Limits to Growth

Jay Forrester: the man who saw the future

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Published on Cassandra's Legacy on November 18, 2016

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Jay Wright Forrester (1918-2016) may have been the source of inspiration for Hari Seldon, a fictional character in Isaac Asimov's Foundation series. In Asimov's novels, Seldon develops "pyschohistoric equations" that allow him to predict the impending collapse of the Galactic Empire. In the real world, Forrester developed "system dynamics equations" that allowed him to predict the impending collapse of the modern human civilization. The predictions were ignored by the Imperial powers of both the fictional and the real universe.

Jay Forrester, one of the great minds of the 20th century, died at 98, a few days ago. His career was long and fruitful, and we can say that his work changed the intellectual story of humankind in various ways, in particular for the role he had in the birth of the Club of Rome's report "The Limits to Growth"

In 1969, Forrester was a faculty member of the MIT when he met Aurelio Peccei in Italy. At that time, Peccei had already founded the Club of Rome, whose members were worried about the limits to the natural resources that the Earth could provide. They were trying to understand what the consequences would have been for humankind. From what Peccei wrote, it seems clear that he was seeing the situation mostly in Malthusian terms; thinking that the human population would have been growing until reaching the resource limits, and then stay there, kept in check by famines and epidemics. The main concern of Peccei and of the Club of Rome was to avoid human suffering by ensuring a fair distribution of what was available.

The encounter with Forrester changed this vision in ways that, perhaps, neither Peccei nor any of the Club members would have imagined. In the 1960s, Forrester's models were already well advanced. Based on a completely new method of calculation that Forrester had dubbed "system dynamics," the models were able to take into account how the many variables of a complex system interacted with each other and changed in time.

The result was the study that the Club of Rome commissioned to Forrester and to his research group: simulate the future of humankind over a time range of more than a century, all the way to 2100. Forrester himself prepared a complete study with the title "World Dynamics" that was published in 1971. A group of Forrester's students and coworkers prepared a more extensive study titled "The Limits to Growth" that became a true intellectual revolution in 1972.

Forrester's system dynamics provided results that proved that Malthus had been an optimist. Far from reaching the limits to growth and staying there, as Malthus had imagined, the human civilization was to overshoot the limits and keep growing, only to crash down, badly, afterward. The problem was not just that of a fair distribution of the available resources, but to avoid the collapse of the whole human civilization. The calculations showed that it was possible, but that it required stopping economic growth. That was something that nobody, then as now, couldn't even imagine to do.

You know how things went: I told the story in my book "The Limits to Growth Revisited". Forrester's work was mostly ignored, but the better known "The Limits to Growth" study was not only rejected; it was actively demonized. The legend of the "wrong predictions" of the study was created and it spread so much that it is still widely believed. Yet, the intellectual revolution that was the creation of System Dynamics never died out completely and, today, world modeling is returning. We need to study the future in these times of great uncertainty. It is difficult, unrewarding, and often leading us astray. But we must keep trying.

Perhaps of Forrester's unknown achievement was of having inspired Isaac Asimov for the character of "Hari Seldon" in the famous "Foundation" series that Asimov wrote starting in the 1950s. We have no proof that Asimov ever met Forrester or knew his work, but they both lived in Boston at the same time, so it is at least possible. Then, Hari Seldon and Jay Forrester share similar traits: both are scientists who develop powerful methods for prediction the future. Seldon develops a field known as "Psychohistory" while Forrester developed "System Dynamics." In both cases, the equations predict that civilization will undergo a collapse. In both cases, the scientists are not believed by the Imperial authorities of their times, fictional or real.

In Asimov's story, Seldon goes on to create "Foundation" a planet where the achievements of civilization are kept alive and will be used to rebuild a new civilization after that the collapse of the old one. The plan succeeds in Asimov's fictional universe. In our case, the real Earth of the 21st century, nobody seems to have been able to create a safe haven for the achievements of civilization that we can use after the collapse. Seeing how things stand, maybe it is the only hope left?

But, maybe, Asimov wasn't directly inspired by Forrester for his Hari Seldon. Maybe he was just inspired by the archetype of the wise man that, in human history, has been played by people such as Merlin, Laozi, Kong Fuzi, Prince Gautama, Socrates, and many others. Perhaps Jay Forrester deserves to be listed among these wise men of old. Perhaps, the wisdom that Forrester brought to us will come handy in the difficult future that awaits us.

Forrester's achievements are many besides those of World Modeling. He developed a completely new magnetic computer memory that became the world standard, he developed a complete programming language (called "dynamo"), he is the originator of several fundamental ideas in system management: the "bullwhip effect," the concept of "Urban Dynamics"; of "Industrial Dynamics" of the "leverage points" in complex systems, and much more. A true genius of our times. 

Overly Simple Energy-Economy Models Give Misleading Answers

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Published on the Our Finite World on July 25, 2016

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Does it make a difference if our models of energy and the economy are overly simple? I would argue that it depends on what we plan to use the models for. If all we want to do is determine approximately how many years in the future energy supplies will turn down, then a simple model is perfectly sufficient. But if we want to determine how we might change the current economy to make it hold up better against the forces it is facing, we need a more complex model that explains the economy’s real problems as we reach limits. We need a model that tells the correct shape of the curve, as well as the approximate timing. I suggest reading my recent post regarding complexity and its effects as background for this post.

The common lay interpretation of simple models is that running out of energy supplies can be expected to be our overwhelming problem in the future. A more complete model suggests that our problems as we approach limits are likely to be quite different: growing wealth disparity, inability to maintain complex infrastructure, and growing debt problems. Energy supplies that look easy to extract will not, in fact, be available because prices will not rise high enough. These problems can be expected to change the shape of the curve of future energy consumption to one with a fairly fast decline, such as the Seneca Cliff.

Figure 5. Seneca Cliff by Ugo Bardi

 

 

Figure 1. Seneca Cliff by Ugo Bardi. This curve is based on writings in the 1st century C.E. by Lucius Anneaus Seneca, “It would be of some consolation for the feebleness of our selves and our works if all things should perish as slowly as they come into being; but as it is, increases are of sluggish growth, but the way to ruin is rapid.”

It is not intuitive, but complexity-related issues create a situation in which economies need to grow, or they will collapse. See my post, The Physics of Energy and the Economy. The popular idea that we extract 50% of a resource before peak, and 50% after peak will be found not to be true–much of the second 50% will stay in the ground.

Some readers may be interested in a new article that I assisted in writing, relating to the role that price plays in the quantity of oil extracted. The article is called, “An oil production forecast for China considering economic limits.”  This article has been published by the academic journal Energy, and is available as a free download for 50 days.

A Simple Model Works If All We Are Trying to Do Is Make a Rough Estimate of the Date of the Downturn

Are we like the team that Dennis Meadows headed up in the early 1970s, simply trying to make a ballpark estimate of when natural resource limits are going to become a severe problem? (This analysis is the basis of the 1972 book, Limits to Growth.) Or are we like M. King Hubbert, back in 1956, trying to warn citizens about energy problems in the fairly distant future? In the case of Hubbert and Meadows, all that was needed was a fairly simple model, telling roughly when the problem might hit, but not necessarily in what way.

I have criticized Hubbert’s model for being deficient in some major respects: leaving out complexity, leaving out entropy, and assuming a nearly unlimited supply of an alternate fuel. Perhaps these issues were not important, however, if all he was trying to do was warn people of a distant future issue.

Slide 29 from my complexity presentation at the Biophysical Economics Conference. Hubbert's model omitted complexity, entropy.

 

 

Figure 2. Slide 29 from my complexity presentation at the 2016 Biophysical Economics Conference. Hubbert’s model omitted complexity, entropy.

The model underlying the 1972 book, Limits to Growth, was also quite simple. Ugo Bardi has used this image by Magne Myrtveit to represent how the 1972 Limits to Growth model worked. It does not include a financial system or debt.

Figure 2. Image by Magne Myrtveit to summarize the main elements of the world model for Limits to Growth.

 

 

Figure 3. Image by Magne Myrtveit to summarize the main elements of the world model for Limits to Growth.

As such, this model does not reflect the major elements of complexity, which I summarized as follows in a recent post:

Figure 3. Slide 7 from my recent complexity presentation. Basic Elements of Complexity

 

 

Figure 4. Slide 7 from my recent complexity presentation. Basic Elements of Complexity

Thus, the model does not forecast the problems that can be expected to occur with increasingly hierarchical behavior, including the problems that people who are at the bottom of the hierarchy can be expected to have getting enough resources for basic functions of life. These issues are important, because people at the bottom of the hierarchy are very numerous. They need to be fed, clothed, housed, and have transportation to work. All of these things take natural resources, including energy products. If the benefit of available natural resources doesn’t make it all of the way down to the bottom of the hierarchy, death rates spike. This is one of the forces that can be expected to change the shape of the curve.

Slide 17. People at the bottom of a hierarchy are most vulnerable.

 

 

Figure 5. Slide 17 from my complexity presentation. People at the bottom of a hierarchy are most vulnerable.

Dennis Meadows does not claim that the model that his group put together will show anything useful about the “shape” of the collapse. In fact, in an article about a year ago, I cut off part of the well-known Limits to Growth forecast to eliminate the part that is likely not particularly helpful–it just shows what their simple model indicates.

Figure 4. Limits to Growth forecast, truncated shortly after production turns down, since modeled amounts are unreliable after that date.

 

 

Figure 6. Limits to Growth forecast, truncated shortly after production turns down, since modeled amounts are unreliable after that date.

Anthropologist Joseph Tainter’s View of Collapse

If we read what anthropologist Joseph Tainter says in his book, the Collapse of Complex Societies, we find that he doesn’t consider “running out” to be the cause of collapse. Instead, he sees growing complexity to be what leads an economy to collapse. These are two of the points Tainter makes regarding complexity:

  • Increased complexity carries with it increased energy costs per capita. In other words, increased complexity is itself a user of energy, and thus tends to drain away energy availability from other uses. Thus, in my opinion, complexity will make the system fail more quickly than the Hubbert model would suggest–the complexity part of the system will use part of the energy that the Hubbert model assumes will be available to fund the slow down slope of the economy.
  • Increased investment in complexity tends to reach declining marginal returns. For example, the first expressway added to a highway system adds more value than the 1000th one. Eventually, if countries are trying to create economic growth where little exists, governments may use debt to fund the building of expressways with practically no expected users, simply to add job opportunities.

Ugo Bardi quotes Joseph Tainter as saying,

“In ancient societies that I studied, for example the Roman Empire, the great problem that these economies faced was that they eventually would incur very high costs just to maintain the status quo. They would need to invest very high amounts to solve problems that didn’t yield a net positive return; instead these investments simply allowed the economies to maintain the level that they were at. This increasing cost of maintaining the status quo decreased the net benefit of being a complex society.” 

View of Collapse Based on a Modeling Approach 

In the book Secular Cycles, Peter Turchin and Surgey Nefedov approach the problem of what causes civilizations to collapse using a modeling approach. According to their analysis, the kinds of things that caused civilizations to collapse very much corresponded to the symptoms of increasing complexity:

  • Problems tended to develop when the population in an area outgrew its resource base–either the population rose too high, or the resources become degraded, or both. The leaders would adopt a plan, which we might consider adding “complexity,” to solve the problems. Such a plan might include raising taxes to be able to afford a bigger army, and using that army to invade another territory. Or it might involve a plan to build irrigation, so that the current land becomes more productive. A modern approach might be to increase tourism, so that the wealth obtained from tourists can be traded for needed resources such as food.
  • According to Turchin and Nefedov, one problem that arises with the adoption of the new plan is increased wealth disparity. More leaders are needed for the new complex solutions. At the same time, it becomes more difficult for those at the bottom of the hierarchy (such as new workers) to obtain adequate wages. Part of the problem is the underlying problem of too many people for the resources. Thus, for example, there is little need for new farmers, because there are already as many farmers as the land can accommodate. Another part of the problem is that an increasing share of the output of the economy is taken by people in the upper levels of the hierarchy, leaving little for low-ranking workers.
  • Food and other commodity prices may temporarily spike, but there is a limit to what workers can pay. Workers can only afford more, if they take on more debt.
  • Debt levels tend to rise, both because of the failing ability of workers to pay for their basic needs, and because governments need funding for their major projects.
  • Systems tend to collapse because governments cannot tax the workers sufficiently to meet their expanded needs. Also, low-ranking workers become susceptible to epidemics because they cannot obtain adequate nutrition with low wages and high taxes.

How Do We Fix an Overly Simple Model? 

The image shown in Figure 3 in some sense shows only one “layer” of our problem. There is also a financial layer to the system, which includes both debt levels and price levels. There are also some refinements needed to the system regarding who gets the benefit of energy products: Is it the elite of the system, or is it the non-elite workers? If the economy is not growing very quickly, one major problem is that the workers at the bottom of the hierarchy tend to get squeezed out.

Figure 7. Authors' depiction of changes to workers share of output of economy, as costs keep rising for other portions of the economy keep rising.

 

 

Figure 7. Author’s depiction of changes to non-elite workers’ share of the output of economy, as costs for other portions of the economy keep rising. The relative sizes of the various elements may not be correct; the purpose of this chart is to show a general idea, not actual amounts.

Briefly, we have several dynamics at work, pushing the economy toward collapse, rather than the resources simply “running out”:

  1. Debt tends to rise much faster than GDP, especially as increasing quantities of capital goods are added. Added debt tends to reach diminishing returns. As a result, it becomes increasingly difficult to repay debt with interest, creating a major problem for the financial system.
  2. The cost of resource extraction tends to rise because of diminishing returns. Wages, especially of non-elite workers, do not rise nearly as quickly. These workers cannot afford to buy nearly as many homes, cars, motorcycles, and other consumer goods. Without this demand for consumer goods made with natural resources, prices of many commodities are likely to fall below the cost of production. Or prices may rise, and then fall back, causing serious debt default problems for commodity producers.
  3. Because of growing complexity of the system, the “overhead” of the system (including educational costs, medical costs, the wages of managers, the cost of government programs, and the cost of resource extraction) tends to increase, leaving less for wages for the many non-elite workers of the world. With lower wages, the non-elite workers can afford less. This dynamic tends to push the system toward collapse as well.

The following is a list of variables that might be added to the overly simple model.

  • Debt. As capital goods are added to work around resource shortages, debt levels will tend to rise quickly, because workers need to be paid before the benefit of capital goods can be obtained. Debt levels also rise for other reasons, such as government spending without corresponding tax revenue, and funding of purchases deemed to have lasting value, such as college educations and investments in research and development.
  • Interest rates are the major approach that politicians have at their disposal to try to influence debt levels. In general, the lower the interest rate, the cheaper it is to buy cars, homes, and factories on credit. Thus, the amount of debt can be expected to rise as politicians lower interest rates.
  • Wages of non-elite workers. Non-elite workers play a dual role: (a) they are the primary creators of the goods and services of the system, and (b) they are the primary buyers of the goods that are made using commodities, such as food, clothing, homes, and transportation services. Thus, their wages tend to determine whether the economy can grow. In general, we would expect wages of workers to rise, if their wages are being supplemented by more and more fossil fuel energy in the form of bigger and better machinery to help the workers produce more goods and services. If the wages of non-elite workers fall too low, we would expect the economy to slow, and commodity prices to fall. To some extent, rising debt (through manipulation of interest rates, or through government spending in excess of tax revenue) can be used to supplement the wages of non-elite workers to allow the economy to continue to grow, even if wages are stagnating.
  • The affordable price level for commodities in the aggregate depends primarily on the wage level of non-elite workers and debt levels. A particular commodity may increase in price, but in the aggregate, the total “package” of costs represented by commodity prices must remain affordable, considering wage and debt levels of workers. If wage levels of non-elite workers are rising, the overall affordable price level of commodities will tend to rise. But if wage levels of non-elite workers are falling, or if debt levels are falling, affordable price levels are likely to fall.
  • The required price level for commodity production in the aggregate to continue to grow at the previous rate. This required price level will depend on many considerations, including: (a) the rising cost of extraction, considering the impacts of depletion, (b) wage levels, (c) tax requirements, and (d) other needs, including payment of interest and dividends, and required funding for new development. Clearly, if the affordable price level falls below the required price level for very long, we can eventually expect total commodity production to start falling, and the economy to contract.
  • The energy needs of the “overhead” of the system. Increasing complexity tends to make the overhead of the system grow much faster than the system as a whole. Energy products of various kinds are needed to support this growing overhead, leaving less for other purposes, such as to increasingly leverage the labor of human workers. Some examples of growing overhead of the system include energy needed (a) to maintain the electric grid, internet, roads, and pipeline systems; (b) to fight growing pollution problems; (c) to support education, healthcare, and financial systems needed to maintain an increasingly complex society; (d) to meet government promises for pensions and unemployment insurance; and (e) to cover the rising energy cost of extracting energy products, water, and metals.
  • Available energy supply based on momentum and previous price levels. A few examples explain this issue. If a large oil project was started ten years ago, it likely will be completed, whether or not the oil is needed now. Oil exporters will continue to pump oil, as long as the price available in the marketplace is above their cost of production, because their governments need at least some tax revenue to keep their economies from collapsing. Wind turbines and solar panels that have been built will continue to produce electricity at irregular intervals, whether or not the electric grid actually needs this electricity. Renewable energy mandates will continue to add more wind turbines and solar panels to the electric grid, whether or not this electricity is needed.
  • Energy that can actually be added to the system, based on what workers can afford, considering wages and debt levels [demand based energy]. Because matching of supply and demand takes place on a short-term basis (minute by minute for electricity), in theory we need a matrix of quantities of commodities of various types that can be purchased at various price levels for short time-periods, given actual wage and debt levels. For example, if more electricity is dumped on the electric grid than is needed, how much impact will a drop in prices have on the quantity of electricity that consumers are willing to buy? The intersections of supply and demand “curves” will determine both the price and quantity of energy added to the system.

The output of the model would be three different estimates of whether we are reaching collapse:

  1. An analysis of whether repayment of debt with interest is reaching limits.
  2. An analysis of whether affordable commodity prices are falling below the level needed for commodity consumption to grow, likely leading to falling future commodity production.
  3. An analysis of whether net energy per capita is falling. This would reflect a calculation of the following amount over time: Net energy per capita calculationIf net energy per capita is falling, the ability to leverage human labor is falling as well. Thus productivity of human workers is likely to stop growing, or perhaps decline. The total amount of goods and services produced is likely to plateau or fall, leading to stagnating or declining economic growth.

The important thing about the added pieces to this model is that they emphasize the one-way nature of the system. The economy needs to grow, or it collapses. The price of energy products cannot rise much at all, because wages of workers don’t rise correspondingly. This means that any energy substitute must be very cheap. The system needs to keep adding debt, especially when capital goods are added. The benefit of this debt reaches diminishing returns. The combination of these diminishing returns with respect to investments made with debt, and the interest that needs to be paid on debt, means that it is very difficult for energy products based on capital goods to “save” the system.

Complexity Adds Unforeseen Problems

One issue that people working solely in the energy sector may not notice is that our current system for setting market-based electricity prices is not working very well, with the addition of feed-in tariffs and other subsidy programs. There is evidence that subsidizing renewable electricity tends to lead to falling wholesale electricity prices. In a sense, if we subsidize electricity prices for one type of electricity producer, we find it also necessary to subsidize electricity prices for other types of electricity producers. (Also in California.)

Figure 8. Residential Electricity Prices in Europe, together with Germany spot wholesale price, from http://pfbach.dk/firma_pfb/references/pfb_towards_50_pct_wind_in_denmark_2016_03_30.pdf

 

 

Figure 8. Residential Electricity Prices in Europe, together with Germany spot wholesale price, from http://pfbach.dk/firma_pfb/references/pfb_towards_50_pct_wind_in_denmark_2016_03_30.pdf

Inadequate prices for electricity producers and a need for ever-rising subsidies for electricity production could, by themselves, cause the system to fail. In a sense, this pricing problem is a complexity-related outcome that economists have overlooked. Their models are also too simple!

Conclusion

It is easy to rely on too-simple models. Perhaps the biggest issue that is missed is that energy prices can’t rise endlessly. Because of this, a large share of natural resources, including oil and other energy products, will be left in the ground. Furthermore, because prices do not rise very high, energy products that are expensive to produce can’t be expected to work, either, no matter how they are disguised. Substitutes that cannot be inexpensively integrated into the electric grid are not likely to work either.

I talked about low-ranking workers being a vulnerable part of the system. It is clear from Joseph Tainter’s comments that another vulnerable part of our current system is the various “connectors” that allow us to have our modern economy. These include the electric grid, roads and bridges, the pipeline systems, the water and sewer systems, the internet, the financial system, and the international trade system. Even government organizations such as the Eurozone might be considered vulnerable connecting systems. The energy cost of maintaining these systems can be expected to continue to rise. Rising costs for these systems are part of what makes it difficult to maintain our current economic system.

The focus on “running out” has led to a focus on finding ways to extend our energy supply with small quantities of high-priced alternatives. This approach doesn’t really get us very far. What we need to keep the economy from collapsing is a growing supply of cheap-to-produce energy and other natural resources. Ideally, these new resources should require little debt, and not cause pollution problems. These requirements are exceedingly difficult to meet in a finite world.

Strange Limits to Growth

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Published on the Our Finite World on March 17, 2016

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Our economic growth system is reaching limits in a strange way

Economic growth never seems to be as high as those making forecasts would like it to be. This is a record of recent forecasts by the International Monetary Fund:

Figure 1. World GDP Forecasts by the International Monetary Fund.

 

 

 

 

 

Figure 1. World GDP Forecasts by the International Monetary Fund.

 

 

 

 

 

Figure 2 shows world economic growth on  a different basis–a basis that appears to me to be very close to total world GDP, as measured in US dollars, without adjustment for inflation. On this  basis, world GDP (or Gross Planetary Product as the author calls it) does very poorly in 2015, nearly as bad as in 2009.

Figure 2. Gross Planet Product at current prices (trillions of dollars) by Peter A. G. van Bergeijk in Voxeu.

 

 

 

 

 

Figure 2. Gross Planet Product at current prices (trillions of dollars) by Peter A. G. van Bergeijk in Voxeu, based on IMF World Economic Outlook Database, October 2015.

 

 

 

 

 

The poor 2015 performance in Figure 2 reflects a combination of falling inflation rates, as a result of falling commodity prices, and a rising relativity of the US dollar to other currencies.

Clearly something is wrong, but virtually no one has figured out the problem.

The World Energy System Is Reaching Limits in a Strange Double Way

We are experiencing a world economy that seems to be reaching limits, but the symptoms are not what peak oil groups warned about. Instead of high prices and lack of supply, we are facing indirect problems brought on by our high consumption of energy products. In my view, we have a double pump problem.

Figure 3. Double gasoline pump from Torrence Collection of Auto Memorabilia.

 

 

 

 

 

Figure 3. Double gasoline pump from Torrence Collection of Auto Memorabilia.

 

 

 

 

 

We don’t just extract fossil fuels. Instead, whether we intend to or not, we get a lot of other things as well: rising debt, rising pollution, and a more complex economy.

The system acts as if whenever one pump dispenses the energy products we want, another pump disperses other products we don’t want. Let’s look at three of the big unwanted “co-products.”

1. Rising debt is an issue because fossil fuels give us things that would never have been possible, in the absence of fossil fuels. For example, thanks to fossil fuels, farmers can have such things as metal plows instead of wooden ones and barbed wire to separate their property from the property of others. Fossil fuels provide many more advanced capabilities as well, including tractors, fertilizer, pesticides, GPS systems to guide tractors, trucks to take food to market, modern roads, and refrigeration.

The benefits of fossil fuels are immense, but can only be experienced once fossil fuels are in use. Because of this, we have adapted our debt system to be a much greater part of the economy than it ever needed to be, prior to the use of fossil fuels. As the cost of fossil fuel extraction rises, ever more debt is required to place these fossil fuels in use. The Bank for International Settlements tells us that worldwide, between 2006 and 2014, the amount of oil and gas company bonds outstanding increased by an average of 15% per year, while syndicated bank loans to oil and gas companies increased by an average of 13% per year. Taken together, about $3 trillion of these types of loans to the oil and gas companies were outstanding at the end of 2014.

As the cost of fossil fuels rises, the cost of everything made using fossil fuels tends to rise as well. Cars, trucks, and homes become more expensive to build, especially if they are intended to be energy efficient. The cost of capital goods purchased by businesses rises as well, since these too are made with fossil fuels. Needless to say, the amount of debt to purchase all of these goods rises as well. Part of the reason for the increased debt is simply because it becomes more difficult for businesses and individuals to purchase needed goods out of cash flow.

As long as fossil fuel prices are rising (not just the cost of extraction), this rising debt doesn’t look like a huge problem. The rising fossil fuel prices push the general inflation rate higher. But once prices stop rising, and in fact start falling, the amount of debt outstanding suddenly seems much more onerous.

2. Rising pollution from fossil fuels is another issue as we use an increasing amount of fossil fuels. If only a tiny amount of fossil fuels is used, pollution tends not to be much of an issue. Air can remain safe for breathing and water can remain safe for drinking. Increasing CO2 pollution is not a significant issue.

Once we start using increasing amounts, pollution becomes a greater issue. Partly this is the case because natural sinks reach their saturation point. Another is the changing nature of technology as we move to more advanced techniques. Techniques such as deep sea drilling, hydraulic fracturing, and arctic drilling have pollution risks that less advanced techniques did not have.

3. A more complex economy is a less obvious co-product of the increasing use of fossil fuels. In a very simple economy, there is little need for big government and big business. If there are businesses, they can be run by a small number of individuals, with little investment in capital goods. A king, together with a handful of appointees, can operate the government if it does not provide much in the way of services such as paved roads, armies, and schools. International trade is not a huge necessity because workers can provide nearly all necessary goods and services with local materials.

The use of increasing amounts of fossil fuels changes the situation materially. Fossil fuels are what allow us to have metals in quantity–without fossil fuels, we need to cut down forests, use the trees to make charcoal, and use the charcoal to make small quantities of metals.

Once fossil fuels are available in quantity, they allow the economy to make modern capital goods, such as machines, oil drilling equipment, hydraulic dump trucks, farming equipment, and airplanes. Businesses need to be much larger to produce and own such equipment. International trade becomes much more important, because a much broader array of materials is needed to make and operate these devices. Education becomes ever more important, as devices become increasingly complex. Governments become larger, to deal with the additional services they now need to provide.

Increasing complexity has a downside. If an increasing share of the output of the economy is funneled into management pay, expenditures for capital goods, and other expenditures associated with an increasingly complex economy (including higher taxes, and more dividend and interest payments), less of the output of the economy is available for “ordinary” laborers–including those without advanced training or supervisory responsibilities.

As a result, pay for these workers is likely to fall relative to the rising cost of living. Some would-be workers may drop out of the labor force, because the benefits of working are too low compared to other costs, such as childcare and transportation costs. Ultimately, the low wages of these workers can be expected to start causing problems for the economic system as a whole, because these workers can no longer afford the output of the system. These workers reduce their purchases of houses and cars, both of which are produced using fossil fuels and other commodities.

Ultimately, the prices of commodities fall below their cost of production. This happens because there are so many of these ordinary laborers, and the lack of good wages for these workers tends to slow the “demand” side of the economic growth loop. This is the problem that we are now experiencing. Figure 4 below shows how the system would work, if increasing complexity were not interfering with economic growth.

Figure 4. How economic growth works, if increased complexity is not interfering.

 

 

 

 

 

Figure 4. How economic growth works, if increased complexity is not interfering.

 

 

 

 

 

Also see my post, How Economic Growth Fails.

The Two Pumps Are Really Energy and Entropy

Unlike the markings on the pump (gasoline and ethanol), the two pumps of our system are energy consumption and entropy. When we think we are getting energy consumption, we really get various forms of entropy as well.

The first pump, rising energy consumption, seems to be what makes the world economy grow.

Figure 4. World GDP in 2010$ compared (from USDA) compared to World Consumption of Energy (from BP Statistical Review of World Energy 2014).

 

 

 

 

 

Figure 5. World GDP in 2010$ compared (from USDA) compared to World Consumption of Energy (from BP Statistical Review of World Energy 2014).

 

 

 

 

 

This happens because the use of energy products allows businesses to leverage human labor, so that human labor can be more productive. A farmer with a stick as his only implement cannot produce much food, but a farmer with a tractor, gasoline, modern implements, hybrid seeds, irrigation, and access to modern roads can be very productive. This productivity would not be available without fossil fuels. Figure 4, shown earlier, describes how this increased productivity usually gets back into the system.

The second pump in Figure 3 is Entropy Production. Entropy is a measure of the disorder associated with the extraction and consumption of fossil fuels and other energy products. Entropy can be thought of as a loss of information. Once energy products are burned, we have a portion of GDP in the place of the energy products that have been consumed. This is why there is a high correlation between energy consumption and GDP. As energy products are burned, we also have an increasing pile of debt, increasing pollution (that our sinks become less and less able to handle), and increasing wealth disparity.

Figure 6. Chart by economist Emmanuel Saez based on an analysis IRS data, published in Forbes.

 

 

 

 

 

Figure 6. Difference in US income growth patterns of the top 10% versus the bottom 90%. Chart by economist Emmanuel Saez based on an analysis of IRS data, published in Forbes.

 

 

 

 

 

Beyond the three types of entropy I have mentioned, there are other related problems. For example, the current immigration problem is at least partly a problem associated with increased complexity and thus increased wealth disparity. Also, low oil prices are a sign of a loss of “information,” and thus also a sign of growing entropy.

Our Energy/Entropy System Operates on an Energy Flow Basis

I think of two different kinds of accounting systems:

  1. Accounting on a cash flow basis
  2. Accounting on an accrual basis, such as GAAP

With respect to energy, we burn fossil fuels in a given year, and we obtain output of renewable energy devices in a given year. We eat food that has generally been grown in the year we eat it. There is virtually no accrual aspect to the way the system works. This is very different from the accrual-basis financial statements prepared by most large companies that allow credit for investments before the benefit is actually in place.

When it comes to promises such as Social Security benefits, we are, in effect, promising retirees a share of energy production in future years. The promise is only worth something if the system continues to work well–in other words, if the financial system has not collapsed, pollution is not too great a problem, and marginalized workers are not revolting.

Governments can print money, but they can’t print resources. It is the resources, particularly energy resources, that we need to run the economy. In fact, we need per capita resources to be at least flat, or perhaps increasing.

Figure 7. World energy consumption per capita, based on BP Statistical Review of World Energy 2105 data. Year 2015 estimate and notes by G. Tverberg.

 

 

 

 

 

Figure 7. World energy consumption per capita, based on BP Statistical Review of World Energy 2105 data. Year 2015 estimate and notes by G. Tverberg.

 

 

 

 

 

Printing money is an attempt to get a larger share of the world’s resources for the population of a given country. Printing money usually doesn’t work very well, because if a country prints a lot of money, the currency of that country is likely to fall relative to currencies of other countries.

What Causes the System to Fail? Too Little Energy, or Too Much Entropy?

In an interconnected system, it is sometimes hard to understand what causes the system to fail. Is it too little production of energy products, or too much entropy associated with these energy products? Astrophysicist Francois Roddier tells me that he thinks it is too much entropy that causes the system to fail, and I tend to agree with him. (See also “Pourquoi les économies stagnant et les civilizations sʼeffondrent”  by Roddier in Économie de l’après-croissance.) The rising amount of debt, pollution, and income inequality tend to bring the system down, long before “running out” of energy products becomes a problem. In fact, the low commodity prices we are now experiencing appear to be part of the entropy problem as well.

Can Renewable Energy Be a Solution?

As far as I can see, renewable energy, unless it is very cheap (like hydroelectric dams were many years ago), absolutely does not work as a solution to our energy problems. The basic issue is that the energy system works on a flow year basis. To match energy-in versus energy-out, we need to analyze each year separately. For example, we need to match energy going into making offshore wind turbines against energy coming out of offshore wind turbines, for each calendar year (say 2016). To keep the net energy flow positive, there needs to be an extremely slow ramp-up of high-cost renewable energy.

In a way, high-cost renewable energy is very close to entropy-only energy. Because of the high front-end energy consumption and the slow speed at which it is paid back, high-priced renewable energy generates very little energy, net of energy going into its production. (In some instances, renewable energy may actually be an energy sink.) Instead, renewable energy generates lots of entropy-related products, including increased debt and increased taxes to pay for subsidies. It also adds to the complexity of the system, because of the variable nature of its output. Perhaps renewable energy is less bad at generating pollution, or maybe the pollution is simply of a different type. Ultimately, it is a problem, just as any other type of supplemental energy is.

One problem with so-called renewable energy is that it can’t be expected to outlast the system as a whole, unless it is part of some off-grid system with backup batteries and an inverter. Even then, the lifetime of the whole system is limited to the lifetime of the shortest-lived necessary component: solar panels, battery backup, inverter, and the device the user is trying to run with the system, such as a water pump.

There are currently many stresses on our economic system. We can’t be certain that the system will last very long. When the system starts collapsing, it is likely to take grid-connected electricity systems with it.

What Is the Connection to Energy Returned on Energy Invested (EROEI)?

If a person believes that energy is a one pump system (the left pump in Figure 3), then a person’s big concern is “running out.” If a person wants to maximize the benefit of energy resources, he will choose energy resources with as high an EROEI as possible. In other words, he will try to get as much energy out per unit of energy in as possible. For example, one estimate gives EROEI of 100 to 1 for hydroelectric, 80 to 1 for coal, and much lower ratios for other fuels. Thus, a mix that is heavy in hydroelectric and coal will stretch energy supplies as far as possible.

Another place where EROEI is important is in determining “net” energy, that is, energy net of the energy going into making it.

As I mentioned above, energy per capita needs to be at least level to keep the economy from collapsing. In fact, net energy per capita probably needs to be slightly increasing to keep the economy growing sufficiently, if “net” energy is adjusted for all of the effects that simultaneously impact the energy needs of the economy, apart from energy used in producing “normal” goods and services. (Most people are not aware of the economy’s growing need for energy supplies. For an explanation regarding why this is true, see my recent post The Physics of Energy and the Economy.)

In theory, EROEI analyses might be helpful in determining how much gross energy is necessary to produce the desired amount of net energy. In practice, there are many pieces that go into determining the total quantity of net energy required to keep the economy expanding, making the calculation difficult to perform. These include:

  1. The extent to which population is rising.
  2. The extent to which globalization is taking place, and with it, access to other, higher EROEI, energy supplies.
  3. The extent to which the economy is getting more efficient in its use of energy.
  4. The extent to which EROEI is falling for various fuels (on a calendar year basis).
  5. The extent to which average EROEI is falling, because the mix of fuel is changing to become less polluting.
  6.  The extent to which it is taking more energy to extract other resources, such as fresh water and metals.
  7. The extent to which it is taking more energy to make pollution-control devices, and workarounds for problems with energy.

Looking at Figure 5, it is not obvious that there is a need for a big adjustment, one way or another, to produce net energy from gross energy. Of course, this may be an artifact of the way GDP is measured. High-priced metals and water are treated as part of GDP, as is the cost of pollution control devices. People’s general standard of living may not be rising, but now they are paying for clean air and water, something they didn’t need to pay for before. It looks like GDP is increasing, but there is little true benefit from the higher GDP.

The one big take-away I have from Figure 7 is simply that if our goal is to get net energy to rise sufficiently, the best way to do this is to make certain that gross energy production rises sufficiently. World leaders were successful in doing this since 2001, through their globalization efforts. Of course, the new energy we got was mostly coal–bad from the points of view of pollution and workers’ wages in developed countries, but good from some other perspectives: low direct debt requirement, low complexity requirement, and high EROEI.

Figure 8. China's energy consumption by fuel, based on data of BP Statistical Review of World Energy 2015.

 

 

 

 

 

Figure 8. China’s energy consumption by fuel, based on data of BP Statistical Review of World Energy 2015.

 

 

 

 

 

One issue with EROEI calculations is that they disregard timing, and thus are not on an energy flow-year basis. Ignoring timing also means the calculations give little information regarding the likely debt build-up associated with an energy product.

Conclusion

If a person doesn’t understand what the problem is, it is easy to come to the wrong conclusion. Part of our problem is that we need a growing amount of net energy, per capita, to keep the economy from collapsing. Part of our problem is that entropy problems such as rising debt, increased pollution, and increasing complexity tend to bring the system down, even when we seem to have plenty of energy supplies. These are the two big problems we are facing that few people recognize.

Another part of our problem is that it is necessary for common laborers to have good-paying jobs, and in fact rising pay, if the economy is to continue to grow. As much as we would like everyone to have advanced training (and training that changes with each new innovation), the productivity of workers does not rise sufficiently to justify the high cost of giving advanced education to a large share of the population. Instead, we must deal with the fact that the world’s economy needs large numbers of workers with relatively little training. In fact, we need rising pay for these workers, because there are so many of them, and they are the ones who keep the “demand” part of the commodity price cycle high enough.

Robots may be very efficient at producing goods and services, but they cannot recycle the earnings of the system. In theory, businesses could pay very high taxes on the output of automated systems, so that governments could create make-work projects to hire all of the unemployed workers. In practice, the idea is impractical–the businesses would simply move to an area with lower taxes.

Growth now is slowing because of all of the entropy issues involved. People in China cannot stand any more pollution. Too many laborers in developed countries are being marginalized by globalization and by competition with ever-more intelligent machines that can replace much of the function of humans. None of this would be a problem, except that we have a huge amount of debt that needs to be repaid with interest, and we need commodity prices to rise high enough to encourage production. If these problems are not fixed, the whole system will collapse, even though there seems to be a surplus of energy products.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Limits to Growth was RIGHT

youtube-Logo-2gc2reddit-logoOff the keyboard of Ugo Bardi

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Published on Cassandra's Legacy on February 28, 2016

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Italy's Population Starts Declining
 

 

The "base case" scenario described in the 2004 edition of "The Limits to Growth", an update of the original study sponsored by the Club of Rome and published in 1972. Note how the world's population is supposed to start declining some years after the peaking of the world's economy. We are not yet seeing this decline at the global level, but we may be seeing it in some specific regions of the world; in particular in Italy.
 

More and more data are accumulating to disprove the legend of the "mistakes" that has been accompanying the study titled "The Limits to Growth" (LTG). For instance, Graham Turner has shown how the historical data for the world's economy have been following rather closely the curves of the "base case" scenario presented in 1972. But the fact that this scenario has been working well up to the beginning of the 21st century doesn't mean it will keep working in the same way in the future. The base case scenario describes a worldwide economic collapse that should start at some moment during the first two-three decades of the century. Clearly, the world's economy has not collapsed, so far, even though it may be argued that it is giving out ominous signs that it is starting to do just that. But, we can't yet prove that the base case scenario was right.

Yet, the LTG collapse scenario is an average over the whole world and we may imagine that some sections of the world's economy should collapse earlier, and some later. And, indeed, it appears that some local economies are collapsing right now. It may be that a country like Italy is already well advanced in this process, so that we shouldn't be not just seeing the decline of its GdP, but also the start of an irreversible population decline. And some recent data indicate that this is exactly the case: the LTG base case scenario is playing out in Italy, and probably not just in Italy.

So, let's try to make a qualitative comparison of the LTG scenario and the actual data for Italy. First of all, the scenario shows how the consumption of natural resources is supposed to reach a maximum and then decline, followed by a similar trajectory for the economic output. We are already well past this point in Italy. As you can see in the figure below, from a previous post on Cassandra's legacy, Italy's consumption of hydrocarbon fuels (by far its main source of energy) peaked in 2005, followed by the peak in the GdP in 2008. Considering that the GdP is a measure of the overall economic output of a country, we can take it as proportional to the parameters that were indicated as the industrial and agricultural production in the LTG study (the data for 2015  indicate a small GdP increase for Italy, but that changes little to the overall trend).
 

So, we may say that the base case LTG scenario has been playing out in Italy in terms of the behavior of the economy of the country. But, if this is the case, at some point we should expect another curve of the scenario to peak and start declining: the population curve. And, indeed, we seem to be seeing exactly that. Here are the most recent data from the Italian statistical agency, ISTAT
 

You can see the remarkable jumping up in the mortality rate for 2015: it corresponds to 165,00 more deaths than births. Despite the influx of immigrants, Italy has lost 139,000 residents in 2015; not a large loss (0.23%) but it is significant. And it had never happened during the past few decades. Also, Italy sees for the first time in decades a reduction in the life expectancy at birth (from 80.3 years to 80.1 years for males and from 85 years to 84.7 years for females).

 

What have been the causes of this population decline? There are several, and the torrid summer of 2015 has surely played a role in killing more old people than usual, as you can see in the figure below (again from ISTAT)

 


Then, other causes have been proposed; the general aging of the population, the economic crisis, the worsening diet, pollution, the higher costs of medical care, and more. But the point, here, is not to discuss these various causes, most of which probably had a role in the decline. The model doesn't describe the details of the process, nor it is detailed to the point of considering different age cohorts. It is a quantitative description of a relatively simple phenomenon: a population under stress because of reduced resource availability and pollution will react by an increasing number of deaths in its weakest age groups: the elderly ones. And this is exactly what we are seeing in Italy: a decline in population following the decline in GdP.

Of course, we only have data for one year and we cannot say if what we are seeing is a long-term trend or just a statistical fluctuation. Yet, it is hard not to think that the degrading economic, social conditions in Italy, as well as the degradation of the ecosystem, are not taking their toll on the population. And that we are indeed seeing the LTG scenarios playing out.

 

 

 

 

 

 

 

 

Say Goodbye to Normal

From the keyboard of James Howard Kunstler
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Originally Published on Clusterfuck Nation August 31, 2015
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The tremors rattling markets are not exactly what they seem to be. A meme prevails that these movements represent a kind of financial peristalsis — regular wavelike workings of eternal progress toward an epic more of everything, especially profits! You can forget the supposedly “normal” cycles of the techno-industrial arrangement, which means, in particular, the business cycle of the standard economics textbooks. Those cycle are dying.

They’re dying because there really are Limits to Growth and we are now solidly in grips of those limits. Only we can’t recognize the way it is expressing itself, especially in political terms. What’s afoot is a not “recession” but a permanent contraction of what has been normal for a little over two hundred years. There is not going to be more of everything, especially profits, and the stock buyback orgy that has animated the corporate executive suites will be recognized shortly for what it is: an assest-stripping operation.

What’s happening now is a permanent contraction. Well, of course, nothing lasts forever, and the contraction is one phase of a greater transition. The cornucopians and techno-narcissists would like to think that we are transitioning into an even more lavish era of techno-wonderama — life in a padded recliner tapping on a tablet for everything! I don’t think so. Rather, we’re going medieval, and we’re doing it the hard way because there’s just not enough to go around and the swollen populations of the world are going to be fighting over what’s left.

Actually, we’ll be lucky if we can go medieval, because there’s no guarantee that the contraction has to stop there, especially if we behave really badly about it — and based on the way we’re acting now, it’s hard to be optimistic about our behavior improving. Going medieval would imply living within the solar energy income of the planet, and by that I don’t mean photo-voltaic panels, but rather what the planet might provide in the way of plant and animal “income” for a substantially smaller population of humans. That plus a long-term resource salvage operation.

All the grand movements of stock indexes and central banks are just a diverting sort of stagecraft within the larger pageant of this contraction. The governors of the Federal Reserve play the role of viziers in this comic melodrama. That is, they are exalted figures robed in magical Brooks Brothers summer poplin pretending to have supernatural power to control events. You can tell from their recent assembly out west — “A-holes at the J-hole” — that they are very much in doubt that their “powers” will continue to be taken seriously. This endless hand-wringing over a measily quarter-point interest rate hike is like some quarrel among alchemists as to whether a quarter-degree rise in temperature might render a lump of clay into a gold nugget.

What they do doesn’t matter anymore. What matters is that a great deal of the notional “wealth” they conjured up over the past decade or so is about to vanish —poof! Perhaps that will look like a black magic act. That wealth seemed so real! The bulging portfolios with their exquisite allocations! The clever options! The cunning shorts. Especially the canny bets in dark derivative pools! All up in a vapor. The sad truth being it was never there in the first place. It was just an hallucination induced by the manipulation of markets and the criminal misrepresentation of statistics, especially the employment numbers.

There are rumors that the Grand Vizeress of all, Ms. Yellen, is flirting with possible indictment over the “leakage” of valuable information out of her inner circle to potential profiteers. Whoops. It may lead nowhere but to me it is an index of her more general loss of credibility. All year she has spouted supernaturally fallacious nonsense about how “the data” guides Fed decision-making. Only her data is contrary to what is actually happening in the pathetic Rube Goldberg contraption that the so-called US economy has become (Walmart + entitlements). Her “guidance” amounts to a lot of futile drum-beating on a turret of the Fed castle, hoping to make it rain prosperity. Her enigmatic utterances have kept financial markets in a narrow sideways channel most of the year until recently.

I’d say she’d lost her mojo, and the lesser viziers on the Fed board are looking more and more like the larval, sunken-chested dweebs that they really are. So where is the nation to turn? Why, to the great blustering Trump, with his “can-do” bombast about “making America great again.” What does he mean, exactly? Like, making America the way it was in 1958?” Behold: the return of the great steel rolling mills along the banks of the Monongahela (and so on)! Fuggeddabowdit. Ain’t gonna happen.

I have to say it again: prepare to get smaller and more local. Things on the grand level are not going to work out. Get your shit together locally, and do it in place that has some prospect for keeping on: a small town somewhere food can be grown and especially places near the inland waterways where some kind of commercial exchange might continue in the absence of the trucking industry. Sound outlandish? Okay then. Keep buying Tesla stock and party on, dudes. Hail the viziers in their star-and-planet bedizened Brooks Brother raiment. Put your head between your legs and kiss your ass goodbye.

 

 

James Howard Kunstler is the author of many books including (non-fiction) The Geography of Nowhere, The City in Mind: Notes on the Urban Condition, Home from Nowhere, The Long Emergency, and Too Much Magic: Wishful Thinking, Technology and the Fate of the Nation. His novels include World Made By Hand, The Witch of Hebron, Maggie Darling — A Modern Romance, The Halloween Ball, an Embarrassment of Riches, and many others. He has published three novellas with Water Street Press: Manhattan Gothic, A Christmas Orphan, and The Flight of Mehetabel.

Seneca’s Gamble

Off the keyboard of Ugo Bardi

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Published on Resource Crisis on February 2, 2015

Why people can so easily destroy the resources that provide their livelihood? Fishermen, for instance, have destroyed fisheries over and over, and every time they refused to take even the most elementary precautions to avoid disaster. Eventually, I came to think that it is related to a basic miswiring of the human mind: the “gambler’s fallacy“. Fishermen, it seems, see fishing as it were a lottery and they redouble their efforts thinking that, eventually, they will get lucky and strike it rich. Alas, it doesn’t work in this way and all what they obtain is to destroy the fish stocks and create a spectacular collapse of the fishing yields. This way of creating one’s own ruin could be termed “Seneca’s gamble”, from the words of the Roman philosopher Lucius Annaeus Seneca who stated that “the road to ruin is rapid”.

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Seneca’s gamble: why the road to ruin is rapid

The “Martingale” is a strategy to be played with games which have a 50% chance of winning. It consists in doubling one’s bet after every loss, believing that, eventually, a win will pay for the previous losses and provide a gain.

The Martingale is an example of the “gambler’s fallacy“. Typically, gamblers tend to think that some events – such as the numbers coming out of the wheel in the roulette game – are related to each other. So, they believe that, if the red comes up several times in a row, it is more probable that the black will come out the next spin. That’s not true, of course, and the Martingale is a surefire way to ruin oneself, and to do that very rapidly. Nevertheless, many people find the idea fascinating enough that they try to put it into practice. It is the effect of a bad miswiring of the human mind..

The gambler’s fallacy may explain some aspects of the human behavior that would be otherwise impossible to understand. For instance, in a previous post I was showing this figure, describing the yields of the UK fishing industry (from Thurstan et al.).

Compare the upper and the lower box, and you’ll see that the fishing industry was ramping up at an incredible speed their “fishing power,” just when fishing yields had started to decline. Note also how they still had a lot of fishing power when the fisheries had all but collapsed. How could it be that they kept fishing so much even when there was little or nothing left to fish?Thinking about this matter, we can only come to the conclusion that fishermen reasoned like gamblers at a betting table. In other words, they were playing a sort of “fishing Martingale”, doubling their efforts after every failure.

Gamblers know – or should know – that casino gambling is a negative sum game. Yet, the gambler’s fallacy makes them think that a streak of bad results will somehow increase the probability that the next bet will be the good one. So, they keep trying until they ruin themselves.

Now, consider fishermen: they or should know  that, at some point, the overall yield of the fishery has become negative. But, like gamblers playing roulette, they believe that a streak of bad luck will somehow increase the probability that the next fishing trip will be the good one. So, they keep trying until they ruin themselves.

The mental miswiring that gives rise to the behavior of gamblers and fishermen can create even larger disasters. With mineral resources, we are seeing something similar: operators redoubling their efforts in the face of diminishing returns of extraction; the story of “shale gas” and “shale oil” is a typical example. Maybe it is done hoping that – somehow – the destruction of one stock will increase the probability to find a new one (or to create one by some technological miracle). So, instead of trying to make mineral stocks last as long as possible, we are rushing to destroy them at the highest possible rate. But, unlike fish stocks that can replenish themselves, minerals do not reproduce. Once we’ll have destroyed the rich ores that created our civilization, there will be nothing left behind. We will have ruined ourselves forever.

In the end, the gambler’s fallacy is one of the factors that lead people, companies, and entire civilization to a rapid collapse. It is what I have called the “Seneca Cliff” from the words of the ancient Roman philosopher who first noted how “the way to ruin is rapid”. In the case described here, we might call it the “Seneca gamble” but, in all cases, it is a ruin that we create with our own hands.

WSJ Gets it Wrong on Peak Oil

Off the keyboard of Gail Tverberg

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Published on Our Finite World on October 6. 2014

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On Monday, September 29, the Wall Street Journal (WSJ) published a story called “Why Peak Oil Predictions Haven’t Come True.” The story is written as if there are only two possible outcomes:

  1. The Peak Oil version of what to expect from oil limits is correct, or
  2. Diminishing Returns can and are being put off by technological progress–the view of the WSJ.

It seems to me, though, that a third outcome is not only possible, but is what is actually happening.

3. Diminishing returns from oil limits are already beginning to hit, but the impacts and the expected shape of the down slope are quite different from those forecast by most Peak Oilers.

Area of Confusion

In many people’s way of thinking, the economy is separate from resources and the extraction of those resources. If we believe economists, the economy can grow indefinitely, with or without the use of resources. Clearly, with this view, the price of these resources doesn’t matter very much. If one kind of resource becomes more expensive, we can substitute other resources, once the scarce resource becomes sufficiently high-priced that the alternative makes financial sense. Incomes can rise arbitrarily high–all it takes is for each of us to pay the other higher wages. And we can fix any problem with the financial system with more money printing and more debt.

This wrong version of how our economy works has been handed down through the academic world, through our system of peer review, with each academic researcher following in the tracks of previous academic researchers. As long as new researchers follow the same wrong thinking as previous researchers, their articles will be published. Economists were especially involved in putting together this wrong world-view, but politicians helped as well. They liked the outcomes of the models the economists produced, since it made it look like the politicians, with the help of economists, were all-powerful. All the politicians needed to do was tweak the financial system, and the world economy would grow forever. There was not even a need for resources!

Peak Oilers’ Involvement 

The Peak Oilers walked into a situation with this wrong world view, and started trying to fix pieces of it. One piece that was clearly wrong as the relationship between resources and the economy.  Resources, especially energy resources, are needed to make any of the goods and services we buy. If those resources started reaching diminishing returns, it would be harder for the economy to grow. The economy might even shrink. Dr. Charles Hall, recently retired professor from SUNY-ESF, came up with one measure of diminishing returns–falling Energy Returned on Energy Invested (EROEI).

How would shrinkage occur? For this, Peak Oilers turned to the work of M. King Hubbert, who worked in an area of geology. He wrote about how supply of a resource might be expected to decline with diminishing returns.

Hubbert was not concerned about what effect diminishing returns would have on the economy–presumably because that was not his area of specialization. He avoided the issue by only modeling the special case where no economic impact could be expected–the special case where a perfect substitute could be found and be put in place, in advance of the decline caused by diminishing returns.

Figure 1. Figure from Hubbert's 1956 paper, Nuclear Energy and the Fossil Fuels.

In the example shown above, Hubbert assumes cheap nuclear would take over, before the decline in fossil fuels started. Hubbert even talked about making cheap liquid fuels using the very abundant nuclear resources, so that the system could continue as before.

In this special case, Hubbert suggested that the decline in resources might follow a symmetric curve, slowly declining in a pattern similar to its original rise in consumption, since this is the pattern that often occurs in extracting a resource in nature. Many Peak Oilers seem to believe that this pattern will happen in the more general case, where no perfect substitute is available, as well. A perfect substitute would need to be cheap, abundant, and involve essentially no cost of transition.

In the special case Hubbert modeled, Hubbert indicated that production would start to decline when approximately 50% of reserves had been exhausted. Peak Oilers often used this approach or variations on it (so called “Hubbert Linearization“), to forecast future production, and to determine dates when oil production would “peak.” Of course, as technology improved, additional oil became accessible, raising reserves. Also, as prices rose, resources that had never been economically extractible became extractible. Production continued beyond forecast peak dates, again and again.

Peak Oilers got at least part of the story right–the fact that we are in fact reaching diminishing returns with respect to oil. For this they should be commended. What they didn’t figure out is, however, is (1) how the energy-economy system really works, and (2) which pieces of the system can be expected to break first. This issue is not really the Peak Oilers fault–it is the result of starting with a very bad model of the economy and not understanding which pieces of that model needed to be fixed.

How the Economic System Really Works 

We are dealing with a networked economy, one that is self-organized over time. I would represent it as a hollow network, built up of businesses, consumers, and governments.

Figure 2. Dome constructed using Leonardo Sticks

This economic system uses energy of various kinds plus resources of many kinds to make goods and services. There are many parts to the system, including laws, taxes, and international trade. The system gradually changes and expands, with new laws replacing old ones, new customers replacing old ones, and new products replacing old ones. Growth in the number of consumers tends to lead to a need for more goods and services of all kinds.

An important part of the economy is the financial system. It connects one part of the system with another and almost magically signals when shortages are occurring, so that more of a missing product can be made, or substitutes can be developed.

Debt is part of the system as well. With increasing debt, it is possible to make use of profits that will be earned in the future, or income that will be earned in the future, to fund current investments (such as factories) and current purchases (such as cars, homes, and advanced education). This approach works fine if an economy is growing sufficiently. The additional demand created through the use of debt tends to raise the prices of commodities like oil, metals, and water, giving an economic incentive for companies to extract these items and use them in products they make.

The economy really can’t shrink to any significant extent, for several reasons:

  1. With rising population, there is a need for more goods and services. There is also a need for more jobs. A growing networked economy provides increasing numbers of both jobs and goods and services. A shrinking economy leads to lay-offs and fewer goods and services produced. It looks like recession.
  2. The networked economy automatically deletes obsolete products and re-optimizes to produce the goods needed now. For example, buggy whip manufacturers are pretty rare today. Thus, we can’t quickly go back to using horse and buggy, even if should we want to, if oil becomes scarce. There aren’t enough horses and buggies, and there aren’t enough services for cleaning up horse manure.
  3. The use of debt for financing depends on ever-rising future output. If the economy does shrink, or even stops growing as quickly as in the past, there tends to be a problem with debt defaults.
  4. If debt does start shrinking, prices of commodities like oil, gold, and even food tend to drop (similar to the situation we are seeing now). These lower prices discourage  investment in creating these commodities. Ultimately, they lead to lower production and job layoffs. If deflation occurs, debt can become very difficult to repay.

Under what conditions can the economy grow? Clearly adding more people to the economy adds to growth. This can be done by through adding more babies who live to maturity. It can also be done by globalization–adding groups of people who had previously only made goods and services for each other in limited quantity. As these groups get connected to the wider economy, their older, simpler ways of doing things tend to be replaced by more productive activities (involving more technology and more use of energy) and greater international trade. Of course, at some point, the number of new people who can be connected to the global economy gets to be pretty small. Growth in the world economy lessens, simply because of lessened ability to add “underdeveloped” countries to the networked economy.

Besides adding more people, it is also possible to make individual citizens “better off” by making workers more efficient at producing goods and services. Most people think of greater productivity as happening through technological changes, but to me, it really represents a combination of technological changes, plus a combination of inexpensive resources of various kinds. This combination often includes low-cost fossil fuels; abundant, cheap water supply; fertile soil; and easy to extract metal ores. Having these available makes possible the development of new tools (like new agricultural equipment, sewing machines, and vehicles), so that workers can become more productive.

Diminishing returns are what tend to “mess up” this per capita growth. With diminishing returns, fossil fuels become more expensive to extract. Water often needs to be obtained by desalination, or by much deeper wells. Soil needs more amendments, to be as fertile as in the past. Metal ores contain less and less ore, so more extraneous material needs to be extracted with the metal, and separated out. If population grows as well, there is a need for more agricultural output per acre, leading to a need for more technologically advanced techniques. Working around diminishing returns tends to make many kinds of goods and services more expensive, relative to wages.

Rising commodity prices would not be a problem, if wages would rise at the same time as the price of goods and services. The problem, though, is that in some sense diminishing returns makes workers less efficient. This happens because of the need to work around problems (such as digging deeper wells and removing more extraneous material from ores). For many years, technological changes may offset the effects of diminishing returns, but at some point, technological gains can no longer keep up. When this happens, instead of wages rising, they tend to stagnate, or even decline. Figure 3 shows that per capita wages have tended to grow in the United States when oil was below about $40 or $50 barrel, but have tended to stagnate when prices are above that level.

Figure 3. Average wages in 2012$ compared to Brent oil price, also in 2012$. Average wages are total wages based on BEA data adjusted by the CPI-Urban, divided total population. Thus, they reflect changes in the proportion of population employed as well as wage levels.

What Effects Should We Be Expecting from Diminishing Returns With Respect to Oil Supply?

There are several expected effects of diminishing returns:

  1. Rising cost of extraction for oil and for other commodities subject to diminishing returns.
  2. Stagnating or falling wages of all except the most elite workers.
  3. Ultra low interest rates to try to make goods more affordable for workers stressed by stagnating wages and high prices.
  4. Rising governmental debt, in an attempt to stimulate the economy and in order to provide programs for the many workers without good-paying jobs.
  5. Increasing concern about debt defaults, as the amount of debt outstanding becomes increasingly absurd relative to wages of workers, and as all of the stimulus debt runs its course, in countries such as China.
  6. A two way problem with the price of oil. On one side is recession, when oil prices rise to unaffordable levels. Economist James Hamilton has shown that 10 out of 11 post-World War II recession were associated with oil price spikes. He has also shown that there is good reason to expect that the Great Recession was related to the run-up in oil prices prior to 2007. I have written a related paper–Oil Supply Limits and the Continuing Financial Crisis.
  7. The second problem with the price of oil is the reverse–price of oil too low relative to the cost of extraction, because wages are not high enough to permit workers to afford the full cost of goods made with high-priced oil. This is really a problem with inadequate affordability (called inadequate demand by economists).
  8. Eventual collapse of whole system.

There have been many studies of collapses of past economies. These collapses tended to occur when the economies hit diminishing returns after a long period of growth. The problems were often similar to ones we are seeing today: stagnating wages of common workers and growing debt. There were more and more demands on governments to fix the problems of workers, but governments found it increasingly difficult to collect enough taxes for all the needed programs.

Eventually, the economic systems have tended to collapse, over a period of years. The shape of resource use in collapses was definitely not symmetric. Figure 4 shows my view of the typical shape of the collapses in non-fossil fuel economies, based on the work of Peter Turchin and Surgey Nefedof.

Figure 4. Shape of typical Secular Cycle, based on work of Peter Turkin and Sergey Nefedov in Secular Cycles.

In my view, the date of the drop in oil supply will be determined by what appear to on-lookers to be financial problems. One possible cause is that the oil price will be too low for producers (a condition that is occurring now). Governments will find it unpopular to raise oil prices, but at the same time, will be powerless to stop the adverse impacts the fall in price has on world oil supply.

Falling oil prices have especially adverse effects on oil exporters, because they depend on revenues from oil to fund their programs. We are already seeing this now, with the increased warfare in the Middle East, Russia’s increased belligerence, and the problems of Venezuela. These issues will tend to reduce globalization, leading to less world growth, and a greater tendency for the world economy to shrink.

Unfortunately, there are no obvious ways of fixing our problems. High-priced substitutes for oil (that is, substitutes costing more than $40 or $50 barrel) are likely to have as adverse an impact on the economy as high-priced oil. The idea that energy prices can rise and the economy can adapt to them is based on wishful thinking.

Our networked economy cannot shrink; it tends to break instead. Even well-intentioned attempts to reduce oil usage are likely to backfire because they tend to reduce oil prices and have other unintended effects. Furthermore, a use of oil that one person would consider frivolous (such as a vacation in Greece) represents a needed job to another person.

Should Peak Oilers Be Blamed for Missing the “Real” Oil Limits Story?

No! Peak oilers have made an important contribution, in calling the general problem of diminishing returns in oil supply to our attention. One of their big difficulties was that they started out working with a story of the economy that was very distorted. They understood how to fix parts of the story, but fixing the whole story was beyond their ability. The following chart shows a summary of some ways their views and my views differ:

Figure 5. Author's summary of some differences in views.

One of the areas that Peak Oilers tended to miss was the fact that an oil substitute needs to be a perfect substitute–that is, be available in huge quantity, cheaply, without major substitution costs–in order not to adversely affect the economy and in order to permit the slow decline rate suggested by Hubbert’s models. Otherwise, the problems with diminishing returns remain, leading to declining wages and rising costs of making goods and services.

One temptation for Peak Oilers has been to jump on the academic bandwagon, looking for substitutes for oil. As long as Peak Oilers don’t make too many demands on substitutes–only EROEI comparisons–wind and solar PV look like they have promise. But once a person realizes that our true need is to keep a networked economy growing, it becomes clear that such “solutions” are woefully inadequate. We need a way of overcoming diminishing returns to keep the whole system operating. In other words, we need a way to make wages rise and the price of finished goods fall relative to wages; there is no chance that wind and solar PV are going to do this for us. We have a much more basic problem than “new renewables” can solve. If we can’t figure out a solution, our economy is likely to reach what looks like financial collapse in the near term. Of course, the real reason is diminishing returns from oil, and from other resources as well.

Why Standard Economic Models Don’t Work–Our Economy is a Network

Off the keyboard of Gail Tverberg

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Published on Our Finite World on June 23, 2014

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The story of energy and the economy seems to be an obvious common sense one: some sources of energy are becoming scarce or overly polluting, so we need to develop new ones. The new ones may be more expensive, but the world will adapt. Prices will rise and people will learn to do more with less. Everything will work out in the end. It is only a matter of time and a little faith. In fact, the Financial Times published an article recently called “Looking Past the Death of Peak Oil” that pretty much followed this line of reasoning.

Energy Common Sense Doesn’t Work Because the World is Finite 

The main reason such common sense doesn’t work is because in a finite world, every action we take has many direct and indirect effects. This chain of effects produces connectedness that makes the economy operate as a network. This network behaves differently than most of us would expect. This networked behavior is not reflected in current economic models.

Most people believe that the amount of oil in the ground is the limiting factor for oil extraction. In a finite world, this isn’t true. In a finite world, the limiting factor is feedback loops that lead to inadequate wages, inadequate debt growth, inadequate tax revenue, and ultimately inadequate funds for investment in oil extraction. The behavior of networks may lead to economic collapses of oil exporters, and even to a collapse of the overall economic system.

An issue that is often overlooked in the standard view of oil limits is diminishing returns. With diminishing returns, the cost of extraction eventually rises because the easy-to-obtain resources are extracted first. For a time, the rising cost of extraction can be hidden by advances in technology and increased mechanization, but at some point, the inflation-adjusted cost of oil production starts to rise.

With diminishing returns, the economy is, in effect, becoming less and less efficient, instead of becoming more and more efficient. As this effect feeds through the system, wages tend to fall and the economy tends to shrink rather than grow. Because of the way a networked system “works,” this shrinkage tends to collapse the economy. The usage of  energy products of all kinds is likely to fall, more or less simultaneously.

In some ways current, economic models are the equivalent of flat maps, when we live in a spherical world. These models work pretty well for a while, but eventually, their predictions deviate further and further from reality. The reason our models of the future are wrong is because we are not imagining the system correctly.

The Connectedness of a Finite World 

In a finite world, an action a person takes has wide-ranging impacts. The amount of food I eat, or the amount of minerals I extract from the earth, affects what other people (now and in the future) can do, and what other species can do.

To illustrate, let’s look at an exaggerated example. At any given time, there is only so much broccoli that is ready for harvest. If I decide to corner the broccoli market and buy up 50% of the world’s broccoli supply, that means that other people will have less broccoli available to buy. If those growing the broccoli spray the growing crop with pesticides, “broccoli pests” (caterpillars, aphids, and other insects) will die back in number, perhaps contributing to a decline of those species. The pesticides may also affect desirable species, like bees.

Growing the broccoli will also deplete the soil of nutrients. If 50% of the world’s broccoli is shipped to me, the nutrients from the soil will find their way around the world to me. These nutrients are not likely to be replaced in the soil where the broccoli was grown without long-distance transport of nutrients.

To take another example, if I (or the imaginary company I own) extract oil from the ground, the extraction and the selling of that oil will have many far-ranging effects:

  •  The oil I extract will most likely be the cheapest, easiest-to-extract oil that I can find. Because of this, the oil that is left will tend to be more expensive to extract. My extraction of oil thus contributes to diminishing returns–that is, the tendency of the cost of oil extraction to rise over time as resources deplete.
  • The petroleum I extract from the ground will consist of a mixture of hydrocarbon chains of varying lengths. When I send the petroleum to a refinery, the refinery will separate the petroleum into varying length chains: short chains are gasses, longer chains are liquids, still longer ones are very viscous, and the longest ones are solids, such as asphalt. Different length chains are used for different purposes. The shortest chains are natural gas. Some chains are sold as gasoline, some as diesel, and some as lubricants. Some parts of the petroleum spectrum are used to make plastics, medicines, fabrics, and pesticides. All of these uses will help create jobs in a wide range of industries. Indirectly, these uses are likely to enable higher food production, and thus higher population.
  • When I extract the oil from the ground, the process itself will use some oil and natural gas. Refining the oil will also use energy.
  • Jobs will be created in the oil industry. People with these jobs will spend their money on goods and services of all sorts, indirectly leading to greater availability of jobs outside the oil industry.
  • Oil’s price is important. The lower the price, the more affordable products using oil will be, such as cars.
  • In order for consumers to purchase cars that will operate using gasoline, there will likely be a need for debt to buy the cars. Thus, the extraction of oil is tightly tied to the build-up of debt.
  • As an oil producer, I will pay taxes of many different types to all levels of governments. (Governments of oil exporting countries tend to get a high percentage of their revenue from taxes on oil. Even in non-exporting countries, taxes on oil tend to be high.) Consumers will also pay taxes, such as gasoline taxes.
  • The jobs that are created through the use of oil will lead to more tax revenue, because wage earners pay income taxes.
  • The government will need to build more roads, partly for the additional cars that operate on the roads thanks to the use of gasoline and diesel, and partly to repair the damage that is done as trucks travel to oil extraction sites.
  • To keep the oil extraction process going, there will likely need to be schools and medical facilities to take care of the workers and their families, and to educate those workers.

Needless to say, there are other effects as well. The existence of my oil in the marketplace will somehow affect the market price of oil. Burning of the oil may affect the climate, and will tend to acidify oceans. It would be possible to go on and on.

The Difficulty of Substituting Away from Oil 

In some sense, the use of oil is very deeply imbedded into the operation of the overall economy. We can talk about electricity replacing oil, but oil’s involvement in the economy is so pervasive, it can’t possibly replace everything. Perhaps electricity might replace gasoline in private passenger automobiles. Such a change would reduce the demand for hydrocarbon chains of a certain length (C7 to C11), but that only reduces demand for one “slice” of the oil mixture. Both shorter and longer chain hydrocarbons would be unaffected.

The price of gasoline will drop, (making Chinese buyers happy because more will be able to afford to use motorcycles), but what else will happen? Won’t we still need as much diesel, and as many medicines as before? Refiners can fairly easily break longer-chain molecules into shorter-chain molecules, so they can make diesel or asphalt into gasoline. But going the other direction doesn’t work well at all. Making gasoline into shorter chains would be a huge waste, because gasoline is much more valuable than the resulting gases.

How about replacing all of the taxes directly and indirectly related to the unused gasoline?  Will the price of electricity used in electric-powered vehicles be adjusted to cover the foregone tax revenue?

If a liquid substitute for oil is made, it needs to be low priced, because a high-priced substitute for oil is very different from a low-priced substitute. Part of the problem is that high-priced substitutes do not leave enough “room” for taxes for governments. Another part of the problem is that customers cannot afford high-priced oil products. They cut back on discretionary expenditures, and the economy tends to contract. There are layoffs in the discretionary sectors, and (again) the government finds it difficult to collect enough tax revenue.

The Economy as a Networked System

I think of the world economic system as being a networked system, something like the dome shown in Figure 1. The dome behaves as an object that is different from the many wooden sticks from which it is made. The dome can collapse if sticks are removed.

Figure 1. Dome constructed using Leonardo Sticks

The world economy consists of a network of businesses, consumers, governments, and resources that is bound together with a financial system. It is self-organizing, in the sense that consumers decide what to buy based on what products are available at what prices. New businesses are formed based on the overall environment: potential customers, competition, resource availability, services available from other businesses, and laws. Governments participate in the system as well, building infrastructure, making laws, and charging taxes.

Over time, all of these gradually change. If one business changes, other business and consumers are likely to make changes in response. Even governments may change: make new laws, or build new infrastructure. Over time, the tendency is to build a larger and more complex network. Unused portions of the network tend to wither away–for example, few businesses make buggy whips today. This is why the network is illustrated as hollow. This feature makes it difficult for the network to “go backward.”

The network got its start as a way to deliver food energy to people. Gradually economies expanded to include other goods and services. Because energy is required to “do work,” (such as provide heat, mechanical energy, or electricity), energy is always central to an economy. In fact, the economy might be considered an energy delivery system. This is especially the case if we consider wages to be payment for an important type of energy–human energy.

Because of the way the network has grown over time, there is considerable interdependency among different types of energy. For example, electricity powers oil pipelines and gasoline pumps. Oil is used to maintain the electric grid. Nuclear electric plants depend on electricity from the grid to restart their operations after outages. Thus, if one type of energy “has a problem,” this problem is likely to spread to other types of energy. This is the opposite of the common belief that energy substitution will fix all problems.

Economies are Prone to Collapse

We know the wooden dome in Figure 1 can collapse if “things go wrong.” History shows that many civilizations have collapsed in the past. Research has been done to see why this is the case.

Joseph Tainter’s research indicates that diminishing returns played an important role in the collapse of past civilizations. Diminishing returns would be a problem when adding more workers didn’t add a corresponding amount more output, particularly with respect to food. Such a situation might be reached when population grew too large for a piece of arable land. Degradation of soil fertility might play a role as well.

Today, we are reaching diminishing returns with respect to oil supply, as evidenced by the rising cost of oil extraction. This is occurring because we removed the easy to extract oil, and now must move on to the more expensive to extract oil. In effect, the system is becoming less efficient. More workers and more resources of other types are needed to produce a given barrel of oil. The value of the barrel of oil in terms of what it can do as work (say, how far it can move a car, or how much heat it can produce) is unchanged, so the value each worker is producing is less. This is the opposite of efficiency.

Peter Turchin and Sergey Nefedov have done research on the nature of past collapses, documented in a book called Secular Cycles. An economy would clear a piece of land, or discover an approach to irrigation, or by some other means discover a way to expand the number of people who could live in an area. The resulting economy would grow for well over 100 years, until population started catching up with resource availability. A period of stagflation followed, typically for about 50 or 60 years, as the economy tried to continue to grow, but bumped against increasing obstacles. Wage disparity grew as wages of new workers lagged. Debt also grew.

Eventually collapse occurred, over a period of 20 to 50 years. Often, much of the population died off. An inter-cycle period followed, during which resources regenerated, so that a new civilization could arise.

Figure 2. Shape of typical Secular Cycle, based on work of Peter Turkin and Sergey Nefedov in Secular Cycles.

One of the major issues in past collapses was difficulty in funding government services. Part of the problem was that wages of common workers were low, making it difficult to collect enough taxes. Part of governments’ problems were that their costs went up, as they tried to solve the increasingly complex problems of society. Today these costs might include unemployment insurance and bailing out banks; in ages past they included larger armies to try to conquer new lands with more resources, as their own resources depleted.

Today’s Situation 

Our situation isn’t too different. The economy started growing in the early 1800s, about the time we started using fossil fuels, thanks to technology that allowed us to use them. Oil is the fossil fuel that is depleting most quickly, because it is very valuable in many uses, including transportation, agriculture, construction, mining, and as a raw material to produce many goods we use every day.

Our economy seems to have hit stagflation in the early 1970s, when oil prices first began to spike. Now, some of the symptoms we are seeing are looking distressingly like the symptoms that other civilizations saw prior to the beginning of collapse. Our networked system has many weak points:

  • Oil exporters Governments can collapse, as the government of the Former Soviet Union did in 1991, if oil prices are too low. The fact that oil prices have not risen since 2011 is probably contributing to unrest in the Middle East.
  • Oil importers Spikes in oil prices lead to recession.
  • Governments funding Debt keeps expanding; infrastructure needs fixes but they don’t get done; too many promises for pensions and healthcare.
  • Failing financial systems Debt defaults are likely to be a major problem if the economic system starts shrinking. Debt is needed to keep oil prices up.
  • Contagion if one energy product is in short supply This happens many ways. For example, nearly all businesses rely on both electricity and oil. If either one of these becomes unavailable (say oil to supply parts and ship goods to customers), then the business will need to close. Because of the business closure, demand for other energy products the business uses, such as electricity and natural gas, will drop at the same time. Direct use of energy products to produce other energy products (mentioned previously) also contributes to this contagion.

Unfortunately, when it comes to operating an economy, it is Liebig’s Law of the Minimum that rules. In other words, if any required element is missing, the system doesn’t work. If businesses can’t get financing, or can’t pay their employees because banks are closed, businesses may need to close. Workers will get laid off, and the inability to afford energy products (economists would call this “lack of demand”) will be what brings the system down.

Modeling our Current Economy 

Everywhere we look, we see models of how the energy system or the economy can be expected to work. None of the models match our current situation well.

Growth will Continue As in the Past It is pretty clear that this model is inadequate. Every revision to growth estimates seems to be downward. In a finite world, we know that growth at the same rate can’t continue forever–we would run out of resources, and places for people to stand. The networked nature of the system explains how the system really grows, and why this growth can’t continue indefinitely.

Rising Cost of Producing Energy Products Doesn’t Matter In a global world, we compete on the price of goods and services. The cost of producing these goods and services depends on (a) the cost of energy products used in making these goods and services (b) wages paid to workers for producing these services (c) government, healthcare, and other overhead costs, and (d) financing costs.

One part of our problem is that with globalization, we are competing against warm countries–countries that receive more free energy from the sun than we do, so are warmer than the US and Europe. Because of this free energy from the sun, homes do not need to be built as sturdily and less heat is needed in winter. Without these costs, wages do not need to be as high. These countries also tend to have less expensive healthcare systems and lower pensions for the elderly.

Governments can try to fix our non-competitive cost structure compared to these countries by reducing interest rates  as much as possible, but the fact remains–it is very difficult for countries in cold parts of the world to compete with countries in warm parts of the world in making goods. This cost competition problem becomes worse, as the price of energy products rises because we are competing with a cost of $0 for heating requirements. If cold countries add carbon taxes, but do not surcharge goods imported from warm countries, the disparity with warm countries becomes even worse.

In the early years of civilization, warm countries dominated the world economy. As energy prices rise, this situation is likely to again occur.

Price is Not Important  Apart from the warm country–cool country issue, there is another reason that energy cost (in real goods, not just in financial printed money) is important:

The price of the energy used in the economy is important because it is tied to how much must be “given up” to buy the oil or anther energy product (such as food). If energy is cheap, little needs to be given up to obtain the energy. Because of energy’s huge ability to do “work,” the work that is obtained can easily make goods and services that compensate for what has been given up. If energy is expensive, there is much less benefit (or perhaps negative benefit) when what is given up is compared to the work that the energy product provides. As a result, economic growth is held back by high-priced energy products of any kind.

Supply and Demand Leads to Higher Prices and Substitutes  Major obstacles to the standard model working are (a) diminishing returns with respect to oil supply, (b) recession and even government failure of oil importers, when oil prices rise and (c) civil unrest and even government failure in oil exporters, if oil prices don’t keep rising. If there isn’t enough oil supply, oil prices rise, but there are soon so many follow-on effects that oil prices fall back again.

Reserves/ Production This ratio supposedly tells how long we can produce oil (or natural gas or coal) at current extraction rates. This ratio is simply misleading. The real limit is how long the economy can function, given the feedback loops related to diminishing returns. If a person simply looks at investment dollars required, it becomes clear that this model doesn’t work. See my post IEA Investment Report – What is Right; What is Wrong.

IPCC Climate Change Model Estimates of future carbon emissions do not take into the networked nature of the energy system and economy, so tend to be high.  See my post Oil Limits and Climate Change – How They Fit Together.

Energy Payback Period, Energy Return on Energy Invested, and Life Cycle Analysis These approaches look at the efficiency of energy production, comparing energy used in the process to energy produced in the process. In some ways, they work–they show that we are becoming less and less efficient at producing oil, or coal, or natural gas, as we move to more difficult to extract resources. And they can be worthwhile, if a decision is being made as to which of two similar devices to purchase: Wind Turbine A or Wind Turbine B.

Unfortunately, modeling a finite world is virtually impossible. These approaches use narrow boundaries–energy used in pulling oil out of the ground, or making a wind turbine. It doesn’t tell as much as we need to know about new energy generation equipment, together with (a) changes needed elsewhere in the system and (b) whatever financial system is used to pay for the energy generated with that system, will actually work in the economy. To really analyze the situation, broader analyses are needed.

Furthermore, there are the inherent assumptions that (a) we have a long time period to make changes and (b) one energy source can be substituted for another. Neither of these assumptions is really true when we are this close to oil limits.

Where the Peak Oil Model Went Wrong

Part of the Peak Oil story is right: We are reaching oil limits, and those limits are hitting about now. Part of the Peak Oil story is not right, though, at least in  a common version that is prevalent now.  The version that is prevalent is more or less equivalent to the “standard” view of our current situation that I talked about at the beginning of the post. In this standard view, oil supply will not disappear very quickly–approximately 50% of the total amount of oil ever extracted will become available after the peak in oil production. There will be considerable substitution with other fuels, often at higher prices. The financial system may be affected, but it can be replaced, and the economy will continue.

This view is based on writing of M. King Hubbert back in 1957. At that time, it was commonly believed that nuclear energy would provide electricity too cheap to meter. In fact, in a 1962 paper, Hubbert talks about “reversing combustion,” to make liquid fuels. Thus, not only did his story include cheap electricity, it also included cheap liquid fuels, both in huge quantity.

Figure 3. Figure from Hubbert's 1956 paper, Nuclear Energy and the Fossil Fuels.

In such a situation, growth could continue indefinitely. There would be no need to replace huge numbers of vehicles with electric vehicles. Governments wouldn’t have a problem with funding. There would be no problem with collapse. The supply of oil and other fossil fuels could decline slowly, as suggested in his papers. Assuming that it is possible to extract about 50% of oil supply after peak is equivalent to assuming that the networked economy will hold together indefinitely–there will be no problem with collapse.

But the story of the cheap, rapid nuclear ramp-up didn’t materialize, and we gradually got closer to the time when limits were beginning to hit. Major changes were needed to Hubbert’s story to reflect the fact that we really didn’t have a fix that would keep business as usual going indefinitely. But these changes never took place. Instead the view of how little change was needed to keep the economy going kept getting downgraded more and more. “Standard” economic views filtered into the story, too.

There is a correct version of the oil limits story to tell. It is the story of the failure of networked systems. That is the story I am telling in my posts.

The Invasion of the Resource Zombies

Off the keyboard of Ugo Bardi

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Published on Resource Crisis on May 6, 2014

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You probably heard that new ideas are “are born as heresies and die as superstitions”. But it can be worse than that: there are ideas which simply refuse to die and, like zombies, continue forever haunting the human mindscape. One of these ideas is that the problem with mineral resources consists in “running out” of something. A typical manifestation of this zombie-idea is a recent article by Matt Ridley which appeared on “The Wall Street” journal with the title “The World’s Resources Aren’t Running Out

I can hardly imagine a more unhelpful article than this one: it contains all the platitudes typical of this field, including the almost obligatory smear at the Club of Rome on the basis of the idea that “The Limits to Growth” study of 1972 had predicted that by now we should have run out of mineral resources (and, of course, we didn’t). Pure legend; that study never said anything like that. It is just another zombie-idea haunting the human mindscape.

But, apart from platitudes and legends, the article by Matt Ridley is wrong because it is based on a classic strawman: the one that says that we should worry about “running out” of mineral resources. It is not so. Let me say it emphatically, assuredly, and unequivocally: we are NOT running out of anything. That’s not the problem; the real problem with resources is diminishing economic returns. It means that we have extracted the “easy” (i.e. inexpensive) resources and that now we are forced to extract from “difficult” (i.e. more expensive) resources. Let me show you what’s happening with an example: the case of silver extraction.

This image, from the blog “SRSrocco Report,” says it all. In less than 10 years, the yield of silver extraction went down to nearly half of what it was at the beginning. That is, we need today to process almost twice as much rock than it took 10 years ago to extract the same amount of silver. And, of course, processing rock is expensive. We are not running out of silver: production has remained more or less constant over the past decade, but extracting it costs more. This is just an example; as I discuss in my recent book “Extracted“, all mineral resources are showing the same problem: diminishing yields of extraction.

Now, you can rhapsodize about new technologies as much as you want (and as Matt Ridley does in his article) but there is a real problem here. To extract minerals, you need to drill, lift and, grind rock and that takes energy and resources (read: money). Technology can make many things, for instance wonderful smartphones, but you can’t grind rock with smartphones. Technology, just like almost everything else, suffers of the problem of diminishing returns (I discuss this point in detail in a recent article of mine).

So, there is a reason for the increasing prices of all mineral commodities – it is diminishing economic returns. Unfortunately, however, some minds tend to be infected by the virus of the resource zombie that tells us that there is nothing to worry about. But there is a lot to be worried about: if something costs more, then you may not be able to afford it. In such case, you might as well say that it is not there (or even that you “ran out” of it).

So, it is not a good idea to sit back and hope that the wonders of technology will free us from resource depletion: no problem can ever be solved if you refuse to admit that it exists. Then you can find solutions in the form of higher efficiency, substitution, recycling and more. It can be done, but we need money, planning, and sacrifices. More than all, we need to shoot the resource zombie in the head and recognize the problem in order to act on it.

H/T SRSrocco report

Oil Limits and Climate Change – How They Fit Together

Off the keyboard of Gail Tverberg

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Published on Our Finite World on April 11, 2014

oilwell

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We hear a lot about climate change, especially now that the Intergovernmental Panel on Climate Change (IPCC) has recently published another report. At the same time, oil is reaching limits, and this has an effect as well. How do the two issues fit together?

In simplest terms, what the situation means to me is that the “low scenario,” which the IPCC calls “RCP2.6,” is closest to what we can expect in terms of man-made carbon emissions. Thus, the most reasonable scenario, based on their modeling, would seem to be the purple bar that continues to rise for the next twenty years or so and then is close to horizontal.

Figure 1. Summary Climate Change Exhibit from new  IPCC Report.

Figure 1. Summary global average surface temperature change exhibit from new IPCC Report.

I come to this conclusion by looking at the tables of anthropogenic carbon emission shown in Annex II of the report. According to IPCC data, the four modeled scenarios have emissions indicated in Figure 2.

Figure 2. Total anthropogenic carbon emissions modeled for in the scenarios selected by the IPCC, based on data from Table All 2.a in Annex II.

Figure 2. Total anthropogenic carbon emissions modeled for in the scenarios selected by the IPCC, based on data from Table All 2.a in Annex II.

 

The Likely Effect of Oil Limits

The likely effect of oil limits–one way or the other–is to bring down the economy, and because of this bring an end to pretty much all carbon emissions (not just oil) very quickly. There are several ways this could happen:

  • High oil prices – we saw what these could do in 2008.  They nearly sank the financial system. If they return, central banks have already done most of what they can to “fix” the situation. They are likely to be short of ammunition the next time around.
  • Low oil prices – this is the current problem. Oil companies are cutting back on new expenditures because they cannot make money on a cash flow basis on shale plays and on other new oil drilling. Oil companies can’t just keep adding debt, so they are doing less investment. I talked about this in Beginning of the End? Oil Companies Cut Back on Spending. Less oil means either a rebound in prices or not enough oil produced to go around. Either way, we are likely to see massive recession and falling world GDP.
  • Huge credit problems, such as happened in 2008, only worse. Oil drilling would stop within a few years, because oil prices would drop too low, and stay too low, without lots of credit to prop up prices of commodities of all types.
  • Rapidly rising interest rates, as QE reaches its limits. (QE for the United States was put in place at the time of the 2008 crisis, and has been continued since then.) Rising interest rates lead to higher needed tax rates and high monthly payments for homes and cars. The current QE-induced bubble in stock, land, and home prices is also likely to break, sending prices down again.
  • End of globalization, as countries form new alliances, such as Russia-China-Iran. The US is making false claims that we can get along without some parts of the world, because we have so much natural gas and oil. This is nonsense. Once groups of countries start pulling in opposite directions, the countries that have been using a disproportionate share of oil (particularly Europe, the United States, and Japan) will find themselves in deep trouble.
  • Electric grid failures, because subsidies for renewables leave companies that sell fossil-fuel powered electricity with too little profit. The current payment system for renewables needs to be fixed to be fair to companies that generate electricity using fossil fuels. We cannot operate our economy on renewables alone, in part, because the quantity is far too small. Creation of new renewables and maintenance of such renewables is also fossil fuel dependent.

If any of these scenarios takes place and snowballs to a collapse of today’s economy, I expect that a rapid decline in fossil fuel consumption of all kinds will take place. This decline is likely to be more rapid than modeled in the RCP2.6 Scenario. The RCP2.6 Scenario assumes that anthropogenic carbon emissions will still be at 84% of 2010 levels in 2030. In comparison, my expectation (Figure 3, below) is that fossil fuel use (and thus anthropogenic carbon emissions) will be at a little less than 40% of 2010 levels in 2030.

Figure 3. Estimate of future energy production by author. Historical data based on BP adjusted to IEA groupings.

Figure 3. Estimate of future energy production by author. Historical data based on BP adjusted to IEA groupings.

After 2070, the RCP2.6 Scenario indicates negative carbon emissions, presumably from geo-engineering. In my view of the future, such an approach seems unlikely if oil limits are a major problem, because without fossil fuels, we will not have the ability to use engineering approaches. It is also doubtful that there would be as much need for these engineered carbon-take-downs at the end of the period. Population would likely be much lower by then, so current anthropogenic carbon emissions would be less of a problem.

The Climate Change Scenario Not Modeled

We really don’t know what future climate change will look like because no one has tried to model what a collapse situation would look like. Presumably there will be a lot of tree-cutting and burning of biomass for fuel. This will change land use besides adding emissions from the burned biomass to the atmosphere. At the same time, emissions associated with fossil fuels will likely drop very rapidly.

Clearly the climate has been changing and will continue to change. At least part of our problem is that we have assumed that it is possible to have an unchanging world and have made huge investments assuming that climate would go along with our plans. Unfortunately, the way nature “works” is by repeatedly replacing one system with another system. The new systems that survive tend to be better adapted to recent changes in conditions. If we think of humans, other animals, and plants as “systems,” this is true of them as well. No living being can expect to survive forever.

Unfortunately economies are not permanent either. Just as the Roman Empire failed, our economy cannot last forever. In physics, economies seem to be examples of dissipative structures, just as plants and animals and hurricanes are. Dissipative structures are formed in the presence of flows of energy and matter in open thermodynamic systems–that is, systems that are constantly receiving a new flow of energy, as we on earth do from the sun. Unfortunately, dissipative structures don’t last forever.

Dissipative structures temporarily dissipate energy that is available. At the same time, they affect their surroundings. In the case of an economy, the use of energy permits the extraction of the most accessible, easy-to-extract resources, such as fossil fuels, metals, and fresh water. At the same time, population tends to grow. The combination of growing extraction and rising population leads to economic stresses.

At some point the economy becomes overly stressed because of limits of various types. Some of these limits are pollution-related, such as climate change. Other limits present themselves as higher costs, such as the need for deeper wells or desalination to provide water for a growing population, and the need for greater food productivity per acre because of more mouths to feed. The extraction of oil and other fossil fuels also provides a cost limit, as resource extraction becomes more complex, requiring a larger share of the output of the economy. When limits hit, governments are especially likely to suffer from inadequate funding and excessive debt, because tax revenue suffers if wages and profits drop.

People who haven’t thought much about the situation often believe that we can simply get along without our current economy. If we think about the situation, we would lose a great deal if we lost the connections that our current economy, and the financial system underlying it, offers. We as humans cannot “do it alone”–pull out metals and refine them with our bare hands, dig deeper wells, or keep up fossil fuel extraction. Re-establishing needed connections in a totally new economy would be a massive undertaking. Such connections are normally built up over decades or longer, as new businesses are formed, governments make laws, and consumers adapt to changing situations. Without oil, we cannot easily go back to horse and buggy!

Unfortunately, much of the writing related to dissipative structures and the economy is in French. François Roddier wrote a book called Thermodynamique de l’évolution on topics related to this subject. Matthieu Auzanneau writes about the issue on his blog. Roddier has a presentation available in French. One paper on a related topic in English is Energy Rate Density as a Complexity Metric and Evolutionary Driver by E. Chaisson. Causal Entropic Forces by Wissner-Gross and Freer provides evidence regarding how  societies self-organize in ways that maximize entropy.

The IPCC’s Message Isn’t Really Right 

We are bumping up against limits in many ways not modeled in the IPCC report. The RCP2.6 Scenario comes closest of the scenarios shown in providing an indication of our future situation. Clearly the climate is changing and will continue to change in ways that our planners never considered when they built cities and took out long-term loans. This is a problem not easily solved.

One of the big issues is that energy supplies seem to be leaving us, indirectly through economic changes that we have little control over. The IPCC report is written from the opposite viewpoint:  we humans are in charge and need to decide to leave energy supplies. The view is that the economy, despite our energy problems, will return to robust growth. With this robust growth, our big problem will be climate change because of the huge amount of carbon emissions coming from fossil fuel burning.

Unfortunately, the real situation is that the laws of physics, rather than humans, are in charge. Basically, as economies grow, it takes increasing complexity to fix problems, as Joseph Tainter explained in his book, The Collapse of Complex Societies. Dissipative structures provide this ever-increasing complexity through higher “energy rate density” (explained in the Chaisson article linked above).

Now we are reaching limits in many ways, but we can’t–or dare not–model how all of these limits are hitting. We can, in theory, add more complexity to fix our problems–electric cars, renewable energy, higher city density, better education of women. These things would require more energy rate density. Ultimately, they seem to depend on the availability of more inexpensive energy–something that is increasingly unavailable.

The real issue is the danger that our economy will collapse in the near term. From the earth’s point of view, this is not a problem–it will create new dissipative structures in the future, and the best-adapted of these will survive. Climate will adapt to changing conditions, and different species will be favored as the climate changes. But from the point of view of those of us living on the planet earth, there is a distinct advantage to keeping business as usual going for as long as possible.  A collapsed economy cannot support 7.2 billion people.

We need to understand what are really up against, if we are to think rationally about the future. It would be helpful if more people tried to understand the physics of the situation, even if it is a difficult subject. While we can’t really expect to “fix” the situation, we can perhaps better understand what “solutions” are likely to make the situation worse. Such knowledge will also provide a better context for understanding how climate change fits in with other limits we are reaching. Climate change is certainly not the whole problem, but it may still play a significant role.

A Poem of Limits

Off the keyboard of RE

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Published on the Doomstead Diner on November 10, 2013

SunWebGraphic3

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A Poem of Limits

The darkness moves beneath my feet,
More endless battles always ending in defeat.
Seeking hope in a sea of sadness
Still I fight onward to find some gladness.

My heart is broken, so many reasons why
That offtime it seems it is time to die.
The endless wars, the endless strife
Why, o why do I pursue my life?

The end now so clear in the nearest distance
Perhaps it is best to go with path of  least resistance?
We live, we laugh, we love, we weep
No matter what we do, in the end we sleep.

My wings are broken, my legs are shot
Ageing takes away those things you got.
You remember well what once thought true,
but now what was false has all come due.

The will for all is to reproduce
But then, we run up against limits of what we can produce
There are real limits to what the world can give
When reached, no way there is that all can live

So some will live and more will die
No one can really pin down the reasons why
One is Gifted and another Cursed
Why is it one gets the Best,  another the Worst?

So here today I write this letter,
Because honestly, I do not know which is better.
To live now, at the expense of my brother
Or Die now, for the sake of another?

Is it better to live and make the fight?
To continue to strive and do what’s right?
Or call an end to this, and call it quits
Perhaps that it the end that best befits?

I’ve walked the Earthly Road a good long time
Now I am so far past my prime
What was important to me now long since lost
Lost forever at incalculable cost.

The petty things I thought important
Now just a memory long distant
Real now is just to live
To see what still I have left to give.

There was a time I made the grades
Future so bright I hadda wear shades
Now the future seems none too bright
But in the darkness, perchance to find some light?

So off we go as our world turns
Spectators in awe as the world we built now burns
We look now for something new to glow
A bit of Land and Food to Grow

The SUN still rises, not yet gone black
Though life now seems so desperately out of whack
Regret not though what now is lost
Such a life came at an immeasurable cost

Now comes the time to fix what’s wrong
To find that place we all belong
To find again the beauty that is on Earth
Our beloved Mother who gave us Birth.

RE

Rising Energy Costs Lead to Recession; Eventually Collapse

Off the keyboard of Gail Tverberg

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Published on Our Finite World on October 23, 2013

oilwell

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How does the world reach limits? This is a question that few dare to examine. My analysis suggests that these limits will come in a very different way than most have expected–through financial stress that ultimately relates to rising unit energy costs, plus the need to use increasing amounts of energy for additional purposes:

  • To extract oil and other minerals from locations where extraction is very difficult, such as in shale formations, or very deep under the sea;
  • To mitigate water shortages and pollution issues, using processes such as desalination and long distance transport of food; and
  • To attempt to reduce future fossil fuel use, by building devices such as solar panels and electric cars that increase fossil fuel energy use now in the hope of reducing energy use later.

We have long known that the world is likely to eventually reach limits. In 1972, the book The Limits to Growth by Donella Meadows and others modeled the likely impact of growing population, limited resources, and rising pollution in a finite world. They considered a number of scenarios under a range of different assumptions. These models strongly suggested the world economy would begin to hit limits in the first half of the 21st century and would eventually collapse.

The indications of the 1972 analysis were considered nonsense by most. Clearly, the world would work its way around limits of the type suggested. The world would find additional resources in short supply. It would become more efficient at using resources and would tackle the problem of rising pollution. The free market would handle any problems that might arise.

The Limits to Growth analysis modeled the world economy in terms of flows; it did not try to model the financial system. In recent years, I have been looking at the situation and have discovered that as we hit limits in a finite world, the financial system is the most vulnerable part because of the system because it ties everything else together. Debt in particular is vulnerable because the time-shifting aspect of debt “works” much better in a rapidly growing economy than in an economy that is barely growing or shrinking.

The problem that now looks like it has the potential to push the world into financial collapse is something no one would have thought of—high oil prices that take a slice out of the economy, without anything to show in return. Consumers find that their own salaries do not rise as oil prices rise. They find that they need to cut back on discretionary spending if they are to have adequate funds to pay for necessities produced using oil. Food is one such necessity; oil is used to run farm equipment, make herbicides and pesticides, and transport finished food products. The result of a cutback in discretionary spending is recession or near recession, and less job availability. Governments find themselves in  financial distress from trying to mitigate the recession-like impacts without adequate tax revenue.

One of our big problems now is a lack of cheap substitutes for oil. Highly touted renewable energy sources such as wind and solar PV are not cheap. They also do not substitute directly for oil, and they increase near-term fossil fuel consumption. Ethanol can act as an “oil extender,” but it is not cheap. Battery powered cars are also not cheap.

The issue of rising oil prices is really a two-sided issue. The least expensive sources of oil tend to be extracted first. Thus, the cost of producing oil tends to rise over time. As a result, oil producers tend to require ever-rising oil prices to cover their costs. It is the interaction of these two forces that leads to the likelihood of financial collapse in the near term:

  1. Need for ever-rising oil prices by oil producers.
  2. The adverse impact of high-energy prices on consumers.

If a cheap substitute for oil had already come along in adequate quantity, there would be no problem. The issue is that no suitable substitute has been found, and financial problems are here already. In fact, collapse may very well come from oil prices not rising high enough to satisfy the needs of those extracting the oil, because of worldwide recession.

The Role of Inexpensive Energy

The fact that few stop to realize is that energy of the right type is absolutely essential for making goods and services of all kinds.  Even if the services are simply typing numbers into a computer, we need energy of precisely the right kind for several different purposes:

  1. To make the computer and transport it to the current location.
  2. To build the building where the worker works.
  3. To light the building where the worker works.
  4. To heat or cool the building where the worker works.
  5. To transport the worker to the location where he works.
  6. To produce the foods that the worker eats.
  7. To produce the clothing that the worker wears.

Furthermore, the energy used needs to be inexpensive, for many reasons—so that the worker’s salary goes farther; so that the goods or services created are competitive in a world market; and so that governments can gain adequate tax revenue from taxing energy products. We don’t think of fossil fuel energy products as being a significant source of tax revenue, but they very often are, especially for exporters (Rodgers map of oil “government take” percentages).

Some of the energy listed above is paid for by the employer; some is paid for by the employee. This difference is irrelevant, since all are equally essential. Some energy is omitted from the above list, but is still very important. Energy to build roads, electric transmission lines, schools, and health care centers is essential if the current system is to be maintained. If energy prices rise, taxes and fees to pay for basic services such as these will likely need to rise.

How “Growth” Began

For most primates, such as chimpanzees and gorillas, the number of the species fluctuates up and down within a range. Total population isn’t very high. If human population followed that of other large primates, there wouldn’t be more than a few million humans worldwide. They would likely live in one geographical area.

How did humans venture out of this mold? In my view, a likely way that humans were able to improve their dominance over other animals and plants was through the controlled use of fire, a skill they learned over one million years ago  (Luke 2012).  Controlled use of fire could be used for many purposes, including cooking food, providing heat in cool weather, and scaring away wild animals.

The earliest use of fire was in some sense very inexpensive. Dry sticks and leaves were close at hand. If humans used a technique such as twirling one stick against another with the right technique and the right kind of wood, such a fire could be made in less than a minute (Hough 1890). Once humans had discovered how to make fire, they could use it to leverage their meager muscular strength.

The benefits of the controlled use of fire are perhaps not as obvious to us as they would have been to the early users. When it became possible to cook food, a much wider variety of potential foodstuffs could be eaten. The nutrition from food was also better. There is even some evidence that cooking food allowed the human body to evolve in the direction of smaller chewing and digestive apparatus and a bigger brain (Wrangham 2009). A bigger brain would allow humans to outsmart their prey. (Dilworth 2010)

Cooking food allowed humans to spend much less time chewing food than previously—only one-tenth as much time according to one study (4.7% of daily activity vs. 48% of daily activity) (Organ et al. 2011). The reduction in chewing time left more time other activities, such as making tools and clothing.

Humans gradually increased their control over many additional energy sources. Training dogs to help in hunting came very early. Humans learned to make sailboats using wind energy. They learned to domesticate plants and animals, so that they could provide more food energy in the location where it was needed. Domesticated animals could also be used to pull loads.

Humans learned to use wind mills and water mills made from wood, and eventually learned to use coal, petroleum (also called oil), natural gas, and uranium. The availability of fossil fuels vastly increased our ability to make substances that require heating, including metals, glass, and concrete. Prior to this time, wood had been used as an energy source, leading to widespread deforestation.

With the availability of metals, glass, and concrete in quantity, it became possible to develop modern hydroelectric power plants and transmission lines to transmit this electricity. It also became possible to build railroads, steam-powered ships, better plows, and many other useful devices.

Population rose dramatically after fossil fuels were added, enabling better food production and transportation. This started about 1800.

Figure 1. World population based on data from "Atlas of World History," McEvedy and Jones, Penguin Reference Books, 1978  and Wikipedia-World Population.

Figure 1. World population based on data from “Atlas of World History,” McEvedy and Jones, Penguin Reference Books, 1978 and UN Population Estimates.

All of these activities led to a very long history of what we today might call economic growth. Prior to the availability of fossil fuels, the majority of this growth was in population, rather than a major change in living standards. (The population was still very low compared to today.) In later years, increased energy use was still associated with increased population, but it was also associated with an increase in creature comforts—bigger homes, better transportation, heating and cooling of homes, and greater availability of services like education, medicine, and financial services.

How Cheap Energy and Technology Combine to Lead to Economic Growth

Without external energy, all we have is the energy from our own bodies. We can perhaps leverage this energy a bit by picking up a stick and using it to hit something, or by picking up a rock and throwing it. In total, this leveraging of our own energy doesn’t get us very far—many animals do the same thing. Such tools provide some leverage, but they are not quite enough.

The next step up in leverage comes if we can find some sort of external energy to use to supplement our own energy when making goods and services.  One example might be heat from a fire built with sticks used for baking bread; another example might be energy from an animal pulling a cart. This additional energy can’t take too much of (1) our human energy, (2) resources from the ground, or (3) financial capital, or we will have little to invest what we really want—technology that gives us the many goods we use, and services such as education, health care, and recreation.

The use of inexpensive energy led to a positive feedback loop: the value of the goods and service produced was sufficient to produce a profit when all costs were considered, thanks to the inexpensive cost of the energy used. This profit allowed additional investment, and contributed to further energy development and further growth. This profit also often led to rising salaries. The additional cheap energy use combined with greater technology produced the impression that humans were becoming more “productive.”

For a very long time, we were able to ramp up the amount of energy we used, worldwide. There were many civilizations that collapsed along the way, but in total, for all civilizations in the world combined, energy consumption, population, and goods and services produced tended to rise over time.

In the 1970s, we had our first experience with oil limits. US oil production started dropping in 1971. The drop in oil production set us up as easy prey for an oil embargo in 1973-1974, and oil prices spiked. We got around this problem, and more high price problems in the late 1970s by

  1. Starting work on new inexpensive oil production in the North Sea, Alaska, and Mexico.
  2. Adopting more fuel-efficient cars, already available in Japan.
  3. Switching from oil to nuclear or coal for electricity production.
  4. Cutting back on oil intensive activities, such as building new roads and doing heavy manufacturing in the United States.

The economy eventually more or less recovered, but men’s wages stagnated, and women found a need to join the workforce to maintain the standards of living of their families.  Oil prices dropped back, but not quite a far as to prior level. The lack of energy intensive industries (powered by cheap oil) likely contributed to the stagnation of wages for men.

Recently, since about 2004, we have again been encountering high oil prices. Unfortunately, the easy options to fix them are mostly gone. We have run out of cheap energy options—tight oil from shale formations isn’t cheap. Wages again are stagnating, even worse than before. The positive feedback loop based on low energy prices that we had been experiencing when oil prices were low isn’t working nearly as well, and economic growth rates are falling.

The technical name for the problem we are running into with oil is diminishing marginal returns.  This represents a situation where more and more inputs are used in extraction, but these additional inputs add very little more in the way of the desired output, which is oil. Oil companies find that an investment of a given amount, say $1,000 dollars, yields a much smaller amount of oil than it used to in the past—often less than a fourth as much. There are often more up-front expenses in drilling the wells, and less certainty about the length of time that oil can be extracted from a new well.

Oil that requires high up-front investment needs a high price to justify its extraction. When consumers pay the high oil price, the amount they have for discretionary goods drops.  The feedback loop starts working the wrong direction—in the direction of more layoffs, and lower wages for those working. Companies, including oil companies, have a harder time making a profit. They find outsourcing labor costs to lower-cost parts of the world more attractive.

Can this Growth Continue Indefinitely?

Even apart from the oil price problem, there are other reasons to think that growth cannot continue indefinitely in a finite world.  For one thing, we are already running short of fresh water in many parts of the world, including China, India and the Middle East.  Topsoil is eroding, and is being depleted of minerals. In addition, if population continues to rise, we will need a way to feed all of these people—either more arable land, or a way of producing more food per acre.

Pollution is another issue. One type is acidification of oceans; another leads to dead zones in oceans. Mercury pollution is a widespread problem. Fresh water that is available is often very polluted. Excess carbon dioxide in the atmosphere leads to concerns about climate change.

There is also an issue with humans crowding out other species. In the past, there have been five widespread die-offs of species, called “Mass Extinctions.” Humans seem now to be causing a Sixth Mass Extinction. Paleontologist Niles Eldredge  describes the Sixth Mass Extinction as follows:

  • Phase One began when first humans began to disperse to different parts of the world about 100,000 years ago. [We were still hunter-gatherers at that point, but we killed off large species for food as we went.]
  • Phase Two began about 10,000 years ago, when humans turned to agriculture.

According to Eldredge, once we turned to agriculture, we stopped living within local ecosystems. We converted land to produce only one or two crops, and classified all unwanted species as “weeds”.  Now with fossil fuels, we are bringing our attack on other species to a new higher level. For example, there is greater clearing of land for agriculture, overfishing, and too much forest use by humans (Eldredge 2005).

In many ways, the pattern of human population growth and growth of use of resources by humans are like a cancer. Growth has to stop for one reason or other—smothering other species, depletion of resources, or pollution.

Many Competing Wrong Diagnoses of our Current Problem

The problem we are running into now is not an easy one to figure out because the problem crosses many disciplines. Is it a financial problem? Or a climate change problem? Or an oil depletion problem? It is hard to find individuals with knowledge across a range of fields.

There is also a strong bias against really understanding the problem, if the answer appears to be in the “very bad to truly awful” range. Politicians want a problem that is easily solvable. So do sustainability folks, and peak oil folks, and people writing academic papers. Those selling newspapers want answers that will please their advertisers. Academic book publishers want books that won’t scare potential buyers.

Another issue is that nature works on a flow basis. All we have in a given year in terms of resources is what we pull out in that year. If we use more resources for one thing–extracting oil, or making solar panels, it leaves less for other purposes. Consumers also work mostly from the income from their current paychecks. Even if we come up with what looks like wonderful solutions, in terms of an investment now for payback later, nature and consumers aren’t very co-operative in producing them. Consumers need ever-more debt, to make the solutions sort of work. If one necessary resource–cheap oil–is in short supply, nature dictates that other resource uses shrink, to work within available balances. So there is more pressure toward collapse.

Virtually no one understands our complex problem. As a result, we end up with all kinds of stories about how we can fix our problem, none of which make sense:

“Humans don’t need fossil fuels; we can just walk away.” – But how do we feed 7 billion people? How long would our forests last before they are used for fuel?

“More wind and solar PV” – But these use fossil fuels now, and don’t fix oil prices.

“Climate change is our only problem.”—Climate change needs to be considered in conjunction with other limits, many of which are hitting very soon. Maybe there is good news about climate, but it likely will be more than offset by bad news from limits not considered in the model.

The Legacy of the Club of Rome

Off the keyboard of Ugo Bardi

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Published on Cassandra’s Legacy on October 18,2013

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Here is a written version of the speech I gave at the meeting held in Bucharest in occasion of the 20th anniversary of the foundation of the Rumanian section of the Club of Rome (ARCoR), on Oct 17, 2013. It was a somewhat formal reunion, so my speech was a little more formal than usual. What follows is not a transcription, but a text version written from memory. Thanks to Mr. Liviu Tudor, secretary general of ARCoR, to Mr. Mugur Isarescu, president, and to all the members of ARCoR for having invited me in this occasion. (The image above is from last year’s ARCoR meeting, but the one I am reporting about was held in the same room in Bucharest)
Ladies and gentlemen, it is a privilege and a honor for me to represent the Club of Rome today. So, I can bring to you the greetings and the congratulations of the co-presidents of the Club, Mr. Anders Wijkman and Mr. Ernst Weizsacker; as well as those of the Secretary General, Mr. Ian Johnson.
We are celebrating today the 20th anniversary of the foundation of the Romanian association of the Club of Rome, ARCoR, which is a remarkable achievement. It is just as remarkable, I believe, the achievement of the Club as a global association which has already been existing for more than 40 years after it was founded by Mr. Aurelio Peccei in 1969.
What we are celebrating today, however, is not the memory of past glories. What we are celebrating, instead, is the growing realization of how important and how modern was the vision that appeared in the first report to the Club, the very famous book titled “The Limits to Growth”. Today, more than 40 years later, I had the honor to sign as the main author the 33rd report to the Club; a book titled “Plundering the Planet.” With this book, we re-examined several of the scenarios and the concept of the 1972 report. We found how consistently the ideas of the early report were on target and how closely the world’s economy has followed the scenario that was defined as “base case” and that today we would define as “business as usual”. It is a scenario that sees the growth of the world’s economy maintained up to the first decades of the 21st century, to be followed by a stasis and then by rapid decline.
Please be careful: “The Limits to Growth” was not a prophecy and never was supposed to be one. The authors clearly stated in the book that they didn’t want the future to look like their “base case” scenario. Nobody would want the world’s economy to collapse, with all the consequences involved, of course They said, correctly, that our future is something that we create with our actions and our decisions and that if we wanted to avoid decline, we had to make choices that would avoid it. But that wasn’t done and the base case scenario is becoming more and more, unfortunately, like a prophecy.
However, independently of what will be the evolution of the world’s economy in the coming years, I think that the main legacy of “The Limits to Growth” today, is to remind to us how important material resources are for our livelihood and for our prosperity. Wealth is not created by banks or other financial institutions; it is created by what we call “natural resources” that are produced, are processed by our industrial system, and finally transformed into products: it is what we call “the economy”. Without natural resources, there would be no economy, and money would be worthless because there would be nothing to buy. That should be obvious, but sometimes we are so worried – I’d say obsessed – by the vagaries of the world’s financial system! We tend to forget something that my friend and colleague, professor Giorgio Nebbia, used to tell me “Economics is the science of all material things”
So, were do we stand on these “material things” today? Well, for one thing it is clear that we are NOT running out of anything: the production of most important minerals is not declining and no major mineral commodity is missing in the market, at least if you are willing to pay for it. It was sometimes said that the message of “The Limits to Growth;” was that we would soon run out of mineral resources. But that’s not true. “The Limits to Growth” never said anything like that. It was clear from the calculations reported in the study that we wouldn’t ever run out of major mineral resources before the end of the 20th century. The point is quite a different one: much before of physically running out of resources, we’ll run out of cheap resources.
And that’s exactly what’s happening. We are not running out of anything, but we must pay more for what we need. As you surely know, oil prices have increased of about a factor five over the past 5-6 years and the average price of mineral resources has increased of a factor of about three over the same time span. This is a robust trend and it is not painless for the economies importing countries.
Let me give you some data: in 2012, the European Union countries imported about 500 billion euros worth of fossil fuels (1), that is about 4% of the European GdP. Single countries show slightly different values, for instance for Italy it was about 66 billion euros of imports, corresponding to more than 4%; of the Italian GdP. For Romania, the fraction is smaller, in part because Romania produces a relatively large amount of fossil fuels in comparison to the size of its economy.
Consider that these are just the costs of importing fossil fuels; more has to be spent for importing other mineral commodities which normally “embed” a lot of energy in the form of fossil fuels used for their extraction, processing, and transportation. But let’s remain with fossil fuels. Let’s ask ourselves a question: is 4% is a lot or a little? Well, it is one of these questions that must be answered with a classic “it depends”. If the economy could grow, then the increasing costs of fossil fuels wouldn’t be much of a burden – they would remain more or less the same fraction of the whole economy. But that has not been the case. The European economy is growing, but growth has been far from robust in the past years and in several countries the economy not growing at all. And these countries are seen their “energy bill” growing up and becoming a heavy burden. A good example is Italy; but the same kind of troubles are everywhere. As we speak of percentage points of the European economy we are speaking of hundreds of billions of euros which move from Europe – mostly an importer of mineral commodities – to producers, which are mostly outside Europe.
This gigantic transfer of wealth cannot remain without consequences and I think that it is one of the major reasons of the troubles we are experiencing today. As I said before, the main legacy of “The Limits to Growth” is to remind us that our prosperity is based on material resources and we shouldn’t forget that. I invite you to consider this element when you try to understand what’s happening.
But there is another element that we can consider as the legacy of the Club of Rome today, and it goes straight to the core of the matter. You see, the scenarios that are at the basis of the study “The Limits to Growth” were created using a technique called “system dynamics”. It has to do with solving differential equations in a computer but, in reality, it is nothing more than formalized common sense.
Let me explain: I would define “common sense” in a very simple manner: it is just thinking of consequences and, in particular, thinking of the long term consequences of what you do. Using a computer means that you can project your common sense further in the future and to consider more complicated systems than those you deal with normally. But common sense – thinking of consequences – remains a quality of human thinking that, unfortunately, at times we refuse to utilize.
Considering our present situations we are facing choices that will have profound consequences for our future. For instance, should we drill for more oil and gas? We can, of course, choose to invest large amounts of our current resources in order to exploit the so-called “non conventional” resources. But the consequence will be that we’ll become even more dependent on a resource that is becoming more and more difficult and expensive to obtain (to say nothing of the worsening of the climate problem). So, everything has consequences and we should think about that before we take these important decisions if we want to take them wisely.
To conclude, I’d like to cite a phrase that’s often attributed to Robert Luis Stevenson. It is, “Everyone of us, sooner or later, sits down at a banquet of consequences”. What will be served at the banquet will depend on the choices we are making now. In this sense, the methods and the ideas developed by the Club of Rome already in the 1970s can help us to make wise choices (if we want to). This is the legacy of the Club of Rome
http://cleantechnica.com/2013/04/07/eu-2030-energy-green-paper-introduce-oil-import-reduction-targets/

Collapse Cafe 3: Limits to Growth

Off the Cams, Mics &  Laptops of Ugo Bardi, Gail Tverberg, David Korowicz, George Mobus, Monsta & RE

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Aired on the Doomstead Diner on September 30, 2013

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Featuring Ugo Bardi, Gail Tverberg, George Mobus and David Korowicz

Going back in Mr. Peabody’s WAYBAC Machine to 1972, a bunch of academic types from MIT got together to create a model they called the “Limits to Growth”.  Here from Wikipedia are the basic tenets of the model and the ideas behind it:

The Limits to Growth is a 1972 book about the computer modeling of exponential economic and population growth with finite resource supplies.[1] Funded by the Volkswagen Foundation[2] and commissioned by the Club of Rome it was first presented at the 3. St. Gallen Symposium. Its authors were Donella H. Meadows, Dennis L. Meadows, Jørgen Randers, and William W. Behrens III. The book used the World3 model to simulate[3] the consequence of interactions between the Earth’s and human systems.

Five variables were examined in the original model. These variables are: world population, industrialization, pollution, food production and resource depletion. The authors intended to explore the possibility of a sustainable feedback pattern that would be achieved by altering growth trends among the five variables under three scenarios. They noted that their projections for the values of the variables in each scenario were predictions “only in the most limited sense of the word,” and were only indications of the system’s behavioral tendencies.[4] Two of the scenarios saw “overshoot and collapse” of the global system by the mid to latter part of the 21st century, while a third scenario resulted in a “stabilized world.”[5]

40 years later, Jorgen Randers and many of the same people involved in the original study produced a new model, updating with current information and looking at scenarios through to 2052.

limits-to-growth

There is a decent amount of controversy regarding this updated model and its assumptions, so we brought together 4 analysts looking at the progress of Industrial Civilization Collapse to discuss the model and what it might tell us about the future.  Joining us in this edition of the Collapse Cafe are Ugo Bardi of Cassandra’s Legacy, Gail Tverberg of Our Finite World, George Mobus of Question Everything and David Korowicz from FEASTA.

Break out the Microwave Popcorn, pour yourself a stiff one and join us as we contemplate the future through the Limits to Growth lens on the Collapse Cafe.

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Mineral Resources and the Limits to Growth.

Off the keyboard of Ugo Bardi

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Published on Cassandra’s Legacy on September 18, 2013

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Visit the Podcast Page to listen to Part II & III of the conversation with Ugo Bardi

This is a shortened version of a talk I gave in Dresden on September 5, 2013. Thanks to Professor Antonio Hurtado for organizing the interesting conference there

So, ladies and gentleman, let me start with this recent book of mine. It is titled “The Plundered Planet.” You can surely notice that it is not titled “The Developed Planet” or “The Improved Planet.” Myself and the coauthors of the book chose to emphasize the concept of “Plundering”; of the fact that we are exploiting the resources of our planet as if they were free for us for the taking; that is, without thinking to the consequences. And the main consequence, for what we are concerned here is called “depletion,” even though we have to keep in mind the problem of pollution as well.
Now, there have been many studies on the question of depletion, but “The Plundered Planet” has a specific origin, and I can show it to you. Here it is.

It is the rather famous study that was published in 1972 with the title “The Limits to Growth”. It was one of the first studies that attempted to quantify depletion and its effects on the world’s economic system. It was a complex study based on the best available data at the time and that used the most sophisticated computers available to study how the interaction of various factors would affect parameters such as industrial production, agricultural production, population and the like. Here are the main results of the 1972 study, the run that was called the “base case” (or “standard run”). The calculations were redone in 2004, finding similar results.

As you can see, the results were not exactly pleasant to behold. In 1972, the study saw a slowdown of the world’s main economic parameters that would take place within the first two decades of the 21st century. I am sure that you are comparing, in your minds, these curves with the present economic situation and you may wonder whether these old calculations may be turning out to be incredibly good. But I would also like to say that these curves are not – and never were – to be taken as specific predictions. No one can predict the future, what we can do is to study tendencies and where these tendencies are leading us. So, the main result of the Limits to Growth study was to show that the economic system was headed towards a collapse at some moment in the future owing to the combined effect of depletion, pollution, and overpopulation. Maybe the economic problems we are seeing nowadays are a prelude to the collapse seen by this model, maybe not – maybe the predicted collapse is still far away in the future. We can’t say right now.

In any case, the results of the study can be seen at least worrisome. And a reasonable reaction when the book came out in 1972 would have been to study the problem more in depth – nobody wants the economy to collapse, of course. But, as you surely know, the Limits to Growth study was not well received. It was strongly criticized, accused of having made “mistakes” of all kinds and at times to be part of a worldwide conspiracy to take control of the world and to exterminate most of humankind. Of course, most of this criticism had political origins. It was mostly a gut reaction: people didn’t like these results and sought to find ways to demonstrate that the model was wrong (or the data, or the approach, or something else). If they couldn’t do that, they resorted to demonizing the authors – that’s nothing now; I described it in a book of mine “Revisiting the limits to growth“.

Nevertheless, there was a basic criticism of the “Limits” study that made sense. Why should one believe in this model? What are exactly the factors that generate the expected collapse? Here, I must say, the answer often given in the early times by the authors and by their supporters wasn’t so good. What the creators of the models said was that the model made sense according to their views and they could show a scheme that was this (from the 1972 Italian edition of the book):

Now, I don’t know what do you think of it; to me it looks more or less like the map of the subway of Tokyo, complete with signs in kanji characters. Not easy to navigate, to say the least. So, why did the authors created this spaghetti model? What was the logic in it? It turns out that the Limits to Growth model has an internal logic and that it can be explained in thermodynamic terms. However, it takes some work to describe the whole story. So, let me start with the ultimate origin of these models:

If you have studied engineering, you surely recognize this object. It is called “governor” and it is a device developed in 19th century to regulate the speed of steam engines. It turns with the engine, and the arms open or close depending on speed. In so doing, the governor closes or opens the valve that sends steam into the engine. It is interesting because it is the first self-regulating device of this kind and, at its time, it generated a lot of interest. James Clerk Maxwell himself studied the behavior of the governor and, in 1868, he came up with a set of equations describing it. Here is a page from his original article

I am showing to you these equations just to let you note how these systems can be described by a set of correlated differential equations. It is an approach that is still used and today we can solve this kind of equations in real time and control much more complex systems than steam engines. For instance, drones.

You see here that a drone can be controlled so perfectly that it can hold a glass without spilling the content. And you can have drones playing table tennis with each other and much more. Of course they are also machines designed for killing people, but let’s not go into that. The point is that if you can solve a set of differential equations, you can describe – and also control – the behavior of quite complex systems.

The work of Maxwell so impressed Norbert Wiener, that it led him to develop the concept of “cybernetics”

We don’t use so much the term cybernetics today. But the ideas that started from the governor study by Maxwell were extremely fecund and gave rise to a whole new field of science. When you use these equations for controlling mechanical system, you use the term “control theory.” But when you use the equations for study the behavior of socio-economic systems, you use the term “system dynamics”

System dynamics is something that was developed mainly by Jay Wright Forrester in the 1950s and 1960s, when there started to exist computers powerful enough to solve sets of coupled differential equations in reasonable times. That generated a lot of studies, including “The Limits to Growth” of 1972 and today the field is alive and well in many areas.

A point I think is important to make is that these equations describe real world systems and real world systems must obey the laws of thermodynamics. So, system dynamics must be consistent with thermodynamics. It does. Let me show you a common example of a system described by system dynamics: practitioners in this field are fond of using a bathub as an example:

On the right you have a representation of the real system, a bathtub partly filled with water. On the left, its representation using system dynamics. These models are called “stock and flow”, because you use boxes to represent stocks (the quantity of water in the tub) and you use double edged arrows to indicate flows. The little butterfly like things indicate valves and single edged arrows indicate relationship.

Note that I used a graphic convention that I like to use for my “mind sized” models. That is, I have stocks flowing “down”, following the dissipation of thermodynamic potential. In this case what moves the model is the gravitational potential; it is what makes water flow down, of course. Ultimately, the process is driven by an increase in entropy and I usually ask to my students where is that entropy increases in this system. They usually can’t give the right answer. It is not that easy, indeed – I leave that to you as a little exercise

The model on the left is not simply a drawing of box and arrows, it is made with a software called “Vensim” which actually turns the model “alive” by building the equations and solving them in real time. And, as you may imagine, it is not so difficult to make a model that describes a bathtub being filled from one side and emptied from the other. But, of course, you can do much more with these models. So, let me show a model made with Vensim that describes the operation of a governor and of the steam engine.

Before we go on, let me introduce a disclaimer. This is just a model that I put together for this presentation. It seems to work, in the sense that it describes a behavior that I think is correct for a governor (you can see the results plotted inside the boxes). But it doesn’t claim to be a complete model and surely not the only possible way to make a system dynamics model of a governor. This said, you can give a look to it and notice a few things. The main one is that we have two “stocks” of energy: one for the large wheel of the steam energy, the other for the small wheel which is the governor. In order to provide some visual sense of this difference in size, I made the two boxes of different size, but that doesn’t change the equations underlying the model. Note the “feedback”, the arrows that connect flows and stock sizes. The concept of feedback is fundamental in these models.

Of course, this is also a model that is compatible with thermodynamics. Only, in this case we don’t have a gravitational potential that moves the system, but a potential based on temperature differences. The steam engine works because you have this temperature difference and you know the work of Carnot and the others who described it. So, I used the same convention here as before; thermodynamic potential are dissipated going “down” in the model’s graphical representation

Now, let me show you another simple model, the simplest version I can think of a model that describes the exploitation of non renewable resources:

It is, again, a model based on thermodynamics and, this time, driven by chemical potentials. The idea is that the “resources” stock as a high chemical potential in the sense that it may be thought as, for instance, crude oil, which spontaneously combines with oxygen to create energy. This energy is used by human beings to create what I can call “capital” – the sum of everything you can do with oil; from industries to bureaucracies.

On the right, you can see the results that the model provides in terms of the behavior as a function of time of the stock of the resources, their production, and the capital stock. You may easily notice how similar these curves are to those provided by the more complex model of “The Limits to Growth.” So, we are probably doing something right, even with this simple model.

But the point is that the model works! When you apply it to real world cases, you see that its results can fit the historical data. Let me show you an example:

This is the case of whaling in 19th century, when whale oil was used as fuel for lamps, before it became common to use kerosene. I am showing to you this image because it is the first attempt I made to use the model and I was surprised to see that it worked – and it worked remarkably well. You see, here you have two stocks: one is whales, the other is the capital of the whaling industry that can be measured by means of a proxy that is the total tonnage of the whaling fleet. And, as I said, the model describes very well how the industry grew on the profit of killing whales, but they killed way too much of them. Whales are, of course, a renewable resource; in principle. But, of course, if too many whales are killed, then they don’t have enough time to reproduce and they behave as a non-renewable resource. Biologists have determined that at the end of this fishing cycle, there were only about 50 females of the species being hunted at that time. Non renewable, indeed!

So, that is, of course, one of the several cases where we found that the model can work. Together with my co-workers, we found that it can work also for petroleum extraction, as we describe in a paper published in 2009 (Bardi and Lavacchi). But let me skip that – the important thing is that the model works in some cases but, as you would expect, not in all. And that is good – because what you don’t want is a “fit-all” model that doesn’t tell you anything about the system you are studying. Let’s say that the model reproduces what’s called the “Hubbert model” of resource exploitation, which is a purely empirical model that was proposed more than 50 years ago and that remains a basic one in this kind of studies: it is the model that proposes that extraction goes through a “bell-shaped” curve and that the peak of the curve, the “Hubbert peak” is the origin of the concept of “peak oil” which you’ve surely heard about. Here is the original Hubbert model and you see that it has described reasonably well the production of crude oil in the 48 US lower states.

Now, let’s move on a little. What I have presented to you is a very simple model that reproduces some of the key elements of the model used for “The Limits to Growth” study but it is of course a very simplified version. You may have noted that the curves for industrial production of the Limits to Growth tend to be skewed forward and this simple model can’t reproduce that. So, we must move of one step forward and let me show you how it can be doing while maintaining the basic idea of a “thermodynamic cascade” that goes from higher potentials to lower potentials. Here is what I’ve called the “Seneca model”

 

***

You see that I added a third stock to the system. In this case I called it “pollution”; but you might also call it, for instance, “bureaucracy” or may be even “war”. It is any stock that draws resource from the “Capital” (aka, “the economy”) stock. And the result is that the capital stock and production collapse rather rapidly; this is what I called “the Seneca effect”; from the roman philosopher Lucius Anneaus Seneca who noted that “Fortune is slow, but ruin is rapid”.

For this model, I can’t show you specific historical cases – we are still working on this idea, but it is not easy to make quantitative fittings because the model is complicated. But there are cases of simple systems where you see this specific behavior, highly forward skewed curves – caviar fishing is an example. But let me not go into that right now.

What I would like to say is that you can move onward with this idea of cascading thermodynamic potentials and build up something that may be considered as a simplified version of the five main stocks taken into account in the “Limits to Growth” calculations. Here it is

Now, another disclaimer: I am not saying that this model is equivalent to that of the Limits to Growth, nor that it is the only way to arrange stocks and flows in order to produce similar results to the one obtained by the Limits to Growth model. It is here just to show to you the logic of the model. And I think you can agree, now, that there is one. The “Limits” model is not just randomly arranged spaghetti, it is something that has a deep logic based on thermodynamics. It describes the dissipation of a cascade of thermodynamic potentials.

In the end, all these model, no matter how you arrange their elements, tend to generate similar basic results: the bell shaped curve; the one that Hubbert had already proposed in 1956

The curve may be skewed forward or not, but that changes little on the fact that the downside slope is not so pleasant for those who live it.

Don’t expect this curve to be a physical law; after all it depend on human choices and human choices may be changed. But, in normal conditions, human beings tend to follow rather predictable patterns, for instance exploiting the “easy” resources (those which are at the highest thermodynamic potential) and then move down to the more difficult ones. That generates the curve.

Now, I could show you many examples of the tendency of real world systems to follow the bell shape curve. Let me show you just one; a recent graph recently made by Jean Laherrere.

 

 

These are data for the world’s oil production. As you can see, there are irregularities and oscillations. But note how, from 2004 to 2013, we have been following the curve: we move on a predictable path. Already in 2004 we could have predicted what would have been today’s oil production. But, of course, there are other elements in this system. In the figure on the right, you can see also the appearance of the so-called “non-conventional” oil resources, which are following their own curve and which are keeping the production of combustible liquids (a concept slightly different from that of “crude oil) rather stable or slightly increasing. But, you see, the picture is clear and the predictive ability of these models is rather good even though, of course, approximate.

Now, there is another important point I’d like to make. You see, these models are ultimately based on thermodynamics and there is an embedded thermodynamic parameter in the models that is called EROI (or EROEI) which is the energy return for the energy invested. It is basically the decline in this parameter that makes, for instance, the extraction of oil gradually producing less energy and, ultimately, becoming pointless when the value of the EROEI goes below one. Let me show you an illustration of this concept:

You see? The data you usually read for petroleum production are just that: how much petroleum is being produced in terms of volume. There is already a problem with the fact that not all petroleums are the same in the sense of energy per unit volume, but the real question is the NET energy you get by subtracting the energy invested from the energy produced. And that, as you see, goes down rapidly as you move to more expensive and difficult resources. For EROEIs under about 20, the problem is significant and below about 10 it becomes serious. And, as you see, there are many energy resources that have this kind of low EROEI. So, don’t get impressed by the fact that oil production continues, slowly, to grow. Net energy is the problem and many things that are happening today in the world seem to be related to the fact that we are producing less and less net energy. In other words, we are paying more to produce the same. This appears in terms of high prices in the world market.

Here is an illustration of how prices and production have varied during the past decades from the blog “Early Warning” kept by Stuart Staniford.

And you see that, although we are able to manage a slightly growing production, we can do so only at increasingly high prices. This is an effect of increasing energy investments in extracting difficult resources – energy costs money, after all.
So, let me show you some data for resources that are not petroleum. Of course, in this case you can’t speak in terms of EROEI; because you are not producing energy. But the problem is the same, since you are using fossil fuels to produce most of the commodities that enter the industrial system, and that is valid also for agriculture. Here are some data.

Food production worldwide is still increasing, but the high costs of fossil fuels are causing this increase in prices. And that’s a big problem because we all know that the food demand is highly anelastic – in plain words you need to eat or you die. Several recent events in the world, such as wars and revolutions in North Africa and Middle East have been related to these increases in food prices.

Now, let me go to the general question of mineral production. Here, we have the same behavior: most mineral commodities are still growing in terms of extracted quantities, as you can see here (from a paper by Krausmann et al, 2009 http://dx.doi.org/10.1016/j.ecolecon.2009.05.007)

These data go up to 2005 – more recent data show signs of plateauing production, but we don’t see clear evidence of a peak, yet. This is bad, because we are creating a climate disaster. As you seee from the most recent data, CO2 are still increasing in a nearly exponential manner

 

But the system is clearly under strain. Here are some data relative to the average price index for aluminum, copper, gold, iron ore, lead, nickel, silver, tin and zinc (adapted from a graphic reported by Bertram et al., Resource Policy, 36(2011)315)

So, you see, there has been this remarkable “bump” in the prices of everything and that correlates well with what I was arguing before: energy costs more and, at the same time, energy requirements are increasing because of ore depletion. At present, we are still able to keep production stable or even slowly increasing, but this is costing to society tremendous sacrifices in terms of reducing social services, health care, pensions and all the rest. And, in addition, we risk to destroy the planetary ecosystem because of climate change.

Now I can summarize what I’ve been saying and get to the take-home point which, I think can be expressed in a single sentence “Mining takes energy

Of course, many people say that we are so smart that we can invent new ways of mining that don’t require so much energy. Fine, but look at that giant wheel, above, it used to extract coal in the mine of Garzweiler in Germany. Think of how much energy you need to make that wheel; do you think you could use an i-pad, instead?

In the end, energy is the key of everything and if we want to keep mining, and we need to keep mining, we need to be able to keep producing energy.  And we need to obtain that energy without fossil fuels. That’s the concept of the “Energy Transition”

Here, I use the German term “Energiewende” which stands for “Energy Transition”. And I have also slightly modified the words by Stanley Jevons, he was talking about coal, but the general concept of energy is the same. We need to go through the transition, otherwise, as Jevons said long ago, we’ll be forced to return to the “laborious poverty” of older times.

That doesn’t mean that the times of low cost mineral commodities will ever return but we should be able to maintain a reasonable flux of mineral commodities into the industrial system and keep it going. But we’ll have to adapt to less opulent and wasteful life as the society of “developed” countries has been accustomed so far. I think it is not impossible, if we don’t ask too much:

h/t ms. Ruza Jankovich – the car shown here is an old Fiat “500” that was produced in the 1960s and it would move people around without the need of SUVs

____________________________________________

Acknowledgement:

The Club of Rome team

Daphne Davies
Ian Johnson
Linda Schenk
Alexander Stefes
Joséphine von Mitschke-Collande
Karl Wagner

And the coauthors of the book “Plundering the Planet”

Philippe Bihouix
Colin Campbell
Stefano Caporali
Partick Dery
Luis De Souza
Michael Dittmar
Ian Dunlop
Toufic El Asmar
Rolf Jakobi
Jutta Gutberlet
Rui Rosa
Iorg Schindler
Emilia Suomalainen
Marco Pagani
Karl Wagner
Werner Zittel

Podcast: Gail Tverberg- Credit & Energy

Off the microphones of Gail, Monsta and RE

Aired on the Doomstead Diner on June 25, 2013

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A 2 Part Podcast on Credit and Energy with Gail Tverberg of Our Finite World.

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Knarf plays the Doomer Blues

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go to hell in a handbasketTo be in an extremely and increasingly bad or ruinous condition; to be on the inevitable path to utter failure or ruin. With the way he's running things, the company is going to hell in a handbasket! After our funding was cut...

Quote from: RE on August 19, 2019, 03:58:54 AMPrince Andy is next to swing from a light fixture.REAll will be forgiven in due course since the victims are only peasants. This is all theatre.

Quote from: azozeo on Today at 10:42:42 AMWhere's triple 6 ? Why doesn't he chime in on this ?If you mean Monsta666, he's been Walkabout for quite a while.RE

Quote from: RE on Today at 05:05:35 AMWill he see time in the Big House?  Unlikely.  And precisely what does being "fired" mean here in this context?  What did he ever really DO to begin with?     :icon_scratc...

October 16, 2019Kingsley L. Dennis, ContributorWaking Timesˈspɪrɪt/nounthe non-physical part of a person which is the seat of emotions and character.the prevailing or typical quality, mood, or attitude of a person, group, or period of time.    ...

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Doomstead Diner Daily November 21The Diner Daily i [...]

Perhaps your story with Contrary is why my son got [...]

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Scientists have unlocked the power of gold atoms b [...]

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Wisconsin Bill Would Remove Barrier to Using Gold, [...]

Under extreme conditions, gold rearranges its atom [...]

The cost of gold futures on the Comex exchange inc [...]

Time for another Bloody Mary!   RE [...]

Kicking off with the death of the Marlboro Man.RE[ [...]

Alternate Perspectives

  • Two Ice Floes
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  • From Filmers to Farmers

Politicians’ Privilege By Cognitive Dissonance     Imagine for a moment you work for a small or medi [...]

Shaking the August Stick By Cognitive Dissonance     Sometime towards the end of the third or fourth [...]

Empire in Decline - Propaganda and the American Myth By Cognitive Dissonance     “Oh, what a tangled [...]

Meanderings By Cognitive Dissonance     Tis the Season Silly season is upon us. And I, for one, welc [...]

The Brainwashing of a Nation by Daniel Greenfield via Sultan Knish blog Image by ElisaRiva from Pixa [...]

Event Update For 2019-11-19http://jumpingjackflashhypothesis.blogspot.com/2012/02/jumping-jack-flash-hypothesis-its-gas.html Th [...]

Event Update For 2019-11-18http://jumpingjackflashhypothesis.blogspot.com/2012/02/jumping-jack-flash-hypothesis-its-gas.html Th [...]

Event Update For 2019-11-17http://jumpingjackflashhypothesis.blogspot.com/2012/02/jumping-jack-flash-hypothesis-its-gas.html Th [...]

Event Update For 2019-11-16http://jumpingjackflashhypothesis.blogspot.com/2012/02/jumping-jack-flash-hypothesis-its-gas.html Th [...]

Event Update For 2019-11-15http://jumpingjackflashhypothesis.blogspot.com/2012/02/jumping-jack-flash-hypothesis-its-gas.html Th [...]

With fusion energy perpetually 20 years away we now also perpetually have [fill in the blank] years [...]

My mea culpa for having inadvertently neglected FF2F for so long, and an update on the upcoming post [...]

NYC plans to undertake the swindle of the civilisation by suing the companies that have enabled it t [...]

MbS, the personification of the age-old pre-revolutionary scenario in which an expiring regime attem [...]

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Waterboarding Flounder"Serious oxygen loss between 100 and 600-meter depths is expected to cover 59–80% of the ocean [...]

Of Warnings and their Ripple Effects"We need wooden ships, char-crete buildings, bamboo bicycles, moringa furniture, and hemp cloth [...]

"Restoring normal whale activity to the oceans would capture the CO2 equivalent of 2 billion tr [...]

Ukrainian Rhapsody"Our future will be more about artificial intelligence, cybersecurity, and non-state actors tha [...]

LeBron’s Chinese Troll Mobs"In the 36 hours after James’ delete, a troll mob with bot support sent a flame tsunami at the [...]

The folks at Windward have been doing great work at living sustainably for many years now.  Part of [...]

 The Daily SUN☼ Building a Better Tomorrow by Sustaining Universal Needs April 3, 2017 Powering Down [...]

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What extinction crisis? Believe it or not, there are still climate science deniers out there. And th [...]

My new book, Abolish Oil Now, will talk about why the climate movement has failed and what we can do [...]

A new climate protest movement out of the UK has taken Europe by storm and made governments sit down [...]

The success of Apollo 11 flipped the American public from skeptics to fans. The climate movement nee [...]

Today's movement to abolish fossil fuels can learn from two different paths that the British an [...]

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quite excellent... this quote from section 4.8: "Energy’s cost share of our economy, after five [...]

Cost was first. I also am not sure how much was known about the annealing issue when the transmissio [...]

Interesting. I noticed in the third document you linked the point is made that when offshore wind is [...]

Hagens is a interesting fellow with quite a background. Also a mushroom hunter, which dominates my i [...]

Trump the peace president and the degrowth president. What more can we as for? [...]

Living around 5300' elevation, the only flood we'll likely see is refugees. Although, that [...]

For those safe from the rising seas, the ocean acidification will fcuk you up instead [...]

Here's an article: https://www.reuters.com/article/us-imo-shipping-factbox/factbox-imo-2020-a-m [...]

What is the shift away from bunker fuels? [...]

Yeah, when the water heater goes out the day after you just put new tires on one of the cars, etc... [...]

RE Economics

Going Cashless

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Simplifying the Final Countdown

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Bond Market Collapse and the Banning of Cash

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Do Central Bankers Recognize there is NO GROWTH?

Discuss this article @ the ECONOMICS TABLE inside the...

Singularity of the Dollar

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Kurrency Kollapse: To Print or Not To Print?

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SWISSIE CAPITULATION!

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Of Heat Sinks & Debt Sinks: A Thermodynamic View of Money

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Merry Doomy Christmas

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Peak Customers: The Final Liquidation Sale

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Collapse Fiction

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The effect of urbanization on microclimatic conditions is known as “urban heat islands”. [...]

Forecasting extreme precipitations is one of the main priorities of hydrology in Latin America and t [...]

The objective of this work is the development of an automated and objective identification scheme of [...]