What if your sense of impending doom places you at a distance from the rest of the world, and makes it feel empty? The difficulty here is that people do respond to your sense – even unspoken – that their works are shallow or empty – even if they are. At its root, community building works best when people feel liked and respected, as though they and their concerns matter to you. It is very difficult, then, to begin from the sense that everything others value is false – if there is a fundamentally insurmountable problem in community building, this may be it.

The Tragic Sense and the Need for Connection, 27 July 2010

I ran up hard against this in a conversation with my classmate Martin today. He is what might be called a green techno-optimist, inspired by a vision of the future in which our energy problems are solved by technology-in his case, solar power.

We circled the usual suspects. Martin advancing all sorts of wonderful ideas, from plastering the Sahara with solar panels, to working even harder on the science fiction project of nuclear fusion. Me trotting out the elementary reasons why none of it can possibly work. With growing irritation, we reached bedrock: “You have to believe that we will fix this. The future is just too horrible if we don’t. What have we got to lose?”.

The answer to that helps an understanding of the value of being the doomster, and of persevering. We have got a lot to lose if we carry on with the magic thinking. A group of sailors trapped on a submarine with 6 hours of air left might have unpleasant solutions that can be arrived at within 6 hours, and better solutions that might need 24 hours.

We have the equivalent of 6 hours left – a known production rate, a known depletion rate, a known volume of additional production from known and plausible unknown conventional and unconventional sources. We will be 60% short of 20th Century “business as usual” volumes by 2030. Capitalism and the global economy will crash long before then.

We can’t do both – all available production is now fully employed keeping the lights on. To make any substantial contribution to the energy mix from other energy sources would require massive quantities of energy to build the infrastructure. Switching that volume of energy out of the economy will crash it.

So pursuing the 24 hour option (nuclear fusion/neoclassical growth) at the expense of the 6 hour option (strategic contraction, post industrial living standards consistent with the capacity of sustainable renewable energy solutions) means we will lose the 6 hour option. When the crash comes, we will be in a much worse position than we would have been if we had started the process of restructuring society to the harsh reallities of energy and resource constraints.

So where does that leave the doomster? Astyk asks how we can work on the vital task of community building, when our disposition isolates us from society ? We find the common ground, and work on that.

It is what is called a “pressure fed” release. The upper limit of the Exxon Valdez disaster was limited to the inventory of oil on the tanker–about 11 million gallons. The upper magnitude of this release is limited to the quantity of oil in the reservoir. This is a high pressure reservoir with volumes in the billions of gallons.

I can’t tell at the moment whether the “blow out preventer”—the temporary device they install to preserve pressure integrity until the permanent valving is installed—is functional or not. If it isn’t, then to contain it, they will have to drill another well near the original, then deviate to intercept the original borehole and pump cement into it. The borehole will be about thirty inches in diameter. The well is in five thousand feet of water.

Drilling the original well was at the limit of the industry’s technological ability. Drilling the intercept is way beyond it. By the time they get the well planned, the materials organised and a drilling rig capable of operating at that water depth, it will be hurricane season. They will probably miss on the first attempt.

One of the technology optimists main arguments is (or was) that the pace of technology will outpace depletion and that the supply of energy will be maintained.

10 years ago, amid the hubris of the early deep water discoveries, a new era of the oil industry was announced. New reserves were booked on the basis of the expectation that they were accessible and speeches were made that the peak oilers had got it all wrong again.

Of course, deep water exploration peaked about 5 years ago, BP almost sank their “Thunder Horse” and we now have the first uncontrollable deep water well failure. Yet a significant chunk of the oil that you were told would be supporting us would be coming from such sources. Meanwhile, the companies are eyeing up the Arctic (think “oil rig plus iceberg equals titanic plus oil spill”) the way a vein-collapsed junky eyes up the gap between his toes.

BP, like most major oil companies, are self-insured. The companies have such large capital reserves in relation to “ordinary” risks (like a platform blowing up) and the premium to insure would be so high that it is much cheaper to self insure since they can cover almost any liability.

Until now.

Well according to the dominant social narrative: none. Neoclassical economics encourages us to imagine that rising scarcity will trigger consumption efficiencies and the substitution of new energy sources so as to maintain “business as usual”. This in turn rests on everything from a faith in technology and our collective genius through to a sense that “there must be a solution”. Taken together, the resultant air of hopeful optimism amounts to the ritualised maintenance of collective denial.

David Korowicz, in his recent paper “Tipping Point—Near Term Systemic Implications of a Peak in Global Oil Production: An Outline Review” argues differently[1]. In it, he asks the fundamental question: what happens if there is a net decrease of energy flow through the system?

The result is a tour d’horizon of the likely impacts of the unfolding depletion of oil production and mechanisms driving those impacts. Starting with a discussion of the role of energy in stabilising society and the structure and dynamics of complex society, he reviews status of energy as a key state variable in that complex system and the implications of tipping points and bifurcation. The then outlines three potential decline models (linear, oscillating and collapse) before reviewing the principle collapse mechanisms that will drive decline to conclude that collapse is an unavoidable outcome.

Think “systems”

Korowicz key insight derives from another essential question: why might a small change in energy flow (from relatively small exponential expansion to initially relatively small exponential contraction) trigger a major and abrupt loss of complexity?

The answer, he suggests, lies in recognising that the specific systems upon which focus usually rests—food, transportation, manufacturing, etc.—themselves depend on what he terms “operational fabric”, the conditions that support system-wide functionality. He identifies markets, financing, monetary stability, supply chains, global and continental transportation, digital infrastructure, command and control systems, health services, institutions of trust and sociopolitical stability.

Collapse will be rapid because we have become adapted to function only within a particular and unique structure in which which we participate but which we cannot control. That structure depends upon an operational fabric which is so integrated and co-dependent that a failure in one part triggers and reinforces failures in others.

The mechanisms of collapse

This gives rise to a number of non-linear, mutually reinforcing and non-exclusive collapse drivers: decreasing energy flow leads to decreasing economic production, which leads to decreasing energy flow; without sufficient economic production, debt becomes unserviceable, reducing economic production; monetary stability is lost leading to bank insolvency; without stable exchange and inflation rates, international trade collapses; collapsing world trade collapses “local” economies, which have evolved to become dependent on resources outwith their economy; critical infrastructure, which is dependent on short lifetime components, specialised global supply chains and large economies of scale, collapse, accelerating wider collapse; food systems, dependent on fossil fuel input, delocalised supply chains and just-in-time distribution, collapse; peak oil drives peak energy as the alternative energy transition loses its primary energy input.

Since the global economy is debt, and debt only exists to the extent that there is trust in the system, the moment that collective recognition of the predicament reaches the tipping point will itself act as a major trigger to collapse the debt based finance and monetary system and initiate the cascade of failures.

Korowicz suggests that the aggregate response so far amounts to a complete failure to understand the magnitude of the change. The situation calls for immediate and massive switch of effort from the attempt to prevent collapse to emergency action to prepare for the sudden loss of welfare systems and infrastructure.

It is an important report, and deserves your consideration.

References

[1] Korowicz, “Tipping Point Near—Term Systemic Implications of a Peak in Global Oil Production: An Outline Review”, March 2010, The Feasta Network

We are at peak energy now. One aspect of peak is that “it has never been so good”. We still have large enough energy margins to maintain the operational fabric and hub infrastructure that allows us to take e.g. aviation for granted. It takes something as extraordinary as a volcano to give us a faint reminder that there is something peculiarly fragile about a system that provides us with strawberries in January.

The flipside of peak is that it will never be so good again. We are rapidly losing the energy margins that underpinned the hubris of the last 50 years. As hub infrastructure systems of which many of us aren’t even aware succumb, such events are going to become commonplace, and cumulative in their effect. The peculiar sense of dislocation we feel when something that “should just work” doesn’t, the administrative and logistical inadequacy of our systems to respond to relatively small displacements of people from their normal living arrangements are all a foretaste of that which is to come. We move toward interesting times. Sadly, this wake up call will be ignored by politicians and citizens alike.

Many OECD countries now register public debt at around 100% of GDP. Although unpleasant, this is not new and economies have recovered from such debt positions before, most notable following the Second World War.

Three things are different, this time.

The first, and most obvious, is that there is no cheap oil this time to fuel recovery. The energy price discontinuity which triggered the present crisis, and the growth constraints that apply to its recovery, have the same underlying cause—the physical offtake limit of the petroleum system. The purpose of restoring capital liquidity and stimulating demand was to restore growth—but there is now no energy to fuel that growth.

Secondly and consequently, interest rates are therefore much higher than achievable growth rates. When the real interest rate on debt is higher than real output growth, then the debt/GDP ratio increases even if a government manages to match its primary expenditure with revenue. Further interest payments increase debt, which increase interest payments in a compound growth relationship.

Under such circumstances, government must borrow. The amount it can borrow is limited to the present discounted value of all future primary surpluses (and seigniorage revenue). The expectation that the supply of dirt cheap energy would continue to increase resulted in large estimates of future surplus, and correspondingly large debt. Much of the 20th Century growth can be viewed as a mortgage taken out on the prospect of repayments funded by future energy supplies. But the magnitude of future surpluses are now limited by energy availability, leaving us unable either to service the debts incurred or to undertake new debt.

So unlike previously, we cannot borrow our way out of this. Default can only be avoided now by increasing the primary surplus through a combination of reduced spending and increased taxation.

Which brings us to the third difference.

The population is ageing very rapidly. The Second World War created a baby boom which fell away in the 1980′s. So age related costs—pensions and health care—are escalating rapidly, while the number of people of working age to fund them is falling rapidly. In 2010 in the UK, we will increase public debt by a further £167 billion while spending £677 billion in our public sector. The majority of current and future pension payments are unfunded.

We can’t reduce spending, in fact it must rise to cover rising health and unfunded pension costs. Under such circumstances, the only option left to government is to raise taxes. But energy constraints limit taxable surpluses.

The UK and many other countries are therefore locked into runaway public debt escalation and national default, driven fundamentally by energy constraints. One estimate[1] projects UK debt/GDP rising from 100% in 2010 to between 300% and 500% by 2040, with similar projections for the US and many European countries. At some point between now and 2040, the UK will default on its debt. Since we won’t be the only country to do so, there will be no IMF bail out. Default will be permanent.

Say goodbye to a golden retirement on the golf course.

References

[1] Cecchetti, Mohanty and Zampolli, The future of public debt: prospects and implications, Bank for International Settlements Working Papers No.300, March 2010

We depend macro-economically on oil production for balance of payments, foreign exchange, interest rates and inflation—and it is halving every 10 years.

We have a culture of chronic welfare dependence and crippling public sector pension debt. We siphon hundreds of millions of pounds of public infrastructure investment into the public pension funds of bureaucrats.

We have the highest excess winter mortality in the whole of Europe and a power generation system on the verge of failure after two decades of “market efficiency”. We face billions in investment money that we don’t have to keep warm in winter.

We eat more food than we grow in a world in which high oil prices will shortly disable globalism. We are three meals away from anarchy, with a host of ne’er-do-wells queueing up to fill the vacuum.

Our financial system is holed beneath the water line while we remain apparently powerless to curb bankers greed. Our fate lies in the hands of people who have an incurable appetite for expense fraud and classify themselves as “taxis for hire”.

A rough beast, its hour come at last, slouches towards us. We need a party that has that reality written into its manifesto, with matching manifesto commitments.

I don’t see one.

As the oil price rises, the incumbents will die in roughly the order of their structural costs. It will start with British Airways, and end with RyanAir.

To see why, take a look at this:

It shows actual British Airways fuel and oil costs as a function of average oil price for the last 4 years, with estimates for $85/bbl and $140/bbl. There is a pretty good fit at £30 million per $1/bbl.

Any enterprise must receive at least as much revenue as it spends. This applies equally to a company, a kibbutz or a country. When it doesn’t, debt accumulates until no-one can or will lend any more, and it fails.

There are only two ways to do this: raise revenue above costs, or reduce costs below revenue. The former is constrained by opportunities for earning revenue. The latter is constrained by those for reducing costs.

Airlines get hammered at both ends. Deglobalisation and economic stagnation reduce the number of people needing to fly, and their means to do so. Rising fuel prices inflate their costs.

You can see both in British Airways 2008/2009 business report[1]. Last year, they increased revenue on £8.7 billion by £234 million (2%). In the same period, their fuel costs increased £914 million from £2 billion. They consumed about £900 million of their reserves in 2009, to make a loss of £400 million on its operations and leaving itself about £400 million in reserves.

They break even roughly at $70/bbl. The oil price today is $85. If that was the average for the year, they will lose £450 million in 2010 (they are on track for £600 million loss). At $140/bbl (a reasonable estimate for 3-5 years out, $100/bbl in 2008), they will be losing £2.1 billion a year.

Working the other way round, a cost saving of £100 million is destroyed by a $3.5/bbl increase in oil price. That is roughly the size of the recent “offer” put to BA’s management by its union. The oil price has risen about $3.5/bbl since the start of the dispute.

It is fighting for its survival, their only discretionary costs of comparable size to their fuel exposure are the £2 billion employee costs, yet they are currently in a moronic industrial dispute with its suicidal cabin crew. That is why they will merge with Iberia—facing its own version of this—before the combined entity collapses.

All airline businesses face their version of this problem—environmental factors overwhelm any self help measures. Eventually, aviation will degrade into a military application, and the pursuit of whatever will correspond to the ultra rich—a purveyor of Veblen goods only.

References

[1] British Airways, Report and Accounts for the year ending 31 March 2009 PDF

The oil crises of 1973-4 and 1979 saw a massive reaction against oil use and a rapid reduction in western consumption. What we are seeing now are government policies to promote renewable energy and energy efficiency which are creating another decline in oil demand. [1]

The remark is attributed to Dr Peter Cameron, Director of the Centre for Energy, Petroleum and Mineral Law at Dundee University in Scotland. His most recent book, “International Energy Investment Law: The Pursuit of Stability”, suggests his area of competence.

Basic economic theory (which his Institution teaches) contradicts Dr Cameron. As long as energy consumption demand is limited by discretionary income (which it still is), the effect of energy efficiency increases is to increase demand, not reduce it (the so-called “Jevons Paradox”). Energy demand is “inelastic” i.e. it is very resistant to price incentive because we like the things we can do with it so much in comparison to almost anything else we could spend the money on.

This is why, for example, car fuel efficiency improvements lead to increased milages, and total fuel consumption remains the same. It is why the substitution of power generation fuel leads to a reduction of fuel use in that application, but overall fuel use continues to rise. Absolute oil demand has fallen in the past, but that is following price and supply shocks. I have not been able to find any academic references that support the statement that government policies have created a decline in oil demand.

On the contrary, UK government policy explicitly promotes a substantial increase in oil consumption.

For example, it endorses airport expansions and runway additions. Collectively, these will double passenger movements over the next 10 years.[2] To put its renewable energy policies in context: the largest windfarm in the UK (Whitelees) produces roughly as much power (net) as a single 747 commercial aircraft consumes in flight.[3] Covering 10% of britain with Whitelees could power about 8,500 747s.

Yet with government approval, aircraft movements (not passengers) at Heathrow will increase by 125,000 to 605,000 per year after completion of the third runway expansion. Most UK airports are actively expanding their operations. The policy is being challenged, but the fact that it is government policy is not.

Even for a layman (which Dr Cameron can hardly claim to be) this information is not difficult to either acquire or understand.

In the face of such overwhelming counterfactual evidence, what are we to make of this extraordinary statement from the Director of an institution that boasts “academic excellence, professional relevance” in energy policy making?

Understanding this requires some lateral thought.

In studies of societal collapse, one of the many puzzling issues that emerge is the question of why societies continue with “business as usual” long after the means to understand the gravity of their situation becomes apparent. What was going through the mind of the Easter Island inhabitant who chopped down the last tree for firewood for his evening meal, knowing that was his only means of constructing a boat to fish for tomorrow’s?

Tainter’s theory of collapse argues convincingly that complex society’s resist simplification because they can’t. But that leaves us looking for the precise processes.

One which goes a long way to explaining this behaviour is “lock-in”.[4] According to this, one particular form of technology gains prominence over rival options. Adjustments and adaptations amongst other technologies, public and private institutions and society take place which reinforce the technology and suppress alternatives.

Hydrocarbon energy forms provides a classic example. Its (former) abundance, density, transportability and flexibility has given rise to symbiotically adapted technologies (for example, the internal combustion engine and all of its supporting industries, and industrial agriculture) and a population density and form of society dependent on them which cannot now adapt to other forms of energy.

So consequently, banks are simultaneously dependent on a model of exponential growth only afforded by hydrocarbon, and only understand investments in those technologies. Governments has conditioned citizens to expect perpetual growth, and have no capacity to think about the political changes implicit in the failure of that assumption.

Of interest in this case is the role and motive of academic institutions. Theoretically, they provide a vital service under conditions of lock-in, and one of the few avenues of escape. Under the core academic assumptions (and, as recipients of so much government money, responsibilities) of intellectual honesty and the process of thesis/antithesis/synthesis, this is where we should look to for intellectual leadership and resources to break out of “lock-in” and begin the paradigm shift to an alternative conception of our relationship to energy.

Except—institutions are as much a victim of lock-in as any other. Academics secure tenure by publishing, and have to be very good to publish energy peak paradigm-shift research. Institutions secure funding from commercial sponsorship, and the people with money for Energy Centres like Dr Cameron’s are oil companies. They will not tolerate their sponsorship money being spent on having their business model undermined. Students buy an education which gets them into the high income world of oil company finance, negotiation and leadership. Centres can’t charge paradigm-changers £18,000 a year fees.

So the next time an academic tells you renewable energy policy is leading to a reduction in oil demand—think “lock-in”, follow the money and just do a simple common sense check.

(Fairness prompts me to point out that, within its sphere of competence, the CEPMLP and its staff have a reputation for excellent research and consultancy work. That sphere includes oil and gas policy and law, electricity policy and regulation and, increasingly, nuclear and water policy.)

References

[1] Dalton, Demand for oil will peak by 2030 – BP chief, The Scotsman, 03 February 2010

[2] For a comprehensive list of all UK airport expansion plans and projections of traffic increases under Government policy see AirportWatch

[3] From MacKay Whitelees powers Glasgow again, Whitelees produces about 184MW on average. From Wikipedia a 747 consumes about 140MW in flight

[4] Unruh, G.C., 2000, Understanding carbon lock-in, Energy Policy, 28, pp. 817-30 provides a good overview from the originator of the concept

The idea, along with “peak demand”, is politically attractive and for the same reason. It allows governments and other interested parties to begin to think about peak energy, without getting overwhelmed by having to think about the implications of the financial, commercial, social and cultural failure it entails.

To that extent, it is a useful device. But it is about as optimistic a forecast as the facts appear to be able to support.

Complex things have a habit of working until they don’t, then not working at all. Think about a 4-stroke engine after the “oil pressure” light comes on—the health of its tappets is irrelevant.

There isn’t anything more complex than “the economy”. Bits of it might be capable of functioning continuously under conditions of declining energy input (domestic energy consumption, welfare services, industrial and agricultural output, for example) and simply fall in some proportion to the supply of energy.

But most are now dependent on a global supply chain which is only sustainable with cheap fuel, and will fail fairly quickly. In the UK we consume more energy and food than we produce, and those are both pretty critical “factors of production” for the rest.

All economic activity is dependent on a functioning financial system, which as far as I can see can only function under conditions of increasing energy input to maintain the integrity of the “interest repayment” assumption.

We take our health for granted, but we have it because of access to clean, hot water, refrigeration, heating in the winter and complicated industrial processes for manufacturing exotic antibiotics. There is a nasty positive feedback, bistable situation that exists around energy input/general health.

And I believe we are much closer to conditions of social disorder than most people think—friends of mine in the police force tell me that after a couple of nights without street lights they would lose control of the streets. Social conditions now and those in pre-war Britain are totally different. Social stability is a “positive externality” of energy supply—something you get for free and, therefore, don’t think about very much. We are only ever three consecutive meals away from anarchy.

I don’t see how you maintain conditions if you have no way of feeding people properly, staying healthy, paying wages and maintaining social order.

As recently as a year ago, you could find no acknowledgement of peak oil in official UK government policy literature. Its policy position was blandly summarised by former Energy Minister Malcolm Wicks review:[2]

“Few authors advocating an imminent peak take account of factors such as the role of prices in stimulating exploration, investment, technological development and changes in consumer behaviour.”

Wicks uncritical opinion in turn simply reflected that fed to him by those oil companies such as BP, in who’s interest it is that governments maintain lucrative fossil fuel subsidies and tax reliefs.

So why the change?

Government policy is made in the shadow of three core imperatives, two of which are obvious: (1) stay in power and (2) raise revenue for the state.

The third is more subtle (or, rather, hides in plain sight): ensure the survival of the state. Peak Oil entails the commercial, financial, social and ultimately the cultural collapse of your state. There can be few issues more core to government policy.

The peak oil debate has undergone a substantial transformation in the last few months. Much of the disagreement about hydrocarbon volumes arose from a simple lack of definition about the grades, types and reporting frameworks. This has been corrected.[3] It is appearing in the broadsheets in very clear terms.[4]

Familiarity is growing with the limitations and expense of renewable energy systems, and their insurmountably low areal energy densities and net energy returns.

Taken together, the degree of uncertainty has diminished to the point where the issue has started to flash on government’s “core imperative” dashboard.

The event attracted little attention — it will take a while before the significance of the government’s change is recognised, not least because most people aren’t even aware of what the government’s position was before. But there has been some[5] and it remains to be seen what the policy response of other governments will be.

References

[1] Government ‘Peak Oil Summit’ Starts the Process of Government Acknowledging Peak Oil?, 24 March 2010

[2] ITPOES, 2010, The Oil Crunch: A Wake-up call for the UK economy. p31

[3] For example, see Owen, N.A., Inderwildi, O.R. & King, D.A., 2010, The status of conventional world oil reserves–Hype or cause for concern? Energy Policy.

[4] For example, Mason, 2010, Oil reserves ‘exaggerated by one third, The Daily Telegraph, Retrieved March 26, 2010.

[5] Tom Whipple, The Peak Oil Crisis: A Breakthrough?, Falls News Church Press, 24 March 2010