YOU HAVE BEEN WARNED: The Situation In The Markets Is Much Worse Than You Realize

11 09 2017

Reblogged from the SRS website……. between this item and Raul’s which I posted yesterday, I’d say the US economy has to hit the wall very soon now. Hang onto your seats folks….

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It’s about time that I share with you all a little secret.  The situation in the markets is much worse than you realize.  While that may sound like someone who has been crying “wolf” for the past several years, in all honesty, the public has no idea just how dire our present situation has become.

The amount of debt, leverage, deceit, corruption, and fraud in the economic markets, financial system, and in the energy industry are off the charts.  Unfortunately, the present condition is even much worse when we consider “INSIDER INFORMATION.”

What do I mean by insider information… I will explain that in a minute.  However, I receive a lot of comments on my site and emails stating that the U.S. Dollar is A-okay and our domestic oil industry will continue pumping out cheap oil for quite some time.  They say… “No need to worry.  Business, as usual, will continue for the next 2-3 decades.”

I really wish that were true.  Believe me, when I say this, I am not rooting for a collapse or breakdown of our economic and financial markets.  However, the information, data, and facts that I have come across suggest that the U.S. and global economy will hit a brick wall within the next few years.

How I Acquire My Information, Data & Facts

To put out the original information in my articles and reports, I spend a great deal of time researching the internet on official websites, alternative media outlets, and various blogs.  Some of the blogs that I read, I find more interesting information in the comment section than in the article.  For example, the Peakoilbarrel.com site is visited by a lot of engineers and geologists in the oil and gas industry.  Their comments provide important “on-hands insight” in the energy sector not found on the Mainstream Media.

I also have a lot of contacts in the various industries that either forward information via email or share during phone conversations.  Some of the information that I receive from these contacts, I include in my articles and reports.  However, there is a good bit of information that I can’t share, because it was done with the understanding that I would not reveal the source or intelligence.

Of course, some readers may find that a bit cryptic, but it’s the truth.  Individuals have contacted me from all over the world and in different levels of industry and business.  Some people are the working staff who understand th reality taking place in the plant or field, while others are higher ranking officers.  Even though I have been receiving this sort of contact for the past 4-5 years, the number has increased significantly over the past year and a half.

That being said, these individuals contacted me after coming across my site because they wanted to share valuable information and their insight of what was going on in their respective industries.  The common theme from most of these contacts was…. GOSH STEVE, IT’S MUCH WORSE THAN YOU REALIZE.  Yes, that is what I heard over and over again.

If my readers and followers believe I am overly pessimistic or cynical, your hair will stand up on your neck if you knew just how bad the situation was BEHIND THE SCENES.

Unfortunately, we in the Alternative Media have been lobotomized to a certain degree due to the constant propaganda from the Mainstream Media and market intervention by the Fed and Central Banks.  A perfect example of the massive market rigging is found in Zerohedge’s recent article;Central Banks Have Purchased $2 Trillion In Assets In 2017 :

….. so far in 2017 there has been $1.96 trillion of central bank purchases of financial assets in 2017 alone, as central bank balance sheets have grown by $11.26 trillion since Lehman to $15.6 trillion.

What is interesting about the nearly $2 trillion in Central Bank purchases so far in 2017, is that the average for each year was only $1.5 trillion.  We can plainly see that the Central Banks had to ramp up asset purchases as the Ponzi Scheme seems to be getting out of hand.

So, how bad is the current economic and financial situation in the world today?  If we take a look at the chart in the next section, it may give you a clue.

THE DEATH OF BEAR STEARNS: A Warning For Things To Come

It seems like a lot of people already forgot about the gut-wrenching 2008-2009 economic and financial crash.  During the U.S. Banking collapse, two of the country’s largest investment banks, Lehman Brothers, and Bear Stearns went belly up.  Lehman Brothers was founded in 1850 and Bear Stearns in 1923.  In just one year, both of those top Wall Street Investment Banks ceased to exist.

Now, during the 2001-2007 U.S. housing boom heyday, it seemed like virtually no one had a clue just how rotten a company Bear Stearns had become.  Looking at the chart below, we can see the incredible RISE & FALL of Bear Stearns:

As Bear Stearns added more and more crappy MBS – Mortgage Backed Securities to its portfolio, the company share price rose towards the heavens.  At the beginning of 2007 and the peak of the U.S. housing boom, Bear Stearns stock price hit a record $171.  Unfortunately, at some point, all highly leveraged garbage assets or Ponzi Schemes come to an end.  While the PARTY LIFE at Bear Stearns lasted for quite a while, DEATH came suddenly.

In just a little more than a year, Bear Stearns stock fell to a mere $2… a staggering 98% decline.  Of course, the financial networks and analysts were providing guidance and forecasts that Bear Stearns was a fine and healthy company.  For example, when Bear was dealing with some negative issues in March 2008,  CBNC’s Mad Money, Jim Cramer made the following statement in response to a caller on his show (Source):

Tuesday, March 11, 2008, On Mad Money

Dear Jim: “Should I be worried about Bear Stearns in terms of liquidity and get my money out of there?” – Peter

Jim Cramer: “No! No! No! Bear Stearns is fine. Do not take your money out. Bear sterns is not in trouble. If anything, they’re more likely to be taken over. Don’t move your money from Bear. That’s just being silly. Don’t be silly.”

Thanks to Jim, many investors took his advice.  So, what happened to Bear Stearns after Jim Cramer gave the company a clean bill of health?

On Tuesday, March 11, the price of Bear Stearns was trading at $60, but five days later it was down 85%.  The source (linked above) where I found the quote in which Jim Cramer provided his financial advice, said that there was a chance Jim was replying to the person in regards to the money he had deposited in the bank and not as an investment.  However, Jim was not clear in stating whether he was talking about bank deposits or the company health and stock price.

Regardless, Bear Stearns stock price was worth ZERO many years before it collapsed in 2008.  If financial analysts had seriously looked into the fundamentals in the Mortgage Backed Security market and the bank’s financial balance sheet several years before 2008, they would have realized Bear Stearns was rotten to the core.  But, this is the way of Wall Street and Central Banks.  Everything is fine, until the day it isn’t.

And that day is close at hand.

THE RECORD LOW VOLATILITY INDEX:  Signals Big Market Trouble Ahead

Even though I have presented a few charts on the VIX – Volatility Index in past articles, I thought this one would provide a better picture of the coming disaster in the U.S. stock markets:

The VIX – Volatility Index (RED) is shown to be at its lowest level ever when compared to the S&P 500 Index (GREY) which is at its all-time high.  If we take a look at the VIX Index in 2007, it fell to another extreme low right at the same time Bear Stearns stock price reached a new record high of $171.  Isn’t that a neat coincidence?

As a reminder, the VIX Index measures the amount of fear in the markets.  When the VIX Index is at a low, the market believes everything is A-OKAY.  However, when the VIX surges higher, then it means that fear and panic have over-taken investment sentiment, as blood runs in the streets.

As the Fed and Central Banks continue playing the game of Monopoly with Trillions of Dollars of money printing and asset purchases, the party won’t last for long as DEATH comes to all highly leveraged garbage assets and Ponzi Schemes.

To get an idea just how much worse the situation has become than we realize, let’s take a look at the energy fundamental that is gutting everything in its path.

WHY THE BIG MARKET COLLAPSE IS COMING:  It’s The Energy, Stupid

Even though I belong to the Alternative Media Community, I am amazed at the lack of understanding by most of the precious metals analysts when it comes to energy.  While I respect what many of these gold and silver analysts have to say, they exclude the most important factor in their forecasts.  This critical factor is the Falling EROI – Energy Returned On Investment.

As I mentioned earlier in the article, I speak to many people on the phone from various industries.  Yesterday, I was fortunate enough to chat with Bedford Hill of the Hill’s Group for over 90 minutes.  What an interesting conversation.  Ole Bedford knows we are toast.  Unfortunately, only 0.01% of the population may understand the details of the Hill’s Group work.

Here is an explanation of the Hill’s Group:

The Hill’s Group is an association of consulting engineers and professional project managers. Our goal is to support our clients by providing them with the most relevant, and up to-date skill sets needed to manage their organizations. Depletion: A determination for the world’s petroleum reserve provides organizational long range planners, and policy makers with the essential information they will need in today’s rapidly changing environment.

I asked Bedford if he agreed with me that the hyperinflationary collapse of Venezuela was due to the falling oil price rather than its corrupt Communist Government.  He concurred.  Bedford stated that the total BTU energy cost to extract Venezuela’s heavy oil was higher than the BTU’s the market could afford.  Bedford went on to say that when the oil price was at $80, Venezuela could still make enough profit to continue running its inefficient, corrupt government.  However, now that the price of oil is trading below $50, it’s gutting the entire Venezuelan economy.

During our phone call, Bedford discussed his ETP Oil model, shown in his chart below.  If there is one chart that totally screws up the typical Austrian School of Economics student or follower, it’s this baby:

Bedford along with a group of engineers spent thousands and thousands of hours inputting the data that produced the “ETP Cost Curve” (BLACK LINE).  The ETP Cost Curve is the average cost to produce oil by the industry.  The RED dots represent the actual average annual West Texas Oil price.  As you can see, the oil price corresponded with the ETP Cost Curve.  This correlation suggests that the market price of oil is determined by its cost of production, rather than supply and demand market forces.

The ETP Cost Curve goes up until it reached an inflection point in 2012… then IT PEAKED.  The black line coming down on the right-hand side of the chart represents “Maximum Consumer Price.”  This line is the maximum price that the end consumer can afford.  Again, it has nothing to do with supply and demand rather, it has everything to do with the cost of production and the remaining net energy in the barrel of oil.

I decided to add the RED dots for years 2014-2016.  These additional annual oil price figures remain in or near the Maximum Consumer Price line.  According to Bedford, the oil price will continue lower by 2020.  However, the actual annual oil price in 2015 and 2016 was much lower than estimated figures Bedford, and his group had calculated.  Thus, we could see some volatility in the price over the next few years.

Regardless, the oil price trend will be lower.  And as the oil price continues to fall, it will gut the U.S. and global oil industry.  There is nothing the Fed and Central Banks can do to stop it.  Yes, it’s true that the U.S. government could step in and bail out the U.S. shale oil industry, but this would not be a long-term solution.

Why?  Let me explain with the following chart:

I have published this graph at least five times in my articles, but it is essential to understand.  This chart represents the amount of below investment grade debt due by the U.S. energy industry each year.  Not only does this debt rise to $200 billion by 2020, but it also represents that the quality of oil produced by the mighty U.S. shale oil industry WAS UNECONOMICAL even at $100 a barrel.

Furthermore, this massive amount of debt came from the stored economic energy via the various investors who provided the U.S. shale energy industry with the funds to continue producing oil at a loss.   We must remember, INVESTMENT is stored economic energy.  Thus, pension plans, mutual funds, insurance funds, etc., had taken investments gained over the years and gave it to the lousy U.S. shale oil industry for a short-term high yield.

Okay, this is very important to understand.  Don’t look at those bars in the chart above as money or debt, rather look at them as energy.  If you can do that, you will understand the terrible predicament we are facing.  Years ago, these large investors saved up capital that came from burning energy.  They took this stored economic energy (capital) and gave it to the U.S. shale oil industry.  Without that capital, the U.S. shale oil industry would have gone belly up years ago.

So, what does that mean?  It means… IT TOOK MORE ENERGY TO PRODUCE THE SHALE OIL than was DELIVERED TO THE MARKET.  Regrettably, the overwhelming majority of shale oil debt will never be repaid.  As the oil price continues to head lower, the supposed shale oil break-even price will be crushed.  Without profits, debts pile up even higher.

Do you all see what is going on here?  And let me say this.  What I have explained in this article, DOES NOT INCLUDE INSIDER INFORMATION, which suggests “The situation is even much worse than you realize… LOL.”

For all my followers who believe business, as usual, will continue for another 2-3 decades, YOU HAVE BEEN WARNED.  The energy situation is in far worse shape than you can imagine.

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The Earth is full

7 09 2017





Peak ERoEI…?

22 08 2017

Inside the new economic science of capitalism’s slow-burn energy collapse

nafeezAnd why the struggle for a new economic paradigm is about to get real

Another MUST READ article by Nafeez Ahmed……….

 

Originally published by INSURGE INTELLIGENCE, a crowdfunded investigative journalism project for people and planet. Support us to keep digging where others fear to tread.

New scientific research is quietly rewriting the fundamentals of economics. The new economic science shows decisively that the age of endlessly growing industrial capitalism, premised on abundant fossil fuel supplies, is over.

The long-decline of capitalism-as-we-know-it, the new science shows, began some decades ago, and is on track to accelerate well before the end of the 21st century.

With capitalism-as-we-know it in inexorable decline, the urgent task ahead is to rewrite economics to fit the real-world: and, accordingly, to redesign our concepts of value and prosperity, precisely to rebuild our societies with a view of adapting to this extraordinary age of transition.


A groundbreaking study in Elsevier’s Ecological Economics journal by two French economists, for the first time proves the world has passed a point-of-no-return in its capacity to extract fossil fuel energy: with massive implications for the long-term future of global economic growth.

The study, ‘Long-Term Estimates of the Energy-Return-on-Investment (EROI) of Coal, Oil, and Gas Global Productions’, homes in on the concept of EROI, which measures the amount of energy supplied by an energy resource, compared to the quantity of energy consumed to gather that resource. In simple terms, if a single barrel of oil is used up to extract energy equivalent to 50 barrels of oil, that’s pretty good. But the less energy we’re able to extract using that single barrel, then the less efficient, and more expensive (in terms of energy and money), the whole process.

Recent studies suggest that the EROI of fossil fuels has steadily declined since the early 20th century, meaning that as we’re depleting our higher quality resources, we’re using more and more energy just to get new energy out. This means that the costs of energy production are increasing while the quality of the energy we’re producing is declining.

But unlike previous studies, the authors of the new paper — Victor Court, a macroeconomist at Paris Nanterre University, and Florian Fizaine of the University of Burgundy’s Dijon Laboratory of Economics (LEDi)—have removed any uncertainty that might have remained about the matter.

Point of no return

Court and Fizaine find that the EROI values of global oil and gas production reached their maximum peaks in the 1930s and 40s. Global oil production hit peak EROI at 50:1; while global gas production hit peak EROI at 150:1. Since then, the EROI values of oil and gas — the overall energy we’re able to extract from these resources for every unit of energy we put in — is inexorably declining.

Source: Court and Fizaine (2017)

Even coal, the only fossil fuel resource whose EROI has not yet maxed out, is forecast to undergo an EROI peak sometime between 2020 and 2045. This means that while coal might still have signficant production potential in some parts of the world, rising costs of production are making it increasingly uneconomical.

Axiom: Aggregating this data together reveals that the world’s fossil fuels overall experienced their maximum cumulative EROI of approximately 44:1 in the early 1960s.

Since then, the total value of energy we’re able to extract from the world’s fossil fuel resource base has undergone a protracted, continuous and irreversible decline.

Insight: At this rate of decline, by 2100, we are projected to extract the same value of EROI from fossil fuels as we were in the 1800s.

Several other studies suggest that this ongoing decline in the overall value of the energy extracted from global fossil fuels has played a fundamental role in the slowdown of global economic growth in recent years.

In this sense, the 2008 financial crash did not represent a singular event, but rather one key event in an unfolding process.

The economy-energy nexus

This is because economic growth remains ultimately dependent on “growth in material and energy use,” as a study in the journal PLOS One found last October. That study, lead authored by James D. Ward of the School of Natural and Built Environments, University of South Australia, challenged the idea that GDP growth can be “decoupled” from environmental impacts.

The “illusion of decoupling”, Ward and his colleagues argued, has been maintained through the following misleading techniques:

  1. substituting one resource for another;
  2. financialization of GDP, such as through increasing “monetary flows” through creation of new debt, without however increasing material or energy throughput (think quantitative easing);
  3. exporting environmental impacts to other nations or regions, so that the realities of increasing material throughput can be suppressed from data calculations.
  4. growing inequality of income and wealth, which allows GDP to grow for the benefit of a few, while the majority of workers see decreases in real income —in other words, a wealthy minority monopolises the largest fraction of GDP growth, but does not increase their level of consumption with as much demand for energy and materials.

Ward and his co-authors sought to test these factors by creating a new economic model to see how well it stacks up against the data.

Insight: They found that continued economic growth in GDP “cannot plausibly be decoupled from growth in material and energy use, demonstrating categorically that GDP growth cannot be sustained indefinitely.”

Other recent scientific research has further fine-tuned this relationship between energy and prosperity.

The prosperity-resource nexus

Adam Brandt, a leading EROI expert at Stanford University’s Department of Energy Resources Engineering, in the March edition of BioPhysical Economics and Resource Quality proves that the decline of EROI directly impacts on economic prosperity.

Earlier studies on this issue, Brandt points out, have highlighted the risk of a “net energy cliff”, which refers to how “declining EROI results in rapid increases in the fraction of energy dedicated to simply supporting the energy system.”

Axiom: So the more EROI declines, a greater proportion of the energy being produced must be used simply to extract more energy. This means that EROI decline leads to less real-world economic growth.

It also creates a complicated situation for oil prices. While at first, declining EROI can be expected to lead to higher prices reflecting higher production costs, the relationship between EROI and prices begins to breakdown as EROI becomes smaller.

This could be because, under a significantly reduced EROI, consumers in a less prosperous economy can no longer afford, energetically or economically, the cost of producing more energy — thus triggering a dramatic drop in market prices, despite higher costs of production. At this point, in the new era of shrinking EROI, swinging oil prices become less and less indicative of ‘scarcity’ in supply and demand.

Brandt’s new economic model looks at how EROI impacts four key sectors — food, energy, materials and labor. Exploring what a decline in net energy would therefore mean for these sectors, he concludes:

“The reduction in the fraction of a resource free and the energy system productivity extends from the energy system to all aspects of the economy, which gives an indication of the mechanisms by which energy productivity declines would affect general prosperity.

A clear implication of this work is that decreases in energy resource productivity, modeled here as the requirement for more materials, labor, and energy, can have a significant effect on the flows required to support all sectors of the economy. Such declines can reduce the effective discretionary output from the economy by consuming a larger and larger fraction of gross output for the meeting of inter-industry requirements.”

Brandt’s model is theoretical, but it has direct implications for the real world.

Insight: Given that the EROI of global fossil fuels has declined steadily since the 1960s, Brandt’s work suggests that a major underlying driver of the long-term process of economic stagnation we’re experiencing is resource depletion.

The new age of economic stagnation

Exactly how big the impact of resource depletion on the economy might be, can be gauged from a separate study by Professor Mauro Bonauiti of the Department of Economics and Statistics at the University of Turn.

His new paper published in February in the Journal of Cleaner Production assesses data on technological innovations and productivity growth. He concludes that:

“… advanced capitalist societies have entered a phase of declining marginal returns — or involuntary degrowth — with possible major effects on the system’s capacity to maintain its present institutional framework.”

Bonauiti draws on anthropologist Joseph Tainter’s work on the growth and collapse of civilizations. Tainter’s seminal work, The Collapse of Complex Societies, showed that the very growth in complexity driving a civilization’s expansion, generates complex new problems requiring further complexity to solve them.

 

Axiom: Complex civilizations tend to accelerate the use of resources, while diminishing the quantity of resources available for the civilization’s continued expansion — because they are continually being invested in solving the new problems generated by increasing complexity.

The result is that complex societies tend to reach a threshold of growth, after which returns diminish to such an extent that the complexification of the society can no longer be sustained, leading to its collapse or regression.

Bonauiti builds on Tainter’s framework and applies it to new data on ‘Total Factor Productivity’ to assess correlations between the growth and weakening in productivity, industrial revolutions, and the implications for continued economic growth.

The benefits that a certain society obtains from its own investments in complexity “do not increase indefinitely”, he writes. “Once a certain threshold has been reached (T0), the social organisation as a whole will enter a phase of declining marginal returns, that is to say, a critical phase, which, if ignored, may lead to the collapse of the whole system.”

This threshold appears to have been reached by Europe, Japan and the US before the early 1970s, he argues.

Insight: The US economy, he shows, appears to have reached “the peak in productivity in the 1930s, the same period in which the EROI of fossil fuels reached an extraordinary value of about 100.”

Of course, Court and Fizaine quantify the exact value of this peak EROI differently using a new methodology, but they agree that the peak occurred roughly around this period.

The US and other advanced economies are currently tapering off the end of what Bonauiti calls the ‘third industrial revolution’ (IR3), in information communications technologies (ICT). This was, however, the shortest and weakest industrial revolution from a productivity standpoint, with its productivity “evaporating” after just eight years.

In the US, the first industrial revolution utilized coal to power steam engine and telegraph technology, stimulating a rapid increase in productivity that peaked between between 1869 and 1892, at almost 2%.

The second industrial revolution was powered by the electric engine and internal combustion engine, which transformed manufacturing and domestic consumption. This led productivity to peak at 2.78%, remaining at around 2% for at least another 25 years.

After the 1930s, however, productivity continually declined, reaching 0.34% in the period 1973–95. Since then, the third industrial revolution driven by computing technology led to a revival of productivity which, however, has already tapered out in a way that is quite tepid compared to the previous industrial revolutions.

Axiom: The highest level of productivity was reached around the 1930s, and since then with each industrial revolution has declined.

The decline period also roughly corresponds to the post-peak EROI era for total fossil fuels identified by Court and Fizaine.

Thus, Bonauiti concludes, “the empirical evidence and theoretical reasons lead one to conclude that the innovations introduced by IR3 are not powerful enough to compensate for the declining returns of IR2.”

Insight: The implication is that the 21st century represents the tail-end of the era of industrial economic expansion, originally ushered in by technological innovations enabled by abundant fossil fuel energy sources.

The latest stage is illustrated with the following graph which demonstrates the rapid rise and decline in productivity of the last major revolution in technological innovation (IR3):

The productivity of the third industrial revolution thus peaked around 2004 and since then has declined back to near 1980s levels.

Bonauiti thus concludes that “advanced capitalist societies (the US, Europe and Japan) have entered a phase of declining marginal returns or involuntary degrowth in many key sectors, with possible major detrimental effects on the system’s capacity to maintain its present institutional framework.”

In other words, the global economic system has entered a fundamentally new era, representing a biophysical phase-shift into an energetically constrained landscape.

Going back to the new EROI analysis by French economists, Victor Court and Florian Fizaine, the EROI of oil is forecast to reduce to 15:1 by 2018. It will continue to decline to around 10:1 by 2035.

They broadly forecast the same pattern for gas and coal: Overall, their data suggests that the EROI of all fossil fuels will hit 15:1 by 2060, and decline further to 10:1 by 2080.

If these projections come to pass, this means that over the next few decades, the overall costs of fossil fuel energy production will increase, even while the market value of fossil fuel energy remains low. The total net energy yield available to fuel continued economic growth will inexorably decline. This will, in turn, squeeze the extent to which the economy can afford to buy fossil fuel energy that is increasingly expensive to produce.

We cannot be sure what this unprecedented state of affairs will herald for the market prices of oil, gas and coal, which are unlikely to follow the conventional supply and demand dynamics we were used to in the 20th century.

But what we can know for sure from the new science is that the era of unlimited economic growth — the defining feature of neoliberal finance capitalism as we know it — is well and truly over.

UK ‘end of growth’ test-case

The real-world workings of this insight have been set out by a team of economists at the University of Leeds’ Centre for Climate Change Economics and Policy, whose research was partly funded by giant engineering firm Arup, along with the main UK government-funded research councils — the UK Energy Research Centre, the Economics and Social Research Council and the Engineering and Physical Sciences Research Council.

In their paper published by the university’s Sustainability Research Institute this January, Lina Brand-Correa, Paul Brockway, Claire Carter, Tim Foxon, Anne Owen, and Peter Taylor develop a national-level EROI measure for the UK.

Studying data for the period 1997-2012, they find that “the country’s EROI has been declining since the beginning of the 21st Century”.

Energy Returned (Eout) and Energy Invested (Ein) in the UK (1997–2012) Source: Brand-Correa (2017)

The UK’s net EROI peaked in 2000 at a maximum value of 9.6, “before gradually falling back to a value of 6.2 in 2012.” What this means is that on average, “12% of the UK’s extracted/captured energy does not go into the economy or into society for productive or well-being purposes, but rather needs to be reinvested by the energy sectors to produce more energy.”

The paper draws on previous work by economists Court and Fizaine suggesting that continuous economic growth requires a minimal societal EROI of 11, based on the current energy intensity of the UK economy. By implication, the UK is dropping increasingly below this benchmark since the start of the 21st century:

“These initial results show that more and more energy is having to be used in the extraction of energy itself rather than by the UK’s economy or society.”

This also implies that the UK has had to sustain continued economic growth through other mechanisms outside of its own domestic energy context: in particular, as we know, the expansion of debt.

It is no coincidence, then, that debt-to-GDP ratios have continued to grow worldwide. As EROI is in decline, an unsustainable debt-bubble premised on exploitation of working and middle classes is the primary method to keep growth growing — an endeavour that at some point will inevitably come undone under its own weight.

We need a new economics

According to MIT and Harvard trained economist Dr. June Sekera — who leads the Public Economy Project at Tufts University’s Global Development And Environment Institute (GDAE) — net energy decline proves that neoclassical economic theory is simply not fit for purpose.

In Working Paper №17–02 published by the GDAE, Sekera argues that: “One of the most important contributions of biophysical economics is its critique that mainstream economics disregards the biophysical basis of production, and energy in particular.”

Policymakers, she says, “need to understand the biophysical imperative: that societal net energy yield is falling. Hence the need for a biophysical economics, and for policymakers to comprehend its central messages.”

Yet a key problem is that mainstream economics is held back from being able to even comprehend the existence of net energy decline due to an ideological obsession with the market. The result is that production that occurs outside the market is seen as an aberration, a form of government, state or ‘political’ interference in the ‘natural’ dynamics of the market.

And this is why the market alone is incapable of generating solutions to the net energy crisis driving global economic stagnation. The modern market paradigm is fatally self-limited by the following dynamics: “short time horizons, growth as a requisite, gratuitous waste baked-in, profits as life-blood.” This renders it “incapable of producing solutions that demand long-view investment without profits.”

Thus, Sekera calls for a new “public economics” commensurate with what is needed for a successful energy transition. The new public economics will spur on breakthrough scientific and technological innovations that solve “common-need problems” based on “distributed decision-making and collective action.”

The resulting solutions will require “long time-horizon investment: investments with no immediate payoff in terms of saleable products, no visible ROI (return on investment), no profit-making in the near-term. Such investment can be generated only in a non-market environment, in which payment is collective and financial profit is not the point.”

The only problem is that, as Sekera herself recognizes, the main incubator and agent of the non-market public economy is government — but government itself is playing a key role in dismantling, hollowing-out and privatizing the non-market public economy.

There is only one solution to this conundrum, however difficult it might seem:

Citizens themselves at all scales have an opportunity to work together to salvage and regenerate new public economies based on pooling their human, financial and physical assets and resources, to facilitate the emergence of more viable and sustainable economic structures. Part of this will include adapting to post-carbon energy sources.

Far from representing the end of prosperity, this transition represents an opportunity to redefine prosperity beyond the idea of endlessly increasing material accumulation; and realigning society with the goal of meeting real-world human physical, psychological and spiritual needs.

What will emerge from efforts to do so has not yet been written. But those efforts will define the contours of the new post-carbon economy, as the unsustainable juggernaut of the old grinds slowly and painfully to a protracted, chaotic halt.

In coming years and decades, the reality of the need for a new economic science that reflects the dynamics of the economy’s fundamental embeddedness in the biophysical environment will become evermore obvious.

So say goodbye to endless growth neoliberalism.


This INSURGE story was enabled by crowdfunding: Please support independent journalism for the global commons for as little as a $1/month via www.patreon.com/nafeez


Dr. Nafeez Ahmed is an award-winning 16-year investigative journalist and creator of INSURGE intelligence, a crowdfunded public interest investigative journalism project. He is ‘System Shift’ columnist at VICE’s Motherboard.

His work has been published in The Guardian, VICE, Independent on Sunday, The Independent, The Scotsman, Sydney Morning Herald, The Age, Foreign Policy, The Atlantic, Quartz, New York Observer, The New Statesman, Prospect, Le Monde diplomatique, Raw Story, New Internationalist, Huffington Post UK, Al-Arabiya English, AlterNet, The Ecologist, and Asia Times, among other places.

Nafeez has twice been featured in the Evening Standard’s ‘Top 1,000’ list of most influential people in London.

His latest book, Failing States, Collapsing Systems: BioPhysical Triggers of Political Violence (Springer, 2017) is a scientific study of how climate, energy, food and economic crises are driving state failures around the world.





EV transition…. what EV transition…?

15 08 2017

It’s raining again, and all work outside has been temporarily suspended. Well that’s my excuse for hitting the keyboard again. And the more I delve into the future of this supposed transition to EVs techno utopians continually go on about, the less I believe it will occur. No one gets limits to growth, and therein lies the problem. I also found this neat document my readers might like to download. If you’ve been hanging out on this blog for some time. you probably already know what’s in it, but there are a lot of newbies joining DTM these days, this is for you…

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I have already exposed how limits to Lithium and Cobalt and other resources needed to implement a transition away from oil powered happy motoring is going to give manufacurers (and share holders) headaches in the future; but obviously the fans of electric motoring do not understand the disruptive effects of such an industry nor how it will decimate the oil industry, which itself will kill off the EV sector….

At first glance, getting rid of polluting cars sounds like a great idea.  The billions of such vehicles around the world that pump out noxious gases and CO2 are, we know, are major contributors to climate change.  Banning them at the earliest opportunity, then, must surely be a good idea. But, there’s always a but………

If the world is going to make the switch to electric vehicles, we are going to need a massive infrastructure spend to create the fast charging systems without which the country is going to grind to a halt.

For most journeys – those of less than 10km – charging up at home overnight will do the trick.  But, Australia in particular.  is a nation of commuters who average around 1500km a month.  I know people who commute even further from where we used to live in Queensland….. Anyone driving more than about 70km to get to work is going to need somewhere to charge up before going home; and anyone driving more than 160km is going to need a fast charging station somewhere along their commute.  On the few times a year that many of us make far longer journeys (such as on long weekends) we would have to be able to stop several times to recharge – Australia is a big country. It’s either that, or we won’t be going away…..

And all of those other holiday drivers will all want to use the same “fast” (they currently take 20-30 minutes) chargers. I see melting circuit breakers…….

Add to this the fact that new oil discoveries have been plummeting and, without prices north of $200 per barrel, unlikely to bounce back, and it tells us one highly unpleasant thing… petrol and diesel prices are going to bounce back a few years from now, once the current glut is over.

That is great news if you work for an oil company or if you are a government that depends upon the taxes from oil exports to pay your debts.  But if you are a country whose oil industry is in terminal decline – like Australia that will have almost certainly totally run out of oil by 2020 – then you are about to find yourself competing for dwindling oil supplies against far richer countries like the USA and China.

Back in the real world, coal plants are shutting down, nuclear companies are going bust, the so-called ‘shale revolution’ is teetering on the cliff edge of collapse, and there is simply no way given the current state of technology for renewables to take up the slack.  What we are facing today is figuring out how to maintain the current supply of electricity, and the last thing anyone needs is the massive increase in demand that will inevitably accompany the mass consumption electric cars.

Electricity shortages may, however, prove to be the least of our worries.  Too many electric cars could trigger a global economic collapse.

Few pundits now doubt the benefits to consumers of electric cars compared to petrol (gasoline) powered ones.  A recent article in The Economist observes:

“Compared with existing vehicles, electric cars are much simpler and have fewer parts; they are more like computers on wheels. That means they need fewer people to assemble them and fewer subsidiary systems from specialist suppliers…

“With less to go wrong, the market for maintenance and spare parts will shrink. While today’s carmakers grapple with their costly legacy of old factories and swollen workforces, new entrants will be unencumbered. Premium brands may be able to stand out through styling and handling, but low-margin, mass-market carmakers will have to compete chiefly on cost.”

Sounds like job losses to me….. and who will buy EVs if they don’t have a job?

What would mass ownership of EVs do to the already struggling global oil industry?

The existential threat posed by electric cars is simply that they might force the price of petrol (gasoline) to zero.

In 2014, the world burned 41,235,000 barrels of petrol (gasoline) every day!  If no one wants the stuff,  and as there is no obvious alternative use for it with maybe the exception of some power tools and hobby engines, cars and light vans are the only place where petrol is consumed, why would the industry make petrol?

“Great,” I hear the greenies shout, “just stop producing the filthy, environment-destroying stuff.”  If only it were that simple.  The trouble is, as Michael Schirber at Live Science reminds us, oil is a chemical potpourri:

“Petroleum is not a single molecule but a mix of thousands of molecules, the most important of which are hydrocarbons. These are chains or rings of carbons atoms surrounded by hydrogen atoms.

“Although gasoline comprises nearly half of all petroleum production in the United States, a wide range of fuels and specialty oils come out of a modern-day oil refinery. The petroleum is first heated in a boiler to separate the smaller hydrocarbons with low boiling points from the larger hydrocarbons with high boiling points.”

Oil refineries can’t simply stop producing petrol (gasoline) without also ceasing production of all of those other far more useful products…. like those used to manufacture tyres, and bitumen roads..!  Both required by the EV revolution…. Lighter gases are used in such things as paints, cleaning agents and as chemical feedstock.  Heavier products include the kerosene that fuels jet aircraft; diesel for our heavy machinery and trucks; lubricating oils and greases for industry; and solids like the aforementioned bitumen.  One assumes that, like the rest of us, the greenwashers would quite like all of these other petroleum products – and the things they do for us – to be available after petrol has gone away.

And therein lies the conundrum; because petrol effectively subsidises the price of all those other products.  Even the pro-electric car Economist article concedes that:

“The internal combustion engine has had a good run—and could still dominate shipping and aviation for decades to come…”

Except of course, the oil industry is on its knees, and once it goes, so does the dream of happy electric car motoring……





Environmentalists didn’t kill the nuclear power industry, economics did.

10 08 2017

One of Nicole Foss’ standout statements for me when I last saw her speak all those years ago now, was that an economic collapse can and will occur much fater than the other crises humanity is facing, like peak oil and climate change…..  and I see signs of economic collapse every day now; not least this one.

Our friend Eclipse Now will probably blow his top and would probably post his usual rubbish here, but I saw the sense of Alice Friedemann’s blocking him from her site, I have done the same now too. After all, how can you take seriously anyone who believes in terra forming Mars and even giving that planet a flag…..?

An interesting article turned up on my feed today.

South Carolina Electric and Gas Co. and partner Santee Cooper abandoned work on two new nuclear reactors this week, not because of public protests, but because the only way to pay for them was to overcharge customers or bankrupt both companies.

The decision comes after the main contractor, Westinghouse, has completed a third of the work at the V.C. Sumner Nuclear Station. Of course, the project has already bankrupted Westinghouse due to missed deadlines and costs spiraling out of control. Westinghouse parent Toshiba Corp. had to pay $2.7 billion to get out of its contract.

Electricité de France too is in trouble. EDF could be heading towards bankruptcy, as it faces the perfect storm of under-estimated costs for decommissioning and waste disposal. Hinkley C power station (in Somerset, England) has just bumped up £1.5bn, and its completion date slipped 15 months.. Meanwhile income from power sales is lagging behind costs, and 17 of EDF’s reactors are off-line for safety tests. Yet French and UK governments are turning a blind eye to the looming financial crisis.

What the nuclear industry really needs is the new technology Eclipse is always banging on about. Scientists are working on these smaller reactors that are less dangerous, but none of them are ready for commercial deployment…..  starting to sound like fusion.

There could be a future for nuclear power in the United States, but only if the technology can compete on cost with renewable sources and natural gas. That is the real challenge for the nuclear power industry.

In any case, I firmly believe that the cost of decommissioning the 400 odd reactors that are now well beyond their use by date will finish off the industry before anything worthwhile happens on this front. The energy cliff is still on its way.

UPDATE.

Since publishing this, Alice Fridemann pointed out she has written this article on her own website…….

Nuclear power too expensive. In 2013, 37 reactors predicted to shut down, 16 already have

[ Since this article was published in 2013, 10 of the 37 at risk plants Cooper listed have been or are scheduled to close down (in red) : Diablo CanyonClintonFitzpatrickFt. CalhounIndian PointOyster CreekPilgrimQuad CitiesThree Mile IslandVermont Yankee.  Plus four plants he didn’t list are scheduled to shut down as well: San Onofre 2 & San Onofre 3, Diablo Canyon 1 & Diablo Canyon 2. In addition, not long before this article was written, Kewaunee (2012) and Crystal River (2009) closed for financial reasons.

Here are the remaining plants Cooper listed that have yet to close: Browns Ferry, Callaway, Calvert Cliff, Commanche Peak, Cook, Cooper, Davis-Besse, Dresden, Duane Arnold, Fermi,  Ginna, Hope Creek, LaSalle, Limerick, Millstone, Monticello, Nine Mile Point, Palisades, Perry, Point Beach, Prairie Island, Robinson, Seabrook, Sequoyah, South Texas, Susquehanna, Turkey Point, Wolf Creek

After spending $9 billion dollars on the two reactors of the Virgil C. Summer Nuclear Generating Station, with only 40% completion, and expected final price tag of $25 billion, it was shut down in 2017 (Plumer).  The only new nuclear plant being built in the U.S. now is in Georgia.

Cooper leaves out the cost of nuclear waste storage, which makes the economics of nuclear plants even worse than in the article below (see his testimony before the Nuclear Regulatory Commission).

One of the costs Cooper mentions are Post-Fukushima updates. Five years after the accident at Fukushima in Japan resulted in three reactor meltdowns, the global nuclear industry is spending $47 billion on safety enhancements mandated after the accident revealed weaknesses in plant protection from earthquakes and flooding. The median cost per nuclear power reactor is $46.7 million (Platts).

“New reactors at Georgia Power’s Vogtle plant were initially estimated to cost $14 billion to build; the latest estimate is $21 billion. The first reactors at the plant, in the 1970s, took a decade longer to build than planned, and cost 10 times more than expected. In France, a new plant is running around six years behind scheduled and likely to cost around $8 billion more than planned. Even keeping old reactors running may not make financial sense. In California, for example, extending the life of the Diablo Canyon plant will require new cooling towers that cost around $8 billion. It may also need billions in earthquake retrofits, because engineers realized after the project was built that it’s on a fault line” (Peters).  2016 update: this is one of the reasons they’re going to be shut down.

There are only 61 commercially operating nuclear power plants left (of 90) in the United States

MORE @ http://energyskeptic.com/2017/nuclear-power-never-econ-viable-never-will-be/





What’s really driving the global economic crisis is net energy decline

3 08 2017

And there’s no going back. So let’s step into the future.

By Jonathan Rutherford

Source: Doug Menuez

Published by INSURGE INTELLIGENCE, a crowdfunded investigative journalism project for people and planet. Support us to keep digging where others fear to tread.

In the fifth contribution to our symposium, ‘Pathways to the Post-Carbon Economy’, Jonathan Rutherford explores the fundamental driver of global economic malaise: not debt; not banks; but a protracted, slow-burn crisis of ‘net energy decline.’

Cutting through the somewhat stale debate between advocates and critics of ‘peak oil’, Rutherford highlights some of the most interesting and yet little-known scientific literature on the intimate relationship between the global economy and energy.

Whatever happens with the shift to renewables, he argues, we are moving into an era in which fossil fuels will become increasingly defunct, especially after mid-century.

The implications for the future of the global economy will not be pretty — but if we face up to it, the transition to more sustainable societies will be all the better for facing reality, rather than continuing with our heads in the sand (or, as per the image above, stuck up the bull’s behind).


As argued in more detail by Ted Trainer in this symposium the best hope for transition to a ‘post carbon’ — or, better, a sustainable society (a much broader goal) — lies in a process of radical societal reconstruction, focused on the building, in the here and now, of self-governing and self-reliant settlements, starting at the micro-local level.

The ‘Simpler Way’ vision we promote, in my view, is an inspiring alternative that we can and should work for. The hope is that these local movements — which have already begun to emerge — will network, educate and scale up, as the global crisis intensifies.

In what follows, I want to complement this view, by sketching why I think the global economy will inevitably face a terminal crisis of net energy in coming years. In making this prediction, I am assuming that global transnational elites (i.e. G7 elites), as well as subordinate national elites — who manage the globalised neoliberal economy — will pursue economic growth at all costs, as elites have done since the birth of the capitalist system in Britain 300+ years ago.

That is, they will not voluntarily pursue a process of organised ‘degrowth’. In my view, at best, they will vigorously pursue ‘green’ growth, i.e. via the rapid scaling up of renewable energy and promoting efficiency etc., but with no intention of actively reducing the overall level of energy consumption — indeed, most of the mainstream ‘green growth’ scenarios assume a doubling of global energy demand by 2050 (for a critical review of one report, see here).

I am focusing on energy but, of course we can, and should, add to this picture the wider multidimensional ecological crisis (climate change impacts, soil depletion, water stress, biodiversity loss etc) which, among other things, means that an ever increasing proportion GDP growth takes the form of “compensatory and defensive costs” (See i.e Sarkar, The Crisis of Capitalism, p.267–275) to deal with past and expected future ecological damage.

Energy and GDP Growth

Axiom 1: As the biophysical economists have shown global economic growth is closely correlated with growth in energy consumption.

Professor Minqi Li of Utah University’s Department of Economics, for example, shows that between 2005 and 2016:

‘an increase in economic growth rate by one percentage point is associated with an increase in primary energy consumption by 0.96 percent.’

GDP growth also depends on improvements in energy efficiency — Li reports that over the last decade energy efficiency improved by an average of 1.7% per annum.

One of the future uncertainties is how rapidly we are likely to improve energy efficiency — future supply constraints are likely to incentivise this strongly, and there will be scope for significant efficiency improvements, but there is also to be diminishing returns once the low hanging fruit has been picked.

Axiom 2: Economic growth depends not just on increases in gross energy consumption and energy efficiency, but the availability of net energy. Net energy can be defined as the energy left over after subtracting the energy used to attain energy — i.e. the energy used during the process of extraction, harvesting and transportation of energy. Net energy is critical because it alone powers the non-energy sectors of the global economy.

Without net energy all non-energy related economic activity would cease to function.

Insight: An important implication is that net energy can be in decline, even while gross primary energy supply is constant or even increasing.

Below I will make my case for a probably intensifying global net energy contraction by discussing, first, broad factors shaping the probable trajectory of global primary energy growth, followed by a discussion of overall net energy. Most of the statistics are drawn from Minqi Li’s latest report which, in turn, draws on the latest BP’s Statistical Review of World Energy.

Prospects for Gross Energy Consumption

Over the last decade, world primary energy consumption grew at an average annual rate of 1.8 percent. It’s important to note, however, as Jean- Jancovici shows, that in per-capita terms the rate of energy growth has significantly slowed since the 1980s, increasing at an average annual rate of 0.4% since that time, compared to 1.2% in the century prior. This is mainly due to the slowing growth in world oil supply, since the two oil shocks in the 1970s.

There are strong reasons for thinking that the rate of increase in gross energy availability will slow further in coming decades. Recently a peer reviewed paper estimated the maximum rate at which humanity could exploit all ultimately recoverable fossil fuel resources. It found that depending on assumptions, the peak in all fossil fuels would be reached somewhere between 2025–2050 (a finding that aligns with several other studies see i.e Maggio and Cacciola 2012; Laherrere, 2015).

This is highly significant because today fossil fuels make up about 86% of global primary energy use — a figure that, notwithstanding all global efforts to date, has barely changed in three decades. This surprising early peak estimate is substantially associated with the recent radical down-scaling of estimated economically and technically recoverable coal reserves.

The situation for oil is particularly critical, especially given that it is by far the world’s major source of liquid fuel, powering 95% of all transport. A recent HSBC report found that, already today, somewhere between 60–80% of conventional oil fields are in terminal decline. It estimated that by 2040 the world would need to find four Saudi Arabia’s (the largest oil supplier) worth of additional oil just to maintain current rates of supply and more than double that to meet 2040 projected demand.

And yet, as the same report showed, new oil discoveries have been in long term decline — lately reaching record lows notwithstanding record investments between 2001–2014. Moreover, new discoveries are invariably smaller fields with more rapid peak and decline rates. The recent boom in US tight oil — a bubble fueled by low interest rates and record oil industry debts — has been responsible for most additional supply since the peak in conventional oil in 2005, but is likely to be in terminal decline within the next 5–10 years, if it has not already peaked.

All this, as Nafeez Ahmed has argued, is generating the conditions within the next few years (once the current oil glut has been drawn down) for an oil supply crunch and price spike that has the potential to send the debt-ridden global economy into a bigger and better global financial crisis tailspin. It may well be a seminal event that future historians look back as marking the beginning of the end for the oil age.

An alternative currently fashionable view is that peak oil will be effectively trumped by a near-term voluntary decline in oil demand (so called ‘peak demand’), mainly due to the predicted rise of electric vehicles. One reason (among several), however, to be skeptical of such forecasts is that currently there is absolutely no evidence that oil demand is in decline — on the contrary, it continues to increase every year, and since the oil price drop in 2014, at an accelerating rate.

When peak oil does arrive, there are likely to be powerful incentives to implement coal-to-liquids or gas-to-liquids but, apart from the huge logistical and infrastructure problems involved, a move in this direction will only accelerate the near-term peaking of coal and gas supply, especially given the energetic inefficiencies involved in fuel conversion. Peak oil will also likely incentivise the acceleration towards electrification of transport and renewable energy, to which I will now turn.

Given peak fossil fuels, the prospects for increasing, or even just maintaining, gross energy depends heavily on how fast renewable energy and nuclear power can be scaled up. Nuclear energy currently accounts for 4.5% of energy supply, but globally is in decline and there are good reasons for thinking that it will not — and should not —play a major role in the future energy mix (see i.e Our Renewable Future, Heinberg & Findlay, 2016, p132–135).

In 2016, all forms of renewable electricity (i.e. excluding bio-fuel) accounted for about 10% of global energy consumption in 2016, but a large portion of this was hydroelectricity, which has limited potential for expansion. Wind, Solar PV and Concentrated Solar Power (CSP) are generally agreed to be the major renewable technologies capable of a large increase in capacity but, notwithstanding rapid growth in recent years, in 2016 they still accounted for just 2.2% of world primary energy consumption.

Insight: In recent years many ‘green-growth’ reports have been published with optimistic renewable energy forecasts — one even claiming that renewables could supply all world energy (not just electricity) by 2050. But, it should be recognised that this would require a very dramatic increase in the rate of growth in renewable capacity.

In the last six years, new investment (including government, private sector etc) in all forms of renewable energy has leveled off at around the $300 billion a year. Heinberg and Finlay (p.123) estimate that this rate of investment would have to multiplied by more than a factor of ten and continued each year for several decades, if renewable energy was to meet current global energy demand, let alone the projected doubling of demand in most mainstream energy scenarios.

In other words, it would require an upfront annual investment of US$3 trillion a year (and more over the entire life cycle). By comparison, in 2014 the IEA estimated that global investment for all energy supply (i.e fossil fuels and renewables etc) in 2035 would be US $2 trillion per year. In addition, if fossil fuel capacity is to be phased out entirely by 2050, it would require much premature scrapping of existing capital — depriving investors of making full returns on their capital — which can be expected to trigger fierce resistance from large sections, if not the entire, transnational capitalist class.

Currently both oil and gas supply, if not coal, are growing much faster than all renewables, at least in absolute if not percentage terms. No wonder that the most ambitious IPCC emission reduction scenarios assume continued large scale use of fossil fuels through to 2050, and rely instead on highly uncertain and problematic ‘net emission’ technologies (i.e Carbon Capture and Storage, massive planting of trees etc).

Based on current trends, Minqi Li’s recent energy forecast predicts that the growth of renewable energy will, at best, offset the inevitable decline in fossil fuel energy over coming decades. He forecasts that a peak in gross global energy supply (including fossil fuels and renewables) will be reached by about 2050.

This of course does not include the very real possibility of serious energy ‘bottlenecks,’ resulting, for example, from the peak in oil — for which no government is adequately preparing — and with no alternative liquid fuel source, on the scale required, readily available.

The Net Energy Equation

The foregoing has just been about gross energy, but as mentioned above, the real prospects for the growth-industrial economy depend on net energy, which alone fuels the non-energy sectors of the economy. This is where the picture gets really challenging.

With regards to fossil fuels, EROI is on a downward trajectory. The current estimate (in 2014) for global oil & gas is that EROI is about 18:1. And while it’s true that technological innovation can improve the efficiency of oil extraction, in general this is being overwhelmed by the increasing global reliance on lower EROI unconventional oil & gas sources — a trend which will continue from now until the end of the fossil fuel age.

Axiom 3: What is often overlooked, is that declining EROI will exacerbate the problem of peak fossil fuels.

As Charles Hall explains, declining EROI will accelerate the advent of peak fossil fuels, because more energy is needed just to maintain the ratio of net energy needed to fuel the economy. And when, inevitably, we begin to move down the other side of Hubbert’s peak, things will get even more challenging. At this point, decreasing gross supply will be combined with ever greater reliance on lower EROI supplies, rapidly reducing the amount of net energy available to society.

The situation would be improved if the main renewables could provide an additional source of high net energy (i.e EROI). But, while this question is the subject of much current scholarly debate, and is quite unsettled, it seems highly likely that any future 100% renewable energy system (as opposed to individual technology) will provide far less net-energy than humanity — or at least, the minority of us in the energy rich affluent regions — has enjoyed during the fossil fuel epoch. This is for the following theoretical reasons outlined by energy experts Moriarty and Honnery in a recent paper:

  • Due to the more energy diffuse nature of renewable energy flows (sun and wind), harvesting this energy to produce electricity, requires the construction of complex industrial technologies. Currently, this requires the ‘hidden subsidy’ of fossil fuels, which are involved in the entire process of resource extraction, manufacturing and maintenance of these industrial technologies. As fossil fuels deplete, this subsidy will become costlier in both financial and energy terms, reducing the net-energy of renewable technologies.
  • The non-renewable resources (often rare) needed for construction of renewable technologies will deplete over time, and will thus take more energy to extract, again, reducing net energy.
  • Due to the intermittency of solar and wind, a 100% renewable energy system (or even a large portion of renewable energy within the overall mix) requires investment in either large amounts of redundant capacity (to ensure there is security of supply during calm and cloudy weather) or, alternatively, large amounts of (currently unforeseen on the scale needed) storage capacity — or both. Ultimately, either option will require energy investment for the total system.
  • Because the main renewable technologies generate electricity, there will be a large amount of energy lost through conversion (i.e. via hydrogen) to the many current energy functions that cannot easily be electrified (i.e. trucks, industrial heating processors etc). In fairness, the conversion of fossil fuels to electricity also involves substantial energy loss (i.e. about 2/3 on average), but given that about 80% of global primary energy is currently in a non-electrical form, this appears to be a far bigger problem for a future 100% renewable system.
  • As renewable energy capacity expands, it will inevitably have to be built in less ideal locations, reducing gross energy yield.

Axiom 4: Regardless of the net energy that a future 100% renewable energy system would provide, it is important to recognize that attempts to ramp up renewable energy at very fast rates — far from adding to the overall energy output of the global economy — will inevitably come at a net energy cost.

This is because there would need to be a dramatic increase in energy demand associated with the transitional process itself.

Modelling done by Josh Floyd has found that in their ‘baseline scenario’ (described here) — which looks to phase out fossil fuels in 50 years — net energy services for the global economy would decline during that transition period by more than 15% before recovering.

This would be true of any rapid energy transition, but the problem is particularly acute for a transition to renewable technologies due to their much higher upfront capital (and therefore energy) costs, compared to fossil fuel technologies.

Conclusion

The implication of the above arguments is that over the coming decades, the global economy will very likely face an increasing deterioration in net energy supply that will increasingly choke off economic growth. What will this look like for people in real life?

Economically, it will likely be revealed in terms of stagnating (or falling) real wages, rising costs of living, decreasing discretionary income and decreasing employment opportunities — symptoms, as Tim Morgan argues, we are already beginning to see, albeit, to varying extents across the globe — but which will intensify in coming years.

How slow or fast this happens nobody knows. But given capitalism is a system which absolutely depends on endless capital accumulation for its effective economic functioning and social legitimacy, this will prove to be a terminal crisis, from which the system cannot ultimately escape.

We therefore have no choice but to prepare for a future economy in which net energy is far lower than what we have been used to in the industrial era.

Insight: To be clear, crisis by itself, will not lead to desirable outcomes — far from it. Our collective fate, as Trainer explains, depends largely on the rapid emergence of currently small scale new society movements — building examples of the sane alternative in the shell of the old — and rapidly multiplying and scaling up, as the legitimacy of the system declines.


Jonathan Rutherford is coordinator of the new international bookshop, Melbourne Australia. He is involved in various local sustainability projects where he lives in Belgrave.





Reading The News On America Should Scare Everyone, Every Day… But It Doesn’t

22 07 2017

Whilst this is Amero-centric, make no mistake, it also applies to Australia in bucket loads…….

Authored by Raul Ilargi Meijer via The Automatic Earth blog,

Reading the news on America should scare everyone, and every day, but it doesn’t. We’re immune, largely. Take this morning. The US Republican party can’t get its healthcare plan through the Senate. And they apparently don’t want to be seen working with the Democrats on a plan either. Or is that the other way around? You’d think if these people realize they were elected to represent the interests of their voters, they could get together and hammer out a single payer plan that is cheaper than anything they’ve managed so far. But they’re all in the pockets of so many sponsors and lobbyists they can’t really move anymore, or risk growing a conscience. Or a pair.

What we’re witnessing is the demise of the American political system, in real time. We just don’t know it. Actually, we’re witnessing the downfall of the entire western system. And it turns out the media are an integral part of that system. The reason we’re seeing it happen now is that although the narratives and memes emanating from both politics and the press point to economic recovery and a future full of hope and technological solutions to all our problems, people are not buying the memes anymore. And the people are right.

Tyler Durden ran a Credit Suisse graph overnight that should give everyone a heart attack, or something in that order. It shows that nobody’s buying stocks anymore, other than the companies who issue them. They use ultra-cheap leveraged loans to make it look like they’re doing fine. Instead of using the money/credit to invest in, well, anything, really. You can be a successful US/European company these days just by purchasing your own shares. How long for, you ask?

There Has Been Just One Buyer Of Stocks Since The Financial Crisis

 As CS’ strategist Andrew Garthwaite writes, “one of the major features of the US equity market since the low in 2009 is that the US corporate sector has bought 18% of market cap, while institutions have sold 7% of market cap.” What this means is that since the financial crisis, there has been only one buyer of stock: the companies themselves, who have engaged in the greatest debt-funded buyback spree in history.

 

 Why this rush by companies to buyback their own stock, and in the process artificially boost their Earning per Share? There is one very simple reason: as Reuters explained some time ago, “Stock buybacks enrich the bosses even when business sags.” And since bond investor are rushing over themselves to fund these buyback plans with “yielding” paper at a time when central banks have eliminated risk, who is to fault them.

More concerning than the unprecedented coordinated buybacks, however, is not only the relentless selling by institutions, but the persistent unwillingness by “households” to put any new money into the market which suggests that the financial crisis has left an entire generation of investors scarred with “crash” PTSD, and no matter what the market does, they will simply not put any further capital at risk.

So that’s your stock markets. Let’s call it bubble no.1. Another effect of ultra low rates has been the surge in housing bubbles across the western world and into China. But not everything looks as rosy as the voices claim who wish to insist there is no bubble in [inject favorite location] because of [inject rich Chinese]. You’d better get lots of those Chinese swimming in monopoly money over to your location, because your own younger people will not be buying. Says none other than the New York Fed.

Student Debt Is a Major Reason Millennials Aren’t Buying Homes

 College tuition hikes and the resulting increase in student debt burdens in recent years have caused a significant drop in homeownership among young Americans, according to new research by the Federal Reserve Bank of New York. The study is the first to quantify the impact of the recent and significant rise in college-related borrowing—student debt has doubled since 2009 to more than $1.4 trillion—on the decline in homeownership among Americans ages 28 to 30. The news has negative implications for local economies where debt loads have swelled and workers’ paychecks aren’t big enough to counter the impact. Homebuying typically leads to additional spending—on furniture, and gardening equipment, and repairs—so the drop is likely affecting the economy in other ways.

As much as 35% of the decline in young American homeownership from 2007 to 2015 is due to higher student debt loads, the researchers estimate. The study looked at all 28- to 30-year-olds, regardless of whether they pursued higher education, suggesting that the fall in homeownership among college-goers is likely even greater (close to half of young Americans never attend college). Had tuition stayed at 2001 levels, the New York Fed paper suggests, about 360,000 additional young Americans would’ve owned a home in 2015, bringing the total to roughly 2.9 million 28- to 30-year-old homeowners. The estimate doesn’t include younger or older millennials, who presumably have also been affected by rising tuition and greater student debt levels.

Young Americans -and Brits, Dutch etc.- get out of school with much higher debt levels than previous generations, but land in jobs that pay them much less. Ergo, at current price levels they can’t afford anything other than perhaps a tiny house. Which is fine in and of itself, but who’s going to buy the existent McMansions? Nobody but the Chinese. How many of them would you like to move in? And that’s not all. Another fine report from Lance Roberts, with more excellent graphs, puts the finger where it hurts, and then twists it around in the wound a bit more:

People Buy Payments –Not Houses- & Why Rates Can’t Rise

 Over the last 30-years, a big driver of home prices has been the unabated decline of interest rates. When declining interest rates were combined with lax lending standards – home prices soared off the chart. No money down, ultra low interest rates and easy qualification gave individuals the ability to buy much more home for their money. The problem, however, is shown below. There is a LIMIT to how much the monthly payment can consume of a families disposable personal income.

 

 In 1968 the average American family maintained a mortgage payment, as a percent of real disposable personal income (DPI), of about 7%. Back then, in order to buy a home, you were required to have skin in the game with a 20% down payment. Today, assuming that an individual puts down 20% for a house, their mortgage payment would consume more than 23% of real DPI. In reality, since many of the mortgages done over the last decade required little or no money down, that number is actually substantially higher. You get the point. With real disposable incomes stagnant, a rise in interest rates and inflation makes that 23% of the budget much harder to sustain.

 

 

In 1968 Americans paid 7% of their disposable income for a house. Today that’s 23%. That’s as scary as that first graph above on the stock markets. It’s hard to say where the eventual peak will be, but it should be clear that it can’t be too far off. And Yellen and Draghi and Carney are talking about raising those rates.

What Lance is warning for, as should be obvious, is that if rates would go up at this particular point in time, even a lot less people could afford a home. If you ask me, that would not be so bad, since they grossly overpay right now, they pay full-throttle bubble prices, but the effect could be monstrous. Because not only would a lot of people be left with a lot of mortgage debt, and we’d go through the whole jingle mail circus again, yada yada, but the economy’s main source of ‘money’ would come under great pressure.

Let’s not forget that by far most of our ‘money’ is created when private banks issue loans to their customers with nothing but thin air and keyboard strokes. Mortgages are the largest of these loans. Sink the housing industry and what do you think will happen to the money supply? And since inflation is money velocity x money supply, what would become of central banks’ inflation targets? May I make a bold suggestion? Get someone a lot smarter than Janet Yellen into the Fed, on the double. Or, alternatively, audit and close the whole house of shame.

We’ve had bubbles 1, 2 and 3. Stocks, student debt and housing. Which, it turns out, interact, and a lot.

An interaction that leads seamlessly to bubble 4: subprime car loans. Mind you, don’t stare too much at the size of the bubbles, of course stocks and housing are much bigger issues, but focus instead on how they work together. As for the subprime car loans, and the subprime used car loans, it’s the similarity to the subprime housing that stands out. Like we learned nothing. Like the US has no regulators at all.

Fears Mount Over a New US Subprime Boom – Cars

It’s classic subprime: hasty loans, rapid defaults, and, at times, outright fraud. Only this isn’t the U.S. housing market circa 2007. It’s the U.S. auto industry circa 2017. A decade after the mortgage debacle, the financial industry has embraced another type of subprime debt: auto loans. And, like last time, the risks are spreading as they’re bundled into securities for investors worldwide. Subprime car loans have been around for ages, and no one is suggesting they’ll unleash the next crisis.

 But since the Great Recession, business has exploded. In 2009, $2.5 billion of new subprime auto bonds were sold. In 2016, $26 billion were, topping average pre-crisis levels, according to Wells Fargo. Few things capture this phenomenon like the partnership between Fiat Chrysler and Banco Santander. [..] Santander recently vetted incomes on fewer than one out of every 10 loans packaged into $1 billion of bonds, according to Moody’s.

If it’s alright with you, we’ll deal with the other main bubble, no.5 if you will, another time. Yeah, that would be bonds. Sovereign, corporate, junk, you name it.

The 4 bubbles we’ve seen so far are more than enough to create a huge crisis in America. Don’t want to scare you too much all at once. Just you read the news again tomorrow. There’ll be more. And the US Senate is not going to do a thing about it. They’re too busy not getting enough votes for other things.