapses.

We are seeing the issue of inadequate government funding now. US publicly held debt has been soaring since mid 2008 (Figure 9).

Figure 9

Inadequate High-Paying Jobs Go with Too Little Energy

Figure 10

An early sign of lack of adequate energy is a lack of good-paying jobs for young people. Also, the jobs that are available tend to be low-paying service jobs that don’t require much energy.

Of course, if we have to go back to growing food without today’s energy inputs, there will be a huge number of manual labor jobs available. But these are not the jobs most people are thinking about.

Electrical Grid Problems

Figure 11

There is a popular myth that electricity will save us. This view is based on the view that our problem is simply a liquid fuels problem. Our problem is really very much deeper–a systems problem that threatens to take down the financial system and the consumption of all types of fuels simultaneously. Thus, the same problems that bring down oil consumption threaten to bring down electricity consumption.

But even apart from the systems problem, it is clear that oil problems lead to electric grid  problems. The electric grid needs constant repairs. New parts must be transported using oil, and the supply lines of companies manufacturing these parts must continue to operate, again using oil. Trucks or helicopters using oil products are needed to put grid replacement parts in place. Workers need transportation for their work on the grid, as well.

The claim that wind and solar PV will save us is silly, if we have an unsolvable grid problem. The place for solar PV is off-grid. Wind also works off-grid, in uses such as pumping water. Of course, wind turbines used for this purpose are tiny compared to today’s electricity generating turbines.

Geopolitical Problems

Figure 12

As we become more resource constrained, we can expect more fighting among countries. Perhaps new alliances will  be formed, in an attempt to squeeze our current energy hogs–US, Europe, and Japan. It is possible that the US dollar will lose its status as reserve currency, leading to a lower standard of living for US citizens.

Solutions to Converging Crises

Figure 13

You may think I am kidding with respect to the last item, “We need help from a Higher Power,” but I am not. Our universe seems to have been created by a Big Bang. But big bangs don’t just happen. We live in a very orderly universe. According to Newton’s Laws of Motion, for every action, there is an equal and opposite reaction. We also know that useful energy is balanced by friction. This, in fact, is a necessary balance, or the system would spin out of control. We also would not be able to drive down the road in a car without friction.

If a big bang happened, it seems likely to me that there was a major force behind the big bang. We can call this force Nature or a Higher Power. I am doubtful that the force behind the big bang would fix the world situation so that humans can continue along their current destructive path on earth. But the force might fix the situation in some other way–perhaps make the transition for humans easier to bear, or produce a new kind of big bang supporting an afterlife for humans as envisioned by various religions.

How This Time is Different

Greer, in his talk, mentioned several points about prior collapses:

  • Typically 95% of the population died off.
  • The time between civilizations tended to be about 500 years.
  • The 5% who survived were able to go about doing things, pretty much as had been done in the past.
  • The downslopes often had jogs and bumps in them, and could be slow.

The question arises as to how helpful this information is with respect to what is ahead. As I see the situation, civilizations that failed in the past were not fossil fuel dependent or electricity dependent. While there was specialization of labor, there was much less specialization than there is today. While there was some trade, the majority of food and clothing was locally produced. The biggest problems were

  • Growing population
  • Arable farmland that did not expand to meet growing population
  • Soil problems (loss of fertility, erosion, salinity)
  • Deforestation
  • Competition from neighboring civilizations
  • Government collapse
  • Debt problems

I view the 500 year gap between civilizations as including what I show as the “inter cycle” period between civilizations in Figure 6, above. This is the gap that took place before new growth could occur.

The big problem in the past with civilizations that collapsed was that humans were using renewable resources faster than they could renew. Population continued to expand as well. The combination of rising population and depleting soil and forest resources led to diminishing returns, lower wages for many workers, and difficulty funding governments. A 500 year gap between civilizations took the population pressure off an area. Forests were able to regrow, and soil was able to renew (at least partly through regeneration of soil by erosion of base rock).

Today, we sill have the problems we had in the past, but we have some new ones as well:

  • We are depleting aquifers much more rapidly than they regenerate. In many cases, the water table is far below what can be reached with simple tools. It will take thousands of years for these aquifers to regenerate.
  • We are depleting minerals of all kinds, so that we now need “high tech” methods to extract the low ore concentrations. These minerals will be out of reach, without the use of electricity and fossil fuels. In fact, the vast majority of fossil fuel energy supplies will also be out of reach, without today’s high tech methods. Eventually this may change, with new fossil fuel formation and with earthquakes, but the timeframe is likely to be millions of years.
  • Most people today do not know how to live without fossil fuels and electricity. If fossil fusel and electricity disappeared, most of us would not know how to produce our own food, water, and other basic necessities.
  • Most of us could not just “pick up and do as we did before,” with respect to our current jobs, if the government and 95% of the population disappeared. Our jobs are often supported by global supply chains that would disappear, as well as direct use of fossil fuels and electricity.
  • The world is sufficiently networked that most of it is likely to be drawn into a world-wide collapse. In the past, areas that did not collapse continued to function. These areas could act as a back-up, if functions were lost.

In the past, the 500 year gap was enough to allow regeneration of forests and soil, once population pressures were reduced. If that were our only problem now, we could expect the same pattern again. Such a regeneration would allow a reasonably large group of people (say 500 million people) to get back to a non-fossil fuel based civilization in 500 years, with new governments, roads and other services.

In such a new civilization, we would likely have difficulty using much metals, because ores are now quite depleted. Even reprocessing of existing metals is likely to require more heat energy than is easily available from renewables sources.

We are now so dependent on fossil fuels and electricity that any collapse that does take place seems likely to be faster than prior collapses. If the electric grid goes down in an area, and cannot be repaired, most business functions will be lost–practically immediately. If oil supply is interrupted, it also will bring a halt to most business in an area, because workers can’t get to work and raw materials cannot be transported.

We are bing told, “Renewables will save us,” but this is basically a lie. Wind and solar PV are just as much a part of our current fossil fuel system as any other source of electricity. They will only last as long as the weakest link–inverters that need replacing, batteries that need replacing, or the electric grid that needs fixing. We are being told that these are our salvation, because politicians need to have something to point to as a solution–not because they really will work.

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Exponential growth examples

Monbiot, George. 27 May 2014. It’s simple. If we can’t change our economic system, our number’s up It’s the great taboo of our age – and the inability to discuss the pursuit of perpetual growth will prove humanity’s undoing. The Guardian.

Imagine that in 3030 BC the total possessions of the people of Egypt filled one cubic meter, which grew 4.5% a year. How big would that stash have been 3,000 years later?   2.5 billion billion solar systems   (That’s 2.5 quadrillion, or 2,500,000,000,000,000,000).

Ignore if you must climate change, biodiversity collapse, the depletion of water, soil, minerals, oil; even if all these issues miraculously vanished, the mathematics of compound growth make continuity impossible.

Economic growth is an artifact of the use of fossil fuels. Before large amounts of coal were extracted, every upswing in industrial production would be met with a downswing in agricultural production, as the charcoal (from wood) or horse power required by industry reduced the land available for growing food. Every prior industrial revolution collapsed, as growth could not be sustained. But coal broke this cycle and enabled – for a few hundred years – the phenomenon we now call sustained growth.

It was neither capitalism nor communism that made possible the progress and pathologies (total war, the unprecedented concentration of global wealth, planetary destruction) of the modern age. It was coal, followed by oil and gas. The mother narrative, is carbon-fueled expansion. Our ideologies are mere subplots. Now, with the accessible reserves exhausted, we must ransack the hidden corners of the planet to sustain our impossible proposition. The scouring of the planet has only just begun–everywhere that contains something concentrated, unusual, precious, will be sought out and exploited, its resources extracted and dispersed, the world’s diverse and differentiated marvels reduced to the same grey stubble.

Some people try to solve the impossible equation with the claim that as processes become more efficient and gadgets are miniaturized, we use, in aggregate, fewer materials. There is no sign that this is happening. Iron ore production has risen 180% in 10 years. The trade body Forest Industries tells us that “global paper consumption is at a record high level and it will continue to grow”. If, in the digital age, we won’t reduce even our consumption of paper, what hope is there for other commodities?

Look at the lives of the super-rich, who set the pace for global consumption. Are their yachts getting smaller? Their houses? Their artworks? Their purchase of rare woods, rare fish, rare stone? Those with the means buy ever bigger houses to store the growing stash of stuff they will not live long enough to use. Ever more of the surface of the planet is used to extract, manufacture and store things we don’t need. Perhaps it’s unsurprising that fantasies about colonizing space – which tell us we can export our problems instead of solving them – have resurfaced.

The inescapable failure of a society built upon growth and its destruction of the Earth’s living systems are the overwhelming facts. As a result, they are mentioned almost nowhere. They are the 21st century’s great taboo, the subjects guaranteed to alienate your friends and neighbors. We live as if trapped inside a Sunday supplement: obsessed with fame, fashion and the three dreary staples of middle-class conversation: recipes, renovations and resorts. Anything but the topic that demands our attention.

Statements of the bleeding obvious, the outcomes of basic arithmetic, are treated as exotic and unpardonable distractions, while the impossible proposition by which we live is regarded as so sane and normal and unremarkable that it isn’t worthy of mention. That’s how you measure the depth of this problem: by our inability even to discuss it.

 

 

 

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Expressways & Interstates are only designed to last for 20 years

Figure 2-5. Tonnage on U.S. highways, railroads, and inland waterways (U.S. Department of Transportation FHWA FM&O 2007).

Figure 2-5. Tonnage on U.S. highways, railroads, and inland waterways (U.S. Department of Transportation FHWA FM&O 2007).

Preface. I make the case that civilization would end in a week if trucks stopped running in my first book, and though I had in mind that they would be running low on diesel fuel on the downside of world peak oil production, if roads fall apart as well, and can’t be maintained because of lack of energy, that’ll stop trucks as well.

Roads are Essential

There are 4,016,741 miles of roads in the United States.  The most critical roads are the almost 47,000 miles long with 55,000 bridges and 4 or more lanes wide Interstate Highways, the largest single investment the American people have made in public works.

Over eleven million trucks worth $1 Trillion dollars deliver goods over these roads. Trucks moved nearly 70% of all domestic freight — 9.4 billion tons of stuff. If you put all of these trucks in a line, it would stretch from the earth to the moon over 11 times.

According to the most recent information from the Commodity Flow Survey (CFS), on average, 42 tons of freight worth $39,000 was delivered to every person in the United States in 2007 transported an average of 11,000 ton-miles to every person in the country.

Since railroads are on average 4.5 to 6.5 times more energy efficient than trucks in ton miles of freight moved per gallon (Tolliver) it’s a shame, no, a crime, that there are only 140,000 miles of railroad tracks (down from 254,000 miles in 1916), just 3.5% of the 4 million road miles. Freight trains used 2% of our petroleum. Trucks burned 46% — 20% medium and heavy trucks (classes 3-8) burned 20% and 26% light trucks another (CTA).

Do you like to eat?  Here’s how grain is typically moved from point A to point B (bold represents diesel burning vehicles).  After harvesting the grain it’s trucked to on-farm storage, then trucked to a country elevator, then the grain moves by truck or train from the country elevator to the sub-terminal elevator,  then a train or barge delivers the grain to the export elevator, and the grain is loaded on a ship and taken to the destination country.

Roads are in Bad Shape

But they’re falling apart and need $930 billion of work. Driving on this poor pavement costs motorists an additional $67 billion in vehicle repairs and operating costs every year (ASCE). When you consider all the ways highways are assaulted, it’s not hard to see why.

Heavy Trucks

According to the AASHO Road Test, heavy trucks can do more than 10,000 times the damage of a car. The amount of damage varies by how fast the truck is going, how uneven the road is, and many other factors (Hjort).

Soil, weather, & exponential growth

The freeze-thaw cycle cracks, swells, and buckles pavement.  Roads fissure from heat, depressions grooved by wheels, abrasion of studded tires, water filling cracks and freezing, water and salt corroding steel rebar. Roads unravel from lost surface stones, potholes, and poor maintenance.

The amount of traffic today is often more than double what the road was originally designed for. No one thought freight would move from trains to roads given how much more fuel efficient trains are, and engineers can’t anticipate the new suburbs and shopping malls that flood highways with more vehicles.

Local materials affect longevity

Concrete is the most heavily used substance in the world after water (Sedgwick), which is why gravel, crushed stone, and sand are the leading items transported by weight – one in seven tons of freight. But they don’t go far, the average distance moved is 60 miles, because the shipping is so expensive and their value so low.

This means that often less than ideal local material is used to make concrete.

Roads are two to four foot thick cakes, with six layers (Subgrade, capping, sub-base, binder course, and the frosting is the surface course). Each layer is baked with local materials, and never with the same recipe — there are an infinite number of recipes. Adding to the limitless permutations is what kind of steel is used, since steel varies in what alloys were used, and how strong, resistant to corrosion, and easily welded it is. Asphaltic concrete only adds to the mystery, since it has an unknown chemistry brought in by the source of the crude oil it was derived from (Skinner).

Roads can last longer

They’re designed to last for 40 years in some European countries with thicker, more durable roadbeds using concrete rather than asphalt. Concrete lasts longer, but it costs more and takes longer to repair. Asphalt is cheap and fast, but falls apart quickly.

Longer Lasting Roads are Expensive

Long-lasting roads are much thicker and cost more, which need more money up front, and taxpayers tend to object to that. Look what it took to make Chicago’s 30-year Dan Ryan Expressway at a cost of $1 billion per 10 miles (Adams):

  • Old road: 27 inches thick. 12 inch aggregate., 10 inch concrete. 5 inch asphalt.
  • New road: 44 inches thick. 24 inch aggregate. 14 inch concrete. 6 inch asphalt.

The United States has numerous agencies who’ve come up with ways to build longer lasting roads, but this often requires new equipment, which small construction and paving companies can’t afford, and the majority of highway construction is done by small firms.

Highway agencies have fixed budgets, so even though it would cost far less in the long run to make a 50-year-road, they often don’t have the money at the outset to pay for a better road. Highway agencies also try to build and maintain the maximum number of miles possible and don’t want to blow their wad on relatively few miles of highway, even if that would be the best use of public funds.

There are no incentives to build long-lasting low maintenance roads. Politicians get no immediate political return from building long-lasting roads, low-bidders usually get the work so quality suffers, and financing is done by cost per mile, not durability per mile over time. On top of all that, the number of pavement design engineers is shrinking from downsizing, retirement, and young engineers not being attracted to this field.

Peak Oil – the End of Roads?

Peak oil is an awful lot like losing your job with no hope of new one ever again. It’s not a good time to buy a new car, you’ll need every penny of your savings to pay for food, housing, insurance, and utilities.

We’ve been at peak oil since 2005 and any day now could slide down the other side of Hubbert’s peak.  It’s an awful time to replace 11 million trucks worth $1 trillion dollars and millions of miles of underground pipelines that deliver diesel fuel across the nation with something else that doesn’t even exist yet.

And if you did that, then what?  The roads are falling apart.  Swift writes “Bringing the system into full repair, and keeping it there, will cost us $225 billion a year for the next 50 years to rehabilitate surface transportation. What’s at stake, ultimately, is a foundation of America’s safety, economy, and mobility since we do 96% of our traveling by car and truck. And not making the fixes will wind up costing more as needed repairs balloon into reconstruction. “If we can get this work done now,” said John Horsley, AASHTO’s executive director, “it will cost one-third of what it’ll cost if we put things off.”

Swift concludes that this highway system “represents a spectacular investment in a mode of transport that will wither without new fuel sources….Before long, we’ll be compelled to develop a wholesale replacement for gasoline. We’d better hope we do, anyway. Because without alternative fuels, we may see the interstates morph from the world’s biggest highway system into its biggest white elephant”.

A few more statistics

  • In 2008, 4.5 million people were employed in transportation and warehousing industries in the United States, a little over 3% of total U.S. employment.
  • Trucking was the largest employer within the for-hire transportation section with almost 1.4 million employed.
  • The railroad industry employed 231,000.  There are 94,942 miles of Class I freight railroad tracks, 46,474 miles of regional and shortline railroad tracks
  • water transportation employed 67,000.There are 26,000 miles of navigable inland waterways
  • Another key component of logistics services and supply chains, warehousing and storage, employed 672,000

Alice Friedemann  www.energyskeptic.com Women in ecology  author of 2021 Life After Fossil Fuels: A Reality Check on Alternative Energy best price here; 2015 When Trucks Stop Running: Energy and the Future of Transportation”, Barriers to Making Algal Biofuels, & “Crunch! Whole Grain Artisan Chips and Crackers”.  Podcasts: Crazy Town, Collapse Chronicles, Derrick Jensen, Practical Prepping, KunstlerCast 253, KunstlerCast278, Peak Prosperity

References

ASCE (American Society of Civil Engineers). 2013. Report Card: Roads.

Adams, C. Dec 31, 2010. Why don’t roads last longer? StraightDope.com

CTA. Center for Transportation Analysis. 2013. Transportation Energy Data book Edition 32. Chapter 2. Energy. Oak Ridge National Laboratory.

Hjort, Mattias, et al. Road wear from Heavy Vehicles – an overview. Report nr. 08/2008 NVF committee Vehicles and Transports.

Preserving and Protecting Freight Infrastructure and Routes. 2012. National Academy of Sciences.

Sedgwick, J. 1991. Strong but sensitive. Atlantic Monthly, April 1991, pp. 70–82.

Skinner Jr., R.E. 2008. Highway Design and Construction: The Innovation Challenge. National Academy of Engineering.

Tolliver, D, et al. May 2013. Analysis of Railroad Energy Efficiency in the United States.

Upper Great Plains Transportation Institute, North Dakota State University

U.S. Department of Transportation RITA/BTS 2010, Table 3-19b

Additional reading

Gibbons, J. 1999. Pavements and Surface Materials. University of Connecticut Nonpoint education for municipal officials technical paper #8.

Keller, G et al. July 2003. Low-volume roads engineering. Chapter 12. Roadway Materials and Material Sources for Low Volume Roads. USDA Forest service.

Swift, Earl. The Big Roads: The Untold Story of the Engineers, Visionaries, and Trailblazers Who Created the American Superhighways.

Posted in Infrastructure & Fast Crash, Roads, Trucks | Tagged , , , , , | 2 Comments

My Favorite James Howard Kunstler podcasts

You can subscribe to these on iTunes, or go to http://kunstler.com/writings/podcast/

I haven’t listened to all of his podcasts yet, these are the ones I’ve best liked so far (I’ve left a lot of good ones out):

KunstlerCast 253 – Yakking with Alice Friedemann of EnergySkeptic.com

Alice Friedemann insists she is not an academic, but publishes on a wide variety of contemporary scientific issues bearing on the fate of industrial civilization. She subscribes to a scenario that she calls the “fast crash.” She worked for 25 years as a systems architect and engineer in the corporate world, or “Dilbert-Land” as she calls it, before dropping out to write full time. Her science and economic essays can be found at her website: Energyskeptic.com. Alice is also a cookbook writer and blogger at the website Wholegrainalice.com She lives in Berkeley, California.
Direct Download:  http://traffic.libsyn.com/kunstlercast/KunstlerCast_253.mp3

KunstlerCast 241 — Snake Oil: Richard Heinberg on the Great Shale Snooker

JHK yaks with Richard Heinberg about his new book, Snake Oil: How Fracking’s False Promises of Plenty Imperils Our Future. Richard is also the author of the great peak oil primer, The Party’s Over, and many other books about the converging dilemma’s of our time, including Peak Everything and The End of Growth. He’s a founder and senior fellow of the Post Carbon Institute.  Direct Download: http://traffic.libsyn.com/kunstlercast/KunstlerCast_241.mp3

KunstlerCast # 239 — Charlie Hall on Reality-Based Economics

JHK shoots the breeze with Charlie Hall, distinguished professor emeritus at the SUNY College of Environmental Science and Forestry at Syracuse, NY — just retired last month and founder of the Association for Biophysical Economics. We yak about reality-based economics and the relationship of energy to money. Direct Download: http://traffic.libsyn.com/kunstlercast/KunstlerCast_239.mp3

KunstlerCast 235 — Talking to petroleum geologist Jeffrey Brown

JHK talks with Texas petroleum geologist Jeffrey Brown about the global oil export-import scene, the shale oil situation, and the public’s misunderstanding of oil realities. Jeff originated the model for understanding the decline of global oil exports and what it means for us, the importers on the other side of that trade. And what it means is that our total oil supply in the USA is much more fragile than the public imagines.   Direct Download: http://traffic.libsyn.com/kunstlercast/KunstlerCast_235.mp3

KunstlerCast #234: George Mobus and Biophysical Economics  
Released: June 20, 2013  JHK jaws with George Mobus, systems scientist from the University of Washington, Tacoma. George is a member of the Biophysical Economics group — not you mother’s economists, shall we say. I’m pretty much on-board with their reality-based discipline, however listeners will probably notice that George is a bit more doomerish than I am usually labeled as. What i like about the Biophysical econ gang is that they pay attention to the importance of the energy side of the equation. George is smart and a real nice guy.

KunstlerCast #331: Conversation with Tad Patzek of the University of Texas
Released: May 30, 2013  JHK in conversation with Tad Patzek, chair of the Petroleum and Geosystems Engineering Department at the University of Texas. I’m twanging on the oil subject because the level of wishful thinking in the USA is shockingly high and we would benefit from facing reality and preparing for new arrangements in the ordering of everyday life.

KunstlerCast #330: A Conversation with Charles Hugh Smith
Released: May 23, 2013  JHK chats with Charles Hugh Smith of the blog OfTwoMinds.com. Charles is also the author of many books, most lately “Why Things Are Falling Apart — And What We Can Do About It.” Charles describes it: “…Things are falling apart–that is obvious. But why are they falling apart? The reasons are complex and global. Our economy and society have structural problems that cannot be solved by adding debt to debt. We are becoming poorer, not just from financial over-reach, but from fundamental forces that are not easy to identify or understand.”

KunstlerCast #228: Talking Shale Oil and Gas with Arthur Berman
Released: May 9, 2013  JHK talks with geologist and independent oil-and-gas analyst Arthur Berman of Houston Texas — emphasis on independent. Art Brings clarity to the muddle created by industry propaganda planted in the creduous and gullible mainstream media.

KunstlerCast #217: The God of Progress is Dead A Chat with John Michael Greer Released: Feb. 15, 2013 John Michael Greer, author of The Long Descent, The Wealth of Nature and Apocalypse Not, returns to the KunstlerCast to speak with JHK by phone.

KunstlerCast #215: JHK is back – Nicole Foss Interview Economic contraction and the fate of the nation
Released: January 31, 2013   This week I was fortunate to have Nicole Foss of TheAutomaticEarth.com swing by as an overnight houseguest and we got to sit down at the microphones for a chat. Nicole is a veteran of Canadian government’s electrical ministry and has worked in the nuclear energy ministries of the UK and the European Union. She has lectured all over Europe, the USA, Australia and New Zealand in recent years.

KunstlerCast #170: The End of Growth – Part 1 JHK Speaks to Richard Heinberg 

KunstlerCast #171: The End of Growth – Part 2

In part one of this one-hour conversation, Richard Heinberg, author of Peak Everything, The Party’s Over and the newly published The End of Growth joins James Howard Kunstler by phone to talk about peak oil, financial dysfunction, political convulsions and generational conflict.

KunstlerCast #151: Energy Delusions Fantasies About Our Oil Dependency

April 7, 2011  James Howard Kunstler believes Americans and their leaders are lying to themselves about our current energy predicament. There is a tremendous body of fantasy about how much energy Americans can harvest from shale gas, shale oil, tar sands, running the American truck fleet on natural gas and other forms of alternative fuel for motoring. There is even one fantasy that an endless supply of abiotic oil is located in the earth’s core. Kunstler runs down the list and gives us the score.

KunstlerCast #146: Geritopia Leisureville, by Andrew Blechman
March 3, 2011 Author Andrew Blechman discusses his book Leisureville, a tragicomic report on The Villages, America’s largest planned retirement community. In this version of suburbia, Blechman explains, everyone drives golf carts, last call is at 8:30, Fox News plays on the hour from the lampposts and children aren’t allowed.

KunstlerCast #141: Interstate 69 with Matt Dellinger The Last Great American Highway? 

Released: Jan. 20, 2011 James Howard Kunstler is joined in the studio by author Matt Dellinger to discuss his new book, Interstate 69. Also known as “The NAFTA Highway,” I-69 is a proposed 1,400-mile mega-highway linking Canada to Mexico via the American heartland. This special one-hour conversation covers the economic development schemes, history, culture, conspiracy theories and colorful characters behind the story of what might be the last great American highway. Matt Dellinger has written for The New Yorker, the Atlantic, the Oxford American, the Wall Street Journal magazine, and The New York Times. He lives in Brooklyn, New York, and blogs for public radio’s TransportationNation.org. His website is http://www.mattdellinger.com.

KunstlerCast #233: A Conversation With Jim Quinn of The Burning Platform
Released: June 13, 2013  JHK chats with Jim Quinn, author of The Burning Platform dot com. Jim Quinn spent most of his career as a financial executive in the corporate world and now works on the business side of a major university (name of it omitted at JQ’s request). He’s a keen observer of the financial scene and the way it expresses itself in the decay of everyday life.

 

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John W Day Jr, Charles Hall, et al: Ecology in Times of Scarcity

Day, J. W. Jr., Hall, C.A., Yanez-Arancibia , A., Pimentel, D., Marti, C. I., and Mitsch, W. J. 2009. Ecology in Times of Scarcity. BioScience. 59:4, 321-331.

Abstract

In an energy-scarce future, ecosystem services will become more important in supporting the human economy. The primary role of ecology will be the sustainable management of ecosystems. Energy scarcity will affect ecology in a number of ways. Ecology will become more expensive, which will be justified by its help in solving societal problems, especially in maintaining ecosystem services. Applied research on highly productive ecosystems, including agroecosystems, will dominate ecology. Ecology may become less collegial and more competitive. Biodiversity preservation will be closely tied to preservation of productive ecosystems and provision of high ecosystem services. Restoration and management of rich natural ecosystems will be as important as protection of existing wild areas. Energy-intensive micromanagement of ecosystems will become less feasible. Ecotechnology and, more specifically, ecological engineering and self-design are appropriate bases for sustainable ecosystem management. We use the Mississippi River basin as a case study for ecology in times of scarcity.

The functioning of natural ecosystems and the health of the human economy have been intrinsically linked since our species evolved. Human society has depended on solar-based ecosystems for all of its existence. With the development of the industrial revolution, massive increases in fossil-fuel use spurred dramatic growth of the human population and the economy (Hall et al. 2003, LeClerc and Hall 2007) and widespread environmental degradation (MEA 2005). Although natural ecosystem services are still absolutely necessary for human existence (Costanza et al. 1997, De Groot et al. 2002), fossil-fuel use has distanced most humans from direct contact with nature and obscured the important role of the natural world.

Over the past several decades, it has become increasingly clear that the trajectory of rapid growth of the past two to three centuries—what many refer to as progress—cannot continue much longer, and that we are on the threshold, or tipping point, of a new age (Odum and Odum 2001, Wackernagel et al. 2002, Meadows et al. 2004). This situation stems primarily from the growing scarcity of the cheap energy that fueled the industrial and modern agricultural revolutions and the degradation of ecosystems and their services (Hall et al. 2003, Heinberg 2003).

In this article, we address these issues by first discussing the role of the biosphere and the increasing industrial use of energy in the human economy. We then review several lines of evidence for a coming transition, focusing especially on oil because of its central role in the industrial economy. We conclude by discussing how these trends will affect the science of ecology and, more important, what roles ecologists will need to play in the coming societal transition. Our thesis is that major forces in coming decades will drastically affect both the science of ecology and the role of ecology and natural systems in society. These forces include energy scarcity, climate change, resource depletion, and continued population growth. The most important roles for ecologists in this time of transition are to quantify connections between the biosphere and society and to help define sustainable future paths as natural energy flows again assume a greater importance. We define ecology broadly as the study of the functioning of the biosphere, and ecologists as those who seek to understand this functioning.

The importance of natural ecosystems to the human economy

In the preindustrial world, solar-powered ecosystems supported the human economy (figure 1). This was recognized by the earliest formal school of economics, the French physiocrats, who focused on land as the source of all wealth. Practically all materials used in preindustrial societies—including food, fiber, and fuel, as well as ecosystem services such as climate regulation, clean freshwater, fertile soils, wildlife, and assimilation of wastes—were dependent on solar-driven natural systems and agroecosystems. There was low use of nonrenewable materials, such as metals and clay. For millennia, energy flow in the human economy was a small part of that of the overall biosphere. There was low generation of pollutants and a high degree of recycling, and humans had little impact on global energy and material cycles. Early primitive farmers may have affected the climate through changes in land use (Muir 2008), but this did not have an impact on greenhouse gases. Until about three centuries ago, the regenerative and assimilative capacities of the ecosphere supported a human society that lived sustainably on Earth.

Figure 1.

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Figure 1. The economic system and the biosphere. The economic system is a subset of the biosphere and is absolutely dependent for its functioning on biosphere sources and sinks. The economic system has grown dramatically over the last two centuries. An important role of ecologists is to develop an understanding of how to sustainably manage the biosphere to maintain its support for the economic system.

This changed dramatically about two centuries ago with the advent of the industrial revolution, and the change accelerated rapidly in the 20th century (figure 1).

The human population grew from two billion in 1800 to almost seven billion in 2000. The use of fossil fuels—first coal, then oil and natural gas—burgeoned, and the great reserves of these fuels began to be drawn down, until almost half of recoverable conventional oil reserves had been used, mostly in recent decades (Campbell and Laherrère 1998, Deffeyes 2001, Meng and Bentley 2008).

A new worldview of human society and its place in the natural world arose. This new worldview, neoclassical economics, focused more directly on the immediate human economy as represented by transactions in the marketplace and far less on the natural world than had earlier physiocrats and classical economists such as Adam Smith and David Ricardo. But the value of ecosystem services remained very high even as economics began to value those services less (Costanza et al. 1997, De Groot et al. 2002). These authors and others have valued the world’s ecosystem services at trillions of dollars (bee pollination in the United States alone is worth $16 billion annually; Pimentel et al. 1997). The societal disconnect from the natural world was so large that by about 1960 the old production functions that were based on land, labor, and capital were replaced with new ones that did not even consider land—let alone energy, water, or other critical resources (Solow 1956). This new technological and philosophical worldview contrasted sharply with traditional beliefs about the place of humans in the natural world (e.g., Moyers and Campbell 1988).

The evolution of human social organization and energy use

The rapidity of change in the last several centuries becomes evident if we consider time on the scale of human generations. Our species, Homo sapiens, is about 200,000 years old. But a human-like existence is much older, and many of the characteristics we associate with the human lifestyle evolved before Homo sapiens became a distinct species. If we consider the human lifestyle to include living in bands of hunter-gatherers and using fire and tools, cognition (meaning, apprehension, perception), social behavior that is not purely instinctive, and walking upright, then human-like creatures have been in existence for about 1 million to 2 million years, or about 50,000 to 100,000 generations (assuming 20 years per generation). A time span of two million years is enough time for species evolution to occur, and indeed it did. Our distant ancestors went through a series of species before evolving into modern Homo sapiens.

And as our species evolved, so did the human lifestyle. Language began about 50,000 years ago (2500 generations), agriculture about 10,000 years ago (500 generations), and civilizations first appeared about 5000 years (250 generations) ago. Most initial civilizations began in resource-rich coastal zones and lower river valleys after the sea level stabilized, partially as a result of the subsidy of abundant resources and energy in these areas (Day et al. 2007a). The industrial revolution and intensive fossil-fuel use began about 200 years (10 generations) and a century (5 generations) ago, respectively. Intensive fossil-fuel use represents only 0.1% of the age of our species, and about 0.01% of the time over which the human lifestyle evolved. The “information age” has existed for only about two generations. But “information age” is a misnomer, as we live in a petroleum age, in which intensive energy use supported the development of most technologies, including information technology. Survival values that developed over human evolution (i.e., 2 million years) had time to make it into our DNA. But the current reigning intellectual and social worldviews, which are only a century or two old, mostly ignore these older values. Our main point is that these views that currently dominate human thinking about growth, our place in the world, and the future are extremely recent and run mostly counter to long-term sustainability. A very important societal role of ecology and ecologists in the 21st century will be to help define the environmental and ecological realities and values that foster sustainability.

Evidence for a coming transition

Humans have used much of Earth’s resources, and the resulting environmental impacts are global. There is strong evidence that society is approaching a transition and the patterns of the 20th-century consumption and growth cannot be sustained. The interconnected forces leading to this transition include energy scarcity, human impacts on the biosphere, climate change, and population growth.

Coming energy scarcity

Compelling evidence suggests that the world’s conventional oil production has already peaked, and that total oil production (all liquids) will peak within a decade (figure 2), which implies that demand will consistently exceed supply and that energy costs will increase significantly (Campbell and Laherrère 1998, Deffeyes 2001, Hall et. al. 2003, ASPO 2008, Meng and Bentley 2008). Projections of peak world oil production are generally based on the approach developed by M. King Hubbert, who became well known because he predicted in 1956 that US oil production would peak in the early 1970s, and it did. Hubbert also predicted that world oil production would peak early in the 21st century (Hubbert 1962, see also Deffeyes 2001). The Hubbert approach is based on the concept that oil discoveries in an area generally precede peak production by 30 to 40 years. Oil discovery in the United States peaked about 1940, and production about 30 years later. World oil discoveries peaked by 1970 and have been falling since; recent discovery success has been very low, despite increased drilling efforts (Campbell and Laherrère 1998, ASPO 2008), and most estimates since 1965 of ultimately recoverable conventional oil run to about two trillion barrels (Hall et al. 2003). Global production increased exponentially until about 1970, but the rate of increase has declined since. Production is now two to three times the discovery rate, and current production is mostly from reservoirs discovered 30 to 40 years ago. Four hundred or so giant and supergiant oil fields provide roughly 80% of the world’s petroleum (Skrebowski 2004). Of these, roughly one-quarter are declining in production at an average rate of at least 4% annually. World oil demand is increasing, especially in China and India. For the past few years, all drilling globally did not find enough oil even to pay for the drilling, which implies that we may be approaching the end of a positive return on energy investment for searching for new oil (e.g., Hall and Cleveland 1981, Hall et al. 2008).

Figure 2.

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Figure 2. Worldwide oil discovery and consumption from 1930 until the present, and projected future discoveries. Most major discoveries were made before 1980. World consumption is currently four to five barrels for each barrel discovered with most production coming from fields discovered three to four decades ago. Source: Printed with permission from the Association for the Study of Peak Oil (ASPO 2008).

An important factor affecting consideration of energy use is the energy return on investment (EROI). The EROI is the ratio of the energy that is produced to all the energy used to discover and produce that energy. The EROI of US petroleum declined from roughly 100 to 1 in 1930, to 30 to 1 in 1970, to 11 to 18 to 1 in 2000 (Hall and Cleveland 1981, Cleveland et al. 1984, Cleveland 2005). The EROI and potential supplies of foreseeable liquid alternatives to oil, such as oil shales, tar sand, and most biofuels, are mostly very low, generally less than 5 to 1 (Hall et al. 2008), such that it is very difficult to conceive of any substitute on the scale needed and within the time when oil shortages are likely to affect society dramatically (Hall et al. 2008).

Renewable fuels will clearly play a role in providing energy in the future, but there is simply no mix of renewables that can provide high EROI energy at current levels of use in time to offset the decline in oil discovery and production (Heinberg 2003, Hirsch et al. 2005). The thinking about the potential for renewables to replace ethanol, for example, is sloppy. There is considerable support for corn ethanol production (Shapouri et al. 2004), but all the green plants in the United States capture only about 0.1% of solar energy, or about 32 quads (33.8 exajoules). This includes all agriculture, forests, grasslands, and other ecosystems. The United States now consumes a little more than 100 quads of fossil energy annually (USCB 2007). A US federal government proposal to produce 36 billion gallons of ethanol per year would require 80% of net primary production of the 48 conterminous states (Pimentel et al. 2008), assuming 0.1% efficiency. Thus, ethanol and other biofuels will never make the United States or Europe oil independent. The 5 billion gallons of ethanol produced last year make up less than 1% of total annual gross US oil use and considerably less than if the net energy of ethanol is considered. It is questionable whether the EROI for ethanol from corn is greater than one. Pimentel and colleagues (2008) estimate that it takes more than 1.4 gallons of fossil-fuel kilocalories to produce 1 gallon of ethanol kilocalories using corn, and 1.7 gallons of fossil energy kilocalories to produce 1 gallon of ethanol kilocalories using cellulose (although some estimates are somewhat higher; Farrell et al. 2006).

Many people hold out the promise that innovative technology will find oil indefinitely into the future (e.g., Lynch 2002). We agree that modern technical innovations can make a difference in the degree to which we find oil in the future. But there is another side of the equation, one that is too often forgotten by those who enthuse over technology. Humans have always been clever, and they have been scouring the earth for oil for a century and a half. The apparent peak in oil production and the declining EROI indicates that in this case at least, depletion is trumping technological advances. The present financial meltdown is a two-edged sword with respect to oil availability. It certainly has and will most likely continue to drive down prices as demand drops, but the crisis will most likely also shut off a great deal of development of existing and potential oil fields, as capital has become very scarce and the low price of oil makes more projects uneconomic. In summary, the evidence suggests that oil will become increasingly scarce and expensive, and no replacement can be supplied at a level that will meet the projected future demand.

Human impact on the biosphere

During the 20th century, for the first time in history, humans began affecting global cycles of material and energy and biodiversity, although “wild” populations on both land and water are heavily affected by the last 10,000 years of human impacts (Pitcher 2001).

Humans dominate approximately two-thirds of the land area of Earth (Vitousek et al. 1997) and divert, directly or indirectly, from 40% (Vitousek et al. 1986; but see Haberl et al. 2002) to 50% (Pimentel 2001) of the earth’s photosynthate to their own ends.

Many fish stocks are overfished and are near collapse (Pauly et al. 1998).

Humans increased reactive nitrogen production, much of which becomes biologically available nitrogen, by over an order of magnitude from 1860 to 2000 (15 to 165 teragrams per year; Vitousek et al. 1997, Galloway et al. 2003). Much of this excessive nitrogen eventually is transported as nitrate-nitrogen to rivers and streams, leading to eutrophication and episodic and persistent hypoxia (dissolved oxygen < 2 milligrams per liter) in coastal waters worldwide (Nixon et al. 1996, NRC 2000).

An estimated 50,000 species of plants, animals, and microbes have been introduced into the United States since Columbus discovered America. Several of these species, especially our crops and livestock, are valuable introductions. However, many of these invasive species are serious pests, causing an estimated $120 billion in damage and control costs each year (Pimentel et al. 2005). Invasive species also cause an estimated 40% of all species extinctions in the United States (Pimentel et al. 2005).

The Millennium Ecosystem Assessment summarized these global impacts (MEA 2005). The ecological footprint of humans has surpassed the carrying capacity of the biosphere (Wackernagel et al. 2002). These forces will interact with energy availability to render further growth more difficult and will also make sustainable management of ecosystems more difficult.

Global climate change

There is a broad consensus in the scientific community, although not without debate, that human activity is affecting global climate (IPCC 2007). Climate change will significantly affect many of the world’s ecosystems, including agro-ecosystems. Global climate change is predicted to affect temperature; the amount, distribution, and seasonality of rainfall; sea-level rise; and the intensity and frequency of strong storms. The Intergovernmental Panel on Climate Change (IPCC) predicts that global temperatures will rise by 1 to 5 degrees Celsius in the 21st century, directly affecting biota. In general, precipitation is predicted to increase in the inter-tropical zone (about 10 degrees north and south of the equator) and at high latitudes (above about 45 degrees) and to decrease in intermediate latitudes (IPCC 2007). Eustatic sea-level rise was about 15 centimeters (cm) (1.5 millimeters [mm] per year) during the 20th century, and the IPCC predicts a rise in the 21st century of about 40 cm, although some estimates are more than twice as high (Pfeffer et al. 2008). Recent measurements indicate that sea-level rise is now about 3 mm per year, or 75% of the average rate predicted for this century by the IPCC. Although some of these predictions are uncertain, the precautionary principle suggests that management plans for ecosystems should take climate change into consideration.

There is also growing evidence that human activities may have the potential to push components of the earth system past critical states into qualitatively different modes of operation (tipping points), implying large-scale impacts on human and ecological systems (Day et al. 2008, Lenton et al. 2008). For example, as the earth warms, the vast peatland wetlands in North America and Eurasia may dry and oxidize to carbon dioxide and methane, exacerbating the climate-shift problem (Mitsch and Gosselink 2007).

World population

The current world population of 6.7 billion doubled during the last 50 years.

Based on its present yearly growth rate of 1.2% per year, world population would double to more than 13 billion within 58 years (PRB 2007).

Many countries and large world regions are experiencing rapidly expanding human populations. For example, China’s current large population of 1.4 billion is still growing at an annual rate of 0.5%, despite the governmental policy of permitting only one child per couple (PRB 2007). Recognizing its serious overpopulation problem, China has passed legislation that strengthens its one-child-per-couple policy. However, the Chinese population, with its young age structure, will continue to increase for another 50 years even if couples have no more than one child. India, with 1.1 billion people living on approximately one-third of the land of either the United States or China, has a current population growth rate of 1.6%, which translates to a doubling time of 44 years (PRB 2007). Together, the populations of China and India constitute more than one-third of the total world population. However, given the steady per-capita decline of virtually all vital natural resources, especially oil, we believe that these projections of population growth are unlikely to be fulfilled; nonetheless, the pressure on natural resources will be very strong.

Ecology and ecologists in the new world order: What will “the end of cheap oil” mean?

In an energy-scarce future, services from natural ecosystems will assume relatively greater importance in supporting the human economy. What role will ecology and ecologists play in helping society adjust in the 21st century? We believe the primary role will be to help elucidate how to sustainably manage ecosystems without causing their deterioration and destruction. What ecologists, who are involved in protection, ecosystem management, and research, do will be profoundly affected by the coming end of cheap oil, both in how we carry out studies and in what we study. Unfortunately, ecologists are generally not trained or inclined to think about oil or broader societal issues, even though these issues will greatly affect ecology in this century. Below, we list several ways in which ecology will probably be affected in coming decades.

Most scientific research is expensive in terms of dollars and thus in terms of energy. One of the main ways in which ecologists will feel the effects of oil shortages will be as everyone does: by enormous inflation in the cost of doing business—inflation-corrected financial resources will be worth less than current resources. It is common for ecologists to have far-flung research programs, but in the future, research in specific areas will most likely be performed by local scientists. Trips to distant scientific meetings by a professor and several students may become prohibitively expensive. On average, for each dollar spent today, the energy equivalent of about a cup of oil is used (Hall and Day 2009). A trip to a scientific meeting that costs $1500 consumes nearly two barrels of oil. If, over the next decade or so, the cost of oil increases by a factor of 2 or 3, then it is likely that only the professor will go to the meeting. If it increases by a factor of 10, then there will most likely be no meeting, at least in the sense we now think of meetings; electronic conferencing will probably become more common. Likewise, a large project funded by the National Science Foundation (NSF) can cost $1 million and consume the equivalent of about 1100 barrels of oil. In the future, the same amount of research done in the same way will cost significantly more. The implication is that ecologists, and scientists in general, will have to become much more efficient and inventive in their work.

Another way that scarcity will affect ecology is that societal priorities are likely to shift. Scientific research is supported because society, in one manner or another, deems it beneficial. In a time of limited resources, society will look much more carefully at how resources, especially public resources, are allocated. More than ever before, we believe science will be justified and supported on the basis of the perception of how it is helping solve societal problems. In coming decades, these problems will increasingly be related to energy and other resource scarcity and the impacts of climate change. Ecologists and ecology will play a critical role because the importance of natural ecosystems to the human economy will become much more obvious. Sustainable and efficient management and use of both natural and managed ecosystems will become key to maintaining human welfare, and a primary role of ecologists will be to help define how to do this. Because much of society is now unaware of the value of natural ecosystems to human welfare, ecologists will also have to help educate the public on this issue. And they will have to do all of this with fewer resources.

Most scientists, including the authors of this article, have encountered the dichotomy between basic and applied science. Basic science has often been considered intellectually superior and more elegant than applied science. And much NSF funding, and other country-specific national funding for biological sciences, has been for basic science. In coming decades, information will be required to preserve the functioning of ecosystems and the services they provide. Applied science will very likely become the dominant form of research, and scientists will have to clearly justify their research in terms of societal good. The dichotomy between basic and applied science is a false one; the important dichotomy is between science that is excellent and that which is less so. In coming decades, society will need the very best science, whether basic or applied, to help solve problems associated with looming resource scarcities.

Most ecological science has been carried out in an open and collegial manner. This could change in a time of energy and resource scarcity. A close colleague from a developing country described the allocation of scarce resources to support scientific research as “the land of the limited good.” Because resources to support science are so much more limited in developing countries, competition for these resources is intense. One of the ways this competition works is that groups form to garner resources and to actively exclude other individuals or groups. This balkanization often does not result in the most talented people receiving support or in scientific problems being efficiently addressed, because the success of the group, not necessarily support of the brightest scientists, becomes paramount. Will science in general move from an open and cooperative effort to one characterized by battles over resources and attempts to exclude others? We do not mean that groups of scientists working together are unnecessary for solving the problems we are discussing. To the contrary, groups of bright, creative, collaborative, socially aware scientists will have to come together to solve these problems. Groups are not the problem; the problem is the culture of competition taken to the extreme.

Rich, productive ecosystems with high provision of ecosystem services (Costanza et al. 1997) will be relatively more important in supporting the human economy as fossil fuels become scarcer. These ecosystems include coastal areas with estuaries, reefs, deltas, and intertidal wetlands; rich, alluvial river-valley floodplains and wetlands; productive forests and rain-fed grasslands. These areas are subsidized by high natural energies such as rainfall, rivers, and tides. It is not surprising that the first civilizations and most large cities in the preindustrial world were in areas with rich natural resources, such as the coastal zone or along major rivers (e.g., Day et al. 2007a).

As productive ecosystems, including agroecosystems (e.g., Boody et al. 2005), become more important in supporting the human economy, these areas should receive more attention from ecologists. More food, fuel, and fiber will have to be coaxed from nature while high ecosystem values and services are sustained. But political power is not necessarily concentrated in areas of high ecosystem services. Will politically powerful but highly unsustainable southern California, with its relatively low level of ecosystem services, support the spending of resources in places such as the lower Mississippi floodplain and delta, which are politically weak but have a very high level of ecosystem services? The same argument can be made for resource-rich areas in other countries, such as the Usumacinta and Ebro deltas in Mexico and Spain.

Loss of productivity is important because it is related, at least partially, to ecosystem services. The conversion of natural landscapes to other uses and the degradation of natural landscapes have caused a great loss of ecosystem productivity and related service provision. Both of these processes have affected the natural ecosystems of high productivity, such as river valleys and floodplains, wetlands, and deltas, to a greater extent than they have other areas (Downing et al. 1999). The degradation of productive ecosystems leads both to a reduction in biodiversity and to a loss of ecosystem services. As a result of such changes, environmental impacts include more flooding, loss of biodiversity and natural habitat, poorer water quality, and threats to human health. The conditions in the Mississippi basin described below are symptomatic of such conditions worldwide.

Much conservation effort over the past century has been directed toward preservation of biodiversity and natural habitats in areas such as national parks and wilderness zones. Much less attention, however, has been devoted to the loss of ecosystems with high primary production but low biodiversity, even though many of such ecosystems are intensively used. We believe that in this century, more emphasis will have to be placed on these highly productive systems. There is a growing realization that efforts to protect biodiversity for its own sake have not been particularly successful. In coming decades, biodiversity conservation must be tied to the preservation of productive natural ecosystems, and it must be shown that preserving biodiversity complements the provision of high ecosystem services and helps meet human needs (Kareiva and Marvier 2007).

The Wildlands Project (www.wildlandsproject.org/cms/page1090.cfm), which focuses on conservation of natural areas in North America, is one example of the effort to protect natural areas and biodiversity (figure 3). The goal of the Wildlands Project is to protect and enhance existing wild areas and provide corridors. The project area includes broad swaths of land across northern Canada, down the crest of the Rocky Mountains from Alaska through Central America, along the coastal mountains of the West Coast, and along the Appalachian Mountains from Canada to the southeastern United States. What is most striking is what is not included: all coastal zones are excluded, as well as almost the entire Mississippi River basin.

Figure 3.

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Figure 3.  Map of megalinkage areas proposed by the Wildlands Project for wildlands conservation planning. No program of comparable scale exists for highly productive natural and managed ecosystems such as coastal zones and the Mississippi alluvial valley and delta. An important role for ecologists in the 21st century is to develop such programs. Source: Printed with permission from the Wildands Project.

We realize that the Wildlands Project has specific goals, and we certainly support such efforts. Our concern is that plans of similar magnitude are not in place to protect rich, productive ecosystems with high ecosystem service provision, such as river valleys and coastal areas. One reason that most of the lands of the Wildlands Project are still relatively wild is that they were unsuitable for extensive agriculture. Projects of equal vision and magnitude are needed to restore ecosystems and their services in rich areas that have been intensively used. These include alluvial valleys, coastal zones, tropical forests, and agricultural areas. It is interesting that the Mississippi delta and other comparable areas, which still retain a largely wild character, were excluded by the Wildlands Project.

We believe that in coming decades the restoration and sustainable management of rich natural ecosystems will be equally as important as the protection of existing wild areas. It will be a different kind of conservation because restored ecosystems will exist in a mosaic of intensively used areas, such as agroecosystems.

Natural resource management sometimes tends to be energy intensive. In the future, such energy-intensive management will become less feasible because energy and resources will be scarce. Ecosystem management will have to include a large element of letting nature take its course, or self-design. The evolving Everglades restoration plan has elements that may not be possible to continue in the future (Sklar et al. 2005), such as pumping vast quantities of water. Future energy costs will limit pumping, and gravity and tides will have to do more of the work of moving water.

Restoration of natural ecosystems within a mosaic of intensively used landscapes will enhance biodiversity, and productivity and diversity may be related for individual systems (Tilman et al. 1997, Flombaum and Sala 2008). The relationship between productivity and biodiversity doesn’t seem to be global, however. Ecosystems with high productivity can be highly diverse (tropical rainforests and coral reefs) or have low diversity (salt marshes, mangroves, freshwater marshes in general, sugarcane fields), but it is clear that intelligent restoration of productive natural habitats will often result in enhanced productivity and biodiversity.

A main goal for ecology in coming decades will be to provide information on the restoration of different kinds of habitats. How much area of different habitats should be restored and how should they fit into the landscape? We will not be able to control to a great extent what species will exist in these different habitats; for the most part, we will have to let nature decide. In the next section, we present a conceptual framework for ecology in times of scarcity, and we use the Mississippi basin as an example.

There is, and has been for decades, an antagonism between environmental protection and conservation and much of the business community. It has been argued that environmental protection and conservation hurt the economy. We know now that this is not true, that a good environment is good for the economy (Meyer 1992, Templet 1995). An important role for ecologists in the coming decades will be to show the economic importance, both direct and indirect, of ecosystem services.

From a broader perspective, a major impediment to convincing society that management for ecosystem sustainability is important to the human economy is the dominance of neoclassical economics (NCE). NCE has been extensively criticized from environmental and logical points of view (e.g., Daly 1991, Hall et al. 2001, LeClerc and Hall 2007). We believe that NCE has limited ability to effectively address issues such as climate change or loss of productivity and biodiversity, and is largely disconnected from the biophysical reality upon which economics should be based. Rather than being on the margins of the economic system, sustaining rich ecosystems and biodiversity will become central to the health of the economy. If we don’t include ecological considerations in future societal decisions, the current credit crunch and other factors may result in less funding for science and a shift away from sustainable management. The global market may degrade many natural resources and make sustainable management more difficult. Or, to paraphrase Iago in Othello, “O, beware, my Lord, of globalization!! ‘Tis a red-toothed monster, which doth mock the meat it feeds on.”

The impending end of cheap oil has enormous implications for many of the things that ecologists do. But most ecologists and economists don’t discuss these issues, because over the last few decades of energy abundance, the concept of limits has disappeared from our economic thinking. In addition, because limits are intrinsic to ecology (i.e., Scheiner and Willig 2008), there will certainly be conflicts with NCE’s tenets of infinite substitutability and the lack of absolute scarcity

Conceptual basis for sustainable ecosystem management in a resource-scarce, variable world

The sustainable use of ecosystems by humans involves an understanding of how these ecosystems contribute in the broadest sense to human welfare, and how they work in the broadest and most fundamental way. It also involves an understanding of the critical management requirements for maintaining sustainability in a time of increasing resource scarcity and environmental variability.

In a time of resource scarcity, especially energy, we suggest that ecological engineering (sometimes referred to as ecotechnology), including agroecology, is an appropriate basis for sustainable ecosystem management. Probably one of the most important shifts is for ecology to become more prescriptive and less descriptive, mostly through the growth of the ecological fields of ecological engineering and ecosystem restoration (Kangas 2004, Mitsch and Jørgensen 2004, Palmer et al. 2004). Ecologists have a rich history of describing ecosystems and their functions but are less well trained in solving ecological problems. These new fields relate to solving ecological problems, borrowing approaches from engineering and landscape architecture. There are many active efforts in ecological engineering around the world, defined as “the design of sustainable ecosystems that integrate human society with its natural environment for the benefit of both” (Mitsch and Jørgensen 2004). The related field of restoration ecology, defined as “the process of assisting the recovery of an ecosystem that has been degraded, damaged, or destroyed” (SER 2004), is a subset of ecological engineering. Ecological engineering combines basic and applied science for the restoration, design, construction, and sustainable use of aquatic and terrestrial ecosystems. Because it uses mainly natural energies, it is very energy efficient. The primary tools are self-designing ecosystems (nature chooses the species from countless possibilities, with humans involved sometimes in species introduction; Mitsch and Jørgensen 2004), and the components are mostly biological species and processes. Ecological engineering is very different from environmental engineering, which is more involved with pollution control, such as conventional sewage treatment and air pollution control. The goals of ecological engineering are (a) the restoration of ecosystems that have been substantially disturbed by humans, and (b) the development of new sustainable ecosystems that have both human and ecological value (Mitsch and Jørgensen 2004).

If done properly, ecological engineering should result in solving environmental problems and resource depletion with a maximum use of natural energy and a reduction in the use of fossil energy. In times of energy shortage, these ecological solutions will be selected.

Ecological engineering and ecosystem restoration are intertwined (Mitsch and Jørgensen 2004). Ecological engineering is an amalgam of several fields dealing with ecosystem restoration and creation. Restoration ecology has many features in common with ecological engineering. In fact, Bradshaw (1997) called ecosystem restoration “ecological engineering of the best kind” because we are putting back ecosystems that used to exist, not creating new combinations of populations or systems.

Self-design and the related concept of self-organization are important properties of created and restored ecosystems (Mitsch and Jørgensen 2004). Self-organization is the property of systems to reorganize themselves in environments that are inherently highly variable and nonhomogeneous. Self-organization is a systems property that applies to ecosystems in which species are continually introduced and deleted, species interactions—for example, predation, mutualism—change in dominance, and the environment itself changes. Organization is derived not from outside forces, but from within the system. Self-design is important in times of scarcity because ecologically engineered ecosystems tend to take care of themselves and are less energy demanding. Self-organization develops flexible networks with a much higher potential for adaptation. Implicit in ecological engineering and self-design is that the functioning of the natural systems should form the basis for sustainable management; working with nature rather than against it is more energy efficient.

Case study: The Mississippi-Ohio-Missouri river basin

The Mississippi-Ohio-Missouri (MOM) river basin is an example of the issues we have been discussing (figure 4; Mitsch et al. 2001, Mitsch and Day 2006). It is a continental-scale system with high ecosystem values that has been severely impacted by human activities, and that will require sustainable management in a time of resource scarcity. The 3.2-million-square-kilometer system is the largest drainage basin in North America, and one of the largest in the world, with a mean discharge of nearly 20,000 cubic meters per second to the Gulf of Mexico. The ecosystems of the basin, which are among the most productive in the United States, include the Mississippi delta, riparian and floodplain systems, eastern deciduous forests, and rain-fed prairies. The MOM river basin also includes one of the most important agricultural areas in the world.

Figure 4.

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Figure 4. The Mississippi River basin in the United States, showing the location of major nitrogen sources, major hydrological drainage in the basin, and the hypoxic zone in the Gulf of Mexico. Source: Used with permission from Mitsch and colleagues (2001).

During the 20th century, navigation, flood control, reservoirs, and agriculture profoundly affected the basin. Dams on the Missouri reduced sediment input to the delta, and navigation and flood control activities separated the mainstream channels from most of the riparian floodplain. But the most far-reaching impacts come from agriculture. The agricultural landscape of the Midwest changed from a diverse mixture of uses such as corn, soybeans, hay, pasture, oats, forests, and wetlands to one dominated by soybeans and heavily fertilized corn (Boody et al. 2005). More than 80% of the wetlands in most midwestern states have been drained since presettlement time. An estimated 23 million hectares (ha) of wet farmland, including wetlands, were drained under the US Department of Agriculture’s Agricultural Conservation Program between 1940 and 1977, and an estimated 18.6 million ha of land, much of it wetlands, were drained in seven states in the upper Mississippi River basin alone (Mitsch and Gosselink 2007). The combination of these factors led to rapid runoff of fertilizer and the deterioration of water quality throughout the basin, from small streams draining agricultural fields to the hypoxia zone in the Gulf, covering thousands of square kilometers (Mitsch et al. 2001). In the Mississippi delta, isolation of the river from the delta is a primary cause for the dramatic loss of coastal wetlands, which has resulted in an overall reduction in productivity (Day et al. 2007b).

To develop a plan to correct these problems, it is essential to understand river basin functioning. Understanding river ecosystems has evolved from concepts of the river continuum to those of the flood pulse (Schramm and Eggleton 2006, Junk and Bayley 2008) and dynamic habitat interactions (Stanford et al. 2005). Understanding deltas evolved from physical-based models (e.g., Roberts 1997) to the concept that deltas are sustained by a hierarchy of energetic forcings (tides, storms, floods) interacting with biogeochemical processes (Day et al. 2007b). Continued good applied science and adaptive management will be an essential part of basinwide restoration.

Efficient restoration of the MOM basin in a time of resource scarcity will require energy-efficient sustainable management based on ecosystem functioning (e.g., Day et al. 2005, Mitsch and Day 2006). The massive flood-control system in the basin was built and is maintained by cheap energy. Such energy-intensive approaches simply will not work on such a large scale as fossil energy becomes very expensive. An alternative view is to work with nature, using areas such as wetlands to hold water on the landscape and reconnect the river with the floodplain and delta through pulsed introductions of river water. The creation and restoration of millions of hectares of wetlands, about 2% of the agricultural landscape, would reduce nutrient discharge and restore river, deltaic, and wetland habitats (Mitsch et al. 2001, Mitsch and Day 2006, Day et al. 2003, 2007b). Agriculture will most likely return to the diverse crop assemblages of the past, what has been called multifunctional agriculture (Boody et al. 2005). High energy costs will certainly reduce fertilizer use and make maintaining the energy-intensive current flood control system much more difficult. Controlled inundation of the floodplain could reduce flood costs and help replenish soil nutrients. Such ecotechnological approaches will improve water quality, increase biodiversity, reduce flooding, provide wildlife and fisheries habitat, reduce threats to public health, and increase the value of ecosystem services, while maintaining productive agriculture on much of the landscape. These sustainable, energy-efficient approaches will contribute to reducing climate impacts because less energy will be used to maintain the system. For example, wetland assimilation uses much less energy than conventional treatment plants (Ko et al. 2004) and produces less greenhouse gas. Efficient flood control and delta restoration can save enormous amounts of energy. The functioning of ecologically engineered projects is also less sensitive to energy disruption and environmental variability; for example, treatment systems using ponds and wetlands were much less affected by Hurricane Katrina than were conventional treatment plants. This is ecological engineering at a grand scale and it is sustainable in an energy-scarce future; the current system is not. It will require ecologists, engineers, landscape architects, and others working together. If this restoration is not implemented, water quality will continue to deteriorate and habitat will continue to be lost, with an almost complete loss of wetlands in the Mississippi delta.

Summary and conclusions

Humans will have to become more integrated into natural ecosystems in a future affected by climate change, with energy and other resources scarce. Ecologists should generally not attempt to create landscapes that require a high level of maintenance. Rather, the role of ecologists is to gain an understanding of the functioning of natural and managed ecosystems that will allow those ecosystems to be used in energy-efficient and sustainable ways to support the human economy through ecological engineering and ecosystem restoration. In this sense, landscape ecologists and landscape architects and other ecosystem experts have an opportunity to work together in ecosystem management. Ecologists have had the luxury for the last half-century or more of pursuing a wide variety of often rather esoteric pursuits. In a time of increasing resource and energy scarcity, the success of ecology will very likely be linked to the field’s ability to help society make the transition to a lower-energy, more sustainable society. This does not mean that basic research is not important, but it does mean that ecologists should think carefully about both the kind of basic research to be pursued and the management implications of this research. Many other societal changes will have to be made in the coming transition, and ecologists should take heed of the role ecology can play to help in that transition.

References cited

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Energy price increases and the 2008 financial crash: a practice run for what’s to come?

Hall, C.A.S., Groat, A. 2010. Losing Faith in Economics. Energy price increases and the 2008 financial crash: a practice run for what’s to come? The Corporate Examiner. 37: No. 4-5: 19-26.

The summer of 2008 saw the third year in a row in which oil production did not rise, leading some to say that the long predicted “peak oil,” the time of maximum global oil production, had indeed arrived. Partly as a result, that summer also saw the highest oil prices ever, as well as historically high prices for other energy and most raw materials. Wall Street was down from its historic high of the preceding fall but by the end of the first week of August, the Dow Jones Industrial average closed at 11,734. Then, a series of disasters struck the financial markets, with many of the largest, most prestigious and seemingly impervious companies declaring bankruptcy. Each week the stock market lost 5 or 10 % of its value until, by the end of November, the Dow Jones had dropped to as low as 8,000. Many investors lost from one-third to one-half of the value of their stocks.

Although the media and American lawmakers focused on many issues as the culprits of the crash — the sub-prime mortgage crisis, high foreclosure rates and Wall Street’s sale of opaque financial products known as derivatives — we believe that the root cause of the current downturn is the same one that sparked the last four out of five world recessions:
the high price of oil. Why did most economists and financial analysts not see this coming? One hypothesis, advanced by Nobel laureate in economics Paul Krugman (2009) is that the economics profession “went astray because economists, as a group, mistook beauty, clad in impressive-looking mathematics, for truth.” But, as the market debacle has shown, mathematical elegance in economics is not a substitute for scientific rigor, something that we have discussed in many previous papers (e.g. Hall et al. 1986, Hall et al. 2001).

As of this writing global oil production had been flat since 2004 and then declining for several years so that peak oil appears to have occurred – with the remaining debate only about whether there may be a subsequent peak. If indeed we have passed the global oil peak – or at least have reached the point at which an increase in annual production is no longer possible – then indeed the end of cheap oil might be soon upon us, especially if global economies return to growth. Because of the critical importance of liquid and gaseous petroleum for essentially everything we do economically, there are major concerns as to what the financial implications might be. Some (ourselves included) ask whether conventional economics and conventional economic models and tools work only when it was possible to readily expand the petroleum supply. Will our conventional economic approaches, derived during periods of expanding energy supplies, have less relevance during times of contracting supplies? In other words, are finances beholden to the laws of physics? We think yes. Thus the question becomes: can we supplement or improve upon our ability to do economics and financial analysis by using procedures that focus more on the energy available (or not) to undertake the activity in question?

The Predictors

What is the relation, if any, between the run up in oil prices and the market crash? Resource scientists have predicted such a financial crash for a long time. Any good physical or biological scientist knows that all activity in nature is associated with energy use. Consequently, many in the scientific community were not the slightest bit surprised by the financial crash or its timing. For example, Colin Campbell, a former oil geologist and co-founder of ASPO, the Association for the Study of Peak Oil, predicted serious financial responses to peak oil in his (and Jean Lahererre’s) classic Scientific American article “The End of Cheap Oil” (Campbell and Lahererre 1998). He was more explicit in the ASPO meeting in Pisa, Italy, in 2006 when he said that we are likely to see an end of year after year economic growth and a movement to an “undulating plateau” in oil production, prices and economic activity, with periodic high prices in oil generating financial stress. These financial strains would, in turn, cause a decrease in oil use and hence a price decline, with low prices then leading to new financial growth and new increases in use followed, eventually, by increases again in oil prices. In other words he foresaw very large impacts of restrictions in oil availability, and consequent price increases, on the market: “Every single company on the stock market is overvalued from the perspective of what the cost of running that company will be after peak. Value is determined by performance which has been based on cheap oil.”

Many other analysts have remarked upon, and even predicted, the probable impact of peak oil, or at least oil price increases, on the financial status of the United States and the world (e.g. Huang et al. 1996; Sauter and Auerbach 2003). A thoughtful, chilling and ultimately correct view of the implications of peak oil on the American economy was presented by Gail Tverberg in January 2008 on the energy log site “The Oil Drum”. Her predictions, which we thought impossibly pessimistic at the time, have been vindicated in great detail. Many analysts foresaw these issues as early as the 1970s, including the authors of the famous but subsequently dismissed “Limits to Growth” studies of 1972, ecologists Garrett Hardin and Howard Odum, economists Kenneth Boulding and others. The first author of this piece made his retirement decisions in 1970 based on the assumption that peak oil and a crash of stocks would occur in about 2008 (Hall 2004). The reason is that all of these people understood that — of necessity — real growth is based on growth in real resources, and that there are limits to those resources. The case for peak oil was clearly laid out 40 years ago by Hubbert (e.g. 1968; 1974) who had correctly predicted the U.S. peak in 1970, 15 years before the fact. While many economists place a great deal of faith in increasing technology, in fact technology does not operate on a static playing field but continually competes with declining resource quality. There is little or no evidence that technology is winning this game (e.g. Hall and Ko 2004, Hall et al. 2008, Gagnon and Hall 2009), and it is important to understand that at least so far, the Limits to Growth model is an almost perfect predictor (Hall and Day 2009).

Resource-based analysts understand and appreciate that the recent turmoil in much of our financial structure has many plausible causes, among them greed, the relaxation of financial controls, sub-prime mortgages, the decrease in risk premiums, excessive leverage, and overrated bundles of toxic securities. But, in the minds of resource-based analysts, energy underlies even these issues. The fundamental dilemma is this: if oil, the most important energy source to fuel the economy, goes through the inevitable path of growth, plateau, and eventual decline (i.e. peak oil) while the financial market is built on the assumption of unfettered growth, then something has to give. Eventually the aspirations and assumptions of indefinite growth in assets, production and consumption must collide with the reality of an ever-constricted source of the energy that fuels real growth. There are related, but more subtle, arguments as well.

Starting in the early 1990s until 2007, the financial system, with various forms of new financial engineering, had seen an unprecedented increase in the use of leverage. Relatively inexpensive oil, declining interest rates, and globalization all contributed to declines in risk premiums for virtually all asset classes. Capital went further out on the risk curve to make up for reduced returns and increased leverage became the new norm. As volatility seemed to disappear, even more leverage was piled on to the system. Along with the changing landscape in global credit markets came cheap financing for U.S. home buyers. The low price of energy greatly increased discretionary income which further encouraged people to take advantage of this cheap financing, all of which added to massive residential development.

This created a self-reinforcing “reflexive” system (Soros 1987), where increasing home values increased collateral, which encouraged further borrowing in the household sector and lines of credit for consumption and so on. But the U.S. reached a “tipping point” (Gladwell 2000) in 2006-2007. As the price of gasoline rose, the assumption that the suburban lifestyle would be sustainable became a question in every driver’s mind. The most audacious growth in real-estate had been in the ex-urban areas, most vulnerable to gas price spikes. The system had been built on the premise that large amounts of discretionary spending would always be available and the notion that everyone was entitled to a McMansion, a “lawyer-foyer,” and a home theater. To get it, we had to build out from the cities. However, discretionary wealth — that which is available for non-essential investments and purchases — is extremely sensitive to volatile energy prices (Hall, Powers and Schoenberg 2008).

Discretionary income dropped substantially when gasoline and other energy prices, which had been creeping up from a very low level in 1998, increased sharply in 2007-2008. This became a domino that toppled aggregate demand, particularly for ex-urban real estate. It may have been that this was the first domino that triggered the massive de-leveraging we are now experiencing globally. (A good summary of the various analyses by Rubin, Hamilton and others who argue that oil price increases were behind this, and past, recessions is given at http://netenergy.theoildrum.com/node/5304.) Massive household debt could not be supported when the value of the underlying collateral declined: a decline triggered, at least in part, by the spike in energy prices. As the collateral disappeared, huge derivative positions that had been built in the previous decade had margin-calls. The spiral down of forced selling pressured all asset classes further, and forced the banking sector to essentially freeze in September of 2008. Will this questioning of the suburban model be a preview to our ultimate response to peak-oil? Perhaps. The general pattern of oil price changes can help us understand these things better in the longer term.

At the start of 1973, oil was cheap at $3.50 a barrel. The U.S. was still the world’s largest producer. Peak oil had just occurred in the United States in 1970, but no one noticed. Oil imports and the economy kept growing. As domestic oil production in the U.S. declined from 1970 to 1973, foreign suppliers gained leverage. Political events and a bulldozer accident that severed an export oil pipe in the Middle East triggered massive price increases in oil. By 1979 the price of oil had increased by a factor of ten, to $35 a barrel. The proportion of Gross Domestic Product that went to buying energy increased from about 8% to 14%, restricting discretionary spending for all while causing stagflation. The prices of other energy and commodities more generally increased at nearly the same rate, driven in part by the price increase of the oil that was behind all economic activities.

 

 

But then, in the 1980s, all around the world oil that had been found but not developed (as it had not been worth much) suddenly became profitable to develop, and it was developed. By the 1990s the world was awash in oil and the real price fell to nearly what it was in 1973. The energy portion of GDP fell to about 5%, essentially giving everyone a sudden free extra 8 to 10% of their incomes to play with. The impact on discretionary income, perhaps a quarter of the total, was enormous. Many invested in the stock market, but the burst tech bubble of 2000 cured them of that. Real estate was considered a “safe” bet, so many invested in what was really surplus square footage. Speculation became rampant as real estate was valued for its financial returns rather than as a place to live. For a while it seemed as if investment in real estate was the best thing for everyone but, as we now recognize, most of the increase in wealth was illusory.

With energy price increases over the past 6 years (until the summer of 2008), an extra 5 to 10% “tax” from increased energy prices was added to our economy as it had been in the 1970s, and much of the surplus wealth disappeared. Speculation was no longer desirable or possible as consumers tightened their belts because of higher energy costs. While this perspective is not a sufficient explanation for all that has happened, the similar economic patterns in response to the energy price increases of both the 1970s and of the last decade give it credibility. In systems theory language, the endogenous aspects of the economy that the economists focus on (Fed rates, money supply, etc.) became beholden to the exogenous forcing functions of oil supply and pricing that are not part of economists’ usual framework.

The Relation of Oil and Energy more generally, to our economy

While economics is overwhelmingly taught as a social science, in fact, our economy is completely dependant upon the physical supply and flow of resources, including materials and energy, for the production, transport and use of goods and services. Specifically, our economy is overwhelmingly dependent upon oil, which supplied about 40% of U.S. energy use in 2007, and natural gas, which supplied about another 25%. Coal provides about 20% and nuclear a little less than 5%. Hydropower and firewood supply no more than 4% each. Wind turbines, photovoltaics and other new solar technologies together account for less than 1%. Global percentages are similar. Our economy has been and continues to be based on increased use of fossil fuels for most of its growth, so that we have in recent years added much more new capacity with fossil fuels than we have with new solar, which has only added a bit to total growth in the use of all energies rather than replaced fossil fuels.

Although we have been trained from birth to think about the economy as something run by money, from our perspective money is just our means of keeping track of the energy flows and investments. The fossil fuel-based economy has given each of us the equivalent of 60 to 80 “energy servants” and the more money you earn, the more energy servants you have. Each time you spend a dollar, roughly a coffee cup’s worth of oil (or some other energy) has to be pulled out of the ground, refined, transported and burned to provide the energy for that economic activity. For example, if you buy a bagel for a dollar, natural gas is used to make fertilizer, diesel is used to drive a tractor to plant and harvest the wheat, electricity is used to grind the wheat and more diesel is used to ship the flour from Kansas to wherever the bagel will be made, using, of course, more energy during baking. Food eaten in the United States, on average, requires about 10 times more calories of fossil fuel for its production than is found in the food itself (Hall et al. 1986).

Because of the enormous interdependency of our economy, there is not a huge difference in the energy requirements for the various goods and services that we produce. Thus a dollar spent for most final demand goods and services uses roughly the same amount of energy no matter what the good or service is. An exception is money spent for energy itself, which includes the chemical energy plus another 10 or so percent which is the energy needed to get it. For 2005 an average dollar spent in the economy required about 8 or 9 megajoules (1 MJ equals 240 Kilocalories) for that activity. For heavy construction the estimate is about 14 MJs per dollar and for very heavy industry such as obtaining oil and gas about 20 MJs per dollar; Gagnon et al. 2009). As time and inflation proceed you have less and less energy to do work in the economy per dollar spent. There continues to be decreasing energy return on energy invested (EROI) for our major fuels as we must go after ever more difficult resources (e.g. Hall and Cleveland 1981, Gagnon et al. 2009).

Making Investment Decisions

There is an implicit assumption, probably believed by most market analysts, that if they (collectively) make good financial decisions, based on market information, market projections and good hunches, then we collectively (i.e., society) will make the best investments possible. Although there are certainly good rationales that such financial analyses make considerable sense, in many cases it is not so clear that they are an effective guide to the future of energy supplies. This is because: 1) current prices of energy in the U.S. are greatly influenced by various subsidies; 2) few understand the degree to which most technologies today are principally a means of subsidizing whatever it is we do with still-cheap petroleum; 3) today’s price signals are unlikely to be influenced by the future conditions when today’s most abundant and cheapest fuels may be scarcer, for either geological (depletion) or political reasons; and 4) there is painfully little transfer of information from the (rather limited) scientific community that has examined the large picture of energy to the financial communities.

We include here some preliminary analyses that we think show the importance of energy to Wall Street and the economy more generally. First, Wall Street prices reflect not only a portion of the real operation of the economy but also a large psychological factor often called “confidence”. Our hypothesis is that the energy used by the economy is in some sense a proxy for the amount of real work done, and that over time the Dow Jones should “snake” around the real amount of work done, reflecting issues of speculation, confidence and so on, but that over sufficient time it must return approximately to the real energy use line. To test this hypothesis we have plotted the prices of the Dow Jones index (corrected for inflation) from 1915 until 2008 along with the actual use of energy by the United States economy.

In fact the inflation-corrected Dow Jones Index has snaked around the use of energy (Figure 2). We think it will be interesting to plot this relation in the future. We hypothesize that the Dow Jones will over the long run continue to snake about the total energy use in response to periods of irrational exuberance and the converse. If U.S. total energy use continues to decrease, as it has for the last 18 months, this hypothesis implies no sustained real growth for the Dow Jones. We also hypothesize that in a general sense the amount of wealth generated by the U.S. economy should be closely related to fuel energy use. Cleveland et al. (1983) found that the Gross National Product of the United States was highly correlated with quality-corrected energy use from 1904 to 1984 (R2 = 0.94). This high correlation appeared to be much poorer for the period 1984 until 2008. It is possible that the divergence is due not to increasing efficiency but rather an increasing proclivity of governments to “cook the books” on inflation (see the online group shadowstatistics.com). Correcting for this, if indeed that is needed, would make the relation of energy use and GDP growth much tighter through the 1990s and 2000s.

A Financial Analyst Concurs

Jeff Rubin, Chief Economist at CIBC World Markets, wrote in a recent report that defaulting mortgages are only a symptom of the high oil prices. Higher oil prices caused Japan and the European Nations to enter into a recession even before the most recent financial problems hit. According to Rubin:

Oil shocks create global recessions by transferring billions of dollars of income from economies where consumers spend every cent they have, and then some, to economies that sport the highest savings rates in the world. While those petro-dollars may get recycled back to Wall Street by sovereign wealth fund investments, they don’t all get recycled back into world demand. The leakage, as income is transferred to countries with savings rates as high as 50%, is what makes this income transfer far from demand neutral. […] By any benchmark the economic cost of the recent rise in oil prices is nothing short of staggering. A lot more staggering than the impact of plunging housing prices on housing starts and construction jobs, which has been the most obvious brake on economic growth from the housing market crash. And those energy costs, unlike the massive asset writedowns associated with the housing market crash, were borne largely by Main Street, not Wall Street, in both America and throughout the world.

This big increase in oil prices has caused the annual fuel bill of OECD countries to increase by more than $700 billion a year, with $400 billion of this going to OPEC countries. Rubin asks: “Transfers a fraction of today’s size caused world recessions in the past. Why shouldn’t they today?”

We and others believe that there is ample evidence that our economy is beholden to energy supplies and prices, and that good investors and good economists need to learn a great deal more about energy. We are attempting to tackle this problem head on through the development of a new approach to economics called biophysical economics (e.g. Hall et al. 2001, Hall and Klitgaard 2006, Hall et al. 2008, Hall and Klitgaard in preparation). It is based on the simple premise that since economics is about the production and transfer of physical things or services that require energy, why should it be considered a uniquely social, rather than equally a biophysical science? Probably most readers of this article understand in their day-to-day work that the economy doesn’t work the way economics textbooks say, if indeed it ever did. But getting the economists to re-think their training will be a tough job, no matter how much that is needed.

References

Colin Campbell: http://www.youtube.com/watch?v=lDNMjV6sumQ&feature=related

Cleveland, C., Costanza, R., Hall, C., and Kaufmann R. (1984). Energy and the US Economy: A Biophysical Perspective. Science, 225: 890 897.

Gagnon, N., Hall, C., and Brinker, L. (2009). A Preliminary Investigation of the Energy Return on Energy Invested for Global Oil and Gas Production. Energies, 2:490-503.

Gladwell, M. (2000). The Tipping Point: How Little Things Can Make a Big Difference. New York: Little, Brown & Company.

Hall, C. (January 4, 2008). At $100 Oil – What Can the Scientist Say to the Investor?  http://www.theoildrum.com/node/3412

Hall, C. (April 1, 2008). Why EROI Matters (Part 1 of 6). Retrieved from http://www.theoildrum.com/node/3786 Hall, C., and Cleveland, C. (1981). Petroleum Drilling and Production in the United States: Yield per Effort and Net Energy Analysis. Science, 211: 576-579.

Hall, C., Cleveland, C., and Kaufmann, R. (1986). Energy and Resource Quality: The Ecology of the Economic Process. New York: Wiley-Interscience.

Hall, C., Lindenberger, D., Kummel, R., Kroeger, T., and Eichhorn, W. (2001). The Need to Reintegrate the Natural Sciences with Economics. BioScience, 51(8): 663-673.

Hall, C., and Klitgaard, K. (2006). The Need for a New, Biophysically-Based Paradigm in Economics for the Second Half of the Age of Oil. International Journal of Transdisciplinary Research, 1: 4-22.

Hall, C., Tharakan, P., Hallock, J., Cleveland, C., and Jefferson, M. (2003). Hydrocarbons and the Evolution of Human Culture. Nature, 26: 318-322.

Hall, C., Powers, R., and Schoenberg, W. (2008). Peak Oil, EROI, Investments and the Economy in an Uncertain Future. In David Pimentel (Ed.), Renewable Energy Systems: Environmental and Energetic Issues (pp. 113-136). London: Elsevier.

Hall, C., and Day, J. (2009). Revisiting the Limits to Growth After Peak Oil. American Scientist, 97(3): 230-237.

Hall, C.A.S., and K. Klitgaard. 2011. Energy and the Wealth of Nations. The Biophysical Origins of Wealth. Springer.

Hersch, R., Bezdec, R. and Wending, W. (2005). Peaking of World Oil Production: Impacts, Mitigation and Risk Management. U.S. Department of Energy. National Energy Technology Laboratory.

Huang, R., Masulis, R., and Stoll, H. (1996). Energy Shocks and Financial Markets. Journal of Futures Markets, 16(1): 1-27.

Hubbert, M. K. (1969). Energy Resources. In National Academy of Sciences, Resources and Man, a Study and Recommendations (pp 157-242). San Francisco: W.H. Freeman.

Hubbert, M. K. (June 4, 1974). Testimony before Subcommittee on the Environment of the Committee on Interior and Insular Affairs, House of Representatives, Ninety-Third Congress , Washington, D.C.

Rubin, Jeff (October 31, 2008) Just How Big is Cleveland, CIBC World Markets. Retrieved from http://research.cibcwm.com/ economic_public/download/soct08.pdf

Sauter, R., and Awerbuch, S. (2003). Oil Price Volatility and Economic Activity: A Survey and Review of Literature (International Energy Agency Research Paper). Paris: IEA. Retrieved from http://www.awerbuch.com/shimonpages/shimondocs/Oilprice- Volatility-03.doc

Soros, George. (1987). The Alchemy Finance: Reading the Mind of the Market. New York: John Wiley & Sons.

Tverberg, Gail (January, 2008). Peak Oil and the Financial Markets: A Forecast for 2008. Retrieved from
http://www.theoildrum.com/node/3382#more

 

 

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Charles Hall “Peak oil, declining EROI and the probability of degrowth”

Charles A. S. Hall . March 2010. Peak oil, declining EROI and the probability of degrowth.

Second Conference on Economic Degrowth for Ecological Sustainability and Social Equity March 26-29th 2010, Barcelona

Peak oil is not some fuzzy academic concern but a reality: for the US in 1970, for some 60 of 80 oil-producing countries and, at least for the moment, for the world since about 2005. In addition the net energy delivered to society (as opposed to the total) is declining in recent decades from 30 or more to one to ten or less to one as we have exhausted our largest, shallowest, closest to shore and highest quality oil and gas fields. While technological improvements have slowed the effects of depletion the net effects are that there is a declining EROI (Energy Return on Energy [and money] Invested). Most alternatives to oil and gas except hydroelectric or coal have a small or very small EROI, and even for these the highest EROI sites in the US are already dammed and coal has obvious environmental issues. All of these factors are affecting our economy.

In systems thinking we normally divide our problem into two controlling factors, those endogenous to the system under consideration and those exogenous. The latter are also called forcing functions . In recent decades most of our consideration of the economy has been dominated by those who focus on the endogenous factors and that believe that economies are most appropriately controlled by manipulating interest rates, the money supply and so on. The usual economic training emphasizes that fuels and other natural resources are commodities, and hence fungible, substitutable and of limited importance except for their market value. In fact the work of Reiner Kummel and others has shown energy to be THE most important input to economic production, far more important than the economists’ traditional labor and capital.

Probably most people at this conference are in the endogenous camp – i.e. believing that degrowth can and should be a consequence of deliberate decisions made for that purpose. But in fact degrowth, or at least a cessation of growth, has already occurred for the US and European economies without our slightest help, apparently due to the forcing of declining energy availability (and its increasing cost) and its impact on discretionary income. The latest available GDP estimates for the US economy give the GDP for the fourth quarter of 2009 as 13.1 trillion 2005 dollars, the same value as the first quarter of 2007. So for three years the US economy, according to these official numbers, has not grown at all, and since population has been growing per capita GDP has decreased by some 3 percent, as is painfully obvious to the unemployed.

While endogenous business cycles may generate economic constriction, in fact most recessions in the US are preceded by increases in energy price (Murphy and Hall 2010). During this same period the world has reached “peak oil” after many decades of steady growth, despite sharply rising prices during much of this period, as had been predicted by many geologists and others for decades (Figure 1). While it is not yet clear whether there will be a later, higher peak, it is clear that the production of oil, our most important energy source, is no longer growing (Figure 1). The US has also peaked, more or less, in the energy gained from coal (but not for tonnage used). Total US energy use has declined by about 5 percent starting even before the recession. Thus we might want to ask to what degree the two cessations in growth (energy and economic) are linked and whether future predicted restrictions in energy supplies (Figure 2) will continue to bring about degrowth independent of what this forum or anyone else may or may not choose to do for policy. In other words our future economy may be determined far more by external forcing rather than policy of this or any other group. Those who wish for degrowth might be able to capitalize upon this.

Growth has been, of course, the mantra of conventional (neoclassical) economics. However readers should be aware that conventional economics is under attack as never before, although in most cases working economists who routinely apply conventional economics are unaware of the attacks. But a near majority of the recent Nobel Laureates in economics have received their honors for, essentially, undermining the legitimacy of various aspects of the conventional neoclassical model. This includes Ostrum, Krugman, Kanahan, Ackerlof, Smith, Sen, Stiglitz and others. At a less lofty level economics is under even stronger attacks by Ecological Economics President John Gowdy (and many within that subdiscipline) as well as by myself and colleagues. Our main arguments are not that conventional neoclassical economics makes some errors by undervaluing nature, encouraging maldistribution, ignoring larger social needs (all of which are true) and so on. Rather it is that neoclassical economics is logically corrupt at its core and the mathematics, although often elegant, are inappropriately specified. This corruption begins with the basic system of firms and households that is familiar from every beginning text book in economics. This simplified model has incorrect boundaries, violates the laws of thermodynamics and has not been put forth as testable hypotheses (e.g. Hall 2001). The original Walrasian model was constructed by borrowing a model from physics but in fact not only was the model seriously incomplete it also violated the laws of thermodynamics that was the point of the original model in physics (e.g. Mirowski 1989). Of course many economic models can be parameterized from empirical data to “work”. For example the brilliant Egyptian mathematician Ptolemy could make a model of the solar system that “worked” (i.e. was a good predictor of the location of e.g. planets, the moon and so on) but that had the wrong essential structure (e.g. Ptolemy’s system had the Earth at the center of the Solar system, with epicycles for Venus and Mercury to explain their “erratic” behavior). It is easy to draw parallel critiques to economic models.

Economics is usually considered a social science, but why should that be since economics is mostly about stuff, and stuff must obey the laws of physics and many other constraints? We wish instead to generate a biophysical, instead of simply social, basis for economics (http://web.mac.com/biophysicalecon).  Money is not wealth, goods and services are, and they require energy to obtain them. Money is a medium of exchange (and a financial instrument). Some people think gold is wealth, but it is not either. When the Spaniards brought back gold from the new world to Europe they doubled the supply and halved its value. That is because the real wealth production (from farms, forests, fisheries, mines of useful metals, work of housewives and artisans) had not changed. The wealth was generated by the energy of the sun as captured by land and by the energy of labor, both of which transformed the materials of nature into what we want and call wealth. Energy is necessary to make wealth. There is no other way with a few minor exceptions in e.g. some art. Classical Political Economists, beginning with the Earl of Lauderdale, wrote extensively that the use values provided by nature were the source of wealth. That discussion was lost with the emergence and dominance of neoclassical economics, and needs to be reclaimed.

Energy and many materials will in all probability be unable to expand production for much longer (Heinberg 2007). Figure 2 shows some guesses of what the curves for oil, gas and coal might look like for the world. Some important materials (copper, gold, zinc) might look quite similar. Figure 3 shows that for US oil and gas drilling, market mechanisms do not work, i.e. that when prices and hence drilling rates increased in response to the “energy crises” of the 1970s production did not increase, and the converse. Figure 4 shows how the inflation corrected Dow Jones (as a sample financial indicator) tends to “snake around” the total US energy use. The ups and downs appear to be the psychological lemming actions of investors but that the general trend for 100 years is constrained by US energy use — which generates the real wealth but has plateaued and declined recently. Efficiency increases has some potential but I believe far less than generally believed.

All of these figures show the importance of energy and its potential restrictions for growth. The point is that energy use is what generates wealth (capital equipment is the means of using energy, but it is the energy that generates the wealth — wish Solow had got that right). Energy is a far better predictor of real economic activity over time than capital or labor or policy. Money is (or at least was once) how we keep track of wealth. Inflation is the ratio of money supply (times velocity) divided by energy use (times a nearly constant efficiency). On the upside (first 45%) of the Hubbert Curve we were generating more wealth every year so the government had to “create” more money via the Federal Reserve to lubricate the increased volume of transactions necessitated by growth or we would have enormous deflation. Thus when energy supply increased, the activities of the Central Bank and the Federal Reserve in “making” money makes sense. As long as energy use and hence production was expanding more money was needed to avoid deflation. However we may have, or may soon have, reached the point where energy use and hence real wealth production no longer increases. Then more money generated by the Federal Reserve just generates inflation, although this is buffered by the global demand for dollars as other countries have even more difficult economic problems. The problem is that we derived all our economic/financial principles on the left hand side of the Hubbert curve, when growth-based theory usually worked (recessions were a usually temporary exception) because the economy was growing through more energy use anyway. So then theories of the right, left, North, South, capitalists, communists, whatever ALL had a decent chance of success because the real economic potential tended to increase year after year regardless of policy because energy use increased at 2-3 percent per year. One could be fiscally conservative, prime pumps or whatever. Many financial institutions could make a great deal of money. Franklin Roosevelt’s debt became trivial as the economy grew and grew. But now if we paid off just Ronald Reagan’s debt to Japan and they used it to buy fish, rice, beef or fords it would take most of our remaining oil in US to make that stuff. Retiring today’s debt will be much tougher than FDRs as we will almost certainly not have an expanding energy supply and hence economy.

This is why we need a new economics for the second half of the age of oil. The “science” of economics can no longer even appear to “break” the laws of thermodynamics. Although it never did it thought it could, and few economists paid attention.

LITERATURE

Cleveland, C.J., R. Costanza, C.A.S. Hall and R. Kaufmann. 1983. Energy and the United States economy: a biophysical perspective. Science 225: 890-897.

Gowdy, J., C.A.S. Hall, K. Klitgaard and L. Krall. The end of faith-based economics. The Corporate Examiner. (New York) In press.

Hall, Charles, D. Lindenberger, Reiner Kummel, T. Kroeger, and W. Eichhorn. 2001. The need to reintegrate the natural sciences with economics. BioScience 51 (6): 663-673.

Hall, Charles A.S, Gowdy, John. 2007. Does the Emperor Have Any Clothes? Chapter 1. In Making Development Work: A New Role for Science. University of New Mexico Press, Albuquerque.

Hall, C.A.S., R. Powers and W. Schoenberg. 2008. Peak oil, EROI, investments and the economy in an uncertain future. Pp. 113-136 in Pimentel, David. (ed). Renewable Energy Systems:
Environmental and Energetic Issues. Elsevier London

Hall, C.A.S., Day, J.W. Jr. 2009. Revisiting the Limits to Growth After Peak Oil. American Scientist, 97: 230-237. Hall, C.A.S., Balogh, S., Murphy, D.J.R. 2009. What is the Minimum EROI that a Sustainable Society Must Have? Energies, 2: 25-47.

Heinberg, R. 2007. Peak Everything. New Society Press, Gabriola Island, B.C. Canada

Morowski, Phillip. 1989. More Heat Than Light: Economics as Social Physics, Physics as Nature’s Economics. Cambridge: Cambridge University Press, 1989.

Murphy, David J., Hall, Charles A. S. 2010. Year in review—EROI or energy return on (energy) invested. Annals of the New York Academy of Sciences. 1185, Special Issue: Ecological Economics Reviews:102-118

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Charles A. S. Hall “The End of Faith Based Economics”

Charles Hall deserves the Nobel Prize in Economics for his book “Energy and the Wealth of Nations” and “Making World Development Work: Scientific Alternatives to Neoclassical Economic Theory”

Gowdy, J., Hall, C., Klitgaard , K., and L. Krall. 2010. Losing Faith in Economics. The End of Faith Based Economics. The Corporate Examiner. 37: No. 4-5: 5-11.

The last century has seen the ascendancy, indeed intellectual dominance, of neoclassical welfare economics (NWE), also known as neoclassical economics. The basic NWE model represents the economy as a self-maintaining circular flow among firms and house-holds, driven by the psychological assumptions that humans act principally in a materialistic, self-regarding and predictable way. As such NWE violates a number of physical laws and is inconsistent with considerable empirical evidence about human behavior. The NWE model is unrealistic and a poor predictor of people’s actions, as an array of experimental and physical evidence and recent theoretical breakthroughs demonstrate.

Despite the abundance and validity of these critiques, few economists seriously question the neoclassical model that forms the foundation of their applied work. This is a problem because policy makers, scientists, and others turn to economists for answers to important policy questions. The supposed virtues of privatization, free markets, consumer choice and cost benefit analysis are considered to be self-evident by most practicing economists, as well as many in business and government.

We offer a review and synthesis of NWE, paying particular attention to the lack of connection of NWE to biophysical reality and its inadequate characterization of human behavior. We end by sketching alternative characterizations of human behavior and economic production. When all the criticisms are taken as a whole it is clear the NWE framework stands on an untenable foundation and that some other basis for interpreting economic reality must be found. It is clear that NWE is very limited in its usefulness and cannot guide us in our attempts to deal with the most important issues of our time, such as the depletion of oil and gas, climate change, financial crises, and the destruction of nature.

The edifice of NWE is built on myths and based on an outdated worldview. These myths are not merely harmless peccadilloes, because they provide the foundation upon which economic policy is made and cultural attitudes are distilled. Thus the worldview and policy prescriptions of most economists can only be described as “faith-based” because many fundamental tenets of economics are inconsistent with economic reality.

Myth 1: A theory of production can ignore physical and environmental realities.

Real economies are subject to the forces and laws of nature, including thermodynamics, the conservation of matter and a suite of environmental requirements. NWE does not reflect the fact that economic activity requires the inputs and services of a finite biophysical world which is usually degraded by that activity.

Myth 1a: The economy can be described independently of its biophysical matrix.

NWE is a model depicting abstract exchange relations considered only as goods and services and money within a world unrealistically limited to markets, firms, and households. Real economies require real material and energy to allow that exchange, and economic activities are limited by the material and energy transformations necessary for economic activity. Students are introduced to the misleading Circular Flow Model of the economy in the first days of Principles of Economics. This conceptual vision of the economy is one of a self-contained and self-regulating system independent of the biophysical system and its laws. There are but two sectors, households and firms, with goods and services going from firms to households, and productive inputs (land, capital and labor) going from households to firms.

Households serve as loci of consumption and possessors of property rights to the factors of production. Firms exist to produce and to hold property rights to the finished commodities. These property rights are willingly exchanged in markets for money. Neither monetary value nor physical materials are lost to heat or erosion as inputs are transformed into goods and services. Thus the NWE theory of production is not a model of production at all, but rather a model of the distribution of productive inputs and the goods they had produced previously. No specific primary inputs from nature are essential in this model.

The NWE notion of scarcity is disconnected from biophysical reality for it is never absolute but only relative to unlimited wants. In this model if we are confronted by the limits of one resource, the imaginative human mind, driven by the proper set of monetary incentives and protected property rights, will always create a substitute. No input is critical, therefore neither absolute scarcity nor the need of any particular resource is a problem in the long run. Thus in the NWE world the economy can simultaneously experience relative scarcity and infinite growth. Competitive prices, formed in markets, assure that resources flow to their best use.

Nicholas Georgescu-Roegen, and his student Herman Daly, were among the first to point out the absurdity of this depiction of production. Real economies cannot exist outside the global biophysical system, which is essential to provide energy, raw materials, and a milieu.

values a certain economic outcome depends on how much it is valued by others. It is also well established that the consumption of market goods cannot be equated with an individual’s happiness. Nevertheless, the fundamental behavioral assumptions of NWE require self- regarding consumers whose happiness depends upon their consumption of market goods. The cultural context of behavior is deemed irrelevant to economic analysis as the emphasis is entirely on the behavior of the isolated individual.

Myth 2a: Homo economicus is a scientific model that does a good job of predicting human behavior.
At the heart of standard economic theory is the model of human behavior embodied in Homo economicus or “economic man.” Economic texts usually begin with a very general statement about human nature that is soon codified into a set of rigid mathematical principles resting upon the idea that “people maximize their well-being by consuming market goods according to self-regarding, consistent, constant, well-ordered, and well-behaved preferences.” The assumption that people are self regarding has been falsified by considerable contemporary work in behavioral economics, neuroeconomics, and game theory (Gintis, 2000, Camerer and Loewenstein, 2004; Heinrich, 2001). For example, Henrich and colleagues, after examining the results of behavioral experiments in fifteen societies ranging from hunter-gatherers in Tanzania and Paraguay to nomadic herders in Mongolia conclude: “[T]he canonical [NWE] model is not supported in any society studied.” (Heinrich, 2001). Gintis describes several experiments showing that humans are both far more altruistic and far more vindictive than the rational actor model allows (Gintis, 2000). They will make decisions to punish persons they will never again encounter if those people cheat in experimental transactions, even if this means considerable monetary loss to themselves. In experimental settings and under real-world conditions, humans consistently make decisions that favor enforcing social norms over ones that lead to their own material gains.

The centrality of the behavior of isolated individuals is reflected in the notion that consumers are sovereign in a market economy. Ackerman and Heinzerling point out that the rise of economic orthodoxy put consumers at the center of analysis. The idea is that producers respond to consumer preferences rather than the reverse (Ackerman and Heinzerling, 2004). Yet we all know that, in fact, consumer tastes are manipulated and that firms barrage us with advertising in order to increase their market share. Nonetheless, the centrality and preeminence of the individual in orthodox economic analysis precludes any analysis or emphasis on the context of individual behavior. Myth 2b: Consumption of market goods can be equated with well-being and money is a universal substitute for anything. Most economic texts simply equate utility with happiness and assume that utility can be measured indirectly by income without any substantive or formal discussion of the matter (Frey and Stutzer, 2002). The higher the per capita income, the better off a particular society is supposed to be. Yet there is considerable evidence that past a certain point income is a positional good; that is, if everyone’s income goes up there is little or no long-term gain in social well-being. This implies that policies designed merely to increase per capita income may have little effect if the goal is to improve social welfare.

Psychologists have long argued and documented that well-being derives from a wide variety of individual, social and genetic factors. These include genetic predisposition, health, close relationships, marriage, and education — as well as income (Frey and Stutzer, 2002). It is generally true that people in wealthier countries are happier than people in poorer countries, but even this correlation is weak and the happiness data show many anomalies (Diener et al., l995). For example, some surveys show that people in Nigeria are happier than people in Austria, France and Japan (Brickman et al., 1978; Blanchflower and Oswald, 2000; Lane, 2000). Past a certain stage of development, increasing incomes do not lead to greater happiness. For example, real per capita income in the U.S. has increased sharply in recent decades but reported happiness has declined (Meyers, 2000).

When economists equate utility with income in the NWE model this affects the policy recommendations of economists which impact the natural world. According to Arrow and colleagues, “sustainability” means simply maintaining the discounted flow of income over time (Arrow et al., 2004). Leaving future generations the same or greater real income than the present leaves them at least as well-off no matter what happens to specific features of the natural world. By this reasoning if the present discounted value of a rainforest is $1 billion in ecosystem services if left intact, but can generate a discounted investment flow of $2 billion if it is clear cut and sold, then it is the moral responsibility of the present generation to cut down the rainforest. With $2 billion the future generation could buy another rainforest or something of equal value and have $1 billion left over. This is the logic that is used by economists to justify the extinction of a substantial portion of the planet’s ecosystems and species (Gowdy, 2004)

Why Theory Matters

It is in the policy arena that the ideological nature of NWE reveals itself most completely. Most economists substitute the mythical NWE world of rational agents, certainty and perfect information for the complex reality and uncertainty of real economies. Where reality and the neoclassical model disagree, reality is increasingly forced through policy to conform to the neoclassical model (Makgetla and Seideman, l989). Neoclassical economists generally assume that people always respond rationally and consistently to price signals, therefore the goal of economic policy is to assign property rights and get the prices right. The corollary assumption is that things of value to people have a price, and anything without a market formed price must lack value. Prices are theoretically capable of reflecting all the relevant attributes of any good or service and all that people value. The rest of us are asked to take the validity of their assumptions and analyses on faith, and to turn our complex decision making increasingly over to barely regulated markets and cost benefit analyses. This emphasis frequently leads to fundamental policy-related failures and problems that include the following:

1. The ultimate policy goal of NWE is not to correct any particular problem directly but rather to correctly value the problem in terms of everything else so that the calculating machine of the market can establish the pecking order of priorities. The focus on establishing general market equilibrium frequently means neglecting essential details of the policy problems under consideration, especially those for which it is difficult or impossible to determine a price (i.e. oil depletion, environmental degradation and global climate change).

2. The NWE model makes no qualitative difference between needs and wants, even the most trivial of them, or among commodities produced, or among specific productive inputs, including energy. Everything we find useful is treated like an abstract commodity substitutable for and by anything else. Absolute scarcity does not exist nor, within certain broad limits, are any specific conditions deemed necessary for human existence. Value is a relative matter expressed in relative prices. Because no single thing is essential, substitution among resources and commodities will occur until the marginal value of a commodity divided by its prices is the same for all commodities. At this point rational individuals have made optimal choices, and the sum of all optimal choices leads us to the “best of all possible worlds.”

3. The model assumes that aggregate income is a complete and sufficient measure of well- being. Operationally this means that total costs and benefits of policies can be determined by merely adding the monetary changes in the incomes of all isolated individuals affected. This implies that relative income effects don’t matter to the individual – for example a loss of $1,000 to a poor person can be more than compensated for by a gain in $1,100 to a billionaire. Similarly, preferences are considered to be exogenous to social context. Yet numerous studies have found that relative income effects matter and sometimes these effects can completely cancel out increases in total income which is always the primary goal of NWE. How much one person values a gain or loss depends on what others get, the income of each person relative to others, the fairness (or not) of the income change and a variety of other social factors which are not included in the NWE model.

4. “Sustainability” in the NWE model means sustaining only the discounted flow of per capita income, not anything else such as biodiversity, oil stocks, human health or social cohesiveness. This is known as weak sustainability. However, to live within nature’s limits, we need to arrive at the conditions of strong sustainability, which requires that the profits from the depletion of a resource or degradation of an ecosystem are reinvested in developing alternatives or restoring degraded systems. This entails looking at the bigger picture of how market systems function and interface with the biophysical world. Consequently one cannot arrive at a social decision to achieve an optimal macroeconomic scale by merely aggregating many separate efficient market outcomes. NWE dominates policy making yet provides an inadequate toolbox for confronting the major problems of the present world: global climate change, biodiversity loss, oil depletion, loss of wilderness and the recalcitrant problems of poverty and social conflict. We are led to believe that our most pressing environmental and social problems can be dealt with effectively by simulating efficient market outcomes as if this provides the elixir for all that ails us. Yet we know that the concept of market efficiency rests on an untenable and faulty foundation and that the real market economy is not best described in this framework. But the perpetuation of neoclassical economics, usually to the exclusion of other possible approaches, is essentially the substitution of faith for reason, science and empirical testing in many areas of economics. We must move beyond this “faith-based” economics and find a more illuminating way of understanding economic activity and informing decision making so that our policies will amount to something more than window dressing for the status quo.

References

Ackerman, F., and Heinzerling, L. (2004). Priceless: On Knowing the Price of Everything and the Value of Nothing. New York and London: The New Press.

Arrow, K., Dasgupta, P., Goulder, L., Daily, G., Ehrlich, P., Heal, G., Levin, S., Goran-Maler, K., Schneider, S., Starrett, D., Walker, B. (2004). Are We Consuming too Much? Journal of Economic Perspectives , 18(3): 147-172.

Ayres, R. and Warr, D. (2005). Accounting for Growth: The Role of Physical Work. Change and Economic Dynamics , 16(2):211-220.

Blanchflower, D., and Oswald, D. (2000). Well-Being over Time in Britain and the U.S.A . (NBER Working Paper No.7481). Cambridge, MA: National Bureau of Economic Research.

Brickman, P., Coates, D., and Janoff-Bulman, R. (1978). Lottery Winners and Accident Victims: Is Happiness Relative? Journal of Personality and Social Psychology , 36(8): 917-927.

Camerer, C., and Loewenstein, G., (2004). Behavioral Economics: Past Present and Future. In C. Camerer, G. Loewenstein, and M. Rabin (Eds.), Advances in Behavioral Economics (pp. 3-52). Princeton: Princeton University Press.

Cleveland, C., Costanza, R., Hall, C., and Kaufmann, R. (1984). Energy and the U.S. Economy: A Biophysical perspective. Science , 225: 890-897.

Daly, H. (1977). Steady-State Economics . W. H. Freeman, San Francisco.

Denison, E. (1989). Estimates of Productivity Change by Industry, an Evaluation and an Alternative . Washington, DC: The Brookings Institution.

Diener, E., Diener, M. and Diener, C. (1995). Factors Predicting the Well-Being of Nations. Journal of Personality and Social Psychology , 69 (55): 851-864.

Frey, B., and Stutzer, A. (2002). Happiness and Economics: How the Economy and Institutions Affect Well-Being . Princeton:Princeton University Press.

Georgescu-Roegen, N. (1975). Energy and Economic Myths. Southern Economic Journal , 41(3): 347-381.
Gintis, H. (2000). Beyond Homo Economicus: Evidence from Experimental Economics. Ecological Economics , 35(3): 311-322.

Gowdy, J. (2004). The Revolution in Welfare Economics and its Implications for Environmental Valuation. Land Economics,
80(2): 239-257.

Hall, C. (2000). Quantifying Sustainable Development: The Future of Tropical Economies . San Diego: Academic Press.

Hall, C., Lindenberger, D., Kummel, R., Kroeger, T. and Eichhorn, W. (2001). The Need to Reintegrate the Natural Sciences with Economics. BioScience , 51(8): 663-673.

Hall, C., Cleveland, C. and Kaufmann, R. (1986). Energy and Resource Quality: The Ecology of the Economic Process . New York: Wiley-Interscience.

Henrich, J. et al. (2001). Cooperation, Reciprocity and Punishment in Fifteen Small-Scale Societies. American Econ. Review,91(2): 73-78.

Lane, R. (2000). The Loss of Happiness in Market Economies . New Haven: Yale University Press.

Makgetla, N., and Sideman, R. (1989). The Applicability of Law and Economics to Policymaking in the Third World. Journal of Economic Issues , 23: 35-78.

Meyers, D. (2000). The Funds, Friends, and Faith of Happy People. American Psychologist , 55: 56-67. Wilson, E. (1998). Consilience: The Unity of Knowledge. New York: Alfred Knop

 

 

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More diesel for tractors & trucks, less gas for cars

The 1980 rationing plan would shift whatever petroleum was needed to agriculture and other essential services before making it available to the public via rationing.   This would be diesel since tractors, harvesters, trucks, and trains can’t and don’t burn gasoline.

Now that clean diesel can be made, you have to wonder why we make gasoline. Look at a few of the advantages of diesel engines. Why on earth do we make gasoline-burning cars (98% burn gasoline, 2% diesel)?

  1. Diesel engines are 45% efficient, gasoline engines 30%.
  2. Diesel fuel has 15% more energy than gasoline.
  3. Diesel engines last twice as long and are far more reliable.  It takes a lot of energy, minerals, and other resources to make new vehicles.  Now is the time to make things last and stop our “throw away” economic system
  4. Diesel fuel takes less energy to refine than gasoline
  5. Diesel fuel is less explosive, doesn’t release a large amount of flammable vapor, and has minimal carbon monoxide emissions
  6. Diesel engines create less waste heat in cooling and exhaust

What about burning diesel in gasoline engines?
You can’t.  Your engine probably wouldn’t start, and if it did, would run and smoke terribly. Your engine might be okay, but it would take a very expensive fuel system flush to get the diesel out. If you tried to put gasoline in a diesel vehicle, you’d almost certainly suffer catastrophic damage to the engine and damage the sensitive emissions control components and system.

Refineries should make more diesel than gasoline

Done. Because fracked natural gas is so cheap, America’s refineries can refine raw petroleum cheaper than refineries elsewhere, so we import oil, refine about a million barrels a day into diesel, and export it.  This also helps keep our remaining 149 refineries operating.  On May 16 2014, petroleum was refined as follows: 54% diesel, 24% gasoline, 16% kerosene (jet fuel), and 5% bunker fuel (ships, fuel oil). (EIA Petroleum & Other Liquids Weekly Refiner net production).

 

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