The End of the Oil Age.

3 07 2015

Originally posted on Collapse of Industrial Civilization:

Author: Norman Pagett (The End of More)

imageedit_5_4307012774

But how can we define an oil age? It has been about 150 years since the first deep oilwells were sunk, and just over 200 years since the viable steam engine was developed. The two are linked, because the steam engine made deep drilling of oilwells possible and gave us access to a hundred million years worth of fossilized sunlight. Perhaps we have not strictly had an oil age, but rather the first and only age where we enjoy vast amounts of surplus energy that we have extracted from hydrocarbon fuels, of which oil is the most energy dense. It has brought us material wealth, and the means to indulge in wholesale killing of each other and all other species. It gave excesses of food and a population that consumed that food and grew to five or six times the sustainable…

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As it happened – Yanis Varoufakis’ intervention during the 27th June 2015 Eurogroup Meeting

29 06 2015

Originally posted on Yanis Varoufakis:

The Eurogroup Meeting of 27th June 2015 will not go down as a proud moment in Europe’s history. Ministers turned down the Greek government’s request that the Greek people should be granted a single week during which to deliver a Yes or No answer to the institutions’ proposals – proposals crucial for Greece’s future in the Eurozone. The very idea that a government would consult its people on a problematic proposal put to it by the institutions was treated with incomprehension and often with disdain bordering on contempt. I was even asked: “How do you expect common people to understand such complex issues?”. Indeed, democracy did not have a good day in yesterday’s Eurogroup meeting! But nor did European institutions. After our request was rejected, the Eurogroup President broke with the convention of unanimity (issuing a statement without my consent) and even took the dubious decision to convene a follow up meeting without the Greek minister, ostensibly to…

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The Tech Industry Is In Denial, But The Bubble Is About To Burst

28 06 2015

mikestasse:

This is most interesting, because all the techno utopian hopium addicted people I read NEVER look at the big picture like this blog does. A breath of fresh air methinks….

Originally posted on TechCrunch:

[tc_contributor_byline slug=”Tallat-Mahmood”]

Euphoric reaction to superstar tech businesses is rampant — so much so that the tech industry is in denial about looming threats. The tech industry is in a bubble, and there are sufficient indicators for those willing to open their eyes. Rearing unicorns, however, is a distracting fascination.

The Perfect Storm

Raising funding for tech startups has never been so easy. Some of this flood of money has been because of mutual funds and hedge funds, including Fidelity, T. Rowe Price and Tiger Global Management. This is altering not only the funding landscape for tech startups, but also valuation expectations.

There are many concerns that valuations for businesses are confounding rationale. Entrepreneurs and their investors are deviating from more traditional valuation and performance metrics to more unconventional ones. Another cause cited for increasing valuations is the trend of protections for late investors that cause valuations to inflate further. The combination of a number of these factors has put…

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If everyone lived in an ‘ecovillage’, the Earth would still be in trouble

27 06 2015

Samuel Alexander, University of Melbourne

We are used to hearing that if everyone lived in the same way as North Americans or Australians, we would need four or five planet Earths to sustain us.

This sort of analysis is known as the “ecological footprint” and shows that even the so-called “green” western European nations, with their more progressive approaches to renewable energy, energy efficiency and public transport, would require more than three planets.

How can we live within the means of our planet? When we delve seriously into this question it becomes clear that almost all environmental literature grossly underestimates what is needed for our civilisation to become sustainable.

Only the brave should read on.

The ‘ecological footprint’ analysis

In order to explore the question of what “one planet living” would look like, let us turn to what is arguably the world’s most prominent metric for environmental accounting – the ecological footprint analysis. This was developed by Mathis Wackernagel and William Rees, then at the University of British Columbia, and is now institutionalised by the scientific body, The Global Footprint Network, of which Wackernagel is president.

This method of environmental accounting attempts to measure the amount of productive land and water a given population has available to it, and then evaluates the demands that population makes upon those ecosystems. A sustainable society is one that operates within the carrying capacity of its dependent ecosystems.

While this form of accounting is not without its critics – it is certainly not an exact science – the worrying thing is that many of its critics actually claim that it underestimates humanity’s environmental impact. Even Wackernagel, the concept’s co-originator, is convinced the numbers are underestimates.

According to the most recent data from the Global Footprint Network, humanity as a whole is currently in ecological overshoot, demanding one and a half planet’s worth of Earth’s biocapacity. As the global population continues its trend toward 11 billion people, and while the growth fetish continues to shape the global economy, the extent of overshoot is only going to increase.

Every year this worsening state of ecological overshoot persists, the biophysical foundations of our existence, and that of other species, are undermined.

The footprint of an ecovillage

As I have noted, the basic contours of environmental degradation are relatively well known. What is far less widely known, however, is that even the world’s most successful and long-lasting ecovillages have yet to attain a “fair share” ecological footprint.

Take the Findhorn Ecovillage in Scotland, for example, probably the most famous ecovillage in the world. An ecovillage can be broadly understood as an “intentional community” that forms with the explicit aim of living more lightly on the planet. Among other things, the Findhorn community has adopted an almost exclusively vegetarian diet, produces renewable energy and makes many of their houses out of mud or reclaimed materials.

Findhorn Ecovillage in Scotland.
Irenicrhonda/Flickr, CC BY-NC-ND

An ecological footprint analysis was undertaken of this community. It was discovered that even the committed efforts of this ecovillage still left the Findhorn community consuming resources and emitting waste far in excess of what could be sustained if everyone lived in this way. (Part of the problem is that the community tends to fly as often as the ordinary Westerner, increasing their otherwise small footprint.)

Put otherwise, based on my calculations, if the whole world came to look like one of our most successful ecovillages, we would still need one and a half planet’s worth of Earth’s biocapacity. Dwell on that for a moment.

I do not share this conclusion to provoke despair, although I admit that it conveys the magnitude of our ecological predicament with disarming clarity. Nor do I share this to criticise the noble and necessary efforts of the ecovillage movement, which clearly is doing far more than most to push the frontiers of environmental practice.

Rather, I share this in the hope of shaking the environmental movement, and the broader public, awake. With our eyes open, let us begin by acknowledging that tinkering around the edges of consumer capitalism is utterly inadequate.

In a full world of seven billion people and counting, a “fair share” ecological footprint means reducing our impacts to a small fraction of what they are today. Such fundamental change to our ways of living is incompatible with a growth-oriented civilisation.

Some people may find this this position too “radical” to digest, but I would argue that this position is merely shaped by an honest review of the evidence.

What would ‘one planet’ living look like?

Even after five or six decades of the modern environmental movement, it seems we still do not have an example of how to thrive within the sustainable carrying capacity of the planet.

Nevertheless, just as the basic problems can be sufficiently well understood, the nature of an appropriate response is also sufficiently clear, even if the truth is sometimes confronting.

We must swiftly transition to systems of renewable energy, recognising that the feasibility and affordability of this transition will demand that we consume significantly less energy than we have become accustomed to in the developed nations. Less energy means less producing and consuming.

We must grow our food organically and locally, and eat considerably less (or no) meat. We must ride our bikes more and fly less, mend our clothes, share resources, radically reduce our waste streams and creatively “retrofit the suburbs” to turn our homes and communities into places of sustainable production, not unsustainable consumption. In doing so, we must challenge ourselves to journey beyond the ecovillage movement and explore an even deeper green shade of sustainability.

Among other things, this means living lives of frugality, moderation and material sufficiency. Unpopular though it is to say, we must also have fewer children, or else our species will grow itself into a catastrophe.

But personal action is not enough. We must restructure our societies to support and promote these “simpler” ways of living. Appropriate technology must also assist us on the transition to one planet living. Some argue that technology will allow us to continue living in the same way while also greatly reducing our footprint.

However, the extent of “dematerialisation” required to make our ways of living sustainable is simply too great. As well as improving efficiency, we also need to live more simply in a material sense, and re-imagine the good life beyond consumer culture.

First and foremost, what is needed for one planet living is for the richest nations, including Australia, to initiate a “degrowth” process of planned economic contraction.

I do not claim that this is likely or that I have a detailed blueprint for how it should transpire. I only claim that, based on the ecological footprint analysis, degrowth is the most logical framework for understanding the radical implications of sustainability.

Can the descent from consumerism and growth be prosperous? Can we turn our overlapping crises into opportunities?

These are the defining questions of our time.

The Conversation

Samuel Alexander is Research fellow, Melbourne Sustainable Society Institute at University of Melbourne.

This article was originally published on The Conversation.
Read the original article.





Is there a solar revolution? Time for data, not adjectives

26 06 2015

twitter

Robert Wilson

Reblogged from Robert Wilson’s site, Carbon Counter

In reality solar power’s heavily subsidized growth is nowhere close to being the revolutionary force some of its advocates claim it already is. It is also not growing exponentially, as anyone could see if they checked the meaning of the term exponential growth and actual statistics for year on year growth rates.

Globally, solar grew by 93% in 2011, 60% in 2012, 39% in 2013, and 38% in 2014. Meanwhile, in the countries with the most developed solar sectors, absolute growth has in fact slowed.

Germany added 7.5 and 7.6 GW of new capacity in 2011 and 2012 respectively. In 2013 and 2014 the figures had gone down to 3.3 and 1.9 GW. The same goes for Italy, where new capacity additions went from 9.3 to 0.38 GW between 2011 and 2014.

In fact, the current growth of European solar is not even vaguely exponential. Instead, growth is declining overall. In 2011, 22.4 GW was added throughout Europe; in 2012 17.4 GW was added, in 2013 10.4 GW was added, and in 2014 7.2 GW was added. Absolute growth of solar capacity in Europe is now one third of what it what it was in 2011.

Anyone confidently predicting continued exponential growth of solar will have a hard time accounting for the actual decline in growth in Europe.

Growth of solar can be put in further perspective by comparing the annual growth (in TWh) with the total electricity consumption of a country. Let’s imagine that in a single year a country went from 0 to 1% of electricity generation being from solar panels. That would mean it would take roughly 100 years to get to 100% solar.

Obvious caveat: we don’t know what to do when the sun goes down, but you get the thrust.

So, how quickly is solar growing globally? Below is a chart showing the top 25 countries in terms of solar growth last year. Growth is measured by comparing absolute growth of solar (in TWh) with total electricity generation (in TWh).

Top20growth_elec

Number 1 is Greece. Now, exactly why heavily indebted Greece is number one in the growth of a heavily subsidized source of energy generation can be debated, but the fact remains.

Most importantly, no major economy is above 1%. At current rates of solar additions they are all many many decades away from solar power taking over. And remember: many of these countries, e.g. Germany, are now seeing reduced rates of absolute solar additions.

Growth in solar energy in China now attracts a lot of optimistic headlines. However, the increase in solar energy last year represented only 0.2% of total electricity generation. In other words, if China kept increasing solar’s share at that rate it would take half a millennium to get to 100% solar electricity. Keep this in mind when you see misguided headlines about solar power having a major influence on Chinese air pollution.

Focusing on electricity generation alone of course is problematic. The underlying reason to switch to solar power is climate change. And the majority of fossil fuels are not used for generating electricity, but for heating, flying, shipping, making steel, and so on. What we really should look at is total energy consumption.

The growth of solar is much slower in terms of total primary energy consumption. Growth in solar in 2015 was less than 0.5% of total primary energy consumption in all major economies.

Top20growth_primThese numbers should make it clear how far we are away from a solar revolution. The figure for China and the US is 0.1%. If China and the US added solar at a rate ten times greater than they are today, then, it would take them a century to get to 100% solar.

In Germany, where a supposed solar revolution has occurred, the figure was 0.29%. 100% solar is a mere three centuries away in that high latitude, cloudy country……. where the sun still goes down.





BP Data Suggests We Are Reaching Peak Energy Demand

25 06 2015

Some people talk about peak energy (or oil) supply. They expect high prices and more demand than supply. Other people talk about energy demand hitting a peak many years from now, perhaps when most of us have electric cars.

Neither of these views is correct. The real situation is that we right now seem to be reaching peak energy demand through low commodity prices. I see evidence of this in the historical energy data recently updated by BP (BP Statistical Review of World Energy 2015).

Growth in world energy consumption is clearly slowing. In fact, growth in energy consumption was only 0.9% in 2014. This is far below the 2.3% growth we would expect, based on recent past patterns. In fact, energy consumption in 2012 and 2013 also grew at lower than the expected 2.3% growth rate (2012 – 1.4%; 2013 – 1.8%).

Figure 1- Resource consumption by part of the world. Canada etc. grouping also includes Norway, Australia, and South Africa. Based on BP Statistical Review of World Energy 2015 data.

Recently, I wrote that economic growth eventually runs into limits. The symptoms we should expect are similar to the patterns we have been seeing recently (Why We Have an Oversupply of Almost Everything (Oil, labor, capital, etc.)). It seems to me that the patterns in BP’s new data are also of the kind that we would expect to be seeing, if we are hitting limits that are causing low commodity prices.

One of our underlying problems is that energy costs that have risen faster than most workers’ wages since 2000. Another underlying problem has to do with globalization. Globalization provides a temporary benefit. In the last 20 years, we greatly ramped up globalization, but we are now losing the temporary benefit globalization brings. We find we again need to deal with the limits of a finite world and the constraints such a world places on growth.

Energy Consumption is Slowing in Many Parts of the World 

Many parts of the world are seeing slowing growth in energy consumption. One major example is China.

Figure 2. China's energy consumption by fuel, based on data of BP Statistical Review of World Energy 2015.

Based on recent patterns in China, we would expect fuel consumption to be increasing by about 7.5% per year. Instead, energy consumption has slowed, with growth amounting to 4.3% in 2012; 3.7% in 2013; and 2.6% in 2014. If China was recently the growth engine of the world, it is now sputtering.

Part of China’s problem is that some of the would-be buyers of its products are not growing. Europe is a well-known example of an area with economic problems. Its consumption of energy products has been slumping since 2006.

Figure 3. European Union Energy Consumption based on BP Statistical Review of World Energy 2015 Data.

I have used the same scale (maximum = 3.5 billion metric tons of oil equivalent) on Figure 3 as I used on Figure 2 so that readers can easily compare the European’s Union’s energy consumption to that of China. When China was added to the World Trade Organization in December 2001, it used only about 60% as much energy as the European Union. In 2014, it used close to twice as much energy (1.85 times as much) as the European Union.

Another area with slumping energy demand is Japan. It consumption has been slumping since 2005. It was already well into a slump before its nuclear problems added to its other problems.

Figure 4. Japan energy consumption by fuel, based on BP Statistical Review of World Energy 2015.

A third area with slumping demand is the Former Soviet Union (FSU). The two major countries within tithe FSU with slumping demand are Russia and Ukraine.

Figure 5. Former Soviet Union energy consumption by source, based on BP Statistical Review of World Energy Data 2015.

Of course, some of the recent slumping demand of Ukraine and Russia are intended–this is what US sanctions are about. Also, low oil prices hurt the buying power of Russia. This also contributes to its declining demand, and thus its consumption.

The United States is often portrayed as the bright ray of sunshine in a world with problems. Its energy consumption is not growing very briskly either.

Figure 6. United States energy consumption by fuel, based on BP Statistical Review of World Energy 2014.

To a significant extent, the US’s slowing energy consumption is intended–more fuel-efficient cars, more fuel efficient lighting, and better insulation. But part of this reduction in the growth in energy consumption comes from outsourcing a portion of manufacturing to countries around the world, including China. Regardless of cause, and whether the result was intentional or not, the United States’ consumption is not growing very briskly. Figure 6 shows a small uptick in the US’s energy consumption since 2012. This doesn’t do much to offset slowing growth or outright declines in many other countries around the world.

Slowing Growth in Demand for Almost All Fuels

We can also look at world energy consumption by type of energy product. Here we find that growth in consumption slowed in 2014 for nearly all types of energy.

Figure 7. World energy consumption by part of the world, based on BP Statistical Review of World Energy 2015.

Looking at oil separately (Figure 8), the data indicates that for the world in total, oil consumption grew by 0.8% in 2014. This is lower than in the previous three years (1.1%, 1.2%, and 1.1% growth rates).

Figure 8. Oil consumption by part of the world, based on BP Statistical Review of World Energy 2015.

If oil producers had planned for 2014 oil consumption based on the recent past growth in oil consumption growth, they would have overshot by about 1,484 million tons of oil equivalent (MTOE), or about 324,000 barrels per day. If this entire drop in oil consumption came in the second half of 2014, the overshoot would have been about 648,000 barrels per day during that period. Thus, the mismatch we are have recently been seeing between oil consumption and supply appears to be partly related to falling demand, based on BP’s data.

(Note: The “oil” being discussed is inclusive of biofuels and natural gas liquids. I am using MTOE because MTOE puts all fuels on an energy equivalent basis. A barrel is a volume measure. Growth in barrels will be slightly different from that in MTOE because of the changing mix of liquid fuels.)

We can also look at oil consumption for the US, EU, and Japan, compared to all of the rest of the world.

Figure 9. Oil consumption divided between the (a) US, EU, and Japan, and (b) Rest of the World.

While the rest of the world is still increasing its growth in oil consumption, its rate of increase is falling–from 2.3% in 2012, to 1.6% in 2013, to 1.3% in 2014.

Figure 10 showing world coal consumption is truly amazing. Huge growth in coal use took place as globalization spread. Carbon taxes in some countries (but not others) further tended to push manufacturing to coal-intensive manufacturing locations, such as China and India.

Figure 10. World coal consumption by part of the world, based on BP Statistical Review of World Energy 2015.

Looking at the two parts of the world separately (Figure 11), we see that in the last three years, growth in coal consumption outside of US, EU, and Japan, has tapered down. This is similar to the result for world consumption of coal in total (Figure 10).

Figure 10. Coal consumption for the US, EU, and Japan separately from the Rest of the World, based on BP Statistical Review of World Energy data.

Another way of looking at fuels is in a chart that compares consumption of the various fuels side by side (Figure 12).

Figure 8. World energy consumption by fuel, showing each fuel separately, based on BP Statistical Review of World Energy 2015.

Consumption of oil, coal and natural gas are all moving on tracks that are in some sense parallel. In fact, coal and natural gas consumption have recently tapered more than oil consumption. World oil consumption grew by 0.8% in 2014; coal and natural gas consumption each grew by 0.4% in 2014.

The other three fuels are smaller. Hydroelectric had relatively slow growth in 2014. Its growth was only 2.0%, compared to a recent average of as much as 3.5%. Even with this slow growth, it raised hydroelectric energy consumption to 6.8% of world energy supply.

Nuclear electricity grew by 1.8%. This is actually a fairly large percentage gain compared to the recent shrinkage that has been taking place.

Other renewables continued to grow, but not as rapidly as in the past. The growth rate of this grouping was 12.0%, (compared to 22.4% in 2011, 18.1% in 2012, 16.5% in 2013). With the falling percentage growth rate, growth is more or less “linear”–similar amounts were added each year, rather than similar percentages. With recent growth, other renewables amounted to 2.5% of total world energy consumption in 2014.

Falling Consumption Is What We Would Expect with Lower Inflation-Adjusted Prices

People buy goods that they want or need, with one caveat: they don’t buy what they cannot afford. To a significant extent affordability is based on wages (or income levels for governments or businesses). It can also reflect the availability of credit.

We know that commodity prices of many kinds (energy, food, metals of many kinds) have been have generally been falling, on an inflation adjusted basis, for the past four years. Figure 13 shows a graph prepared by the International Monetary Fund of trends in commodity prices.

Figure 9. Charts prepared by the IMF showing trends in indices of primary commodity prices.

It stands to reason that if prices of commodities are low, while the general trend in the cost of producing these commodities is upward, there will be erosion in the amount of these products that can be purchased. (This occurs because prices are falling relative to the cost of producing the goods.) If, prior to the drop in prices, consumption of the commodity had been growing rapidly, lower prices are likely to lead to a slower rate of consumption growth. If prices drop further or stay depressed, an absolute drop in consumption may occur.

It seems to me that the lower commodity prices we have been seeing over the past four years (with a recent sharper drop for oil), likely reflect an affordability problem. This affordability problem arises because for most people, wages did not rise when energy prices rose, and the prices of commodities in general rose in the early 2000s.

For a while, the lack of affordability could be masked with a variety of programs: economic stimulus, increasing debt and Quantitative Easing. Eventually these programs reach their limits, and prices begin falling in inflation-adjusted terms. Now we are at a point where prices of oil, coal, natural gas, and uranium are all low in inflation-adjusted terms, discouraging further investment.

Commodity Exporters–Will They Be Next to Be Hit with Lower Consumption?

If the price of a commodity, say oil, is low, this is a problem for a country that exports the commodity. The big issue is likely to be tax revenue. Governments very often get a major share of their tax revenue from taxing the profits of the companies that sell the commodities, such as oil. If the price of oil, or other commodity that is exported drops, then it will be difficult for the government to collect enough tax revenue. There may be other effects as well. The company producing the commodity may cut back its production. If this happens, the exporting country is faced with another problem–laid-off workers without jobs. This adds a second need for revenue: to pay benefits to laid-off workers.

Many oil exporters currently subsidize energy and food products for their citizens. If tax revenue is low, the amount of these subsidies is likely to be reduced. With lower subsidies, citizens will buy less, reducing world demand. This reduction in demand will tend to reduce world oil (or other commodity) prices.

Even if subsidies are not involved, lower tax revenue will very often affect the projects an oil exporter can undertake. These projects might include building roads, schools, or hospitals. With fewer projects, world demand for oil and other commodities tends to drop.

The concern I have now is that with low oil prices, and low prices of other commodities, a number of countries will have to cut back their programs, in order to balance government budgets. If this happens, the effect on the world economy could be quite large. To get an idea how large it might be, let’s look again at Figure 1, recopied below.

Notice that the three “layers” in the middle are all countries whose economies are fairly closely tied to commodity exports. Arguably I could have included more countries in this category–for example, other OPEC countries could be included in this grouping. These countries are now in the “Rest of the World” category. Adding more countries to this category would make the portion of world consumption tied to countries depending on commodity exports even greater.

Figure 1- Resource consumption by part of the world. Canada etc. grouping also includes Norway, Australia, and South Africa. Based on BP Statistical Review of World Energy 2015 data.

My concern is that low commodity prices will prove to be self-perpetuating, because low commodity prices will adversely affect commodity exporters. As these countries try to fix their own problems, their own demand for commodities will drop, and this will affect world commodity prices. The total amount of commodities used by exporters is quite large. It is even larger when oil is considered by itself (see Figure 8 above).

In my view, the collapse of the Soviet Union in 1991 occurred indirectly as a result of low oil prices in the late 1980s. A person can see from Figure 1 how much the energy consumption of the Former Soviet Union fell after 1991. Of course, in such a situation exports may fall more than consumption, leading to a rise in oil prices. Ultimately, the issue becomes whether a world economy can adapt to falling oil supply, caused by the collapse of some oil exporters.

Our Economy Has No Reverse Gear

None of the issues I raise would be a problem, if our economy had a reverse gear–in other words, if it could shrink as well as grow. There are a number of things that go wrong if an economy tries to shrink:

  • Businesses find themselves with more factories than they need. They need to lay off workers and sell buildings. Profits are likely to fall. Loan covenants may be breached. There is little incentive to invest in new factories or stores.
  • There are fewer jobs available, in comparison to the number of available workers. Many drop out of the labor force or become unemployed. Wages of non-elite workers tend to stagnate, reflecting the oversupply situation.
  • The government finds it necessary to pay more benefits to the unemployed. At the same time, the government’s ability to collect taxes falls, because of the poor condition of businesses and workers.
  • Businesses in poor financial condition and workers who have been laid off tend to default on loans. This tends to put banks into poor financial condition.
  • The number of elderly and disabled tends to grow, even as the working population stagnates or falls, making the funding of pensions increasingly difficult.
  • Resale prices of homes tend to drop because there are not enough buyers.

Many have focused on a single problem area–for example, the requirement that interest be paid on debt–as being the problem preventing the economy from shrinking. It seems to me that this is not the only issue. The problem is much more fundamental. We live in a networked economy; a networked economy has only two directions available to it: (1) growth and (2) recession, which can lead to collapse.

Conclusion

What we seem to be seeing is an end to the boost that globalization gave to the world economy. Thus, world economic growth is slowing, and because of this slowed economic growth, demand for energy products is slowing. This globalization was encouraged by the Kyoto Protocol (1997). The protocol aimed to reduce carbon emissions, but because it inadvertently encouraged globalization, it tended to have the opposite effect. Adding China to the World Trade Organization in 2001 further encouraged globalization. CO2 emissions tended to grow more rapidly after those dates.

Figure 14. World CO2 emissions from fossil fuels, based on data from BP Statistical Review of World Energy 2015.

Now growth in fuel use is slowing around the world. Virtually all types of fuel are affected, as are many parts of the world. The slowing growth is associated with low fuel prices, and thus slowing demand for fuel. This is what we would expect, if the world is running into affordability problems, ultimately related to fuel prices rising faster than wages.

Globalization brings huge advantages, in the form of access to cheap energy products still in the ground. From the point of view of businesses, there is also the possibility of access to cheap labor and access to new markets for selling their goods. For long-industrialized countries, globalization also represents a workaround to inadequate local energy supplies.

The one problem with globalization is that it is not a permanent solution. This happens for several reasons:

  • A great deal of debt is needed for the new operations. At some point, this debt starts reaching limits.
  • Diminishing returns leads to higher cost of energy products. For example, later coal may need to come from more distant locations, adding to costs.
  • Wages in the newly globalized area tend to rise, negating some of the initial benefit of low wages.
  • Wages of workers in the area developed prior to globalization tend to fall because of competition with workers from parts of the world getting lower pay.
  • Pollution becomes an increasing problem in the newly globalized part of the world. China is especially concerned about this problem.
  • Eventually, more than enough factory space is built, and more than enough housing is built.
  • Demand for energy products (in terms of what workers around the world can afford) cannot keep up with production, in part because wages of many workers lag thanks to competition with low-paid workers in less-advanced countries.

It seems to me that we are reaching the limits of globalization now. This is why prices of commodities have fallen. With falling prices comes lower total consumption. Many economies are gradually moving into recession–this is what the low prices and falling rates of energy growth really mean.

It is quite possible that at some point in the not too distant future, demand (and prices) will fall further. We then will be dealing with severe worldwide recession.

In my view, low prices and low demand for commodities are what we should expect, as we reach limits of a finite world. There is widespread belief that as we reach limits, prices will rise, and energy products will become scarce. I don’t think that this combination can happen for very long in a networked economy. High energy prices tend to lead to recession, bringing down prices. Low wages and slow growth in debt also tend to bring down prices. A networked economy can work in ways that does not match our intuition; this is why many researchers fail to see understand the nature of the problem we are facing.





The Curious Case of Lake Mead

25 06 2015

Another post from Mark Cochrane…..

For the drought in the western US, Lake Mead is a bellwether of the situation since it is a major water source for several states and it shows such a convenient bathtub ring around its edge as the water level drops. The lake is currently more than 140 feet lower than it would be at full capacity, holding 37.1% of what it would at ‘Full Pool’.

In recent weeks the lake level has been dropping by an average of 0.08 ft/day (e.g. 1 inch/day) but for the last week it treated the lake level of 1075 (elevation) like a resistance level on a stock chart by suddenly slowing to an average drop rate of 0.01 ft/day (1/8 inch). Last night it reverted to the mean though and dropped an inch to land its level at 1074.99. It also broke through the bottom of this dynamically updated chart of the last three years of lake levels, forcing it to add a new low of 1070 (yesterday the chart ended at 1075). Who imagined it would get this bad…

The 1075 level is more than just a psychological barrier, it is one where rationing kicks in. It doesn’t start today but in a somewhat arcane manner, if the projections for the lake’s January 1st levels are below 1075 as of mid August.

What happens? Arizona takes the main hit, losing 320,000 acre-feet (AF) of water for its agricultural lands and Nevada is ‘curtailed’ by another 13,000 AF. California has senior water rights and doesn’t face ‘curtailment’ of water for its agricultural lands but the rationing will hit metropolitan areas. Since 2007, there has been a program whereby these areas could sock away water in Lake Mead using Intentionally Created Surplus (ICS) accounts. Basically by conserving water and drawing less than their maximum allowed water rights they got a credit that they could draw on at a later date. However, once the 1075 level is breached those accounts are frozen. A water-bank holiday. Not being completely clueless, metropolitan areas that saw the 1075 level looming have been making a run on their ICS accounts in the last year or more. Ultimately though, the end of ICS availability will mean that the cities will have to use less water, which likely means higher prices, quotas or similar tools to ratchet down water use further. It is possible that the lake will drop below 1060 ft this year, and highly likely this will occur next year. When this happens the last access points on Lake Mead will become inoperable – translation, no boating/tourism. In addition, power costs for energy created at the Hoover Dam will go up substantially. At 1075 feet hydropower costs will roughly double, they triple at 1050 ft, quadruple at 1025 ft, and keep rising right up until power generation ceases at around 1015 feet. Note, Hoover customers are bound by contract to have to purchase Hoover power until 2067 (link). The price of air conditioning is going up.

Just over a month ago it looked like 2016 was going to definitely be a year of reckoning for all states in the US and Mexico that rely on the Colorado River for water but ‘miracle May’ could potentially forestall things by another year. The massive flooding from unprecedented soaking rains that occurred along the upper river basin are now partially replenishing Lake Powell which sits up river of Lake Mead. Lake Powell has filled by over 20 ft in the last 6 weeks and is now filling by over half a foot a day. This has only raised it to 52.5% of capacity but it could be enough to ensure that Lake Mead can be managed to be above 1075 ft come Jan 1, 2016. Extend and pretend of the water supply can probably be finagled for another year but barring a new ‘miracle’ the pain of less water and higher energy costs for the region are likely coming in the next few years. The one hope for a temporary stay of execution in the region is if the current El Nino conditions get very strong, since those conditions are often associated with wet conditions in the drought affected areas. Of course, if that happens, there will be a lot of other problems around the world where El Nino isn’t as kind. Even if this drought abates for a while, chances are that we will witness growing tensions over water use and access in the coming decades as this is the reality of the new climates that we are forcing on the planet.

Mark








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