Home > Economics - General, Environment > Reasons to be cheerful (Part 1): Peak gasoline

Reasons to be cheerful (Part 1): Peak gasoline

May 16th, 2011

There are plenty of reasons to be gloomy about the prospects of stabilising the global climate. The failure at Copenhagen (partly, but far from wholly, redressed in the subsequent meeting at Cancun) means that a binding international agreement, let alone an effective international trading scheme, is a long way off. The political right, at least in English-speaking countries, has deepened its commitment to anti-science delusionism. And (regardless of views on its merits) the prospect of a significant contribution from nuclear power has pretty much disappeared, at least for the next decade or so, following Fukushima and the failure of the US ‘nuclear renaissance’.

But there’s also some striking good news. Most important is the arrival of ‘peak gasoline’ in the US. US gasoline consumption peaked in 2006 and was about 8 per cent below the peak in 2010. Consumption per person has fallen more than 10 per cent.

There are a couple of ways to look at this. One is in the standard economics terms of supply and demand. Given that oil production reached a plateau some time ago, and that demand from China and other developing countries is growing fast, equilibrium can only be reached if prices rise enough to limit the growth in Chinese consumption and generating an offsetting reduction in consumption elsewhere (I’m assuming little or no supply response, which seems consistent with the evidence).

We have of course seen oil prices rise substantially. The effect on demand depends on the percentage change in fuel prices and on the elasticity (a measure of responsiveness) of demand. Because the US has very low taxes on gasoline and other fuels a given change in oil prices produces a much larger percentage change in fuel price than in other developed countries. The US gasoline price rose, in real terms, by around 40 per cent between 2000 and 2010, and have risen by another 30 per cent or so since then, for a total increase of about 70 per cent. So, the US is the place to look for big price effects.

The big question is the elasticity of demand, that is the percentage change in demand arising from a 1 per cent change in price. In the short run, this elasticity is quite low, reflecting the fact that fuel is a small part of the running costs of a car. The short run elasticity (measured over periods less than a year) is relatively easy to estimate and is about -0.25, that is, a 1 per cent price increase will reduce demand by 0.25 per cent, and a 40 per cent increase will reduce demand by 10 per cent. That’s roughly in line with the observed outcome. However, given that factors such as income growth tend to raise demand, the observed reduction is a bit more than would have been expected with constant prices.

The long run elasticity is much higher, since in the long run people can change their driving habits, reduce their stock of cars, and choose more fuel-efficient cars The meta analysis cited here suggests values around -0.6, suggesting that the price increases we’ve already seen should reduce demand in the long term by around 40 per cent, relative to the trend with constant real prices.

In my view, even the long-run estimates are too low. A sustained upward trend in prices will induce the development of energy-saving innovations (the reverse is true – when energy is cheap and getting cheaper, people invent new ways to use more of it). I suspect that the full long-run elasticity, including induced innovation, is near 1, meaning that if current real prices are sustained, consumption could fall as much as 70 per cent below the level that would be expected if prices had remained at the 2000 level.

The alternative is the ‘bottom-up’ approach of looking at changes in driving habits, the car fleet and so on, then working back to total demand.

* The number of vehicle miles driven has peaked. This is partly a response to higher prices, but I suspect there may also be an element of saturation (Americans already spent far more time behind the wheel than people in any other country) and the emergence of substitution opportunities through IT and telecommunications, such as Internet shopping replacing trips to the mall (the construction of new malls has just about ceased).

* Cars are becoming more fuel efficient. That’s partly a market response, reflected in the demise of the Hummer, and partly the result of regulation. The US is tightening its fuel economy standards, and has finally blocked the loophole under which SUVs like the Hummer were treated as “light trucks” and counted separately from cars. The 2009 regulations require a 40 per cent improvement in the average efficiency of new cars, relative to the existing fleet, by 2016. That will take a decade or so to feed through (but efficiency standards for post-2016 cars can be increased further in that time).

* Car sales have been below previous peaks for some years. That’s partly a response to the Global Financial Crisis and the subsequent recession, but there’s evidence that the US car fleet is past its peak size.

In all of this, the GFC has had an effect, which is mostly temporary. So, we should expect some recovery in demand as the general economy recovers, but the peak gasoline phenomenon is real.

Finally, what does peak US gasoline imply about Peak Oil, which I’ll interpret as the point at which the current plateau in oil production turns into a clear, though gradual decline?

* First, we won’t really notice it happening (except as it’s manifested as a further increase in oil prices). Rather, we’ll have to look back at the stats to identify when the decline began

* Second, the adjustment will be a combination of many different processes (less travel altogether, less of that by car, more fuel-efficient cars) rather than one big shift

* Third, given that oil accounts for something like a third of all CO2 emissions, the sooner Peak Oil arrives, the better

Categories: Economics - General, Environment Tags:
  1. Ikonoclast
    May 16th, 2011 at 10:23 | #1

    This really is a watershed decade and limits to growth science is now being vindicated. JQ admits 5 significant peaks have already occurred. These peaks are;

    1. World Oil production.
    2. US gasoline consumption
    3. US vehicle miles
    4. US car fleet size
    5. US shopping mall floor space.

    The fact that we can’t increase CO2 emissions from oil is certianly a good outcome in itself. Where Prof J.Q. and I differ is in the implications (and possibilities) of these and other peaks.

    To my formally-untrained-in-economics mind, JQ’s analysis of demand elasticity for petroleum looks sound so far as I can judge and I take it on trust. ( I am too lazy for the moment to research it in depth.) For a professor of economics it is not difficult stuff so there is no reason for J.Q. to be wrong.

    The Professor’s predictions in precis are;

    1st. We won’t really notice it happening (except as it’s manifested as a further increase in oil prices).

    2nd. Adjustment will be a combination of many different processes (less travel altogether, less of that by car, more fuel-efficient cars) rather than one big shift

    3rd. Given that oil accounts for something like a third of all CO2 emissions, the sooner Peak Oil arrives, the better.

    From a position of accepting AGW science, proposition 3 is correct. Propositions 1 and 2 have a good chance of being bourne out (IMO) in the short term (say up to 4 years or 2015) but not (IMO) in the medium or long term. We could perhaps place 2020 as being medium term in this discussion.

    Oil (and its refined product) is an excellent and convenient fuel apart from AGW implications. It has a high energy density (both by volume and by weight). It is a liquid which aids transport and transfer (both by tanker and pipe). Being a liquid also aids the process of utilisation in engines and furnaces with automatic feed systems. Oil also forms feedstock for the petro-chemical industries. Natural gas fulfils most of the above criteria too, especially when compressed into a liquid.

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

    Oil plays a central role in transport, agriculture and petro-chemical production. JQ’s thesis, of minimal or no disruption to the economy (at least mid-term onwards) seems to depend on a view that only discretionary use of petroleum and petroleum products is economically significant or that this discretionary use is so large that only reductions in this component need be made for the foreseeable future.

    I am not sure this is correct. I see economic disruption occurring both because of reduction in discretionary use and also because of supply constraints for fixed or mandatory requirements to run a modern civilization. The economic effect caused by a significant reduction in discretionary use (even wasteful consumption keeps people employed and is a fundamental imperative of modern capitalism) can possibly be offset by economic activity in re-tooling the entire economy for renewable energy production and consumption. The ability or capacity to find oil replacements for mandatory requirements (food transport, mobile refrigeration, agriculture, petro-chemicals and some heating requirements) is another problem and likely to be one of greater magnitude.

    These are the dangers I see which make me less sanguine than Prof. J.Q.

  2. aidan
    May 16th, 2011 at 10:25 | #2

    Pagemastering:

    There is no opening parenthesis for “at least for the next decade or so)”.

    Should “… will reduce demand by 0.025 per cent” be 0.25 per cent?

    Should ” … values around 0.6″ be -0.6?

  3. Peter T
    May 16th, 2011 at 10:51 | #3

    But there also seems to be a close short-run relationship between oil prices and US recessions (see here: http://www.nber.org/papers/w16790.pdf) – prices balancing constrained supply with reduced demand. And many of the adaptations which allow for much lower oil use per capita in, eg, Europe, are large-scale social investments of a form that the US is currently averse to (such as urban planning and public transport).

    Plus there’s the impact on agriculture.

    And while every bit helps, the real problem is coal use. What’s to say that the US will not turn to hydrogenation (as it has to bio-ethanol) rather than to sustained public investment in greater energy efficiency?

    Oil has been a free lunch. Malthusian limits operate by constraining choices between essentials (in pre-oil and coal times you could have food or fuel or fibre, but more of one came at the cost of one of the others). They still leave room for lots of bad choices.

  4. John Quiggin
    May 16th, 2011 at 10:54 | #4

    On discretionary uses, consider the following
    * Transport is by far the dominant use, (followed by home heating, where oil is steadily being replaced by gas)
    * Within transport, private cars are the biggest use
    * The 2009 regulations require a 40 per cent improvement in the average efficiency of new cars, relative to the existing fleet, by 2016. That will take a decade or so to feed through (but efficiency standards can be increased further in that time)

    Add in a modest reduction in miles travelled by car (much of which is discretionary on any definition), and you can cut consumption in half over fifteen years or so without anybody really noticing.

  5. John Quiggin
    May 16th, 2011 at 10:55 | #5

    @aidan
    Thanks. Would you believe I had the 0.25 right and changed it because I thought it looked wrong. The important calculations were OK, though

  6. Ikonoclast
    May 16th, 2011 at 11:18 | #6

    @John Quiggin

    If you are right, 2020 will look a lot better than I predict and I will be happy to pay out the $100 bet. Your reasoning might hold true if India and China do not attempt to rapidly increase their private car fleets up till 2020. Very possibly, the price constraints will stop that happening.

    I still see a long term problem unless we use our fossil endowment productively to fund (in exergy terms) the changeover to renewables. Built in climate change ccould still cause a lot of damage too.

    I would like to see a lot more AGW amelioration/remedial action and renewables action right now from major governments around the world. We seem to be very tardy in getting serious about this.

  7. Sam
    May 16th, 2011 at 11:42 | #7

    I agree with the substance of what’s said here, but we should be cautious about using data from the US in recent years to predict long run oil consumption patterns. America has been in a pretty big recession, with reduced discretionary incomes and high unemployment caused by the GFC. Some of the reduced consumption of oil that you see here will be caused by this, and not simply by the increase in the price of oil.

  8. May 16th, 2011 at 12:12 | #8

    If a law was passed requiring all cars to participate in one of various mobile phone based car sharing schemes it would cut oil use from private transport by over two thirds. Sure you’d have to frequently share rides with smelly and annoying people, but if one thinks that the alternative is the collapse of civilization due to a lack of oil, it seems to be a small price to pay.

    Another thing that could be done is reduce the performance of cars back to the early 80′s. That could cut private transportation oil use in half. (I don’t recall civilization collapsing due to a lack of car performance back in the 80′s.)

    If the car stock was replaced with hybrids that would also cut private transportation oil use in half.

    If we combined all three we could cut private transportation oil use by over 90%. Sure it would have a drawback or two and be slightly inconvenient, but, and here’s the important point, it would probably be less inconvenient than civilization collapsing and becoming a maggot feeding off the corpse of the old world.

  9. Andrew
    May 16th, 2011 at 13:43 | #9

    One inconvenient truth about world oil reserves (for the Peak Oil enthusiasts) is that we seem to be discovering a lot more of it than we’re using.

    In 2010 the world discovered about 21 billion barrels of oil and 105 tcf of gas reserves. That’s 50% higher than in 2009 and is the biggest year since 2000.

    Three hundred and eighty-one discoveries were reported, with half the reserves in the five largest fields – Libra (9.4 billion barrels of oil equivalent) and Franco (4.5 billion barrels) in Brazil, Leviathan (Israel), and Ferdowsi and Forouz (Iran).

    Exploration activity is accelerating in 2011 – so this could be an even bigger year – major finds in Russia, Bolivia, Tanzania, Iran and Azerbaijan have already been made.

  10. Andrew
    May 16th, 2011 at 13:47 | #10

    Sam @7, that’s exactly right. A key reason US gasoline consumption has been down in the past couple of years had been the collapse in truck miles travelled – that’s directly correlated with economic activity.

    PQ’s point of US consumers gasoline saturation is broadly correct – but I suspect overal US consumption of gasoline will rise in the next 3-4 years as the US economic recovery continues.

  11. Ikonoclast
    May 16th, 2011 at 14:16 | #11

    @Andrew

    Ah, the old “the more we use, the more we have left” argument. The really inconvenient truth is that your “truth” is an urban myth/internet myth/factoid myth (choose preferred term).

    All objective data on oil discoveries shows the world discovery rate declinling markedly (with a few reverse peaks) since circa 1965.

    The graph on this site is common to all reputable sites;

    http://www.peakprovidence.com/discovery.html

  12. Jim Birch
    May 16th, 2011 at 14:18 | #12

    If the growing global middle class keep buying gasoline up to where the coal conversion becomes economic we have a more serious CO2 problem. There’s a lot of coal. Hopefully renewables and carbon disincentives will kick in before then.

  13. May 16th, 2011 at 14:46 | #13

    Andrew, the world used around 32 billion barrels of oil in 2010. If 21 billion barrels were discovered that leaves us over 10 billion barrels short. If 2010 was the best year this century for oil discovery, then discovery isn’t exactly keeping ahead of consumption.

  14. iain
    May 16th, 2011 at 16:19 | #14

    Peak oil at the “fast” end of the “prediction spectrum”, coupled with climate change at the “slow” end of the “prediction spectrum” is the absolute best possible outcome for kick-starting a better approach to environmental policy.

    Unfortunately, it may likely be that both will be at the “fast” end of predictions (which would be the worst outcome).

  15. John Quiggin
    May 16th, 2011 at 16:33 | #15

    A side point I picked up in Wikipedia is that oil output per person peaked in 1979. For most purposes, it’s output per person that matters. And the evidence is that, over the last 30 years, output of goods and services per person has risen substantially even as output of oil per person has fallen.

    That seems pretty conclusive as far as apocalyptic versions of the Peak Oil hypothesis are concerned.

  16. sam
    May 16th, 2011 at 19:18 | #16

    Read “Half Gone” by Jeremy Leggett for a more pessimistic opinion on the oil situation.
    http://www.amazon.co.uk/Half-Gone-Global-Energy-Crisis/dp/1846270049

  17. Peter T
    May 16th, 2011 at 19:28 | #17

    How much of that growth in population is in less developed countries? From a quick look, almost all of it (see, eg, this graph: http://www.prb.org/Educators/TeachersGuides/HumanPopulation/PopulationGrowth.aspx.) How much has real welfare increased in much of this area over that time? Not so much in Africa, large parts of Asia, much of Latin America – the parts where population growth has been highest. And where there has been growth in output, oil use has risen in tandem.

    Which is not to buy into visions of the apocalypse, just to suggest that things are not so simple.

  18. John Quiggin
    May 16th, 2011 at 20:33 | #18

    “And where there has been growth in output, oil use has risen in tandem.”

    Clearly not. To repeat, oil output per person has fallen, while total output per person has more than doubled, with the fastest increases in the developing world. You can slice and dice that however you like, but aggregate trends that go in opposite directions don’t move in tandem at the micro level.

  19. Ikonoclast
    May 16th, 2011 at 21:06 | #19

    @John Quiggin

    We should look at total energy use per capita not just oil use per capita. I have found one graph in a science slideshow which indicates that;

    “World energy use per capita has been essentially constant since the oil crisis of 1973″

    I dont know the source for the above contention, However, I am willing to accept it.

    This looks like strong evidence for JQ’s side of the argument. It does not look good for my side of the argument in that per capita output has risen for 40 years (I assume) while per capita energy use has plateaued and bumped along.

    I can’t find any figures I trust on per world per capita income from 1970 to 2010. Does anyone have any figures or links?

    While the link between energy use per capita and production per capita has been stretched for 40 years, I don’t think it has been broken. Nobody would argue we could produce (food, cars, computers etc) with zero energy inputs. If the link has been stretched, it has been stretched by energy efficiency, technology gains and higher valuations of intangibles.

    Each category is important but the first at least (energy efficiency) has limits. Technology gains look the most open-ended to me. Higher valuations of “intangibles” (my word perhaps) is an interesting category to me. For example, Facebook is now valued at something from $60 billion to $80 billion depending on who you listen to in the market. But what is Facebook in reality? A networking and advertising site. What are its real physical assets? Offices and servers? What is its real tangible intellectual property? The lines of html code. I would argue that the bulk of Facebook’s value is completely intangible. In fact I would use a stronger word and say “bogus”.

    If world per capita production is being “increased” by this sort of intangible or bogus valuation process then this is another kind of ponzi scheme. When the real energy shortages bite, such bogus intangible value will evaporate very quickly. Following on from this, the real economy that actually makes stuff will hit its limits as there are no more energy efficiency gains to be made and technological progress itself is hampered by energy shortages. That is unless we can makes the changover to producing renewable energy in industrial quantities.

  20. May 16th, 2011 at 22:15 | #20

    Ikonoclast, would you let me operate on you? I only charge half as much as actual surgeons and since the knowledge of how to perform surgery encoded in their brains is completely intangible it’s probably completely bogus. I assure you, the surgery I perform will in no way be a ponzi scheme.

  21. Ikonoclast
    May 16th, 2011 at 22:57 | #21

    @Ronald Brak

    LOL, I deserved that. My post above is not my finest moment in blog land. However, whilst not explaining my idea well, I think I can say that genuine knowledge, training and experience (all proven by documentation on education, practice, performance record etc.) are not intangible in the sense that I used the term in my post.

    I do however, view much of the value and associated economic activity surrounding a company like Facebook as a speculative and even bogus set of intangibles. Much of the apparent value is related to marketing data (I forgot that above) and advertising. These sorts of industries are bogus and of an actual negative value now in the sense that they seek to promote further over-consumption of limited, scarce and dwindling resources. These industries are in fact a net harm and not a net good.

  22. sam
    May 17th, 2011 at 00:35 | #22

    @Ikonoclast
    I agree that the marketing revenue facebook creates has an environmental cost, but the utility a company like facebook creates for users is still huge. If we imagine a world where facebook was run as a non-profit with just a tiny amount of advertising used to keep the servers ticking over, there would be a large benefit to the informal economy not captured by official GDP statistics.

    This applies to the internet in general. How much money would you have to be given before you voluntarily disconnected from the internet for a year (no email, no JQ’s blog)? I’m going to bet it’s a lot more than what you currently pay your ISP. In an energy crisis, with less travelling, you’d probably have to be paid even more. Since the exergy costs of the internet itself are by and large reflected in that ISP charge, the extra “consumer surplus” you gain is essentially exergy free.

    Over the last 10 years, a large amount of true economic development (as measured by consumer utility increases) has gone officially uncounted, and has not used any extra natural resources to create. The real economy is both richer and less natural-resource-dependent than is commonly thought.

  23. Donald Oats
    May 17th, 2011 at 01:42 | #23

    Given the scope in the USA and Australia for car-sharing (you know, like the missus shares her car with you so you don’t need another car too), the long-run elasticity seems a reasonable figure. Until people have time to depart with their dearly loved SUVs and the like, it may take quite awhile for the USA (and Australia?) to reap the benefit of much more fuel efficient transport. If cars are small and light then that alone makes a substantial reduction in fuel consumption, and then with engine improvements that are possible as well, there’s a lot of scope for huge efficiency increases. Trouble is, people don’t feel safe with all these SUVs on the road unless they too are in one :-P , so there could be some inertia on ditching the SUVs. Uptake by younger drivers hopefully is lower than their parents…

    I wonder though, what impact did the home buying frenzy have on spending habits for items like fuel in the USA? As discussed a few years ago on this blog, house prices went ballistic and sucked many people into the vortex of big loans on cheap entry rates, with the Faustian bargain now being repaid in spades in the USA. Is that effect at the margins, or does it play a contributing role to peaking in demand for fuel?

  24. Donald Oats
    May 17th, 2011 at 01:44 | #24

    Sorry, last sentence should have finished with “…peaking in demand for fuel in the USA?”

    Globally, it probably had bugger-all effect.

  25. Ikonoclast
    May 17th, 2011 at 06:47 | #25

    @John Quiggin

    JQ, I’m beginning to think I have missed a logical flaw in your per capita argument. Of course, I may just be suffering from a form of “confirmation bias” and be wanting to ignore evidence which disconfirms my position. At the same time, perhaps a certain amount of stubborness is necessary in holding a position. Sometimes it is a mistake to concede a position too soon. Have you never conceded a position in an argument, only to go away, think again, and realise that while your opponent’s clinching point appeared decisive at the time, you have now found the objective point which falsifies your opponent’s clinching point?

    Point 1. As I said total energy production is the key factor, not energy (and product) from oil alone. This, however, does not falsify your point at the per capita level.

    Point 2. The issue will be that production per capita versus energy use per capita is not the telling diagnostic of the system. The telling diagnostic is the total or absolute energy use peak when it occurs circa 2010 to 2015.

    Point 3. Much production now depends on the machine agents (computerised, automated and even self-powered machinery) which multiply human effort. Per capita productivity has lost much of its meaning. Gross machine agent productivity is directly dependent on gross energy consumption. Therefore it is the gross energy peak which is significant not energy use per capita. At or about the time of the gross energy peak there is also the gross manufacturing plant peak if I can call it that. The gross manufacturing plant peak is the peak of the accumulation of functioning machine agents and infrastructure all of which of course represent embodied energy and which were manufactured themsleves in the pre-peak “heydey” of abundant energy.

    Point 4. If my overall thesis is correct, then empirical evidence to date proves that per capita production versus per capita energy use is not the telling diagnostic. If my thesis is incorrect then it does no such thing of course. If my overall thesis is incorrect, then the empirical evidence to 2020 will refute my thesis. We will have to wait to find out.

  26. Greg
    May 17th, 2011 at 09:35 | #26

    John,

    1) The long run economic growth story is one in which the main driver is a continuous decline in the cost of transport. (Smith 1776, others ad nauseam.) With the now-expected turn away from nuclear power, we don’t have a good substitute for liquid fuels as energy for transport.

    Global GDP may grow through dematerialization, but GDP is only a rough proxy for standard of living; and for five billion people, improvement means more material goods and more mobility.

    2) Substitution. You express hopes about innovation[1], but plain-vanilla substitution with existing alternatives is just as powerful a response to price rises. The most direct substitutes for oil as transport fuel are coal-to-liquids (gasification followed by Fischer-Tropsch) and biofuels. Both of these are more than profitable with current oil prices, and both are problematic from a global warming point of view.[2] A country with less regulator capture than the US could use CNG; that may happen even there.

    3) Rest-of-system effects. If the US halved its gasoline consumption overnight, the surplus would be “eaten up” by developing countries and by exporters’ own use in less than five years. China alone is increasing oil consumption by about a million barrels per day, each year. Saudi Arabia, by about 200,000 barrels/day yearly. Oil is just too useful.[3]

    So 4) peak gasoline in the US is more or less irrelevant to global warming.

    Yes, the price signal is getting through in the US.[4] But no, that won’t have much effect on global carbon emissions. It may make it more difficult to stop using coal, which, James Hansen tells us, it what we really need to do.

    footnote 1. Innovations don’t happen because we expect them. The US was supposed to produce 100 million gallons of commercial cellulosic ethanol last year. The actual was 0 gallons.

    Of course high prices will induce behavioural changes, but these are not innovations but reversions.

    footnote 2. Biofuels are more directly problematic, too. Converting all the world’s food to transport fuels would get us about an eighth of current oil consumption for transport in energy terms. Filling a bucket from a water glass.

    footnote 3. The production of oil is itself getting more “dirty”. High-sulphur and heavy metal-contaminated oils, deep-sea oil, tar sands, and shale oils all require the burning of more fossil fuels in their own production than did the oil produced in the 1980s and 1990s.

    footnote 4. Its operation is harsh, though. In the US, productivity has been growing at over 3%, and the population at 1%, compared to GDP growth at 1.8%. In addition, income increases are concentrated in the top 20%. For most people, there’s still a recession on. With gasoline, it may be that it’s not a matter of everyone using a bit less, but rather one of the bottom decile dropping out of the market altogether.

  27. wilful
    May 17th, 2011 at 10:27 | #27

    If you want a truly gloomy version of peak oil while still being amused and entertained, go here: http://dieoff.org/

  28. John Quiggin
    May 17th, 2011 at 17:55 | #28

    Responding to Ikonoklast

    It’s true that energy use per person has increased since 1979, though not as much as income per person, even as oil use per person has declined.

    But that information runs directly against the standard Peak Oil claim that oil (NOT energy) is centrally necessary to civilised life. Clearly, as the evidence of the last thirty years, we can have both more income and more energy even as oil use declines. So far that’s mostly been done with gas and coal, but if we are prepared to pay for it, we can continue to enjoy increasing consumption of energy services from a combination of renewables and energy efficiency, while reducing and ultimately eliminating burning of fossil fules.

    That’s not to say there aren’t real constraints – CO2 being the most important. But, as the post says, Peak Oil is on the side of the good guys here. We should be grateful that it’s already happened.

  29. John Quiggin
    May 17th, 2011 at 18:00 | #29

    “peak gasoline in the US is more or less irrelevant to global warming. ”

    Broadly speaking this is right. What matters is the total supply of oil which, fortunately, seems to have plateaued and will hopefully decline in the future.

    Peak gasoline in the US is good news in that it shows that adjusting to a declining supply of oil is pretty much painless, even for a society as car-addicted as the US.

  30. Ikonoclast
    May 17th, 2011 at 21:06 | #30

    I’ve done a spreadsheet 1970 to 2009 but already had problems posting it here. Therefore I will paste the headings and just two lines of 1970 and 2009.

    Year Pop.Billions Exajoules 2009US$.Trillions E/Billion.Pple $T/ Billn.Pple Inc.Eng.Ratio
    1970 3.70 227.00 18.50 61.35 5.00 81.50
    2009 6.68 474.00 73.24 71.01 10.97 154.51

    Figures from some sources will vary a little from mine but not too much. These numbers are quite indicative of basic ratios. Population has not quite doubled. Total energy use in Exajoules has slightly more than doubled (so total energy use per capita has risen from 61.35 exajoules per billion people to 71.01 exajoules per billion people. Total World Income has risen from 18.50 2009US$ Trillion to 73.24 2009US$ Trillion or about 3 times. $Trillions per Billion people has risen from 5.00 to 10.97 so world income per capita has about doubled. The income unit to energy unit “ratio” has risen from 81.50 units* to 154.51 units or almost double.

    Overall I am a Peak Energy “theorist” not a Peak Oil “theorist”. However, I do still see declining oil as an important factor as oil is especially suited to transport needs and petro-chemical production. The oil limit will become a factor when discretionary and wasteful oil use is mostly priced out of the market.

    JQ says; “…we can have both more income and more energy even as oil use declines. So far that’s mostly been done with gas and coal, but if we are prepared to pay for it, we can continue to enjoy increasing consumption of energy services from a combination of renewables and energy efficiency, while reducing and ultimately eliminating burning of fossil fuels.”

    That is an optimistic though not necessarily impossible scenario. It would take a massive changeover to solar power and other renewables and we are leaving it very late. World population growth will need to be halted in the next decade or so too. Can we do it, that’s the question? The challenges will certainly be great.

    * Don’t ask me what these rather arbitrary “units” are as they are of my own invention. The ratio of 81.5 to 154.51 is what counts.

  31. Ikonoclast
    May 17th, 2011 at 21:52 | #31

    Pedantic Footnote: Oil and Gas are really one and the same family, namely hydrocarbons. Coal is the cousin; all carbon and no hydrrogen. It really makes more sense to talk about Peak Hydrocarbons (and at a stretch even Peak Fossils). In that light, Peak Oil theory is not quite so easily dismissed by the semantic separation of oil from gas.

  32. Ikonoclast
    May 18th, 2011 at 09:35 | #32

    Footnote: Final attempt to post truncated spreadsheet. (I can’t help it, I like to experiment.)
    Pop is in billions. Energy in Exajoules. US$ in 2009 US$ equivalents. “Per capita” measures are per billion not per person.

    YEAR POP ENERGY US$T E/POP $T/POP INC to E Ratio

    1970 3.70 227.00 18.50 61.35 05.00 081.50
    2009 6.68 474.00 73.24 71.01 10.97 154.51

  33. Donald Oats
    May 18th, 2011 at 15:54 | #33

    @Ikonoclast

    So if I’ve got this correct, in 2009 the per-person kw power consumption is 2.3kw, or 2248.526w (based on 365.25 days in a year; I know, I’ve used unnecessary precision :-) ).

    Some of us are using one Hell of a lot of energy, in that case. By comparison with your 1970 numbers, the per-person power consumption then was 1.9kw, or 1944.107w. The ratio of 2009 power consumption to 1970 power consumption is approx 1.157, a 15.7% increase in power per person over a 40 year period. Therefore, there is a rise in power consumption on the per capita basis of a straight-line 0.4% per annum (can’t be bothered with the compounded growth figure, but at a guess it is around 0.36 to 0.37% p.a.).

    What the Hell do we need an extra 0.4% p.a. power for? The computer revolution perhaps? The extra car in the drive, maybe? Guess so.

    Sometimes it is interesting to look at power consumption in joule terms ie energy per day, or some other larger timeframe than the seconds implicit in a kw (I hate kw-h or the like, don’t know why). A person requires approximately 8MJ per day in order to survive, and 10MJ per day for a physically active individual of say 70kg. By Ikonoclast’s numbers and my calculation, we use energy for external purposes at a 2009 rate of 194MJ per day, or 19 to 20 times more energy than required to live. Guess that ducted air-con is popular!

  34. Ikonoclast
    May 18th, 2011 at 21:23 | #34

    @Donald Oats

    Sounds about right. I think I read somewhere that the average world citizen has about 20 or 30 “energy slaves” working for him/her. Some have calculated that the average American has about 100 energy slaves. An “energy slave” is an imaginary human slave who produces the power you use. In these calculations I doubt they give energy slaves 8 hour workdays and 4 weeks paid leave per annum.

  35. TerjeP
    May 19th, 2011 at 06:16 | #35

    Some disjointed comments:-

    1. Prospects for improvements in battery technology have never looked better. I don’t think it will be enough to make wind and solar viable (total cost still sucks) however I do expect an increasing electrification of cars (mostly as plug in hybrids). As this happens oil becomes less important. Oil is already too expensive to harvest as an energy source and is harvested because it is a good energy carrier.

    2. Nuclear is a price story, not safety. It will be built on mass as and when it is cheap relative to alternatives. The safety concerns are over blown and economics will decide.

    3. We may be headed for a gas bonanza due to new extraction techniques. Short term methane is a powerful greenhouse gas so I don’t envisage many short term benefits in terms of AGW. Atleast not if enough leaks during extraction.

  36. Ikonoclast
    May 19th, 2011 at 09:28 | #36

    Our entire energy future is still murky to me but large parts are becoming clear. My own survey(of the literature available to the intelligent layperson) makes me think that;

    1. Peak Oil extraction has been reached.
    2. Peak Gas extraction will be reached by about 2015.
    3. Peak Coal energy production will also be reached by about 2015.
    4. Peak Coal tonnage does not equal peak energy from coal as much of the top grade coal has already been used.
    5. Batteries do not solve the energy supply crisis as they are energy stores not energy sources.
    6. Solar, wind and maybe wave and tidal energy are the best bets for renewables.
    7. I am not sure if solar and wind will return adequate EROEI (energy return on energy invested) to run a modern energy hungry civilization. That remains to be seen.
    8. Nuclear power is a price story, an EROEI story, a safety story, a technical limits story and a finite fuel resources story.*
    9. Methane clathrates fields are a resource which we better hope we never figure out how to use or we will definitely destroy the earth’s climate.

    * Despite my general anti-nuclear stance and my position that nuclear fuel is a finite resource, there are circumstances in which I would not be entirely against Australia using nuclear power. (I doubt it will actually happen though.)

    An Australian nuclear policy I could accept would be;

    1. Cease all uranium sales to countries not signatory to the non-proliferation treaty.
    2. Cease all uranium sales to countries declared (by Australian legislation) to be not geologically or politically stable enough to recieve uranium.
    3. Allow nuclear power stations to be built in the outback (probably the South Australian Outback) if private enterprise is prepared to fully fund them, fully insure them and obey strict fuel lifecyle rules right through to encasement of spent fuel in synrock and deep burial in the deepest outback in the most geologically stable rock on the Australian continent.

  37. May 19th, 2011 at 10:41 | #37

    TerjeP, there is no need for battery or other energy storage to improve to make wind or solar power viable. They can be viable just by being a price taker and selling electricity to the grid (or substituting for electricity bought from the grid) as they produce it. Here in South Australia we get 20% of our electricity from wind without any storage. And as electricity demand is higher during the day, storage is even less of an issue for solar. It would be handy to have a cheap form of energy storage, but it’s not necessary. At the moment the cheapest way to provide carbon neutral electricity on demand appears to be to burn biomass in a existing coal fire plant or burn natural gas and then use trees or other plants to capture the carbon released and sequester it. But the cost of flow batteries, solar thermal storage, and other energy storage is coming down, so they may become practical for large scale use.

  38. Alice
    May 19th, 2011 at 15:38 | #38

    @TerjeP
    Terje says ” Nuclear is a price story, not safety.”

    Nuclear Plants? Safe as climbing Mount Everest with a thread instead of a rope and you are as truthful as man with a second hand car.

  39. Alice
    May 19th, 2011 at 19:28 | #39

    This one is for Terje. If nuclear was not a safety story then why is the market hammering Tepco. Clearly the market thinks this nuclear plant is a nigtmare of no safety. Yes I guess people have the right to sue for loss of livelihoods from nuclear contamination. The market is speaking to you Terje but as usual you deny the risks of nuclear. Expect more disasters, gioven the nuclear industry’s dirty little secret habit of storing spent fuel rods onsite for cheap reasons.

    “Since the accident, Tepco shares have lost 83 percent of their value. They traded at 360 yen at 2:06 p.m. in Tokyo today compared with 2,153 yen on March 10.”

  40. TerjeP
    May 19th, 2011 at 22:24 | #40

    Alice – we know why Tepco is getting hammered in the stock market. They had a nuclear accident after the big wave hit Japan. Of more relevance is the share price for other nuclear operators and nuclear construction companies in light of what happened to Tepco in Japan.

  41. quokka
    May 20th, 2011 at 12:05 | #41

    Prof Quiggin makes a fair case that we may be witnessing peak gasoline in the US which could possibly be extended to some other western countries. But whether this applies worldwide is another matter. If you want some “balancing” pessimism, think about unconventional sources such as tar sands, coal to liquids, gas to liquids etc etc. Peak oilers tend to dismiss these, and often provide an argument centered around EROEI that basically says the increasing cost of the fossil fuel derived energy used for extraction/processing will make them uneconomic.

    There is a wildcard here which is the potential use of nuclear power to supply the process heat and other energy requirements and the EROEI argument is much weakened. Small modular reactors/nuclear batteries may well look quite attractive for such applications. There are a number of startups (and long established companies) in the US and substantial interest and work in Russia proceeding with the development of SMRs. It would not surprise me at all if they see applications in mining and fossil fuel extraction/processing as a principal market.

    This certainly would be an abuse of nuclear power, but if the demand is there, the price is right and the world absolutely cannot do without these liquid fossil fuels, then such applications of SMRs would seem more likely than not. The big oil companies wallowing in cash would surely have the capability to do this and I would be surprised if they have not already considered it in future scenarios.

  42. quokka
    May 20th, 2011 at 13:51 | #42

    The Fukushima accident certainly hasn’t helped the case for nuclear power, but it is not really clear how much it has changed prospects. When the dust settles, the main “indicator” of it’s consequences is most likely to be seen to be the number of permanent relocations from contaminated areas. The extent of this is as yet unclear and likely to remain so at least until some time after the recovery effort begins in earnest after the reactors are brought to a state of cold shutdown which is said to be around the end of this year. Aside from the expense, what other indicators are there? The health consequences for plant workers is likely to be a projected number of cancers that could be counted on the fingers of one hand – with fingers left over. Purported effects on public health are likely to be unidentifiable.

    As for the US, the “nuclear renaissance” was not very strong to start with, which has probably got more to do with the price of natural gas than anything else. As far as I am aware the only cancellation of new nuclear build in the US as a consequence of the Fukushima accident is the NRG South Texas project which is due to the withdrawal of investment from Tepco for fairly obvious reasons.

    Japan aside, the UK will probably be the best immediate test of the effect on Fukushima on policy. 50% emissions reductions by 2025 looks really tough and even tougher without nuclear. Anybody interested in current thinking in the UK should read the Climate Change Committee’s “The Renewable Energy Report” and the associated reports it commissioned from outside consultancies. It may as well have been titled “The Renewables and Nuclear Report” because that is what it is. In all scenarios, large slices of demand is met by new nuclear build. Nuclear and on-shore wind are assessed has having comparable LCOE with a considerable range of uncertainty. All other rewnewables are assessed as more expensive right through to 2040.

    I will not post the links, cause links tend to get caught in moderation here, but it is easy enough to find. Unlike other grand plans, the CCCs reports to my thinking are more credible, if for no other reason than the CCC is accountable unlike sources such as Greenpeace, “green” industry lobby groups and such like.

  43. Phil Drew
    May 23rd, 2011 at 12:16 | #43

    I recently read your Zombie economics. It was a good read.
    There is an issue that I am curious about. There does not seem to be any discussion of the impact of US deficits as a contributor to stagflation. As an opponent at the time of the Vietnam war I was always in two minds about Johnston, who achieved major social changes and aimed for the Great Society with its war, amongst other things, on poverty. It seems to me that this fight on two fronts could only be achieved through exporting a major portion of the cost to the rest of the world.
    There is usually a recognition of the importance of the oil shock. I remember UN statistics that disaggregated developmental aid to oil producing and non-oil producing nations showing that net of oil exports the former received negative aid.
    Is it conceivable that it was the combination of US excess and the oil shock that lead to ‘stagflation’ and the demise of Keynesianism?
    I also note that that demise came at a time when years of assiduous development had generated an ‘alternative’. Richard Cockett’s Thinking the unthinkable demonstrates how opponents of Keynes began even before his thought had become an ism. Their strategy was to capture the teaching of economics. Along the way they had an impact on Bretton Woods.
    It seems to me that there is a somewhat analogous situation with the somewhat more backward approach of the Bush legacy in which tax cuts at home and two wars in Afghanistan and Iraq are analogous to the great society and the Vietnam war.

Comments are closed.