Crawl Across the Ocean

Wednesday, April 13, 2005

The View From Here

I mean that title figuratively, but also literally, since the picture above is the view from my apartment. Which tells you a couple of things. One: I have a lousy view1 and two: Gas prices are pretty high compared to the last few years.

Now, I know what you're thinking - 'sure they seem high, but aren't they pretty low once you adjust for inflation' - OK maybe you weren't thinking that, but some people were, I'm sure of it. Anyway, this chart shows the historical price of oil in inflation adjusted terms and you can see that, aside from the spike caused by an arbitrary decision by OPEC to reduce supply in the 70's, oil prices are looking pretty high, even after adjusting for inflation.

Mahigan over at True North has a post up which looks at 'peak oil' and some of it's potential consequences. The basic idea behind peak oil is that one of these years were going to hit an all-time peak in terms of oil production and after that oil production will begin to decline (because we've already extracted so much of the easy-to-get-to oil).

In fact, there's little dispute that this will occur sooner or later but where people differ (besides the sooner vs. later part) is on what the impact will be.

On one side we have the optimists. While they don’t deny that we are beginning the long process of running short on traditional fuel supplies (oil & gas), they believe that human ingenuity combined with pricing signals from the market will ensure an orderly transition. Count Alan Greenspan among this group. Optimists will point out that civilization has made it this far without hitting any resources constraints and that every previous time people have predicted some sort of resource crisis, they have turned out to be wrong. Basically they figure that if supplies of oil and gas get short the price will rise and people will figure out ways for our economy to keep on running with less oil and gas.

On the other side are pessimists such as James Howard Kunstler (quoted extensively in Mahigan’s post) who believe that the coming oil crunch will cause a drastic change in our lifestyles with car-dependent fully-detached suburban living no longer being viable for the middle class in a world of sky-high fuel prices. The geo-political pessimistic viewpoint sees the war in Iraq as just one example of what is likely to become an ever more desperate and high-stakes battle among the world’s most powerful economies to secure their share (and more) of what remains of the world’s oil supply.

Besides optimism/pessimism, another way to look at the situation is from a demand/supply perspective. As we can see here, worldwide oil consumption (demand) has been on a steady upward climb throughout recent history. The pessimistic view says that as huge, developing nations like China and India industrialize, we can only expect this consumption to keep climbing even if oil consumption in the developed world were to level off or decrease due to increased prices. The pessimistic view acknowledges that higher prices will lead to cutbacks in oil and gas use, but figures that prices will have to go high enough to cause crippling economic conditions before any significant changes will be made.

The optimistic view figures that human ingenuity and resourcefulness will find ways for us to easily lower our consumption if this proves necessary (true optimists don’t think it will be). Reasons for optimism on the consumption side would be technological advances which allow us to do the same things using less oil and gas (hybrid cars, led lights, efficient appliances, better insulation, etc. etc.), the colossal amounts of energy we currently waste at the consumer level (leaving room for relatively painless cutbacks), the fact that Europe manages a competitive quality of life using much less energy than North America, and the decreasing energy intensity of the economy (ratio of energy used to gdp) which show that energy use is making up a smaller % of our total economic activity over time.

More attention is generally shown to the production side. Generally, we get energy either from oil, gas, coal, hydro or nuclear (wind, while growing fairly rapidly, does not meet a significant % of our energy needs, and is unlikely to ever get beyond 5-10% of total energy supply). At best, oil and gas will require us to undertake ever more expensive efforts to ensure a steady supply. For example, building massive terminals to receive gas from overseas or drilling for oil in remote/environmentally sensitive areas or undertaking the huge costs of pulling oil out of the Alberta tar sands. At worst, even these efforts will be inadequate and prices will continue to rise faster than inflation.

There’s no shortage of coal in the ground, but if you’re worried about global warming, or if you live in Toronto and miss the sky during the summer, or if you happen to know one of the (estimated) thousands of people who have died prematurely do to air pollution caused by coal, you may not be too excited about the world making a big switch back to (or even continuing to use) coal as a primary fuel. The optimistic view is that innovation will find ways to burn coal without releasing carbon (or mercury or anything else nasty) into the environment, but while progress has been made (especially with regard to acid rain) there’s still a lot more work to be done and no guarantee that it will be successful (at a reasonable price). Also, if you consider the history of energy use from wood, to coal, to oil to gas the historical trend has been toward sources containing less carbon, not more.

Nuclear power represents another option. Here is a good example of the typical argument made in its defence. The trouble is that nuclear power needs uranium as an ingredient and world uranium supplies are hardly unlimited. Also, nobody needs a reminder of how dangerous nuclear power can be (20 years later, Chernobyl remains uninhabitable), and while the recent overall operating safety record of nuclear plants is pretty good, it wouldn’t take many accidents to change that in a hurry. And given that we look forward to a world likely to contain more and more terrorist actors possessed of ever more sophisticated weaponry, is it wise to have such potentially catastrophic targets scattered around the countryside – especially in the vicinity of large cities?

Disposal of the waste remains an unsolved problem as well. Do you really trust these people to run a nuclear program which will be safe for the next 10,000 years?

At its root, my worry about nuclear is that even if humans didn’t make it, the planet would probably survive serious global warming or most other environmental disasters with it’s ability to support life intact. Radiation however, is pretty much hostile to life in all forms – and for a very long time. If we are to use nuclear power its use should at least be based on a fair economic comparison with other power sources. That is, the costs of nuclear plants should include waste disposal costs (for perpetuity) and, most importantly, they should pay for their own insurance (right now, the government has assumed the liability from a nuclear accident in order to make nuclear power financially viable).

The last remaining major source of power for Canada is hydroelectric. Personally, I feel that the government should be working towards an expansion of our hydro capacity. I know, it's a provincial responsibility, but one way to help would be to divert infrastructure spending away from projects which promote energy consumption (such as twinning the trans-Canada highway through the less populated parts of the country) and towards projects which will produce energy – for example, helping to fund a high-voltage transmission line between Ontario and Manitoba to allow Manitoba to build more hydro capacity and sell it to Ontario.

True, there are some concerns with hydro, especially native land rights and salmon runs, but we need to avoid letting the perfect be the enemy of the good on this issue, because there are no perfect solutions - not even close. It seems clear to me that the environmental impacts of (carefully designed and implemented) hydro are less than that of the alternatives whether they be nuclear, coal, oil or gas (see here, for a good speech on the topic).

As an aside, I remember my dad telling me the story of one of the older dams in the northwestern U.S. where, after decades of operation, plans had been made to modify the hydro station. But there was opposition from local groups because the plans would upset the local ecosystem which people really liked – the same ecosystem artificially created by the dam’s construction many decades ago.

After hydro, there is wind which, while now cost competitive, is limited in its potential scope and is unreliable as a primary power supply (since wind doesn’t always blow). Furthermore, after you factor in all the effort and materials required to build a wind farm, it takes a number of years before the wind actually generates enough energy to cover all the fossil fuel energy which was used in its construction.

Finally, there is hopeful thinking, innovation and niche applications. Solar, geothermal, tidal, biomass, etc. power have all come a long way in recent years but remain limited to narrow applications (e.g. off-grid applications such as marine lighting for solar, location specific development such as Iceland for geo-thermal). Whether they will ever develop to the point where they can actually substitute for fossil fuels remains to be seen.

People talk about hydrogen in this context, but hydrogen isn’t really so much a source of energy as a means of storing it. That is because it takes energy to produce hydrogen. An adequately efficient process for generating, storing, transporting and using hydrogen is yet another unsolved problem in the world of energy.

The optimistic view is, ‘look at all these alternatives we’re bound to come up with a good, safe, cheap replacement for fossil fuels, it’s only a matter of time’. The pessimistic view notes that in the last 100 years the only really large scale energy source we’ve come up with is nuclear and that has a whole lot of problems of its own.

Looking at the overall picture, I am somewhat ambivalent about our energy future, with respect to having enough energy to maintain a lifestyle with a similar level of comfort to what we have now. On the one hand, the problem of finding a suitable replacement for fossil fuels seems like one of the toughest we've faced yet and sooner or later they will run out. This site does a great job going through the various alternatives and explaining just why they are not up to the job of getting us away from our dependence on oil and gas. On the other hand, I do believe that, in the face of steep and prolonged price increases, we have the ability to deeply cut back our fuel consumption without having a severe impact on our lives. Furthermore, we can build more hydro and wind energy plants as well as building more nuclear plants, burning more coal, or processing more tar-sands fuel if that is all that stands between us and the collapse of our economy.

The two things I worry most about are a) the geopolitical impacts of nations squabbling over what remains of the world’s cheap fossil fuel inheritance and b) the economic impacts of fossil fuel price increases. Even though we can live with using less energy or produce more from other sources, our economy could still be destabilized by price increases, much like it was in the 1970’s. Fuel price inflation could cause central banks to raise interest rates even in a period of sluggish economic growth thus putting the squeeze on heavily indebted consumers whose debt as a percentage of their income is already at all-time highs. We’re (somewhat) less dependent on energy than we were in the 1970’s but more dependent on low-interest rates so it’s hard to know how this would play out.

Another worry is that, much in the same way that AIDS is a particularly nasty disease because it targets the immune system, an energy crisis is particularly nasty economic disease because any solution to our energy problems would be reliant on large amounts of fossil fuels to provide the resources to fund/power the development of the solution. The last oil crisis was caused by an artificial constraint on supply which lessened over time. The next oil crisis won't give us that alternative.

At any rate, the government is facing an energy issue from two sides: climate change and the Kyoto Accord on one front and ‘peak oil’ and rising oil and gas prices on the other. Luckily, both of these problems have a similar solution. The price of oil and gas needs to fully reflect the costs of depleting the world’s resources, the damage done to the environment and the transition costs which will be required as easily accessed supplies dwindle and prices rise. So for starters, the government should stop subsidizing fossil fuel generation and increase fuel taxes (yes, I know, political suicide).

Beyond that, the government should adjust its taxes/incentives/legislation (that means you – nuclear) to bring the market prices of various energy sources into line with their true long-term prices (including all the externalities). Also, the government needs to get (further) ahead of the curve in funding energy research to make Canada (more of a) world leader in the energy industries of the future. Finally, the government needs to turn its infrastructure spending from energy consumption to energy production, with the expansion of hydro power - the only proven source with reliable supply, no input price fluctuations, no risk of radiation damage and no greenhouse gas emissions – being a logical target.

Update: April 17 - Looking for more information on 'peak oil' related stuff? Try here for a *lot* of links.


1 I showed the picture to my girlfriend and she figured the flowering branch probably made the view look nicer than it really is, but you get the point.

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  • Nice job.

    Another aspect of the coming petroleum crunch is that it will also affect the availability of cheap, versatile plastics. Imagine, say, medical supplies with no plastics. Will we go back to glass and rubber? It is possible to a lot without plastics--there was nothing made of plastic on the Titanic, for example--but it will be a major adjustment at minimum.

    By Blogger The Sanity Inspector, at 7:53 AM  

  • Thanks (always nice to know my sanity passes inspection).

    Plastics are an interesting case. Over at USS Clueless (linked in my article), they make the point that when you refine petroleum the quantities of various substances you get out are pretty much fixed. So in order to reduce oil use you need to reduce the use of all the uses of refined petroleum (inluding plastic) in the proper proportion.

    By Blogger Declan, at 6:31 PM  

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