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 188.8.131.52, p180-181 of IPCC WG
III’s “Climate Change 2007 – Mitigation of Climate Change”:
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
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
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 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
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
[Neither a Deep Green nor Deep Brown, and not an economist]
Robert Ayres and Benjamin Warr [INSEAD]
*Ayres&Warr, “Accounting for Growth: the Role of Physical Work”,
*Ayres, PPT presentation [see p.46, especially].
Ayres,”Lecture 5: Economic Growth (and Cheap Oil)
Charles A. S. Hall [SUNY]
*Charlie Hall’s Balloon Chart of EROI and energy sources
Renewables have a *long* way to go to replace fossils.
*Hall, et al “The Need to Reintegrate the Natural Sciences with Economics”,
http://www.esf.edu/EFB/hall/ home page at SUNY
Hirsch Report for US DoE, 2005:
Pushker Kharecha and James Hansen, Implications of “peak oil” for
atmospheric CO2 and climate
Jeff Rubin and Benjamin Tal, Soaring Oil Prices
Will Make The World Rounder
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:
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.]