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Advice to President Obama: Yes We Can, But Will We?
Posted by Rembrandt on February 15, 2012 - 12:26pm
The post below shares Nate Hagen's timeless address to President Obama about the importance of energy in our society, written in January 2009. It goes into how energy ties into our economic system, the importance of energy quality, and discusses policy options to deal with decreasing availability of high quality energy supply.
The post/letter below is very important to me, as it brings together much of what I have worked on the past few years. We are at a major crossroads in the history of our nation and our world - the juncture where financial capital no longer can function as an effective marker for real capital. The crisis we face is the product of our own success - therefore it is highly unlikely to be fixed with the same policies and thinking that steered us to the present precipice. There are dozens if not hundreds of salient aspects of our supply and demand situation, each with its own cheerleaders, opponents and unaware. Unless one casts a wide boundary net, myopic focus on any particular issue runs the risk of creating more long term harm than good. In this letter, I attempt to highlight our situation's most critical components, not claiming other issues are unimportant, but that the following principles likely trump/supercede the others:
1) It is energy, not money, that powers our economies. Money is only a marker for real capital and the divergence is large and growing at an accelerating pace.
2) All energy is not equal- each energy investment entails different input costs, and has different output quality, often not recognized by the market system, nor by many environmentalists. We are at peak oil globally and are likely approaching the net energy cliff for the USA
3) We can likely deal with energy decline, but our current economic system of claims and wealth distribution cannot. It is likely that collective policy responses to resource depletion (more debt) will create another form of bottleneck in the form of currency dislocations or social reactions to jubiliee.
4) The highest odds for arriving at a better energy future lie in exploration of, understanding of, and ultimate jettisoning of our cultural addiction/habituation to conspicuous consumption. Ends and then means.
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Dear President Obama,
Let me start by explaining where I am coming from. Until a few years ago, I worked as a Wall Street trader and hedge fund manager. I am now finishing a PhD. in Natural Resources from the University of Vermont with a specialization in Ecological Economics. I am neither capitalist nor communist nor Republican nor Democrat, but just a concerned citizen of this country and this planet. I have recently come to see that there is a great deal hidden from view both about our energy resources and our energy consumption. In this letter, I would like to explain what some of these things are. In addition to this overview, there are over 3,000 essays and analyses in theoildrum.com archives, written by a staff of extremely bright civically minded volunteers, outlining the myriad energy challenges and opportunities we face.
INTRODUCTION
Imagine two scenarios - 1) In the first 2 years of your presidency, the US Treasury 'prints' $100 trillion** of new 'capital' to be spent on infrastructure, reviving the economy, etc. - far in excess of the $1.2 trillion budget deficit you expect to incur in 2009 (and even in excess of the $24 trillion the IEA has suggested needs to be spent to assure future oil flows) - and 2)Instead of issuing this new debt, all the world's billionaires and nations in monetary surplus donate this $100 trillion to the US Treasury – effectively for you/Congress to spend and allocate.
In the second scenario, we are not only out of hock but rich again! All problems solved right? DJIA 30,000? Not so fast - there is another important fact connected to this thought experiment. The energy surplus (gross energy less energy costs) we derive from world fossil fuels is declining, possibly approaching energy break-even for new fields in the US. It requires about 245 kilojoules to lift 5kg of oil 5 km out of the ground - a physical (minimum) fact that will not vary whether the number of digits in the worlds banks increases or shrinks. As such, the above two scenarios would both be equally ineffective at reviving the economy for any period of time- even with plenty of 'money' - the first would likely just add an extra digit or two to the nominal lack of goods affordability. Energy and natural resources are what we have to spend - in the long run a transfer of money from rich to poor (or vice versa) is just a transfer of one abstraction to another abstraction - those altruistic billionaires will feel poorer and the government dole recipients will feel successfully bailed out, but the real assets constraining future trajectories didn't change. In the (very) short run however, whoever holds the money, does control the energy. Due to our belief in fiat, short run changes to monetary system (rules, leverage, margin, debt, derivatives, etc), CAN increase the energy spigot. But at a steep price.
Oil Supply Costs Based on CERA Analysis - From Horizon Energy November Investor Presentation
-Click to EnlargeENERGY QUANTITY
Our society survives as any living organism does, on top of harnessing daily solar ecosystem services we convert carbon from a low state of entropy to a higher state of entropy and live off the heat produced by the reaction. The easy carbon (fossil fuel) pickings have largely been picked. Though costs have been coming down in past few months, the above graph gives a flavor of the problem that until recently the IEA/CERA/Bodmans of the world would not voice - the horizon of overall affordability for social democracies is receding, and though the manifestation may be in currencies and debt, the origins are in energy / natural resources. The average replacement cost of oil is far in excess of the current commodity price, especially in non-OPEC countries. To increase reserves and maintain flow rates, we must drill in the oceans, off continental shelves, use expensive horizontal laterals, drill deeper and in more environmentally sensitive areas and define more things as oil. Technology is always in a race with depletion, and in the late innings loses at an accelerated rate (due to complexity). Because of this, costs have risen much faster than revenues. The fact that US oil and gas stocks have plummeted while oil is still 400% higher than a decade ago, is suggestive we are far closer to energy break-even than the DOE or API might admit, and $ break-even will occur before energy break-even. The heavy economic lifting so long undertaken by the energy sector will soon need help from the rest of 'productive' society, or from exporting countries which face similar problems. With new investments being unaffordable and/or unfinanceable, the global oil production rate will increasingly align with it's natural decline rate - approaching 7-8% and rising as small/offshore fields replace giant/onshore ones. This suggests even with current deflationary forces due to credit unwind, we likely have a few short years before depletion again overtakes even reduced demand, and this time, there will be no new peak in supply when prices rise. If the economic system remains intact, we will have a series of high amplitude price swings in oil and natural gas, getting sharper and shorter as depletion/high costs dominate. Indeed, it is probably the slope of the net energy cliff which will shape our future more than anything else (assuming social stability is maintained through paper currency reform). Essentially, Mr. President, though there is undoubtedly a great deal of oil and gas remaining, a lower aggregate energy surplus means it may cost more to procure than society has the ability to pay, at least in the currencies that matter: energy and other limited natural resources. (An example of a hypothetical society encountering lower energy surplus can be read here). Debt and cheap energy have allowed positional goods consumption to increase for the majority of Americans who are not in the top tiers of society -without cheap energy or available (fiat) credit, the camouflaged social barriers within our country are likely to fade away.
High quality, low cost energy has enabled our economic engine, and kept our social democracy intact. There is a high correlation between energy consumption per person and GDP over the past 50 years. If energy costs continue to increase in energy terms, even with trillions of new credit injected via your government entities, it will eventually require more in energy inputs to procure a new barrel of oil from domestic territory than the amount of joules contained in that barrel. Of course, most energy 'analysts', trained in economic concepts will say 'all we need is $30,40,50 trillion and we will have enough energy for decades'. Don't fall for it Mr. President. At some point between $1.2 trillion and the $100 trillion thought experiment, even Rush Limbaugh and Larry Kudlow will recognize that ‘money’ can't procure ‘resources’. Marginal costs of growth now likely exceed marginal benefits, so that real physical growth makes us poorer, not richer. Bite the bullet now and admit that growth was great while it was possible, but now each additional trillion you create from thin air to feed the current constituency, makes their childrens future so much worse. Without increases in energy we cannot grow (unless we conserve or become more efficient), without growth we cannot repay debt, without debt we won't finance future energy development. And every additional debt dollar is already adding less and less to GDP. The sooner we educate policymakers about this constraint the better choices we will make - Energy and scarce resources are what we have to spend – money is just who has the energy (for now).
-Click to EnlargeThe fundamental principles of net energy are ignored by most in Washington (and the energy industry) where costs in terms of dollars and market signal via current price have been the lone decision criteria that have brought us to this energy precipice. The energy return on the energy we are spending is declining, possibly rapidly (we can only estimate these figures because data is no longer kept in non-$ terms). As we replace 'old, high energy surplus' sources with 'new, lower energy surplus' alternatives, our energy cash flow decreases. At some minimum aggregate threshold (red line in graph), the entire surplus is spent on maintenance, repair, etc. and there can no longer be growth - I believe we are past this point. (We do know we've gone from over 100:1 in the 1930's to 30:1 in the 1970s to a range of 10-17:1 in 2000 (primer) and something anecdotally much less today (note: this is total energy return, which is fixed plus marginal - marginal costs for oil are very low -basic lifting and some labor-, raising the possibility we are in the midst of a stealth energy cliff -since most energy infrastructure was built and paid for when oil/natural gas prices were low, we are still 'spending' the cheap marginal flow rates from earlier days, even though we can't afford their replacements!) It is logical that financial analysts, or even presidents, don't start to notice our decline in physical return until the lack of continued energy surplus eats into the economy, forcing the 'profit' to be made up different ways (no-doc loans, leverage for banks, easy credit, etc.) - essentially in abstract ways not tethered to anything physical. Lead into gold but in reverse. The situation is even more dire on the natural gas treadmill, as it is largely a domestic market, overall decline is approximately 40% per year, and the commodity price is far below both average and marginal cost. Drilling and exploration will crash befor your Presidency ends, and production with it.
In a sentence, we have lots of energy, but not enough cheap energy to continue a social democracy 300 million strong pursuing growth and possessing the claims and aspirations they believe are theirs.
(*Note In the Journal - Energies, there is an upcoming paper by Hall, Murphy et al. titled "What is the Minimum EROI that a Sustainable Society Must Have?" that looks at the above concepts in greater detail.
ENERGY QUALITY
Modern society has been built and developed not only on a large annual energy surplus, but also become dependent on specific energy properties. Light sweet crude oil is incredibly energy dense, transportable at room temperature, and can be procured from a very small land footprint -drilling under the earths surface. Energy quality, such as differences in power density, gravimetric and volumetric density, conversion efficiencies, intermittency, storability, environmental externalities, spatial distribution, transportability, etc. is not equal - even (and especially) because an energy alternative is labeled as 'green'. A successful energy transition will match up the energy asset/liability balance sheet of our built infrastructure. The new post-fossil fuel era will require huge changes, as the mismatch currently is so large as to be virtually impossible once depletion catches up with the fall in demand (barring a wartime scaling of nuclear/(thorium?) plants).
Finally, Energy Return on Energy Invested(EROI or ERoEI) times scale added up over energy types gives us a rough idea of our energy budget, but we can (and should) calculate similar ratios for other limiting resources – Energy Return on Water Invested, Energy Return on Land invested, etc. As net energy declines, it stands to reason that the Energy return on NON-ENERGY inputs will decline faster. (Examples are going from concentrated light sweet oil fields to tar sands, needing both more land, and water inputs – ditto with biofuels.) Once we approach and sink into a single digit average EROEI era, a higher % of energy AND non-energy resources (water, labor, land, etc.) will have to be devoted to energy production. This is the as yet unseen tragedy of biofuels and similar low energy gain technologies. On the surface, they seem better (renewable), but a) the inputs allocated to their procurement previously generated far more energy - (returns that are no longer available yet continue to be spent being the key point), b) they require more land, water, NPK, and generate negative externalities (large scale windpower a notable exception). Each attempt to buttress the energy supply side of our situation should be measured in a multi-criteria framework.
DEBT
Debt serves as a spatial and temporal re-allocator of goods and services from the future and periphery to the present and center. In every single year I've been alive, our country has increased its debt more than we grew our output. The amount of debt, depending on assumptions is north of $60 trillion, and over $100 trillion if we include unfunded social security and medicare benefits. Austerity measures and new social goals are what are called for, yet the growth treadmill demands constant new debt issuance to service the aggregate of prior claims or the whole house of cards implodes. Remember that money is created by the will of our bankers - a loan and deposit are both simultaneously willed into existence and our 'money as debt' balance sheet increases both ledgers - however the loan is issued with terms 'plus interest' so over time debt at time T requires higher output at time T+1 otherwise a deflationary cycle begins absent new aggregate credit creation. New debt that is injected into the economy, as long as it is spent somewhere on something (anything), will create GDP that wouldn’t otherwise exist. You will face this Keynesian carrot early on as a seeming answer to our problems. It is not. Keynesianism dies in the face of resource depletion and net energy decline. New (net) debt at the end of a paradigm will feed hungry mouths but at a cost of destroying our currency. I should point out you are not alone in facing this problem. Essentially the whole developed world creates leveraged credit without tether.
Supply side summary ===> Maximize the quality adjusted, non-energy input equalized, 'energy cash flow'. This is your real 'budget'. (A stricter, 'greener' budget would also internalize the externalities.) In order to do this you need to get away from people measuring 'wealth' in digits. As seen below, this will not be easy, but certainly is doable.
THE BIG KAHUNA (DEMAND)
Our species in general and Americans in particular have the wiring and drive to be consumptive machines. No matter how many goods we acquire over time, our pecuniary desires seem to increase faster than our acquisitions. Combine this with our mirror neurons(video), between-and-within-nation aspiration gaps (based on biologic underpinnings of relative fitness), an evolutionary penchant for waste, a built in drive to outcompete, a culture that fosters keeping up with the Joneses with a high % of Veblen goods, and the result is a frenetic feedback loop that has a vast plurality of Americans now Jonesing, many nearly broke, obese, and a fair number realizing, without knowing the details, that something is amiss. Alternative measures of 'keeping score' other than GDP concur that we are losing ground. Fortunately, subjective well being studies show we are equally happy as the average Phillipino, yet use 39 times the primary energy. This I view (as should you) as a great opportunity. In the end, humans are 'adaptation-executors', not utility maximizers. (This is really an ace in the hole - because it strongly suggests we do not need the economic 'utility' machine to make us happy).
Facing our bigger problems requires that we individually and collectively become better able to consider and more heavily weight the future vis-a-vis the present. However, recent research suggests that addicts, and many other social groups (including men), have steeper discount rates - less able to access longer term thinking and action. Furthermore, there are numerous cognitive biases, ideological immunity (the Planck Problem), and belief systems that stand in the way of change.
Demand Side Summary===> We are hard-wired to compete, and our brains are easily hijacked and confused by modern stimuli. Both these aspects lead to incredible wastes of energy and resources. It is the most politically difficult area, but also the one with lots of low hanging fruit.
CONCLUSION AND SOME SUGGESTIONS
We are trained to believe that "money" is to the economy what "energy" is to the physical world. Your current advisers extrapolate what is "economically" possible to be "physically" possible too - but this is patently untrue. If energy is what we have to spend, we are even running more of a deficit that commonly known. We import 70% of our oil and pay for it with dollars. Someday soon someone will recognize this trick. "Replacing" this quantity and quality of energy is not possible, nor affordable by a long shot. Admit this, devote resources to accurately determining what our energy and natural resource principal and cash flows are and then make difficult choices on how to allocate these. A great many marginal industries are going to have to be stopped. Greener substitutions will require multi-criteria analysis: e.g. a move from ICE to electric cars would still need to consider the metals used and the significant water requirements vis-a-vis what they replace.
A birds-eye view will see our system as little more than satisfying short term cravings, turning resources rapidly into garbage, and concentrating wealth claims in fewer and larger hands. Repeat every day. Wealth itself is not bad, but a social democracy will stretch only so far in its GINI coefficient before snapping - (look to some European peers for (more) successful models). From a prescriptive standpoint, looking beyond putting out the presidential short term fires du jour, the long term strategy should be some sort of Ecological Keynesianism, that is, spending of financial capital to best maximize future real capital. If we can’t get enough current flow rate from surplus energy we will borrow from poor countries, from environments, and increasingly, from the future.
The demand side is where the real opportunities lie: the main points are that we need to understand why humans behave the way they do, otherwise we are not going anywhere. Missing on your staff are neuroscientists, behavioral economists, and evolutionary psychologists – three disciplines that will eventually, given time and energy, converge on a unified theme of human nature. One driver that is already clear is that we cannot change our neural drive to want ‘more’ – but we can, via cultural transmission, via example and via strong visionary leadership, change how we ‘define’ more.
Here is a sampling of some ideas that may help. As radical as some may seem, these are the types of steps needed to turn in the right direction. Almost by definition they are all politically untenable, but that is the point we have reached:
1) Put a floor on energy prices. The marginal barrel is killing future production. However, wait 6 months or so in doing this. Then the market will show you how many of these 'alternative energies' are actually viable, given that we don't have accurate energy input output data. However, if oil (and particularly natural gas) prices remain below average cost for long, depletion is going to accelerate beyond what we can judiciously manage.
2) Scale wind turbines everywhere that they can be scaled, particularly those places with offsetting hydro-electric backup. On a long term basis they are a far better investment than new money towards oil or natural gas, provided that updating the grid receives commensurate attention. But that means moving away from liquid fuels in a timely fashion and eventually moving away from 24/7 365 electricity on demand. (Wind has added benefit of not increasing water requirements for electric vehicles)
3a) Focusing energy policy and social change on anthropogenic global warming is at best a half-measure and at worst could have negative repercussions, for two reasons: First, if there is a cold winter or three for whatever reason, and in a period of severe economic hardships high quality energy is being used to mitigate GHGs that might be spent on other needs then the populace may quickly lose their buy-in to carbon taxes etc. and behavioral changes that were enacted DUE to global warming. But more importantly: it removes focus and responsibility from the larger problems we face: as long as we compete for conspicuous consumption, the non-GHG externalities from more consumption will increase to offset GHG reduction policies (kind of like quitting drinking and taking up sugar – 'serotonin deficiency' is root cause, not alcoholism). In sum, we should definitely be concerned about our impact on planetary ecosystems (our nest) and what toxins we emit, but this should be part of a larger science based roadmap not the entire roadmap. This will have the positive externality of mitigating climate change as well! In a sentence, we can't fight AGW by compromising our energy predicament, but can fight both by reducing consumption.
3b) On the spectrum of carbon taxes, cap and trade ,etc. consider gradually introducing a consumption tax instead. Subsidize basic needs and severely tax Veblen goods.
4) Gradually move to 100% reserve requirements in the banking system and once a new social goal other than GDP is set, eliminate the Basel II haircut advantages for sovereign, AAA debt etc. Creating money (and debt) only partially out of thin air is preferable to completely out of thin air. .
5) Our behaviour and ability to plan for the future is impacted by the poor nutrition most accessible in our current food system. We need healthier choices in our schools, convenience stores and supermarkets, perhaps even a subsidy for growing home gardens. In addition to an obesity epidemic that is accelerating, sugar has now been shown to be a gateway drug (Hoebel, Princeton) and chronic use results in lowered serotonin levels which in turn increases discount rates which has been shown to increase our focus of thinking about what they want/need today at a cost to the future. Exactly the opposite of what we need to impact longer term sustainability. (So a meaningful chunk of both basic needs procurement and behavioural change can be accomplished by moving away from industrial agriculture/ processed food and towards more locally intensive, whole food production). If we can't grow the food locally and provide appropriate nutrition, I would consider taxing or eliminating altogether refined sugar products, and refined carbohydrate foods in our grocery stores and convenience stores. Instituting national exercise programs (like in Naperville IL), would also pay neural dividends. America has lost the ability to wait for the second marshmallow, and our diets are at least partially to blame.
6) In the same vein, biophysical facts are going to require economic triage - some businesses and sectors are going to have to go. Consider directing this inevitability by taxing or eliminating any industry promoting products that lead to addiction, making us culturally less able to act for the long term; e.g. the gambling industry, Indian casinos, Vegas, online poker rooms, etc. The easy access millions of young people worldwide have to online poker contributes (as do many things) to hijacking our neural dopamine highways, which we then habituate to and consume more in other areas. People will continue to gamble anyway, but at least the revenues will filter locally. Most neuroscientists and evolutionary biologists would agree we are not 'intelligent' enough to overcome the smorgasbord of impulses offered. I recommend reading "American Mania" by Dr Peter Whybrow at UCLA or contacting him directly. In a sentence, in addition to positive examples, we're going to need negative reinforcements as well. Sticks and carrots, directed away from waste and towards primary needs. It has been done before.
7) Eliminate leverage on Wall Street. Yes, this will remove 'income' opportunities, but it will deter future volatility, and inherently transfer human talent into more productive sectors Derivatives are creative ways up squeezing more social amplitude out of nothing, by creating nothing and the vast majority aren't helping manage future risks but enlarging them.
8) I expect you will soon advocate a large fiscal stimulus program. Instead of $500 stimulus checks that will be spent on short term stuff, please consider something out of the box, like gifting a quality bicycle to each American instead. Bicycles are the most energy efficient invention known to man, better than walking, far better than driving, and slightly better than a full double decker bus. They represent a long-term investment in energy infrastructure, improved health, and a statement of change. Those too young, old or infirm to use the bicycles can trade them for other necessities, but the bikes will be out there, as part of future energy savings. If this is too radical, perhaps start by giving corporate tax incentives for those who bike to work.
Please take seriously the task of matching our real assets with our real liabilities as soon as possible. You are a very smart man and well understand the implications of acting later as opposed to sooner on these tough choices, when our liabilities have increased and our assets have shrunk. Just ahead of us is a waterfall that few can clearly see. Even our scientists are focused on measuring the water speed, distance to the waterfall, building bigger canoes and larger life preservers, etc. But one path that hasn't been duly considered, is just paddling towards shore, and walking the rest of the way. You're the President, so if anyone in politics can resist the pressure to conform, you can.
Yes we can, but we need to use lateral thinking, be realistic, and be bold.
Sincerely,
Nate Hagens
Gund Institute for Ecological Economics
Rubenstein School of Environment and Natural Resources
Editor - www.theoildrum.comP.S. If ever in doubt, Herman Daly is just a cab ride away.
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The comment below is a note Nate wrote in 2010 about his earlier letter, originally found here.
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Nate Hagens:
Above is a reposting of an open letter I wrote to newly elected President Obama 20 months ago (posted here as Yes We Can But Will We?). The essay touches on principles of natural capital, debt, and human demand drivers and suggested some ways forward for the then President-elect. In retrospect, I didn't understand the intricacies of our debt crisis at that time (as I now believe debt deflation and or currency reform are clearer and more present threats than resource depletion or environmental damage in upsetting the social applecart), and that large scaling of wind turbines (as I recommend below) may in many ways be counterproductive unless that plan is accompanied by an entirely different economic system and expectations. I don't think Obama, 20 months in, has done much, but I still think he will be able to, even after a mid-term election setback, accomplish more than any likely successors might as far as radical positive steps. Though only a small % of our population understands the details of what has brought us to this place of angst and limited options, many if not most sense there is something unsustainable and undesirable about our current trajectory. The below perspective may never be articulated in response to that angst, but should at least be considered.
I should point out that after the fact, there are errors and things I no longer believe written below and even a few things that 20 months on are embarrassing to see that I wrote. And as a side note, as confident as I was about the below text at year end 2008, I am now equally confident about currency/finance as the weakest link on the horizon, which makes me wonder what I'll be confident about 20 months hence...
If Nate found there were errors and things he no longer believes in in that post, why wasn't he asked to revise it--instead of reposting it as is.
@pasttense
You are placing that comment out of context (he no longer believes in SOME of the things in that post). Sometimes there is no time to rewrite posts, and as it happens to be Nate is working on a new post to put everything into his present context. In my view (as I made the choice to repost it as is) most of the content therein is still very valuable.
Rembrandt made the decision to repost?
Could someone clue me in as to the changes in editorial procedures at the Oil Drum? (I had the impression there was an editorial board of 10 or so people who voted on submissions...)
@pasttense
Things have become substantially more complex since around a year ago. We now have a full editorial board which reviews each new post before it gets published. But also have a rotating scheme for executive queue management among the editors. Since this is a post which has been published before it does not fall into the category of "review" (it already past that phase).
Any more questions?
Yes, Nate wrote, ...there are errors and things I no longer believe written below... Was he asked to detail, specifically, what those are?
I would just like to add some thoughts to Nate's past analysis.
1. I don't believe that resource depletion manifests so suddenly as a cliff. Or, to state in a more cogent way, I don't believe that resource depletion manifests as a sudden cliff from the point of view of an individual or even a civilization. You aren't suddenly chugging along and then all the wheels fly off. No, instead you have a ratcheting effect. Things get more and more difficult. People have to work more hours. You get more income inequality. You have more predatory action in economies. Food costs more. It's tougher to make ends meet. More people are homeless. You have more social and political unrest. There's probably more lawlessness and theft of subsistence goods or scarce resources. You have extreme weather events that wreak whole towns or flood entire nations. But things still keep moving, just not so easily as before. So before the cliff comes a run-down. Like the little dip before the big dip on the roller coaster. One is the stress that creates momentum. The other is the stress at the tipping point.
2. I think resource depletion, overpopulation, pollution, and decadence (greed) are all threats that should get equal billing when it comes to civilization collapse. In most cases, you can deal with one, or potentially two of these factors. But if you let all of them get out of hand you're probably done.
3. With regard to EROEI. Yes, yes it's a good measure. But it's still just half of the equation. What has meaning to civilization is the quality and quantity of labor. With machines, we are able to transform energy into labor. And though the energy was very high EROEI at the beginning when the fossil fuels were first extracted, the machines were terribly inefficient and wasteful. Now lots of efficiency gains have been made in current machines and so we can get more bang for our EROEI buck. So the question is, can you run a high efficiency civilization on a lower EROEI wind and solar based (with various other systems for energy storage -- biofuels, hydrogen, batteries etc)? And, in my view, so long as we solve the overpopulation, climate change, greed and through-puts side of the equation, the answer is probably yes.
4. But you need massive social and political change to do this. You need something that gives everyone buy-in. It can't be the rich elites selling just another carnival ride. That's not going to work. You need Gung Ho. Everyone's got to pitch in and do their best not to leave anyone behind.
5. I think Nate is right when it comes to deleveraging, less intellectual capital spent in Wall Street and on other forms of gambling (Casinos etc). We do need to lower our expectations for growth over time. But this needs to happen worldwide. So we'll probably need less liberal trade policies. The world can't handle a resource poor, neo-colonialist China that's out gobbling up all the world's supplies to fuel 8% annual growth, growing domestic income inequality, and a growing environmental calamity, that dumps state subsidized solar panels and destroys overseas markets in order to gain dominance. So we can't just think domestic policy here or even just monetary policy. We need to think about trade policy.
6. With regards to trade... unfettered neoliberal globalization, in my view, is the monster that is driving a lot of the trouble. Over-concentration of capital in paper/digital markets. Over-growth in energy and materials demand. Depression of wages worldwide. That beast is going to have to be reigned in by both trade and economic policy. We really don't want to get to the point where what brings globalization down is a deadly spike in energy prices. We are all adults here. We can make the right decisions and not consign ourselves to the rule of the jungle. We can, as Nate says, slow the boat down, get closer to shore, and, if we need to, pull the darn thing out and just walk for a bit.
Cheers to all!
Rob
Rob, I think you may be onto something there!
And here are 104 practical ideas: http://challenge.bfi.org/solutions/all/0/2012 that might help in pushing all of us towards that absolutely necessary massive social and political change... Because we sure as heck ain't gonna get it from the elites, politicians, bankers or the current crop of greedy and irresponsible corporate citizens.
Up until now, the game has been to privatize the profits and leave behind the burdens (the costs, the debts) on the shoulders of the public, which actually means on the shoulders of the middle class.
This is known as crushing the middle class (with a weight that drives them out of existence).
When the middle class is finally gone, there will be no one to publicize the left-behind debts on. The poor can't pay them.
Yes, but the entire economic system on which your point is based, is being reconsidered by most of the proponents of the 104 proposals I linked to above. My point is that there is a whole new generation that is waking up to that very fact. The middle class is an artifact of the growth economy and was destined to disappear regardless. We are now entering a phase where it is going to have to be everyone who is not part of the rich 1%, pushing for paradigm change at all levels. We must find ways to make the current paradigm of the rich, untenable and unacceptable. I foresee completely new social structure and organization in the pipeline.
So which of those 104 ideas do you like?
That sounds like Communist Manifesto: Global Trial Run Number 2.0
(The above is not a book, film or such, but rather a short hand for the idea that we will take an entire generation of young children and brainwash them ...err, I mean educate them ... into a whole new way of interacting with one another; not as selfish greedy and cross-competitive capitalists, but instead as something else, something guaranteed to be wonderful and utopian despite the presence of the ego-driven human mind and its intrinsically problematic nature.
But what exactly is this wonderful and utopian something else? What are the details?)
Really?! How so?
But what exactly is this wonderful and utopian something else? What are the details?)
Who said anything about a wonderful utopia? Why don't you read through the proposals and come back and address some of the specific ideas addressed therein.
And for the record, I happen to subscribe to the following notion with regards all 'ISMS'
http://www.n55.dk/MANUALS/DISCUSSIONS/N55_TEXTS/AB_ideologies.html
I doubt Magyar, or most others around here, see much chance of anything wonderful much less utopian in our near or long term future.
He is just saying that a growing number of people are starting to be aware of our multiple predicaments and are starting to find creative ways to respond.
And of course it is the nature of creativity that you can not firmly predict what the outcome will be before you get there.
Keep in mind that a few entire generations of young children and old children have indeed been carefully brainwashed/educated/advertised to create the massive earth-gobbling consumer society we see today.
Yes, greed and competition are real parts of the human psyche, but no other ideology but capitalism/neo-classical economics reduces the entirety of human experience to maximizing individual wealth in the context of infinite growth--and this insane ideology has been ingrained into the psyches of everyone, but especially economists and the politicians and corporate leadership they advise. This insanity has been very carefully planned and is not 'natural.'
I don't know if the site Magyar sited is one that is going to play a major role. I don't know if OWS is going to roar back this year and help to alter the political landscape or just fizzle away. I do know that both of these and many other movements and initiatives are signs that there is a broad and growing understanding that the system is not working for most people and that it needs a fundamental rethink.
I hope, as you seem to, that these do not drift into the rigid and oppressive ideologies that dominated the last century.
But, from the perspective of the future life of the planet, the ideology that has become most massively oppressive and destructive is the current one of global industrial capitalism and consumerism that is rapidly eating through all of our children's resources and spewing them back as toxins, GW, and other devastations that are driving what is looking to end up being the largest extinction event since the beginning of complex life on the planet.
Hello dohboi, I think you get where I'm coming from, that pretty much sums up how I see things.
Cheers,
Fred
Sorry FM,
I didn't intend to come across as if criticizing you.
Yes I did look at the web site you linked to.
Unfortunately I didn't see any idea that solves "the problem".
The "problem" being how do we switch to an alternate system that does not require burning and pillaging the Planet (for sake of perpetual "growth") and if there is such an alternate system, what does it look like?
Sure, we can each criticize the existing paradigm and point out the many ways in which it drives the human herd to the edge of the cliff, and then beyond ...
But what is the alternative?
That is "the problem".
I was hoping you had found some solutions.
____________________
Grand challenges for humanity
Hey step back,
I certainly don't have a problem with valid criticism.
However, suggesting that my comment sounded like The Communist Manifesto: Global Trial Run Number 2.0, was something that I strongly felt, needed setting the record straight.
As for hoping that I had found some solutions... Well, not yet! >;^)
The real point of posting the link was not that any of those ideas were silver bullets. Only to show that people were starting to recognize the fact that we need very different ways of thinking in the future.
Cheers!
Fred
Understood. Thanks.
It's great to see so much sustainability innovation! IMHO, we need more of this.
From THE LIMITS TO GROWTH:
"If a society's implicit goals are to exploit nature, enrich the elites, and ignore the long term, then that society will develop technologies and markets that destroy the environment, widen the gap between the rich and poor, and optimize for short term gains. In short, that society develops technologies and markets that hasten a collapse instead of preventing it."
So as the 'Fuller project you linked demonstrates, we need to do the opposite. A society's implicit goals should be to preserve and strengthen nature, reduce income inequality and remove the notion of an 'elite,' and to plan for the long term. Then we will develop technologies and markets that enhance the living environment, narrow the gap between the rich and the poor, and optimize for the long term resilience of an enlightened civilization.
I am commenting from my perspective here in the UK, through my peak oil/resource limits lens.
Obama has come up to my expectations, which were that he would be a low key president, to stabilise the corporate ship, after the disastrous insanity of Bush Junior and the neocons. As for planning for the long term future of the US, he has done a Reagan. He has provided cheap natural gas and Canadian Syncrude by under regulating gas fracking and over regulating the Keystone pipeline. He has smoothed last year's oil shortages by timely release from SPR. In other words he has sent the people back to sleep. He has done nothing at all (good or bad) about long term security.
He has been a skilful international politician, enabling the European led overthrow of the Libyan regime by large scale but politically invisible logistic support. He has so far kept Isreal from attacking Iran, but I don't know how long that stance will last. Syria looks to be the next domino to fall, Egypt and Yemen seem to have averted genuine revolution by managed departure of corrupt leaders by military dictatorships.
In the last 6 to 12 months Obama has disappeared completely from the UK media. However, the Republican GOP race is daily headline news. It is always thus with incumbent presidents. I have to say that the GOP seem to have an incredible number of unelectable fruitcases to chose from, I find the whole spectacle depressing.
The lasting impression that the UK general public will have is of a political figurehead, a puppet who looks good next to our dear old queen, a glamorous first lady who is forgiven minor diplomatic faux pas because she is cute.
This is the kind of post that makes me scratch my head & wonder out loud: What is the author's basic message and how can the intended listener (a politician) possibly find the message acceptable?
Is the author saying that promises and deals made between people do not count?
Is the author advising the politician to ignore the people focus and to instead direct his attention to this EROEI thing?
How can the intended listener (a politician) possibly accept such a message?
How can it make sense?
Unless he or she understands that we are at the threshold of a major paradigm shift to what has passed for Business as usual it will be very difficult to make sense of any part of this message.
That is truly a marvelous description of the abstract notion of a paradigm. I get blank stares when discussing cultural paradigms to people in my day to day life, but yet everyone seems to recognize what an individual paradigm is. Perhaps this is because an individual interacts with so many other individuals that they can come to see and know that different people look at the world in fundamentally different ways, but entire societies and cultures tend to be fairly insulated. Even in our globalized world the average American doesn't "get out" much in terms of directly experiencing other cultures. Not to mention the fact that the most basic assumptions of continued growth and techno-topia progress are built into all "plugged-in" societies at this point. If the mind has no access to alternative paradigms it cannot have a paradigm shift because there is nothing to shift too. Its tremendously more difficult for a human mind to spontaneously produce a novel paradigm. Our minds excel at identifying patterns, categorizing items and subjects, and then labeling information as useful/useless, true/untrue, good/bad, so if the other paradigm is present for comparison we can much more easily have a flash of insight and a paradigm shift.
This is also the nature of breaking points, or sudden, mass shifts in consciousness on a collective level. Once an alternative paradigm is widely available a sort of bandwagon effect can occur where the old paradigm dies out and an alternative becomes the zeitgeist in a relatively short order of time. This is possible mostly because humans are social animals and are heavily influenced by the actions, behaviors, and thoughts of their peers. Essentially, we use our social environment as an anchor, and our freedom of thought is partially bound by that anchor. Combine the anchoring effect, and the availability heuristic (both psychology terms that Daniel Kahneman details exquisitely in his magnum opus "Thinking, Fast and Slow") and you have a great thesis for why our current paradigm survives (and will survive) in the face of a series of flashing red lights saying "Warning! The assumptions of this paradigm may no longer be valid."
"Essentially, we use our social environment as an anchor, and our freedom of thought is partially bound by that anchor."
Only to the point when our social support systems become competition for the means of survival, whether real or perceived, when the fractions and divisions become apparent, when the ties that bind us begin to unravel. Freedom of thought and action become unbound in ways that most dare not consider.
Historically, the list is long...
Excellent elaboration. Of course, that breakdown in "social etiquette," or whats expected of us, becomes an anchor itself leading to a significant loss of social order and cohesion, which can be quite messy and destructive. Yet its a necessary part of the process of societal paradigm shifts.
This is all itself bound by a more myopic cyclical process where any system be it chemical, biological, societal, economic, etc, finds a stable state. As the stable state continues the system reinforces the elements that maintain that stable state with buffers, feedback loops, etc. The benefit is that the system is able to maintain stability and absorb more severe stresses and shocks. A physical example is Jello absorbing and distributing physical forces, but maintaining its order. A chemical example is a titration where a buffer maintains the pH of a system in a stable range. This allows the system to accommodate more stress, but also has an opportunity cost. A series of stresses could throw the system into chaos (I mean that in a scientific, not emotional sense) if a critical threshold is crossed. This is equivalent to a Jello mold collapsing, or the pH changing radically in a titration; Colony Collapse Disorder in bee hives in an apt biological example. The more rigid and entrenched the system, the more severe the oscillations from equilibrium will be until a new equilibrium is reached. Then, the process begins anew.
Industrial Civilization is an incredibly complex system with so many thousands of components and factors, as well as billions of interactions between each element, that its difficult to see this playing out, The larger and more complex the system the more noise there is in measuring its current state. I think this is part of the reason that its so difficult for people even now to envision peak oils current impacts on the global economic and financial system. There's so much noise injected with Quantitative Easing, the mortgage crisis, European debt crisis, etc. that people can't see the forest for the trees.
Highly recommend that book, BTW >;^)
And did you know the sun sets in the West and rises in the East?
Nah. The old guy down the road is very adamant that, in Australia, the sun sets in the east; "...can't you see? Everything is upside down". I just left him with that. No point...
Plato's Cave; The Matrix; the 'collective hallucination'...
http://www.youtube.com/watch?v=PXi0BAkGf3w
'The red pill'. 'Connecting the dots'.
'Wake up'. 'Unplug'. 'Walk away'.
Forget about the nation-state:
The "iron law of oligarchy"
The Advice to Obama letter, a piss in the ocean, will/has likely drown/drowned in a sea of 'sociopolitical viscosity'. Of systemic myopia.
The letter, itself, practically smacks of the result of it, looking back upon its own convoluted system for resolution.
KISS, anyone?
I wouldn't be so dismissive of the ideas of EROEI and net energy. Your (and everyone else's) quality of life is highly dependent on these ideas.
Sorry that I was not clearer.
I am not at all dismissing EROEI, or the laws of physics, or anything of that nature (anything that is of the laws of nature).
What I'm saying is that politicians have a specific belief system.
That belief system is built around the notion that "people" (voters) are the center of the universe.
That belief system is built around the notion that once a person makes a commitment, a promise, (e.g., "I'm going to drill baby drill and by that act I am surely going to bring home the bacon"), the promised outcome is inevitable.
In the politician's mind it is people alone who make things happen:
"We are the ones we've been waiting for"
"If we can go to the moon (and "we" can), then surely we can do anything we put our minds to"
Nate's supposed advice to the President assumes that the President (a politician) can accept the belief-shattering notion that people alone cannot make things happen; that we also need a certain quality of energy resources and other resources and maybe those resources aren't there or soon aren't going to be there.
To that the politician will probably respond, "Resources, shmeggeggi horses. The Stone Age didn't end because ... The whale fishing age didn't end because ... It is "people" and "innovation" that make things happen. All we have to do is put our minds to it and out-compete, out-innovate Mother Nature herself. Yes we can. No, your advice to the contrary is not welcome here Mr. Hagen."
That giant sucking sound. It's pointless to debate which comes first; if one listens, one can hear it - at the bottom of the credit coffers, at the bottom of oil wells, at the bottom of the fresh water sources that allow us to feed most of 7 billion humans, at the bottom of the giant jug of political kool-aide... It matters little; the final leg in the race to the bottom of industrial civilization is well underway. Few will notice the peak in human population as the sucking stops, but it'll suck never-the-less.
I had this view a while back. It was obvious to me that energy was true capital. The world's population has grown as more fossil energy became available. With the future decline of fossil energy, population growth will cease, if nuclear or solar can not prduce as much energy as fossil fuel, the population of the Earth must decline, most probably to a much lower level, than pre-coal.
Canada and Venezuela, must expect the USA will conquer them to get their fuel resources, as the ME will be too far off, to be vulnerable.
Seven major net oil exporters* in the Americas & the Caribbean: Venezuela, Canada, Colombia, Mexico, Argentina, Ecuador, Trinidad & Tobago. Their combined net oil exports fell from 6.0 mbpd in 2005 to 4.8 mbpd in 2010 (BP).
The point being that the seven closest major net oil exporters have already shown a combined 20% decline in net oil exports from 2005 to 2010.
*Net exports of 100,000 bpd or more in 2005.
An open letter to Obama? How yesterday!
http://tinyurl.com/87klarv
Illinois based manufacturer Caterpillar has decided to build its new manufacturing plant in North Carolina, rather than Illinois, after Illinois governor Pat Quinn (D-IL) said
"We don't have any ocean front property in Illinois, so with that particular facility we weren't in the ball game to begin with," Quinn said Sunday at an unrelated news conference. "We met with the Caterpillar people and they made it pretty clear that the logistics would drive the decision."
Of course there is that big plot of land which has been converted to a public park, fronting on Lake Michigan, with access to the Seven Seas through the St. Lawrence Seaway, that used to be occupied by U S Steel's South Works! http://tinyurl.com/753annl
No, Illinois does not need high paying manufacturing jobs on Chicago's South Side about 3-4 miles from the Obama mansion! What it needs is REGIME CHANGE!
To which/whose 'regime' would you change it to, if you had the magic wand?
And what would your preferred leadership do?
I am just curious...you started down a road, then your engine stalled out...what is your 'rest of the story'?
How about any new regime with decision makers smart enough to know that Chicago has access to the oceans?
Or one smart enough to know you can't fit a 16" rupture disk into a 9 -7/8" production casing. http://www.nola.com/news/gulf-oil-spill/index.ssf/2012/02/bp_contractor_...
Weatherford's float collar has absolutely nothing to do with them being dismissed as a defendant. It is all those messy questions about the rupture disks installed in the 16" casing subs.
Why did the White House force BP to quit the top kill operation during that mysterious 16 hour news blackout?
Supposedly because the well lacked intergrity due to blown rupture disks. Of course the forensic examination of the well after the static kill proved they were NOT blown. So if BP had been allowed to finish the top kill, the well would have been shut-in on or about May 27, 2010 and the Administration would not have had the fall guy they wanted to politically arm twist the Senate to pass Cap & Trade. OR is that heresy on a "Peak Oil" website?
How about any new regime with decision makers smart enough to know that Chicago has access to the oceans?
Such access is blocked by ice at times, is it not? (it used to have issues with the passages being blocked by fire, but that's been solved....right?)
They have this interesting ship called an icebreaker http://www.uscg.mil/d9/cgcMackinaw/history.asp
Perhaps you saw the recent news story about an icebreaker leading a Russian tanker to relieve the population of Nome, Alaska? http://www.google.com/url?sa=t&rct=j&q=icebreaker%20nome%20alaska&source...
Coast Guard icebreakers have supplied the research stations in Antarctica for decades, until their age made it more economical to lease from other nations. The original Great Lakes icebreaker WAGB-83 is a sistership (minus the 5" gun) with the Wind class icebreakers, three of which were Lend Leased to the Soviet Navy during WW II http://en.wikipedia.org/wiki/Wind_class_icebreaker
They can easily break the thin ice on the Great Lakes.
Check out the Port of Chicago website http://www.theportofchicago.com/pages/facilities.html
Getting a sinking feeling???
Te ocean access via the St. Lawrence river depends on the Welland Canal - there is no access for the period roughly extending from December to March because the Canal is closed.
Robert
Regardless of ice, just getting through the lakes adds to the shipping cost due to the distance to the sea.
NAOM
It's more than the canal. The icebreakers assist the spring breakup in March. If they go too early heavy current, frequent high winds, extreme cold and both moon and sun tides will quickly close the St. Lawrence up again. Check out info on Canada Ice Service's web site.
I've worked on the Fleuve Ste. Laurent in February - the ice will give you PTSD in short order.
How about by barge via river (right by the corporate headquarters in East Peoria Illinois) to the Mississippi and thence to the Big Easy? There's more than one way to skin a hep-cat!
Just watch out for the Asian carp!
Or how about via unit train via the ATSF to the Port of Los Angeles? Heck, Warren Buffett would love the business to go along with those empty containers bound for China!! ATSF or do say BNSF? It's all a matter of translation.
You might even look for some place near UPS (We Know Logistics) by the old Fisher Body location in Willow Springs ILLINOIS?
EDIT - http://www.foxbusiness.com/news/2012/02/08/caterpillar-says-it-has-narrowed-site-list-for-new-plant/
Cat wants to build the new plant near its landlocked operations in CARY (Containment Area for Resident Yankees) North Carolina because they need ocean access!
WOW! Have you ever seen the "ships" on Jordan Lake NC? Heck, those pontoon boats sure can carry lots of small bulldozers! At least those made by Tonka Toys!
EDIT - How about some place close to the Illinios Central tracks?? They'd even have a theme song for their ad campaign! http://www.youtube.com/watch?v=94AF_-RIl0E
Nate's letter sounds suspiciously to be what may have spurred Jeremy Grantham's quarterly report re paradigm change - basic premise is the same - energy cost for commodities acquisition / distribution vs. energy.
Today’s world has troubles unique to its time in history, from the global financial crisis to technological meltdowns to full scale, computerized global war.
Observing the convergence of such events, contemporary prophets have begun to emerge from obscurity to suggest that these conditions might be signs of the demise of the modern world.
These men are historians as well, using all manner of information and patterns from the past to provide context for where we are going.
Their predictions interpret the current state of affairs in our world as evidence that the America we know may come to an end.
The men proposing these ideas are not crackpots living on the streets of New York; they are intelligent, learned men who come armed with the evidence to back up their claims.
Watch the full documentary now
http://topdocumentaryfilms.com/prophets-of-doom/
If your Grandfather knew my Grandfather, you probably heard the following sound advice: "Never Dip into Capital." (As in, not ever.) Why? Because when it's gone, it's gone. Oil, coal, natural gas and uranium are capital.
The sensible (and sustainable) alternative to living off capital is to live off your income. Our income is provided by sunlight and wind (no great revelation there). We can re-cycle water and wood within limits, but in the long run we are going to have to live off our income. (Keynes is right to point out that in the long run we are all dead, but that's a rant for another website.)
Perhaps your Grandmother even said: "Waste not, want not." If she didn't Ben Franklin did, and he points to the same fact, we must live off our income or some of us won't be able to live at all. Dura lex sed lex. Clearly, it will take decades to scale wind to the point where it can provide a meaningful share of our electrified transport system. The Chinese will run out of coal long before their per capita vehicle ownership even gets to 250 per 1000 (half our level). Let's hope we have enough capital (natural gas) available to get us to that point.
Actually they are not, according to economists like Ricardo-- they are rent.
But they actually aren't either, because they are nonrenewable.
Hi, I've enjoyed reading TOD for a while, thought it's time to chime in.
I would tend to agree that oil, coal, natural gas and uranium are best categorized as capital not rent (if we're playing ball with the neoclassical economists, that is, otherwise just call them chemical/nuclear potential as the case may be). Rent might be the payment to the owner of the oil, coal, NG, uranium for allowing someone else to use them up... But I wouldn't call the resource itself rent.
I think of capital to be an economic analogue to energy potential in physics... i.e. the low entropy concept that is often referred to around here. Carbon hydrogen bonds and/or nuclear bonds are large reservoirs of potential energy that can be put to economic work essentially on a whim.
Wikipedia article on capital tells us:
So according to this entry, the oil, coal, NG, uranium is "land," but simultaneously fulfills multiple requirements of "capital" including 1.) (fuels are almost always used in the production of other goods) and 2.) (fuels obviously must be produced before they are used)
It violates 3.) but they carve out a depreciation exemption, which perhaps the fuels fall into.
I'm not surprised the economists have a muddled terminology that makes this question unclear, just like much of their thinking.
I would contend that the physical entities of volume(space), matter, and electromagnetic spectrum are the truest, most conceptually distilled, forms of "land." And capital should be reserved for the potential to rearrange the "land," so in other words capital is energy (i.e. chemical/nuclear bonds, photons, heat). Of course, matter and energy are hopelessly entangled, so make of that what you will.
I'm not convinced.
Ricardo would classify oil as rent, IMO--
But your argument is well taken, and I would be in your camp.
And consciousness...
You'd have to ask Ricardo if he thought oil, coal, natural gas, and uranium were finite or, for human purposes, infinite. Note that Ricardo was a pier of Malthus but didn't agree with his global outlook.
That said, I don't agree with how classical economics defines the factors of production (land, labor, capital stock).
"Anyone who believes exponential growth can go on forever in a finite world is either a madman or an economist."
--KB
Way to go Nate! I've been drumming on this point for years. IMO, we need to switch to an energy backed currency. This solves a lot of problems simultaneously:
1.) It makes us more aware of what we're actually dependent on. This goes out of the realm of finance and economics and into the realm of communication theory. What we do now with abstract and arbitrary currencies is the equivalent of translating comments like this into binary code and then having to interact with people in other countries that interpret the code differently (this isn't the best example but I think you get what I'm driving at). If people paid with calories instead of dollars they might think twice about burning all of that gasoline to get a cup of coffee a few miles up the road, they might consider planting a garden (more income!), or perhaps making their home more energy efficient. The implications for human action are massive.
2. It does away with demand shocks. Anyone with a serious background in economics is aware of the origin of recessions/depressions: demand shocks. Simply put, workers can't afford to buy what they produce. Traditionally, we've solved this problem via the extension of credit. However, sometimes credit markets get skittish (perhaps "rational"?) and the system shuts down. An energy currency would have a nominal negative interest rate on the short end of the curve. Basically, because it's so difficult and costly to store energy, it's a use-it-or-lose-it proposition. Thus, people who have excess energy currency may deposit their currency at a bank at a negative interest rate in hopes of "storing" it by claiming someone else's income in the future at a discount. Likewise, as long as investments with a positive EROEI are available, interest rates farther out on the curve will be positive
3. It does away with demand shocks (continued) Refer to the equation MV=PY where M is the monetary base, V is velocity, P is the price level, and Y is real GDP. If you assume that V is constant (it's not but this is complicated so assume that it is for our purposes here) and Y is growing (just assume...) and you hold M constant, such as using gold as a currency, then P has to fall. This is deflation and, simply put, deflation is very bad for any school of economic thought. Among crippling financial systems, it discourages commerce (specialization and trade) as consumers wait for lower prices. The beauty of an energy currency is that the monetary base would grow roughly in line with real GDP thus facilitating price stability.
4. You can't "print" it This (potentially) changes the global power nexus. Governments wouldn't be able to print their way out of problems and the global financial system wouldn't have enablers such as the Federal Reserve, BOJ, or, recent entry tot he party, the ECB. Because the currency base would be fixed, discipline would be imposed on the markets.
5. It sheds light on the insanity of our fossil fuel use I liken our current use of fossil fuels to the following examples: you own a bakery but rather than earn money by selling pastries you earn money by selling your equipment. Right now, we're down to our last couple of ovens. Our fossil fuels are "savings". If we spend them, that's not income. If we want "income" we need to build wind turbines, CST power plants, PV power plants, etc (I would even throw LFTRs into this equation).
There's a lot more that I can't even think to add right now. The obvious issue is how does one prevent utilities or the owners of mineral rights from becoming insanely powerful/wealthy overnight (they're already pretty powerful/wealthy). My answer to that is what I call "income segregation". Basically, a utility company couldn't just "print" its own currency by producing electricity from various fuel sources. It could only spend energy currency that it received from end users. Electricity prices would still be set in a market-place and end-users would end up paying a discount (e.g. they might pay 70 calories for 100 calories of electricity)
Note that I use calories because I think that it's important that a currency relate to people's diets.
Please comment. I'm very curious to hear people's thoughts, criticisms, etc.
Hi GreenPlease, great post. I spend a lot of time thinking about energy as currency too. I find it serendipitous that the S.I. unit of energy is called a joule, similar to jewel, an object which has been used as money in the past.
A couple of comments:
a consequence of this is there is a chance to design the economy so that there are no economic bubbles, if you make the valuation (formerly known as pricing) of goods based on their embodied energy, a.k.a. emergy. This also removes the possibility of inflation or deflation. You still have the depreciation, like you pointed out due to the difficulty of storage.
On the contrary... the beauty is, in fact, that everyone and anyone can print it. This takes away the centralized power that the Federal Reserve currently possesses. And it removes the power of bankers using fractional reserve rules and credit creation via loans. Financing as we know it will end, and a new form of financing will have to be designed almost from scratch.
This is a very attractive consequence too. Now if you speak about passive income, people refer to interest and dividends... the free money that wealthy people undeservedly get from banks just for being rich. In your case passive income is from having the foresight to put up a renewable energy generation system!!! That is very economically productive IMO, and deserves a passive income.
Obviously there are a tons of obstacles to implementing something like this. But I think the biggest one is fossil fuels. Energy as currency will have to wait until fossil fuels are on the depletion side of things before it has any chance of catching on. The issue is that fossil fuels are just too concentrated in energy for an equitable currency distribution to occur, if energy were currency.
My favorite consequence to an energy as currency regime might be that more people (conceivably everyone) would have to be trained in energy issues just to socialize and trade. This means the former occupation of accountants become energy accountants, the former occupation of business model developers will be systems dynamicists. It's a utopian society of layman as scientists if you draw it out ad absurdum. Which is a good thing :) People would make better decisions in such a society I think.
On #2, why the issue of energy storage causing a nominal negative interest rate? Why couldn't say, a 100 Kwh note be simply payable in future generating capacity?
What about regional differences in cost of energy?
How would the value of an hour of labor be set? eg that of a house painter in a wealthy city vs a house painter in a poor village vs an artist who paints?
Energy has a time value. Consider a 1 square meter solar panel located in the middle of the United States. On a typical day, it will produce ~5kw/h. If you don't use it directly (to light a house, make a product, etc.) and if you don't store it (chemically or physically) then you lose it. It's gone. Forever. So, if you're not going to use it, you might lend it to a business (say they need to make extra widgets) in return for using their energy (flow) at a future point in time. However, the business is likely to offer you 4kw/h tomorrow for your 5kw/h today. They have the upper hand in negotiating because they can chose not to manufacture additional goods but you cannot chose to store your energy (at a reasonable cost given current technology).
As a note, "negative interest rates" already occur to a degree in power markets. Sometimes when demand is low on a grid with a lot of nuclear power, the utility will sell the power below the levalized cost of power from that plant. They do this to avoid thermal cycling the pressure vessel (LWRs were never meant to load-follow, one of their limitations). Also, I've seen power rates go NEGATIVE(!) on ERCOT on a windy night.
These already exist and are largely a function of the energy available in the area. If a particular region is "energy poor" they'll have to specialize and trade... or simply have a lower standard of living. Germany would be a great example. Germany, in general, is energy poor (there's a reason Hitler wen't after Baku). However, their workforce is highly skilled. They would trade finished goods for Russia's energy (as they do now). These goods would likely sell at a premium to their embodied energy. For example, a BMW might have 10,000kw/h of embodied energy. However, it might sell in Russia for.... 100,000kw/h. Why? The Russian's don't have the facilities, craftsmen, etc, so they mutually agree upon a price: they give the Germans the 10,000kw/h cost for the car plus 90,000kw/h that will be used in a discretionary fashion in Germany. This segways nicely into your next question.
Prices would still be set by supply and demand. It's not entirely (or even mostly) about the energy cost of the work. It's about what discretionary energy income the consumer has available in a given period of time and whether the painter (or anyone) is willing to perform a service or make an object with that discretionary energy income.
An energy backed currency wouldn't be some new societal order where we evenly distribute all of the power producing assets and then value everything based solely on its embodied energy. A world with an energy backed currency would be similar to the world we live in today. Supply and demand would set prices. We would still need financial intermediaries (banks... possibly utilities) to facilitate trade. Our financial system....it would change. We'd have one world currency but that currency would carry different interest rates for different delivery times in different locations. Further, there wouldn't be any of this "fractional reserve" nonsense and entities such as the Federal Reserve wouldn't have the power to expand or contract the money supply or set interest rates.
The biggest thing that would change is the way people think: they'd become aware that energy is essential and integral in every aspect of their lives. When people understand this, their behavior will change (I hope).
Advice to Obama (!!!)
LMAO
The elites are well aware of our predicament and their solution is to let it all rot / collapse.
Dear Nate,
Your letter to President Obama either never made it, wasn't understood or it was ignored.
http://www.realclearpolitics.com/video/2012/02/14/obama_on_failed_promis...
Technical quibble; In Figure 1, "Oil Supply Costs Based on CERA Analysis", shouldn't the vertical axis be '2007 US Dollars Per Barrel'?
Please correct me if I'm wrong.
Aren't current oil pumps only 66% or so efficient? If so, wouldn't increases in efficiency *basically* deliver more net energy to society?
Aren't current internal combustion engines only 33% or so efficient? If so, wouldn't increases in efficiency *basically* deliver more net energy to society?
Don't we waste *incredibly high amounts* of energy lost as heat, which we could just use for heating/cooling if only we weren't wasting it?
Don't we just *waste* a lot of energy? Like, an *astronomical* amount? Maybe energy wasting is really what should be stopped.
Obviously, 100% efficiency is theoretical. But improving efficiency by 5-10% everywhere, in everything should be technologically feasible, and reducing PURE WASTE is completely practical. Obviously, that does not mean we will be finding additional Saudi Arabia's every month merely to replace current depletion, but I think the overall energy situation is not as dire as this article makes out.
Don't we spend more money (and human capital) researching and developing the new iPhone than working on any kind of workable fusion technology? (Not cold fusion!) If fusion happens in the sun and in our nuclear weapons, we know it works. The powers that be just don't want this kind of technology to be developed.
Many good points. People will say that previous efforts at increasing efficiency have just been squandered on other stupidities--the engine in most modern cars is much more efficient at turning gas into moving mass, but then we just increased the mass that is being moved (SUVs and all that), so the efficiencies did nothing to decrease our usage. Some would say that this is an inevitable law--Jevons Paradox. But the effect is sometimes overstated, and just because it happened sometimes in the context of ever greater availability of ff, it might not be an absolute rule the way down the energy descent.
But the other problem is that lots of people's jobs now depend on many of the very inefficiencies of which you speak.
An example: One way to immediately quadruple energy efficiency of much of transportation system is to vigorously encourage and creatively foster widespread car-pooling/ride sharing. With our high-tech communications systems, this should not be massively difficult in principle. Most people drive alone in cars that could hold at least three other people.
But if this really go going, lots of people would not need to own cars. The auto industry would go bust and take millions of jobs with it. Recall that when the prospect of such a thing happening occurred before, the Federal Government stepped in with a massive loan to keep things going along with programs (cash for clunkers) designed in part to steer more people toward buying new cars.
If they stepped in in such an aggressive way to save this industry from its own stupidity, why wouldn't they step in to stop any other threat, like ride sharing, that threatens the industry? They have already managed to convince everyone, based on zero evidence, that you will instantly die or worse if you ever pick up a hitchhiker or go hitchhiking yourself...
As for fusion, etc, I don't think we should hitch our futures on yet another unproven and probably unsafe technology.
After contemplating, over the brief few decades I have been breathing and thinking, the various catastrophes we have perpetrated on the planet, I have come to the conclusion that the last thing that the rest of the living community needs is for the most rapacious species ever to exist to have yet more energy to carry out it obliteration of everything else.
So I am not enthusiastic about grand new schemes to supply massive amounts of energy to homo necans.
The main thing we have to learn to do is understand ourselves, specifically to understand the limits and interdependent nature of our Home, and to then limit ourselves accordingly.
It is too late now for such activity to avert the major catastrophe that is now upon us and upon the living world, but it is still worth pursuing.