Home > Economics - General, Environment > Guest post from John Mashey

Guest post from John Mashey

April 18th, 2008

I got a very long comment from John Mashey caught in moderation, so I’ve decided to put it up as a guest post. John makes a number of important points, but doesn’t convince me that oil is essential to economic activity, for reasons I hope to spell out in a reply. In the meantime, readers are invited to chew on this. As always, but particularly for guest posts, civilised and courteous discussion please.

N FACE OF PEAK OIL&GAS, STANDARD ECONOMIC GROWTH RATE FORECASTS MAY BE
WRONG, and such are used in climate change economics, and if they’re wrong,
we have serious issues.

Maybe people can comfort me that neo-classical growth assumptions are right?
I worry along the following chain:

1) The Stern Report used GDP growth rates from the IPCC scenarios.

Basically, people are projecting *per-person* growth rates in range 1-3%
through 2030 … which is more-or-less predicting business-as-usual as it’s
been for decades, more-or-less.

2) The IPCC growth rates come from the usual sources (like World Bank, US
DoE, IEA, etc], which can be found in section 3.2.1.3, p180-181 of IPCC WG
III’s “Climate Change 2007 – Mitigation of Climate Change”:

http://www.ipcc.ch/pdf/assessment-report/ar4/wg3/ar4-wg3-chapter3.pdf

The 2000 IPCC SRES (p.301) has more-or-less similar assumptions, i.e.,
people will be noticeably richer in 2050, and richer yet in 2100.

The IPCC doesn’t make its own base economic forecasts, which I confirmed by
talking to Bert Metz, Co-Chair of iPCC WG III when he was here a few months
ago.

Stern of course had to use the 2000/2001 version, which among other things
(Fig RS.9) pegs oil to stick under US$20 J

Hence:
Std economics -> IPCC -> Stern, 1-3% indefinite growth, roughly

BUT WHAT IF THIS IS WRONG?

3) We will certainly hit Peak Oil within the next decade, and Peak Gas
within another two after that. Why does this matter? Neoclassical
economics doesn’t *seem* to think energy is very important, but for various
reasons[** below], that just doesn’t feel right to me.

I’ve been studying work by Charlie Hall at SUNY, and Robert Ayres+Benjamin
Warr at INSEAD, and Vaclav Smil.

4) These folks’ models make sense to me, and they are very, very scary, just
on energy alone. These folks think that the biggest single contributor to
economic growth is energy (or really, work = energy * efficiency). They
argue that energy is way more important to GDP growth than the 5% quoted
here and commonly elsewhere, and Ayres&Warr have done a lot to quantify how
much, i.e., getting rid of the “Solow residual”.

Most of our energy comes from fossil fuels [see Hall Balloon Chart below],
and fossil fuels are headed into Peak Oil and Gas. If we burn more coal to
make up for it, we almost guarantee melting Greenland and other bad things
within a few centuries, leaving later people to fend for themselves,
building dikes and sea-walls … with no petroleum. No amount of Internet
bandwidth or cheap Terabyte iPods will compensate for not having diesel fuel
when you need it, i.e., such goods are not substitutable.

See Kharecha & Hansen reference: we don’t run out of fossil fuels “fast
enough” to be safe.

See slide 46 of the Ayres PPT presentation below: with Peak Oil & Gas here
or coming soon, we will have a massive issue increasing efficiency and
building windmills and solar like crazy, just to keep the total GDP *flat*
in the US over the next 50 years, much less increase it at a few
percent/year/person. These are *different* predictions, of course, than
the standard.

The US DoE 2005 Hirsch Report (below) predicted a serious downturn if the US
didn’t go all out on efficiency 20 years before Peak Oil [we didn't.].

I’ve visited Australia a dozen times, and you seem to have many similarities
with the US.. (and particularly with California, i.e., you and we both have
water issues, and here in CA, 20% of our electricity already drives water
pumps . and part of why CA has a lot of aggressive energy policies and sues
the Federal government so foten.)

Anyway, IF Hall & Ayres&Warr (and some others) have better approximations to
reality, all of us who use a lot of oil&gas had better be *investing* it in
more efficient buildings, more sustainable infrastructure, more efficient
vehicle fleets, lots of solar CSP, PV, windmills. We ought to be
considering any public infrastructure investments in the light of much more
expensive petroleum.

But, maybe there’s some flaw in what they’re saying? So, what does this
econ-savvy audience say? Suppose they’re right? What does that mean for
Oz? (and see the Rubin/Tal piece on implications of higher oil prices for
global trade.)

[Neither a Deep Green nor Deep Brown, and not an economist]

SOME REFERENCES,

Robert Ayres and Benjamin Warr [INSEAD]

*Ayres&Warr, “Accounting for Growth: the Role of Physical Work”,

http://www.iea.org/Textbase/work/2004/eewp/Ayres-paper1.pdf

*Ayres, PPT presentation [see p.46, especially].

http://www.bren.ucsb.edu/news/documents/robert_ayres.PPT

Ayres,”Lecture 5: Economic Growth (and Cheap Oil)

http://www.cge.uevora.pt/aspo2005/abscom/ASPO2005_Ayres.pdf

Charles A. S. Hall [SUNY]
*Charlie Hall’s Balloon Chart of EROI and energy sources

http://scitizen.com/screens/blogPage/viewBlog/sw_viewBlog.php?idTheme=14&idC

ontribution=1305
OR

http://www.theoildrum.com/node/3786

Renewables have a *long* way to go to replace fossils.

*Hall, et al “The Need to Reintegrate the Natural Sciences with Economics”,
2001

http://www.ker.co.nz/pdf/Need_to_reintegrate.pdf

http://www.esf.edu/EFB/hall/ home page at SUNY

Hirsch Report for US DoE, 2005:

http://en.wikipedia.org/wiki/Hirsch_report

Pushker Kharecha and James Hansen, Implications of “peak oil” for
atmospheric CO2 and climate

http://arxiv.org/ftp/arxiv/papers/0704/0704.2782.pdf

Jeff Rubin and Benjamin Tal, Soaring Oil Prices
Will Make The World Rounder

http://research.cibcwm.com/economic_public/download/occ_55.pdf

Vaclav Smil, “Energy at the Crossroads”, MIT Press 2003.

** Why does unimportance of energy not feel right?
1) I grew up on a farm. As farmers go from having no draught animals, to
having such, to having tractors, they get richer, because they command more
energy. The US went from 40% farmers in 1900 to 2% today, but mostly
because of cheap fossil fuels for machinery (and fertilizer), rural
electrification, with some help from plant breeding and scientific farming
improvements. In CA and other places, the main limit to farming is water,
which in our case, we pump around, using a lot of energy to grow tons of
food in deserts.

2) I used to work summer jobs for the US Bureau of Mines (i.e., coal).

3) When I was Chief Scientist at Silicon Graphics, I used to help sell
supercomputers to petroleum geologists, and an old friend of ours is Ron
Oxburgh, who used to be Chairman of Shell:

http://www.davidstrahan.com/blog/?p=40

4) As oil/gas prices go up, more marginal sources become financially
economical, but at some point, regardless of the price of a barrel of oil,
if it takes barrel of oil to get the next one out (i.e., EROI = 1), you’re
done, no matter how high the price is. [There may be some substitutability,
which is why they burn natural gas to extract oil from the Athabasca tar
sands in Alberta.]

Categories: Economics - General, Environment Tags:
  1. Hermit
    April 18th, 2008 at 11:01 | #1

    I think this line of thinking has to be correct but hard to quantify in GDP terms. There must be some ‘least worst’ path out of cheap energy decline whereby everybody does the right thing. Unfortunately denialism and vested interests will prevent that happening. It’s interesting that climate and depletion have come together putting our supposed wisdom to the test. The dinosaurs weren’t smart enough to adapt or perhaps they just couldn’t. Which is it for humans?

    No doubt other posters will assure us technology X will save us.

  2. John Mashey
    April 18th, 2008 at 11:07 | #2

    Thanks to John for putting this up. Note of course that I’m not saying that oil is esential for economic activity, but more that energy is a big contributor to such activity, and that it’s better economically to plan for its diminution.

    Anyway, thanks again, and i look forward to comments.

  3. Ender
    April 18th, 2008 at 11:37 | #3

    John Mashey – “Note of course that I’m not saying that oil is esential for economic activity, but more that energy is a big contributor to such activity, and that it’s better economically to plan for its diminution.”

    Nobody is saying that oil is essential for economic activity as there has been economic activity of some sort for thousands of years without oil.

    However oil is essential for the means and the volume of PRESENT economic activity. Oil yields a room temperature liquid, extremely dense portable energy source that has no equal. There are several alternatives that fail on one or more of the advantages of oil.

    The problem is that present economic activity is totally built round cheap and abundant portable energy. It will have to change to accomodate the lower EROI and energy density of the alternatives.

    There are also questions to whether it can survive the change intact. Only early action can preserve the current status-quo however that is not happening so there could be a period of turmoil where the economy adjusts.

  4. Pedro S
    April 18th, 2008 at 11:53 | #4

    Surely the current increase in oil prices is going to drive research into fossil fuel oil alternatives. With $100 a barrel oil many, many things become economic.

    Technology X may just save us yet.

  5. Ben
    April 18th, 2008 at 12:08 | #5

    John,

    I’m still looking through all of your references but one thing popped out that I would like to clarify for all the readers here. Namely that the costly effort of turning all that desert into arable land was a government initiative. The fact that farmers can pump all that water in and still make a profit is because of the massive government subsidies involved.

    Where subsidies are involved we get inefficiencies. Remove the subsidies and there is no incentive to pump water in to grow rice in a desert.

  6. Tim M
    April 18th, 2008 at 12:17 | #6

    John Mashey,

    I agree that energy must be more important than classical economics suggests it is. I don’t however, believe that a peak-oil induced downturn will precipitate a catastrophic increase in coal use. I just don’t see how that can happen. If oil shortages do lead us to turn to coal, the result will surely be a dramatic rise in the price of coal, which will limit the growth in its use.

  7. David
    April 18th, 2008 at 12:53 | #7

    Ken Deffeyes believes we passed Peak Oil at the end of 2005: http://www.theoildrum.com/story/2006/2/13/93216/9792

    Since most of our economic growth and (more importantly) our impressive farm productivity are underpinned by cheap, plentiful energy in the form of petroleum, I’d say we’re in trouble.

  8. April 18th, 2008 at 13:36 | #8

    What can I say? I agree with Mashey on everything. This pesky little peak oil problem is just another reason why fixing climate change will not be cheap or easy.

    Crude oil has gushed out of the ground for more than 100 years. The energy return (EROEI) has been spectacular, ranging from more than 100:1 in the early days, to around 10:1 for Saudi crude today. Oil is an energy dense, portable, liquid fuel, stable across a range of temperatures and pressures. As Ender says, pretty much any alternative (that we know about) fails one or more of those criteria.

    Why does humanity (and economists in particular) assume that we’re going to substitute millions of years of buried sunshine in a few short years with little or no economic or environmental consequences?

    FWIW, I think the scaling up of CTL, oil sands and even shale oil is inevitable. When petrol hits $2, $3, or even $10 a litre the punters will be screaming for cheaper fuel. The politicians first reaction will be to lower fuel taxes (John McCain is currently proposing this, and remember what Howard did when he was in trouble in 2001?), and their second reaction will be to find a cheap, locally-sourced alternative to imported crude. Martin “Marn” Ferguson is already pushing CTL as a solution to Australia’s looming petroleum deficit. (BTW, I just love the bit about the “Australian Disease” at the end of this story).

    Does anyone seriously believe that Australia won’t go down the CTL path when we are sitting on a mountain of coal?

    P.S. Tapis crude is trading at over $122/bbl today.

  9. wizofaus
    April 18th, 2008 at 13:48 | #9

    carbonsink, it does depend a lot on voter attitudes. Voters are fairly obviously still in the “yes we claim to worry a lot about climate change, but we don’t expect to make any changes in our lives to deal with it” stage. I wouldn’t rule out the possibility that more and more voters will start to accept that it does mean lifestyle changes – specifically using less fossil fuels, including petrol. In extreme enough circumstances voter opinion and behaviour can change fairly rapidly. It will depend a lot on what sort of climate events we have in the next 10 years. If temperatures remain steady and the drought continues to break, then voters will push climate change to the back of their minds and expect endless cheap fuel, which in Australia will inevitably mean GTL and CTL. But if we get some extreme weather events in the next 10 years that voters link to climate change in their heads, then we might just be able to push through to the stage of accepting that cheap energy is permanently a thing of the past.
    The other alternative is a government actually brave enough to risk voter backlash and implement policies to force Australians to use significantly less fuel. That’s arguably what has happened in Europe, so it’s not impossible either.

  10. frankis
    April 18th, 2008 at 16:48 | #10

    Crude oil is a dirty, toxic mixture of various substances with the primary virtue of being there in the ground for fat lazy bastards to dig up and sell to addicts. Why people think it’s a romantic thing, and that refining it into petroleum and burning that equally toxic and nasty stuff is just a wonderful idea, has always escaped me. I mean heroin addicts don’t normally romanticise the substance of their addiction for very long; I guess oil is still legal.

    Anyhoo, ethanol on the other hand is a pure and delicious substance that has been our friend for so many thousands of years longer than crude. Why have we forsaken it over the past 100 years? I mean it’s still OK for us all to get drunk on the stuff apparently but to use it as fuel in place of the filthy products of crude oil? aargh that way be madness for lovers of crude!

    Ethanol from lignocellulose – not from corn or any other starch crop and not, in most regions, from sugarcane – is Substance X! Even Henry Ford said so, before some loafer discovered that it was easier to dig up filthy crude than to grow ethanol. Ethanol is substance X, that is, along with increasingly cost-effective solar power, wind and waves, geothermal, hydro and nuclear, energy conservation etc.

    Ender your “Oil yields a room temperature liquid, extremely dense portable energy source that has no equal. There are several alternatives that fail on one or more of the advantages of oil” reads like a romanticisation itself.

    As a liquid fuel ethanol is far superior to petroleum products in almost all the ways that count. Its energy density by mass and volume is only 34% less than gasoline’s while its octane rating is much higher. Internal combustion engines optimised for it are more powerful and more fuel-efficient than gasoline engines. Dragsters go faster on it. It’s drinkable not carcinogenic and poisonous like gasoline and diesel, it burns much cleaner. And on, and on. Only in aviation is the higher energy density by mass of kerosene significant, but aviation is only a few percent of the liquid fuel economy and hydrogen, for instance, will likely one day supplant kerosene as its energy density is far greater again. The claimed game-ending advantages of the dirty fuels derived from crude oil are fictitious, one and all.

  11. John Mashey
    April 18th, 2008 at 17:11 | #11

    Thanks all.
    1. Hermit: quantifying energy/GDP relationship is what the Ayres-Warr papers are about.

    2./3. Ender
    Was a reply to John’s “but doesn’t convince me that oil is essential to economic activity”.

    4. Pedro
    a) There are things that we know about, and it helps if some things become more economic. You want to read the Charlie Hall stuff about EROI. The series that Charlie is running in TheOilDrum has some very good analyses of various energy sources.

    b) I live in Silicon Valley and work with very smart Venture Capitalists. VCs don’t invest in research, but they invest like crazy in things that can be developed into products, and they like the energy business because it’s HUGE. Nevertheless, Laws of Thermodynamics are tough, and nobody has found a Moore’s Law equivalent in there.

    c) As for real breakthroughs, surprises, I hope there are some out there. However, I used to work at a place famous for a long list of real breakthroughs (Bell Labs). The mantra was:

    “never schedule breakthroughs” because we couldn’t.

    Maybe Craig Venter’s magic bugs, or somebody who really makes algae biodiesel work.

    d) So far, I can’t find anyone credible who thinks there’s a single magic silver bullet, but rather a whole lot of things we need to do. Strangely enough, I have some optimism, i.e., I’m not into the Richard Heinberg “The Party’s Over” worldview.

    5. Ben.
    Pumping water into desert. Well, humans have a long history of doing that, for better or worse. Brian fagan’s “Floods, famines, and Emperors” is a good source. This isn’t the place to go into the long, bizarre, legally-entangled history of water in the US West, but if you like that, Marc Reisner’s “Cadillac Desert” is the classic.

    I do have rather serious reservations about growing rice in the CA Central Valley, which is done.

    6. Tim M
    Coal use: this obviously depends on the numbers, and there are some funny interactions besides doing CTL.

    a) In Canada, they use gas in Alberta to get oil from the Athabasca oil sands to sell to the US.

    b) in the US, in some places, we’ve tried to phase out coal power plants in favor of gas.

    I wouldn’t say there will be catastrophic increase in coal use, but the problem is that we need to essentially phase it out (Kharecha & Hansen), and I am saying there will be terrific pressure to burn coal, or to do CTL, in places that have coal, like you, us, China, India, to pick a few, to keep the lights on. A lot of this depends on the steepness of the curves, and I haven’t studied the gas curves much.

    Energy is *still* cheap, so there’s a long way to go.

    7. David
    Farming is the real zinger. Speaking as an old farmboy, I’m afraid a lot of people think food comes from the grocery store.

    8. carbonsink
    I’ll go look at your Oz references.
    “Oil is an energy dense, portable, liquid fuel, stable across a range of temperatures and pressures.” Oil is awfully good, but I know people doing things to generate gas or diesel, and they’re just as good on those attributes … but they aren’t *cheap* yet, and may never be.

    9. wizofaus
    Yes, politics is a serious issue. This whole thing is hard because it needs science, engineering, economics, and politics, and it’s very hard to get the pieces together.

    Thanks all, back tomorrow.

  12. April 18th, 2008 at 18:49 | #12

    frankis @ #10: Now I’m convinced you’re BilB under a different name. Only he could be as completely blind to the downsides of ethanol and other biofuels.

    John Mashey @ #11: Yes, perhaps I should have said that liquid fuel (petrol, diesel, kerosene etc) is a wonderful product with wonderful properties that are difficult to match. There are many ways to make liquid fuels but by far the cheapest to stick a hole in the ground somewhere in the Persian Gulf region and have it gush out of the ground. That was a once in 300 million year energy bonanza that’s not going to happen again.

  13. Joe
    April 18th, 2008 at 20:12 | #13

    One thing that worries me is that there isn’t much attention to the other things made from oil, ie plastics, pharmaceuticals etc. I reckon there won’t be any moves away from oil as a feedstock until a new feedstock is commonly available and I don’t see that happening soon. So these companies will be prepared to pay any price for their oil. An end to cheap plastics will be a major change – does anyone else remember when biscuits came in boxes made of sheet metal?

  14. Ian Gould
    April 18th, 2008 at 21:05 | #14

    A quick point about ethanol – it’s technically straight-forward to convert it into more complex alcohols such as Butanol which have greater energy density.

    The conversion takes energy which currently would most likely be supplied from burning either process waste or part of the ethanol yield.

    Longer term, you could use nuclear or renewable energy to power the process.

    Ethanol isn’t a particularly good liquid fuel – but it is probably the easiest fuel to substitute for petrol without scrapping huge amounts of infrastructure.

  15. Ian Gould
    April 18th, 2008 at 21:26 | #15

    Joe, plastics currently accurate for only a couple of percent of world gas and oil consumption.

    There’s promising work being done on manufacturing plastics from carbon dioxide – either from the atmosphere or from smoke stacks.

    This approach actually has a lot of advantages over geosequestration. Fro starters, you don’t have to worry about the carbon dioxide leaking out.

  16. wizofaus
    April 18th, 2008 at 22:02 | #16

    Surely it would make more sense to simply recycle and reuse plastic considerable more. For instance, I think it’s ridiculous I can’t take perfectly good plastic bottles back to stores to have them refilled. And for those that couldn’t be bothered, it can’t be that hard for them to be centrally collected for reuse surely?
    But even if global oil production drops by 50% in the next 50 years, I can’t see any serious threat to the ability of plastic to be a cheap & useful material.

  17. April 18th, 2008 at 23:13 | #17

    Ah… for butanol, you don’t go by way of ethanol, you use other fermentation processes that go directly to butanol. Current off the shelf methods produce a lot of by-products which make it inefficient, but pilot studies aim at higher yields.

    If you have outside energy sources and the right chemical industry infrastructure, the most promising approach seems to be this mixed one: butyric acid from fermentation; then hexane from Kolbe electrolysis; then dimethylbutane from catalysis.

  18. Steve Hamilton
    April 19th, 2008 at 00:16 | #18

    OK, I’ll just say a few things here, and I haven’t read every post in the thread thoroughly, so I may be repeating some things.

    1. There are two main energy problems; firstly that some of our most vital sources are running out, and secondly that the way we currently produce energy imposes costs on the broader society that aren’t currently being accounted for. So dealing with the energy problems means dealing with each of these issues.

    2. I think it’s important to first seperate petroleum usage. Passenger cars are only one segment of petroleum users; solutions that might work for passenger cars will not necessarily work for other applications.

    3. As for passenger cars, there is virtually no question that within two decades the vast majority of passenger vehicles will not contain an internal combustion engine. With the massive advances being made with Lithium Ion battery technology, and Hydrogen Fuel Cells, and given the way that most people use their vehicles, there will really be no practical use for an internal combustion-based passenger vehicle.

    This will be driven by two factors. Firstly is that petrol will only get more expensive; this will encourage producers to provide more fuel efficient vehicles, and internal combustion can only get you so far on this front. The best example of this is the upcoming Chevrolet Volt, which uses a plug-in Lithium Ion battery pack that powers electric motors in the car’s wheels, and is supplemented by an IC engine that acts as a generator to recharge the battery pack. The second factor is the increased focus on global warming will see carbon emissions punished; whether it be through quantity or price regulations. Whenever you burn a carbon-based fuel you produce carbon dioxide and there is simply no way to get around that fact.

    4. The last thing is to address how this issue will be dealt with. An ETS will undoubtedly see the price of coal-fired power generation rise. This will occur to the point where in the long-term we no longer burn coal (or if we do, the carbon emissions are captured and stored). Eventually, there’ll be no more oil left and the only way to fuel current IC engines will be through the use of alternative fuels. This will likely be restricted in one way or another due to the associated carbon emissions. For normal, short-distance commutes, commuters will likely utilise plug-in electric vehicles powered by emissions-free energy from the grid. For longer journeys, the only practical way to produce emissions-free energy on the run efficiently is via the use of Hydrogen fuel cells. This requires massive infrastructure changes and in the end will not be cheap.

    At the end of the day, the picture that is painted is one of a few simple features. In order to transition to an emissions free energy sector, prices must rise. Overe time, if correctly managed and progressively introduced, I suspect people will simply “take it in their stride”, because after all, we have little choice. Advances in technology needed to replace the existing sources of energy are expensive, and will take a long time to implement. The days of cheap energy are over due to a dwinlding supply and the internalisation of externalities.

  19. Paul G. Brown
    April 19th, 2008 at 04:24 | #19

    It’s not a comforting thought, but I can see the fingerprints of cheap energy (petro-chemicals) everywhere in the modern world; in agriculture, primary production (mining), in electricity generation.

    If it turns out that the entire story of economic growth in the 20th and 21st Century is one of a people floating upwards on a rising ride of cheap oil, I won’t be shocked. And if this is the real story, then heaven help us all as the story comes to an end.

  20. John Mashey
    April 19th, 2008 at 05:14 | #20

    More notes.

    7. David
    I don’t know if I believed the peak was 2005 (or that an exact year matters very much), but Deffeyes’ book “Byond Oil – The View from Hubbert’s Peak” is good, one of my favorites along with David Strahan’s “The Last Oil Shock” and Matt Simmons’ “Twilight in the Desert”. Deffeyes spoke here a week or two, but unfortunately I had a conflict.

    Regarding various fuel sources in general: it is really, really important to understand magnitudes of energy sources and their current and expected EROI, i.e., one really needs to look at Charlie Hall’s Balloon Chart and internalize what that means.

    10. frankis
    Ethanol: corn ethanol in the US is more of mid-West political thing, which is at best a jump-start to build ethanol infrastructure. Potential solutions (switchgrass, miscanthus) ought to have better EROI and global-warming effects over the long term, but there are many issues that will take time:
    - unlike annuals that are planted from seeds every year, switchgrass, etc are perennials. They have to be established via rhizomes, and the farmer may face several years of no revenue. A farmer can switch between corn, wheat, or soybeans fairly easily.
    - there is established infrastructure for corn, including harvesters, Class 8 grain trucks, grain elevators. For corn, all you have to ship is the small, dense kernels, not the stalks.
    - For switchgrass, you have to harvest (that’s OK), but then you have to haul the (much bulkier) cellulosic material to a processing plant, which realistically, cannot be too far away without killing your EROI.
    - I’ve seen plenty of arguments that one is often better off burning the cellulosic material and generating electricity in small local plants.
    - Cellulosic biorefineries are really just getting going. An interesting one is:
    Range Fuels.

    Anyway, it really depends on the real EROIs, and maybe there should be an EROL (Energy Return on Land) as well, given the complex tradeoffs regarding arable land. Of course, Australia is fortunate to have masses of sunny desert, which would let you power your entire economy if you can build solar CSPs (with some storage) there. I don’t know how your wind resources are.

    16-18. recycle more [or efficiency in general]
    Mostly agree, except on hydrogen.

    Last night at dinner, I had a nice long discussion with a friend about energy issues, in which he said:
    - peak oil is certainly real, it’s been getting harder and harder to find, but of course we’ll still be using some oil 100 years from now.
    - hydrogen economy is a myth [from EROI].
    - the #1 thing for everybody is going all-out on efficiency.
    This was the retired vice-chairman of Chevron Oil.

    Hydrogen: California has tried very, very hard, but has essentially given up (recently) for a while.

    19. Paul

    If you look at the Ayres+Warr paper, they’ve analyzed economic growth in various places, and fortunately only one of their factors … but an important one. If you want to get depressed, read Richard Heinberg’s “The Party’s Over” or “peak Everything”.

  21. frankis
    April 19th, 2008 at 08:39 | #21

    John, yes Range Fuels is to me the interesting case in ethanol from lignocellulose at the moment. There’s a good-sized investment of private and government money going into a commercial scale plant after what we can presume has been a successful pilot plant phase.

    One of the advantages of Range Fuels’ gasification route is its relative feedstock impartiality. One of the fundamental reasons for concentrating on ethanol from lignocellulose at all is that the resource for at least the first few years of commercial production is nil to low cost wastestreams such as corn stover or forestry residues. The Range Fuels syngas pathway is also partly proven in petroleum refining and in a couple of energy from landfill installations (see Energy Developments Ltd) where syngas fuels electricity generators (profitability has so far been dependent upon some kind of subsidy such as NSW’ Greenhouse Gas Abatement Credits (NGACs) scheme).

    Fuel industries don’t need to spring fully formed to market leadership, and for a good while the feedstock cost for Range Fuels is close to transport plus pre-processing expenses only. Some feedstocks such as municipal cellulosic waste may be cost-negative to them. However it’s a small start, only 20m gallons pa, and it enjoys US Federal funding of I think up to $70m. On the upside, if we can’t get ethanol from lignocellulose to market today when oil is at more than $100US/barrel (and likely to stay expensive from here on) and materials and control technologies are as advanced as they are …. I’m a monkey’s uncle.

  22. April 19th, 2008 at 09:12 | #22

    Last night at dinner, I had a nice long discussion with a friend about energy issues, in which he said:
    - peak oil is certainly real, it’s been getting harder and harder to find, but of course we’ll still be using some oil 100 years from now.
    - hydrogen economy is a myth [from EROI].
    - the #1 thing for everybody is going all-out on efficiency.
    This was the retired vice-chairman of Chevron Oil.

    Hydrogen: California has tried very, very hard, but has essentially given up (recently) for a while.

    Fascinating … agree with everything. Its amazing to me how many people still believe in hydrogen, and lately, how many people still cling to biofuels. Biofuels are the new hydrogen IMO.

    I’ve re-read Strahan’s book several times, as well as Monbiot’s “Heat”. I recommend it.

    As well as vast solar potential Australia is also blessed with considerable hot rocks geothermal potential. Unfortunately we are also “blessed” with vast coal reserves which has led to a “Dutch Disease” phenomenon. Australia is likely to de-industrialise and de-innovate over coming years as our economic resources are re-allocated more rationally (read: we all become miners).

    P.S. I used to run SPECmarks on MIPS boxes in early 90s.

  23. John Mashey
    April 19th, 2008 at 14:17 | #23

    21 & 22:
    Personally, I would be pleased to ban “biofuels” from the lexicon, given that the various entities lumped therein cover a vast range of:
    - EROI
    - energy density
    - cost
    - climate issues
    - other environmental issues
    - convenience, usage differences

    I think there is fairly good agreement (for example from the Hall Balloon Chart and its backups from his books, and his excellent ongoing series in The Oil Drum)that:

    - Petroleum is hard to replace as is with biofuels of any sort, i.e., they do not form a magic solution. It’s not so much the nature of the fuel, it’s the EROI & the huge volumes. After all,CA blends Ethanol in most of its gasoline already.

    However, being an old farmboy, who grew up on a farm that had been in the family 120+ years:

    - there were areas on which we could have grown crops, but we kept stands of trees for firewood instead.

    In the US MidWest, regardless of the ungoodness of corn ethanol, if petroleum gets expensive enough, and if the only way to keep those farms producing any food is via ethanol or biodiesel, that’s what will happen. Grain elevators sell their grain to whoever pays more, and no one is going to leave corn to rot.

    As noted earlier, I hope for genetically-tweaked switchgrass or miscanthus. Among others, University of Illinois does a lot of work on miscanthus.

    Some farm machinery is well-electrifiable, such as elecric tractors, for which I find much merit, speaking as an old tractor-driver and -maintainer.

    Tractors don’t normally get far from home, which really helps, and farms often get a lot of wind. While numbers vary, it seems that wind turbines use only 2-5% of the land, so that farmers are rapidly learning to farm the wind as well as most of the crops. No one would put solar power over good arable land, but wind turbines are OK.

    On the other hand, 400HP combines with 60-gallon diesel fuel tanks, and Class 8 grain trucks are tough, given that nobody seems to have electrical batteries with the energy density of diesel. Some people are proposing modular swappable batteries.

    Unfortunately for such applications, true hybrids of the Prius sort may help a little, but not much. Long-distance (non-electrified) locomotives have similar issues. It’s one thing to electrify Europe – doing it in US, Canada, and Australia is tougher. Of course, locomotives have long been diesel-electric, GE is actually doing some with capacitors for regenerative braking, and ships are apparently going that way also. Hence, one should increasingly expect cars and trucks to go serial-hybrid, not parallel-hybrid, i.e., mechanical drive-trains can go away.

    But still, without *some* biofuels, it’s hard to see a long-term future for big ships and airplanes. Unsurprisingly, Richard Branson is a big investor in biofuels. One can of course argue about the long-term existence of mass air-travel, which plays into infrastructure decisions like “Should we expand an airport at great cost to accomodate a big increase in air travel expected by 2020?” Maybe, maybe not. There’s at least one such going on where I think the prediction was based on US$20-30 oil indefinitely.

    Bottom line opinion: we will have some biofuels, if only to keep agriculture going, but the real issue is minimizing their need and picking sensible ones to develop.

    carbonsink’s mysterious
    “P.S. I used to run SPECmarks on MIPS boxes in early 90s.”
    is a subtle way of showing he recognizes my name from past computing activities :-)

    Back to the real topics:

    Just how important is energy to economic growth in various places?
    How do we (especially high-energy-use, well-spread-out, rich) countries sensibly adapt to an inevitable downturn in EROI and oil+gas within this next century?
    Can poor countries get rich without increasing energy use?
    Will poor countries be able to bid enough for fossil fuels? [I've seen UN projections with substantial increases in tractors in Africa. Well, I think they might those electrics, but I doubt they'll afford diesel.]
    How will world trade be affected, especially in places that need ocean shipping and (maybe) air travel?

  24. April 19th, 2008 at 16:00 | #24

    Bottom line opinion: we will have some biofuels

    Yes of course, especially where petroleum substitution is very difficult (ships, trains, big trucks and aviation) but not for the personal motor car … BEVs make much more sense there.

    I am less hopeful about cellulosic ethanol than you. I used to be a biofuel optimist but Robert Rapier beat it out of me.

  25. April 19th, 2008 at 16:44 | #25

    Just how important is energy to economic growth in various places?

    Cheap energy is absolutely crucial to the functioning of modern civilization. Your commonsense farmboy experience tells you that, but you’d spend a lifetime convincing an economist otherwise.

    The economist will tell you (with a straight face) that primary energy production is declining as a percentage of GDP, commodities will never run out and always be cheaper in the long run (Simon says), and that economic growth can and will go on forever in a finite world.

    How do we (especially high-energy-use, well-spread-out, rich) countries sensibly adapt to an inevitable downturn in EROI and oil+gas within this next century?

    We build transport corridors based around rail and maybe (don’t laugh) buses (read Monbiot). We move to much higher density housing near transport hubs, and we abandon the outer suburbs.

    Can poor countries get rich without increasing energy use?

    Probably not.

    Will poor countries be able to bid enough for fossil fuels?

    No, they are already being outbid.

    How will world trade be affected, especially in places that need ocean shipping and (maybe) air travel?

    This is a favourite topic of mine. As we discussed above there are obvious clean energy solutions to stationary electricity generation (wind, PV, CSP, geothermal, tidal, and nukes if we get desperate) and personal transporation (PHEVs, BEVs) but there’s very little on the horizon for heavy trucking, freight rail, shipping and aviation … and guess what, world trade and globalisation depends utterly on these modes of transportation. If nothing else, the shipping costs for traded products will increase exponentially in coming years, eventually making them uncompetitive with locally made products. Unfortunately for Australia, we may have completely de-industrialised by the time that happens. At least in the US the weak greenback is keeping your local manufacturers and exporters alive for the time being.

  26. frankis
    April 19th, 2008 at 17:34 | #26

    I am less hopeful about cellulosic ethanol than you. I used to be a biofuel optimist but Robert Rapier beat it out of me.

    Good news Carbonsink! The problem here is only semantics. As Rapier explains at your link:

    What Will Work
    However, there are a couple of variations on this that I think will be viable. One is a gasification process. A number of people have taken to calling this process cellulosic ethanol, which to me is unfortunate and confusing …. Biomass gasification converts all organic components in a thermal process. The yield for biomass gasification will be much higher, and the waste products much lower.

  27. April 19th, 2008 at 18:36 | #27

    I’m certainly more optimisitic about biomass gasification, but that doesn’t yield a liquid fuel that we can use with our existing transportation infrastructure. The syngas produced by gasification has less than half the energy density of natural gas so its hardly going to replace diesel or kerosene. You can convert the syngas into a liquid fuel, but that process requires more energy.

    The fact is, converting solar energy to kinetic energy by growing crops, harvesting crops, refining crops into a fuel (gas or liquid) and burning the fuel in an internal combustion engine is horribly inefficient. The proponents of biofuels rarely address this fundamental truth. The solr PV/CSP -> grid -> charge battery -> discharge battery -> electric motor cycle is much more efficient.

  28. MontyA
    April 19th, 2008 at 19:18 | #28

    I am surprised at the religious belief of posters that new energy sources (fuels) will be found/developed to replace oil. All the proposed alternative energy sources at present come nowhere near replacing oil derived liquid fuels even if they could be brought on line in the little time remaining. One source not mentioned is methane clathrates. Japan is now producing methane from deposits offshore. It may be possible, albeit with GW consequences, to bring this source on line reasonably quickly. I would be interested to hear from anyone who has any information on this.

    Our complex global civilization appears to be slipping out of control. One only has to look at ageing infrastructure that is not being replaced, services such as health and education systems that have become too expensive and complex to deliver full services to a significant and increasing proportion of the population and transport systems that require cheap oil to function. Our financial system is now so complex with ever more esoteric derivatives that very few if anyone fully understands it. To me it seems that it is teetering on the edge of collapse. Anyone want to predict what would happen to global finances if oil and food prices double in the next three or so years.

    Present environmental problems are already disastrous and are accelerating rapidly.
    The worlds fresh water sources are shrinking rapidly. Oceans are warming, acidifying and are becoming ever more polluted. Fish stocks are being wiped out from unregulated overfishing. Fish farming is an environmental disaster from whoa to go – harvesting of wild fish for food pellets, destroying mangrove forests, exposing acidic subsoils highly polluting, and a health risk to wild fish stocks.

    Modern agriculture is only sustainable if oil remains cheap and plentiful to provide the energy needed – from sowing to selling of the produce – and make the fertilizers that replenish the nutrients lost in the process. The chemical/agricultural companies boast that crop yields have increased because of their products and improved strains of crops. True in part but increased application of fertilizer is responsible for most of the increase. Cheap phosphate and potassium supplies are disappearing. Cheap oil based nitrogenous fertilizer is becoming a thing of the past. Topsoil is being lost at a rate at least 2000 times faster than is being created from weathering. People sometimes, nonsensically refer to Australia as the breadbasket of Asia. Without fertilizer Australia will be an agricultural basket case.

    Species loss from habitat clearing, competition from introduced species and global warming is already occurring at a catastrophic rate. Throw in the effects of accelerating global warming and
    the future as I see it is bleak.

    Demand for oil is already outstripping supply. Peak oil if it has not already happened is not far off. Sometime in the near future there will be intermittent fuel shortages that disrupt transportation, power generation and heating. Fuel rationing for private vehicles will be introduced. Freight transportation systems will start to fail; fuel shortages triggering logistical nightmares. Public transport systems in cities designed for cars will not be able to cope and workers will not be able to reach their workplaces. Businesses will fail. In the panic the global economy will crash. Food shortages will be severe even in Western countries and will result in large internal migration of people. There will be a world wide rush to convert to or build coal and gas fired power stations and CTL plants. This push will be stalled by the economic collapse; the lack of energy to mine, refine and transport materials; construction and a lack of labour.

    The Anthropecene die off will occur, made worse by dangerous global warming and nuclear war. The world will go on. Much of the life now on the planet won’t.

  29. April 19th, 2008 at 21:23 | #29

    @carbonsink – If nothing else, the shipping costs for traded products will increase exponentially in coming years, eventually making them uncompetitive with locally made products.

    I’ve heard this a million times in peak oil circles and I still don’t understand why people think it is true.

    Shipping is the most energy efficient way of moving goods around and it continues to improve (using bigger ships, SkySails etc).

    I can see inland areas suffering as a result of higher fuel prices, especially when there is limited or no rail access, but I think coastal cities with good port facilities will continue to trade heavily with each other even under the most pessimistic oil depletion scenarios.

  30. April 19th, 2008 at 21:52 | #30

    Carbonsink, there is one way that biomass gasification makes a lot of sense, as part of a mixed approach. In its simplest form, you can run agricultural and processing machinery like tractors and stills off producer gas. The energy return on investment (EROI) of biofuels made that way is far higher for the whole system than that of just the component delivering the final fuel, considered in isolation, particularly since the producer gas can be made with the otherwise waste plant material left after taking the fermenter feedstock. The EROI goes up even more if the final ash is used to make green manure in ponds with nitrogen fixing bacteria, since you don’t need so much artificial fertiliser.

  31. April 19th, 2008 at 23:11 | #31

    I’ve heard this a million times in peak oil circles and I still don’t understand why people think it is true.

    Shipping is the most energy efficient way of moving goods around and it continues to improve (using bigger ships, SkySails etc).

    Well ok … what is the breakdown of costs of getting a Chinese made widget to my local K-Mart, Target or Harvey Norman? By how much do the transportation costs have to increase to tip the balance so that the locally made product becomes competitive? (not that there are any locally made competitors anyway :) ) I mean, Fisher & Paykel made fridges here until this week, would they have remained competitive in the domestic market if transport costs doubled, or tripled?

    P.M.Lawrence: Fair enough, especially when its used in agricultural situations from waste product.

  32. frankis
    April 19th, 2008 at 23:28 | #32

    Carbonsink: the context of Rapier’s discussion at the link you’ve given is liquid fuels not gaseous fuels. He’s talking about more efficient ways of producing ethanol (or butanol if you wished) than by a wet fermentation process. He thinks he’s clearing things up by referring to the process by its most distinguishing stage, biomass gasification, rather than by its beginning and end points (lignocellulose to ethanol), but this can cause confusion as to what end product is being discussed. The point though of the biomass gasification process Rapier discusses at your link is the cost-efficient production of liquid fuel ethanol for use with our existing transport infrastructure. It’s not clear because he nowhere says it directly, but what he’s talking about are different processes for the production of fuel ethanol. He agrees with Range Fuels and others that ethanol can be more efficiently produced via gasification than by a wet process.

  33. John Mashey
    April 20th, 2008 at 07:32 | #33

    re: #31 carbonsink
    You may want to look at the Rubin/Tal piece I mentioned. The effects depend on the transport cost (i.,e., bulk, weight, other handling costs), and the product value differential between building/growing it locally or somewhere else.

    High-value, dense things like microprocessor chips have very low transport costs as fraction of their value. Some happily go by plane.

    At some point, of course, it may not make much sense to ship bulk grain so far, and of course, EROI for fuels has to account for the transport costs to get it somewhere, i.e., well-to-wheel for transport uses.

    At some point, for US, I’d guess that some manufacturing will move from China to Mexico.

    I’m sorry to hear about Fisher&Paykel not making stuff in Oz: we have one of their washers, and it’s great.

  34. wizofaus
    April 20th, 2008 at 08:51 | #34

    So Gav, what you’re saying is that peak oil will force everyone to move to the coast, then rising sea levels will come along and wipe us all out? I knew you were a pessimist deep at heart…

  35. John Mashey
    April 20th, 2008 at 10:21 | #35

    re: #29, #34

    Well, mathematically, “exponential” has a specific meaning, but colloquially, it is often used to mean “fast”. As usual, there are lots of people who exaggerate.

    I doubt that sea transport is suddenly going to go away. Tradeoffs change all the time. Peak Oil simply means that transport modes that depend on fuel types that are getting more expensive will get more expensive relative to transport types that don’t. At least some of the current globalization of trade is directly attributable to the incredibly low price of oil over many years.

    I know of several groups who are doing sails/kites for ships, simply because saving even 5-10% fuel is serious money.

    Before ships stop, I’d worry about mass air travel, in which airplanes are essentially treated as busses with wings. I know Boeing & Airbus are going all-out on efficiency, but that only goes so far.

  36. April 20th, 2008 at 10:43 | #36

    OT: ProfQ, could we have a 2020 ideas thread where everyone proposes one big idea that’s more or less revenue neutral?

  37. Ian Gould
    April 20th, 2008 at 10:47 | #37

    Current sea-freight charges from the UK to Australia are 90 pounds per tonne. That’s around A$0.25 a kilo. Customs, tariffs and haulage this end cost several times that.

    For my industry (books), a doubling or trebling of the freight component would have minimal impact.

    Currently you can buy a Chinese DVD player for $50-60. A several fold increase in freight costs, even allowing for the multiplier effect at the wholesale and retil levels probably wouldn’t raise the price by more than $10.

    Of course, the impact on a tonne of coal going in the other direction would be a lot greater.

  38. wizofaus
    April 20th, 2008 at 11:10 | #38

    Carbonsink, we don’t live in a finite world – there’s a constant stream of energy flowing into it. As long as that’s there, I don’t see why economic growth can’t in principle continue.
    If economic growth ever ceases it’s because the human race has stopped wanting more things.
    (Of course, there are lots of things that could potentially set economic growth back temporarily, but we’re a long way off the end of all growth).

  39. mitchell porter
    April 20th, 2008 at 12:47 | #39

    Ignoring the rest of the universe (except the sun) for the moment, even if one supposes a constant population and a constant energy budget – a material steady-state, in other words – there remains an unknown potential for further growth in at least two places: among the immaterial goods of the service sector, and via improvements to material goods through redesign and recycling.

  40. April 20th, 2008 at 13:10 | #40

    Carbonsink, we don’t live in a finite world

    Ummmm … I think you’ll find we do.

    Yes there is potentially limitless energy from the sun (well, for a few billion years at least) but there are hard limits for other resources, such as water, arable land, fish stocks, tropical forests etc etc. We are already pushing those limits.

    Currently you can buy a Chinese DVD player for $50-60. A several fold increase in freight costs, even allowing for the multiplier effect at the wholesale and retil levels probably wouldn’t raise the price by more than $10

    Yes but the DVD player is a product where Australia is hopelessly uncompetitive and probably always will be (high transport costs or not). I’m interested in products that are currently marginal, such as the aforementioned F&P fridge. A several fold increase in freight costs there would surely make a difference.

  41. wizofaus
    April 20th, 2008 at 13:33 | #41

    carbonsink, sure, limits to the amount of water and arable land, with current technology, limit the total amount of food we can grow, which either limits a) total population b) amount/type of food we can eat, but economic growth isn’t dependent on either of those.
    So if technology doesn’t help out significantly, we are definitely in for some potential limits to our food intake for the next several decades.
    There is now some evidence that tropical forests aren’t being destroyed at quite the alarming rate previously believed, and no real necessity that they continue to be so. There’s far more land on the Earth that 9 billion humans could ever really use for themselves – sure, we may end up taking the lion’s share of it, leaving little for other species, but what alternative is there?

  42. April 20th, 2008 at 13:53 | #42

    @ wizofaus 38

    There may be a constant stream of energy coming in, but the flow rate is pretty constant (ie. finite).

    Of course, the incoming energy is more than 10,000 times our current rate of consumption, so we have a lot of room to grow (purely on the consumption front, let alone the efficiency side of things).

    I agree about economic growth continuing indefinitely though – getting 9+ billion people up to a similar standard of living that we enjoy leaves a lot of room for increasing GDP – especially in order to do it in a way that is sustainable.

  43. John Mashey
    April 20th, 2008 at 15:58 | #43

    I don’t know fertilizer prices in Oz, but I did find this, from the Fertilizer Industry Federation OF Australia .

    “Sea freight is a significant component of fertilizer prices and the high demand for bulk sea freight associated with the commodities boom has seen an increase in international shipping rates of nearly 200% since December 2006,â€? Mr Drew said.”

  44. Ernestine Gross
    April 20th, 2008 at 16:01 | #44

    John Mashey,

    The article by Hall et. al., “The Need to Reintegrate the Natural Sciences with Economics�, Bio-Science, 2001 caught my eye.

    You asked whether the assumptions of neo-classical economics are ‘wrong’.

    In reply: To the extent that ‘neo-classical economics’, as characterised in the Hall et al article, does assume that the supply of natural resources is unlimited and therefore can be treated as outside the boundaries of economics, the conceptual model in Figure 1a in their paper is out-dated, at least since the 1950s. To the extent that the 1950s Arrow-Debreu-McKenzie model can be classified as ‘neo-classical’, the answer to the same question on the boundaries of economics is No. However, the Arrow-Debreu-McKenzie model assumes ‘free disposal’ – which may not be consistent with biophysics (eg global warming and other externalities).

    You write: “Neoclassical economics doesn’t *seem* to think energy is very important, but for various reasons[** below], that just doesn’t feel right to me.� And you refer to peak oil and gas to support your concerns.

    In reply: Consider Figure 2 in Hall et al. (I am deliberately using a reference that is common to you and me, thanks to you providing the reference). Columns 2 to 6 {Raw Materials, …, Consumption} of the schematic representation of ‘an economy’ are prepresentable by the conceptual framework of the Arrow-Debreu model. The biophysical relationship between ‘Energy sources� (column 1) and the rest is not. So, it seems to me that by you focusing on ‘oil and gas’, you are talking about energy sources from the perspective of columns 3 to 6. Figure 2 has been produced by natural scientists. So I take it as given that they know what they are talking about. According to Figure 2, Fossil fuels (your energy sources) are renewable energy sources for the truncated model of ‘an economy’ (colums 3 to 6); it just happens that the rate of renewal is much slower than the rate of extraction. This means the actual prices used in so-called real world economic decision making do not correspond to the theoretical prices in the Arrow-Debreu model. Alternatively put, maximising monetary profits, as understood by accountants, is part of the problem about which you worry.

    Again with reference to Figure 2 in Hall et al, an expansion of the mental model of contemporary (as distinct from 19th century neo-classical) economics to include ‘energy’ will require moving beyond ‘peak oil and gas’ – your concern – to column 1.

    Again with reference to Figure 2 in Hall et al. I don’t understand why ‘nuclear’ is listed in column 1 and not in column 2. Help, please.

    I like to believe that ‘big brains’ in science and mathematical economics will come up with suitable extensions of the mental models in economics. One commentator, whose name I have regrettably forgotten, noted that economics will become part of a science of complex systems. In the meantime, creating changes to the institutional environment (eg carbon taxes and carbon markets and other corrections to empirical market prices via a program known as ‘internalisation of externalities’) seems to be a reasonably stress free way to proceed.

  45. April 21st, 2008 at 00:21 | #45

    There’s far more land on the Earth that 9 billion humans could ever really use for themselves – sure, we may end up taking the lion’s share of it, leaving little for other species, but what alternative is there?

    Fewer humans and a recovering biosphere (and I’m not talking about a doomer “dieoff” scenario here, just natural attrition). Ok, I know controlling birthrates is taboo, but I don’t see how the biosphere recovers without fewer humans, especially when 9 billion humans (quite reasonably) want to enjoy western living standards.

  46. wizofaus
    April 21st, 2008 at 08:52 | #46

    carbonsink, natural attrition couldn’t possibly bring the human population under 9 billion. Even if you somehow managed to halve the average global fertility over the next 10 years, global population would comfortably reach 9 billion sometime after 2050. The biosphere will recover one way or another, it’s taken far bigger hits than anything humans have been able to throw at.
    Let’s just hope it recovers in a manner that’s favourable to us.

  47. John Mashey
    April 21st, 2008 at 12:06 | #47

    re: #44 Ernestine
    Thanks, this is the sort of discussion I’m hoping for, to better understand the economic models, what they mean, and what people think they mean.

    1. Let me explain what I meant by “Are they wrong?” as that is an over-simplification. I normally think about any kinds of models in terms of their ability to describe the real world, and that isn’t really “right” or “wrong”, it’s more question of “Is the fit good enough to be useful? is the fit so bad as to be dangerous?”

    The original post was already long enough not to want to go there. As an analogy, if I were designing an airplane wing that needed X amount of lift to be safe, and

    - Model A said I’d get 1.2X
    - Model B said I’d get .8X

    I’d care very much which model was closer to reality. In the “old days”, you’d just put the wing in a wind tunnel and then build the plane. By now, most “wind tunnel” experiments are done inside computers. Unfortunately, as far as I know, practical economics is not physics, is more complicated, and inherently has much more difficulty making some kinds of predictions – airplanes don’t usually crash just because all the passengers get scared! [I used to help design and sell supercomputers to airplane designers, for whom "System crash" has different meanings than for computer people.]

    As far as I can tell, the GDP projections used by the IPCC, and therefore Stern are essentially neoclassical [please correct me if wrong], and the Ayres scenarios are *very* different.

    Let me take the REXS model forecast of US GDP 2000-2050, which is slide 46 of Ayres PPT 2006.

    He offers 3 scenarios (NOT predictions) in which US GDP grows to a peak, then flattens and falls, depending on the extent to which increases in technical efficiency ameliorate the downdraft from oil+gas.
    Eyeballing the chart, I guess he gets US GDP, relative to 1900 = 1, with 2007 around 22.5X:

    SCEN 2050 PEAK YEAR of PEAK

    LOW 10X 23X 2010 => 2050 GDP 2050 GDP slightly larger
    HIG 30X 35X 2035 => 2050 GDP 30% bigger

    As best as I can tell, his 22.5X in 2007 would match a $13.5T actual GDP. These are not pleasant numbers.

    SO let’s see what 1%, 2%, 3% real CAGRs look like, starting with a US GDP that’s 22.5X bigger than 1900 in 2007:

    CAGR 2007 2010 2020 2030 2040 2050
    1% 22.5 23.2 25.6 28.3 31.2 34.5
    2% 22.5 23.9 29.1 35.5 43.3 52.7
    3% 22.5 24.6 33.0 44.4 59.7 80.2

    These are much more pleasant numbers, i.e., maybe GDP/person even goes up, depending on population growth.

    Hence, the scenarios used by IPCC & Stern are *very* different from Ayres & co, like between an airplane that flies, and one that doesn’t… which is why I’m trying to understand what these various models really mean. I really hope Ayres, Hall, etc are wrong, so I can sleep better…

    Of course, they take a while to diverge. Sorry I don’t have equivalent numbers for Oz.

    2. Now, back to your questions, as best as I can:

    a) I have a giant stack of things to read, so I’ll add Arrow-Debreau-Mckenzie to that, thanks much. Prof. Arrow lives a few miles away, but I don’t know him. I know Ayres talks to him occasionally.

    I think Figure 2 is a simple version of things like the “Exergy flows in the economy” from page 1 of the Ayres PPT, or “Global Exergy Flux, Reservoirs, and Destruction” from Stanford GCEP.

    Fossil fuels “renewable but much slower than rate of extraction” – yes, that is half of the problem:

    - if we had infinite oil, gas, and coal, we’d burn even more of it, i.e. demand is rising, especially given China and India.

    - but, we’ll start to see supply peaking for the first two.

    - and for coal and nontraditional oil, if we don’t stop burning unsequestered items there, there will be climate externalities we will not like, and that will be very expensive eventually, especially if this Peak effect squeezes the money available for investment. It’s worth looking at Hall on Oil, where he has a nice chart that shows overall money flows. he ha an animation I’ve seen that shows what happens when EROI keeps decreasing – consumption gets squeezed, especially discretionary consumption.

    Anyway, can you point me at simple Arrow-Debreau scenarios/predictions of future GDPs? I’ll go look.

    nuclear: I think the first column is just a gross characterization of fundamental types of energy. The GCEP version shows various specific types, which would fit Column 2 better.

    3. I’ll go study, in the hopes of being able to ask better questions. However, note that carbon taxes and such are indeed considered “internalization of externalities” by environmental economists, but in the Hall / Ayres worldview, the additional concern is the extent to which wealth depends on energy. In this case, carbon taxes are almost more like an enforced-savings plan than an externalities issue.

    Thanks again for your comments.

  48. April 21st, 2008 at 18:16 | #48

    “natural attrition couldn’t possibly bring the human population under 9 billion” – of course it could, just not over the timescale you describe.

  49. wizofaus
    April 22nd, 2008 at 07:51 | #49

    P.M., sure, what I meant to say is that natural attrition won’t prevent the population reaching 9 billion.

  50. John Mashey
    April 22nd, 2008 at 08:30 | #50

    re: #44 Ernestine
    Thanks, this is the sort of discussion I’m hoping for, to better understand the economic models, what they mean, and what people think they mean.

    Part 1 of 2, hopefully enough shorter to get through.

    Let me first explain what I meant by “Are they wrong?” as that is an over-simplification. I normally think about any kinds of models in terms of their ability to describe the real world, and that isn’t really “right” or “wrong”, it’s “Is the fit good enough to be useful? is the fit so bad as to be dangerous?” People are wanting to make major long-term decisions based on such models, so they really matter.

    If I were designing an airplane wing that needed X amount of lift to be safe, and

    - Model A said I’d get 1.2X
    - Model B said I’d get .8X

    I’d care very much which model was closer to reality. In the “old days”, you’d just put the wing in a wind tunnel and then build the plane. By now, most “wind tunnel” experiments are done inside computers. Unfortunately, as far as I know, practical economics is not physics, is more complicated, and inherently has much more difficulty making some kinds of predictions – airplanes don’t usually crash just because all the passengers get scared! Airplane designers think “system crash” has different meanings than for computer people.

    As far as I can tell, the GDP projections used by the IPCC, and therefore Stern are essentially neoclassical [please correct me if wrong], and the Ayres scenarios are *very* different.

    Let me take the REXS model forecast part of US GDP 2000-2050, which is slide 46 of Ayres PPT 2006.

    He offers 3 scenarios LOW, MED, HIGH (NOT predictions) in which US GDP grows to a peak, then flattens and falls, depending on the extent to which increases in technical efficiency ameliorate the downdraft from shrinking oil+gas.

    Following shows US GDP ~2007 as about 22.5X compared to 1900, compared with real CAGRs or 1-3%. Even in the Ayres HIGH case, 2050 would be less than 1% CAGR. (This is all by eyeball, so don’t beat me up too much.)

    CAGR 2007 2010 2020 2030 2040 2050
    AYRES
    LOW 22.5 22.5 20.0 18.0 12.0 10.0
    MED 22.5 24.0 25.0 23.0 19.0 15.0
    HIGH 22.5 26.0 30.0 34.0 34.0 32.0
    1% 22.5 23.2 25.6 28.3 31.2 34.5
    2% 22.5 23.9 29.1 35.5 43.3 52.7
    3% 22.5 24.6 33.0 44.4 59.7 80.2

    Hence, the scenarios used by IPCC & Stern are *very* different from Ayres & co, like between an airplane that flies, and one that doesn’t… which is why I’m trying to understand what these various models really mean. I really hope Ayres, Hall, etc are wrong, so I can sleep better…

    Sorry I don’t have equivalent numbers for Oz.

  51. John Mashey
    April 22nd, 2008 at 08:35 | #51

    Ernestine: (hoping part 1 of 2 gets through)
    Part 2 of 2.

    Now, back to your questions, as best as I can:

    a) I have a giant stack of things to read, so I’ll add Arrow-Debreau-Mckenzie to that, thanks much. Prof. Arrow lives a few miles away, but I don’t know him. I know Ayres talks to him occasionally.

    I think Figure 2 is a simple version of things like LLNL Flows, the “Exergy flows in the economy” from page 1 of the Ayres PPT, or “Global Exergy Flux, Reservoirs, and Destruction” from Stanford GCEP or

    Fossil fuels “renewable but much slower than rate of extraction” – yes, that is half of the problem:

    - if we had infinite oil, gas, and coal, we’d burn even more of it, i.e. demand is rising, especially given China and India.

    - but, we’ll start to see supply peaking for the first two.

    - and for coal and nontraditional oil, if we don’t stop burning unsequestered items there, there will be climate externalities we will not like, and that will be very expensive eventually, especially if this Peak effect squeezes the money available for investment. It’s worth looking at Hall on Oil, where he has a nice chart that shows overall money flows.

    Anyway, can you point me at simple Arrow-Debreau scenarios/predictions of future GDPs? I’ll go look.

    nuclear: I think the first column is just a gross characterization of fundamental types of energy. The GCEP version shows various specific types, which would fit Column 2 better.

    I’ll go study, in the hopes of being able to ask better questions. However, note that carbon taxes and such are indeed considered “internalization of externalities” by environmental economists, but in the Hall / Ayres worldview, the additional concern is the extent to which wealth depends on energy. In this case, carbon taxes are almost more like an enforced-savings plan than an externalities issue.

    Thanks again for your comments.

  52. John Mashey
    April 22nd, 2008 at 08:39 | #52

    re: #44 Ernestine (I try again)
    Thanks, this is the sort of discussion I’m hoping for, to better understand the economic models, what they mean, and what people think they mean.

    Part 1 of 2, hopefully enough shorter to get through.

    Let me first explain what I meant by “Are they wrong?” as that is an over-simplification. I normally think about any kinds of models in terms of their ability to describe the real world, and that isn’t really “right” or “wrong”, it’s “Is the fit good enough to be useful? is the fit so bad as to be dangerous?”
    As far as I can tell, the GDP projections used by the IPCC, and therefore Stern are essentially neoclassical [please correct me if wrong], and the Ayres scenarios are *very* different.

    Let me take the REXS model forecast part of US GDP 2000-2050, which is slide 46 of Ayres PPT 2006.

    He offers 3 scenarios LOW, MED, HIGH (NOT predictions) in which US GDP grows to a peak, then flattens and falls, depending on the extent to which increases in technical efficiency ameliorate the downdraft from shrinking oil+gas.

    Following shows US GDP ~2007 as about 22.5X compared to 1900, compared with real CAGRs or 1-3%. Even in the Ayres HIGH case, 2050 would be less than 1% CAGR. (This is all by eyeball, so don’t beat me up too much.)

    CAGR 2007 2010 2020 2030 2040 2050
    AYRES
    LOW 22.5 22.5 20.0 18.0 12.0 10.0
    MED 22.5 24.0 25.0 23.0 19.0 15.0
    HIGH 22.5 26.0 30.0 34.0 34.0 32.0
    1% 22.5 23.2 25.6 28.3 31.2 34.5
    2% 22.5 23.9 29.1 35.5 43.3 52.7
    3% 22.5 24.6 33.0 44.4 59.7 80.2

    Hence, the scenarios used by IPCC & Stern are *very* different from Ayres & co, like between an airplane that flies, and one that doesn’t… which is why I’m trying to understand what these various models really mean.

  53. April 22nd, 2008 at 09:16 | #53

    RE #48 and #49. I didn’t actually specify a timescale for natural attrition. I was thinking sometime around 2100.

  54. wizofaus
    April 22nd, 2008 at 09:27 | #54

    carbonsink, sure, I’m sure sometime in the next 200 years we will have resolved most of the environmental and resource-limit issues we have today. But that’s not much comfort when dealing with the next 50 years.
    The earth’s population will reach 9 billion by then, and a considerable portion of them will be aiming for first-world standards of living. Obviously with current technology that’s pretty much impossible. So either technology is going to save us, or there is going to be a lot of very unhappy, and most likely starving, people. And either way, non-human species are generally going to have a rough time of it.

  55. April 22nd, 2008 at 10:11 | #55

    The earth’s population will reach 9 billion by then, and a considerable portion of them will be aiming for first-world standards of living. Obviously with current technology that’s pretty much impossible. So either technology is going to save us, or there is going to be a lot of very unhappy, and most likely starving, people.

    Putting my ‘doomer’ hat on … yes, and unfortunately the latter is far more likely IMO.

    … and if you think I’m pessimistic, MontyA @ #28 is a real doomer.

  56. Ernestine Gross
    April 22nd, 2008 at 19:04 | #56

    In reply to #47 and 50 (the latter is included in the former), John Mashey,

    I am using your section numbering.
    1.

    1.1. A model in economics which, IMO, is similar to the type of model you are referring to in paragraph 2 (‘goodness of fit and useful’) is the financial accounting model first developed by Luca Paggioli in the late 15th century. http://en.wikipedia.org/wiki/Luca_Pacioli . (At the time and for quite some time thereafter, the model’s prediction in terms of the change in wealth of the owners of ‘capital’ invested in an enterprise could be easily empirically tested by counting the ‘capital’ at the beginning of a period and at the end. ‘Capital’ consisted of physical objects that served as money (eg gold or silver). The model was particularly useful for the then existing forerunners of multinational firms, long distance traders, because the owners of ‘money’ could hold their managers ‘accountable’ – in a fiduciary sense.)
    1.2. In paragraph 3 you provide a nice example of models of slightly more complex problems, using an illustration from the aviation industry. I can understand that you would like to know whether ‘Model A’ or ‘Model B’ provides a better fit and the usefulness of such models is self-explanatory for anybody who either flies in planes or is over-flown by planes or buys shares in companies classified as belonging to the aviation industry. However, you do not say how you would decide which model is the better one. I suspect that the computer models, to which you refer, are ‘calibrated’ at one stage. That is, the predictions of the model are compared with empirical observations under controlled conditions (say using a wind-tunnel in the case in question).

    1.3. It seems to me you wish to draw a comparison between the importance of distinguishing between Model A and Model B in a specific aeronautical engineering problem with GDP growth (decline) scenarios as found in Stern versus Ayres & Co. But such a comparison would be invalid because the method of validation used in the aeronautical engineering problem could not be used for climate change models.

    1.4. It seems to me you wish to use the term ‘neo-classical’ as discriminator for the Stern versus the Ayres scenarios. If this is the case, then I should say that I can’t see the usefulness of such an approach. The term ‘neo-classical’ is not a measurable quantity or some other well defined mathematical object but rather a label given to a sub-set of the literature in economics. I am not convinced that there is agreement within economics on the exact boundaries of this literature. I tried to indicate this in my first comment.

    1.5. I should say up-front that I am not interested in discussions of specific climate models involving GDP for several reasons.
    a) This topic has been discussed at length on this blog-site.

    b) I have no interest in discussions of specific climate change models involving GDP. As far as I am concerned, these models have a role in international policy formation and the exact numerical values produced in the various scenarios are not crucial. I leave detailed discussions to experts in macro-economic model building.

    c) In support of my position that the exact numerical values of the said models are not crucial, I’ll give you a ‘real world’ example, from the aviation industry. In 1982, the National Acoustics Laboratory (a government owned organization) published their incredibly thorough job in calibrating an aircraft noise model. This noise model entered the decision making process for expanding an airport in Sydney in the early 1990s, via a complex communications strategy which I call ‘PR-filter’, and involving ‘organisational restructuring’ (splitting one authority into two). It took me a while to discover it within the PR-filter or words. There was (and still is) a lot of resistance on part of residents to the aircraft noise generated by aircraft movements to and from this airport. At the environmental impact statement stage, there were lengthy discussions among various experts, some using secondary material, about technical matters (ie Model A or Model B). However, none of these technical matters turned out to be crucial. The model was mis-applied by those in charge of the Environmental Impact Statement, the Federal Airport Corporation, an organization which was set up in preparation for privatization. The model was calibrated for distances up to about 15 km from the edge of the runways. But this was less than half of the distance of residential areas over-flown by aircraft landing from the north of the airport. I discovered that no noise measurements were taken, no survey was carried out during the EIS stage for areas more than 15 km to the north of the airport and residents were ‘fobbed off’ being told ‘they are outside the aircraft noise affected area’. Furthermore, I discovered the noise model assumes landing takes place over a flat plane while the ‘real world’ topography in Sydney is such that the land rises to the north. This monumental planning error doesn’t go away if the reality is distorted by such vague notions as ‘psychological modifiers’ (eg there are published studies which try to convince people that their reaction to aircraft noise is so ‘bad’ because they are scared of a crash. What nonsense. While aircraft don’t tend to crash onto houses regularly and they don’t crash because people on board are scared, there are records of crashes into residential areas, hence assigning a zero probability to such an event would be irrational in some sense. But the risk of a crash is a separate matter from the aircraft noise pollution.) The consequences (noise pollution) would go away if the planning error would be corrected but this is now ‘too expensive’ for those who now benefit from the error; the owners of the airport.

    2.
    2.1 The Arrow-Debreu model belongs to a different category of models. I mentioned it in relation to the paper by Hall et al which specifically talks about the need to integrate natural science with economics. As I have mentioned, this is really the area I am interested. It is the methodology of theoretical research in the Arrow-Debreu model which is relevant. There is no prediction model of the type you are interested. I could say that the scenarios in Stern and the scenarios in Ayres, are possible in this general framework. The important point is that the existing empirical data on ‘economic activity’ does not contain all information because markets are incomplete. That is, past time series GDP do not contain costs data for pollution. There is nothing one can do about this; inventing data retrospectively is not a good idea.

    2.2 ‘Nuclear’. I’ve checked with people who have appropriate scientific qualifications and, so far, all of them said they would not put ‘nuclear’ in column 1 of Figure 2 in Hall et al but they would put ‘uranium’ and related resources from which nuclear power can be generated in column 2. This also corresponds to the schematic representation in the Stanford GCEP publication you referenced in your reply.

    3. “…carbon taxes are almost more like an enforced savings plan than an externalities issue.� As far as I am concerned, it is not a question of being an enforced savings plan or a way to deal with externalities but it is looking at the same thing from more than one angle. Obviously, if oil and gas would have been used up at a slower rate then there would be more left now (lack of saving in the past) and the CO2 problem would be correspondingly smaller (externality). The need for taking externalities into account is now overwhelming – not only physical externalities but also monetary ones (eg the financial system cannot be said to be stable).

    I enjoyed the conversation. This is as much as I can contribute. Best of luck with your endeavors.

  57. John Mashey
    April 23rd, 2008 at 03:22 | #57

    re: #56 Ernestine
    Thanks so much. You have been very helpful and have given me much to chase.

    My airplane analogy wasn’t intended to go off into the details of models, climate or otherwise, it was just an analogy to say that if two models (whether computer or otherwise) seem fairly different, in some cases it matter very much whether either of them match the real world.
    I’ll see if Charlie Hall’s newer charts move nuclear and ask him about it next time.

    Thanks again.

  58. jquiggin
    May 5th, 2008 at 16:25 | #58

    Closing comments due to spam infestation

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