Roger Baker : The Reality of ‘Peak Oil,’ Part 2

Peak Oil is the point at which the total world oil production reaches its high point and finally starts to decline… We at last have some pretty convincing data to indicate that world oil production probably peaked forever in the summer of 2008… — From Part 1.

By Roger Baker / The Rag Blog / April 13, 2009

[This is the second installment of a two-part series on Peak Oil by Rag Blog contributor Roger Baker. “The Reality of ‘Peak Oil,’ Part 1,” can be found here.]

Assuming that world oil production has indeed already peaked, how should we best respond to that situation?

Most typical US citizens, who are also aware of the global warming problem, when asked to consider this issue would probably prescribe a crash program of building alternative energy infrastructure like wind and solar energy supplies, and plug-in electric vehicles. Maybe they would suggest various home energy conservation techniques and more local food production. Perhaps they would advocate policies meant to encourage compact development and end urban sprawl surrounding major US metro areas, or a return to energy-efficient rail transportation.

Who, knowing our situation, would not applaud such policies as progress? We need to do all that as fast as we can do it. The problem is that once we start crunching the numbers we will start to see that if these policies are to be very effective, they need to be implemented more than a decade in advance of peak oil. Which peak is probably here already.

The problem is that we now lack the time to restructure very much of our unusually oil-addictive US national economy toward better energy efficiency. The energy crunch is thus likely to hit us much harder, and to force widespread involuntary conservation. That won’t make anyone very happy.

The Hirsch Report by Robert L. Hirsch (“Peaking of World Oil Production: Impacts, Mitigation, and Risk Management”) laid out the interactive problems of trying to institute a crash program of rebuilding a greener economy, while lacking sufficient time to do so properly. The Hirsch report was itself not an isolated revelation. It built on earlier works describing the economic limits to rapid industrial and economic transitions tied to energy, such as “Beyond Oil” by Gever, et al. Here is an introduction to Hirsch’s report:

The peaking of world oil production presents the U.S. and the world with an unprecedented risk management problem. As peaking is approached, liquid fuel prices and price volatility will increase dramatically, and, without timely mitigation, the economic, social, and political costs will be unprecedented. Viable mitigation options exist on both the supply and demand sides, but to have substantial impact, they must be initiated more than a decade in advance of peaking.

Perhaps one proper perspective from which to view the current situation is the understanding that we have, since WWII, become an advertising-driven consumerist culture in denial of any natural limits whatsoever. This leaves us in a situation that causes us to try to use politics to turn back history and restore the old status quo of greater material affluence. All the while trying to operate under the increasingly inappropriate social, economic, legal, and political institutions of a society in denial of its natural limits.

Jim Kunstler often writes about that kind of social dysfunction in arguing for change. He says we should make an abrupt shift toward restructuring the economy for survival in the harder times to come. The following, entitled “Full Commanding Denial,” is from March 23, 2009.

If central casting called for a poised, straight-talking, and capable-seeming president, it would be hard to come up with someone better than the Barack Obama who walked and talked around the White House grounds with Steve Croft on “60-Minutes” Sunday night. He may perfectly represent the majority who elected him, though, because he also appears to be in full commanding denial of the realities overtaking our American experience.

Those realities include the fact that we can’t possibly return to the easy credit and no money down “consumer” economy no matter how many nominal dollars get shoveled into the fiery furnaces of banks too-big-to-fail. As Treasury Secretary Geithner’s underling, Stephanie Cutter, said last week, “Our singular focus is on increasing lending to support economic recovery. Everything we do to stabilize the financial system is done with that goal in mind.”

Lending on the scale that became normal over the last decade is for sure the one thing that we will not recover. We turn around in 2009 to find ourselves a much poorer nation than we thought we were a year ago, especially among that broad range of formerly middle-class wage-earners who lived so luxuriously until yesterday. The public can’t process this reality and the president, for all his relaxed charm, is either not ready to articulate it, or can’t process it himself.

Everything that we’re doing right now is engineered to avoid reality, to sustain the unsustainable, to recover the unrecoverable,when the mandate of reality compels us to face our losses in order to move on to the next chapter of a collective American life. The next chapter would be a society that runs on a much more local and modest scale, centered on essential activities like growing food, requiring harder physical work, and focused attention — in other words, the opposite of a society lost in abstractions, long-range daisy chains of off-loaded responsibility, and incessant pleasure-seeking. . .

There are now a number of admirable efforts and individuals urging fast reform, especially in light of global warming. Al Gore is generally trying to lead us in the right direction. Another good effort is Lester Brown’s Earth Policy Institute. There are probably thousands of broadly similar simultaneous reform and environmental efforts going on, all over the blogosphere and on all levels of internet communication.

That said, not many such efforts have a strong focus on peak oil economics. Many liberal economists like Paul Krugman do not seem willing to acknowledge serious limits to growth.

ASPO-USA is an ASPO International affiliate working hard to raise general public consciousness, and to educate Congress. They sponsor Peak Oil News; a valuable daily oil analysis commentary by a distinguished retired CIA analyst, Tom Whipple.

Also deserving of special praise, there is an excellent new non-profit think tank, the Post Carbon Institute, that is actively studying the energy-constrained economic transition problem we all face. There are lots of top quality links on its site.

Environmental resource scholar, and now Post Carbon Institute Fellow, Richard Heinberg puts out an excellent, long-running monthly analysis and commentary titled “Museletter.” Heinberg’s latest Museletter deals with the most likely economic scenarios resulting from the oil peak, with a special focus on the timing of the situation.

The discussion is tied to the economics of the energy crisis. It is impossible to predict where the current economic crisis will lead, due to the fact that nobody knows how much longer the current global deflationary spiral will continue. At some point, the trillions of dollars being injected by the feds, now printing up money without apology, will probably act to turn around the depressed psychology of consumer saving, partly revive an easy spending psychology, leading to a faster velocity of circulation of money. There are big unknowns at work since there is not a strong link between the amount of money in general circulation and consumer confidence. However much economics strives to be a science, it actually turns out to based on a foundation of psychology and politics.

Printing money to stimulate the economy is a tool of last resort, being employed only after interest rate cuts and bank bailouts have failed. Since the average consumers who make up the bulk of the economy are already deep in debt, injecting lots of money is a bit extreme, perhaps akin to using gasoline to revive a smoldering fire. Money stimulation by the US treasury and Federal Reserve is likely to work at some point, but it is also likely to get out of hand and lead to an uncontrolled turnaround in consumer behavior from saving to spending.

This could easily result in hyperinflation at worst, and nothing a whole lot better at best. It seems likely that a lot of the new federal stimulus dollars might start buying oil, which would increase the price. Which would attract even more investors to the new honeypot. In the absence of rationing, this is likely after a time to initiate another debilitating oil price spike.

Here are a few Museletter snips related to some plausible economic scenarios:

The general picture is clear enough. A combination of peak oil, climate change, and the bursting of the mother of all economic bubbles will result in a collapse of the global economy, perhaps of civilization itself. If we are still to avert the worst of a crisis that could eventuate in untold death, destruction, and tragedy, we need to restructure the world’s energy systems and money systems immediately…

But the enormity of the current economic meltdown raises the question: Is this really just a hiccup, or is it the beginning of the end (not of the world, perhaps, but certainly of life as we have known it for the past decades)?

It’s still a judgment call, at this point.

Maybe Geithner and Bernanke can pull off a miracle and stabilize the economy. In that case, with energy demand having fallen so far below its level of just a year ago, it might take as long as five years from no—who knows, maybe even seven—for depletion and decline to cause oil prices to spike again, giving the economy the coup de grace. At that point, there can indeed be no recovery, only adaptation. That’s the best-case scenario I can imagine (in terms of preserving the status quo).

But I have a hard time picturing that. A much more likely scenario, in my view: We will see a few months of fairly gradual economic deterioration (slowed by the mighty efforts of the Bailout Brigade), followed by a truly ugly global economic meltdown. The result will be a general level of economic activity much lower than the world is accustomed to. Efforts to right the ship will include protectionist legislation (that will provoke international confrontations), the convening of world leaders to create a new global currency and financial system (which probably won’t succeed, at least not the first time around), and various populist uprisings that will lead to political instability around the globe. Energy demand will remain low, but energy production will fall dramatically due to lack of investment. Carbon emissions will therefore fall too, so the world’s attention will be diverted from tackling the greenhouse gas issue, even though climate impacts from previous carbon emissions will continue to worsen.

But here’s the crux of the matter: unlike the situation the world faced in the 1970s, there is no prospect for another cheap-energy bounce this time. It’s too late to muddle. We have run out the clock on proactive adaptation. From now on, collective survival will hinge on the strategies we adopt for emergency response. Some strategies will make matters worse, while others will lay the groundwork for better times to come. This is what it has come to. One doesn’t wish to sound shrill, but there it is. . . .

Assuming that Heinberg is correct, what should intelligent environmental visionaries do about the current situation? The Post Carbon Institute has recently issued a manifesto declaring their intent to help prepare us for what to do, offering guidance on how to best and most gracefully reduce peak world industrial production.

This economic sea change that we face does not imply that everything will stagnate and fall into ruin. But we do need to actively restructure things ASAP, with sustainability and long-range human survival kept very much in mind. This even as global warming and water constraints get worse and disrupt our agriculture. Here are some snips from the Post Carbon Institute that set the tone for their efforts. They may not have all the answers, but the Post Carbon group seems to me to be thinking as clearly as any of the visionaries who are pondering our global resource constraints:

. . .It is no coincidence that so many resource peaks are occurring together. All are causally related by way of the historic reality that, for the past 200 years, cheap and abundant energy from fossil fuels has driven technological invention, increases in total and per-capita resource extraction and consumption (including food production), and population growth. We are enmeshed in a classic self-reinforcing feedback loop.

Our starting point for future planning, then, must be the realization that we are living today at the end of the period of greatest material abundance in human history — an abundance based on temporary sources of cheap energy that made all else possible. Now that the most important of those sources are entering their inevitable sunset phase, we are at the beginning of a period of overall economic contraction. . ..

The Role of Post Carbon Institute

Post Carbon Institute is dedicated to answering the central question of our times: How do we manage the transition to a post-growth, post-fossil fuel, climate-changed world?

It will be Post Carbon Institute’s role to publicly discuss these issues in accessible ways, and as aspects of a systemic, interdependent web of crises. We will gather and analyze response strategies (whether proven or under experimentation), and disseminate them to the individuals, communities, businesses, and governments who need them. We will develop the framing and messaging of these issues so as to significantly raise the visibility and impact of emerging solutions.

We will constantly monitor both challenges and exciting new developments in a range of fields: energy, climate, food systems, land use, green building construction and retrofits, biodiversity and ecological restoration, water, transportation, and new economic systems. We will highlight green-leader cities and businesses, Transition Town 8

Through our close relationships with forward-thinking communities and organizations, Post Carbon Institute is uniquely positioned to both draw from their best practices and provide them with the resources they need to quickly scale up and replicate their work. To our knowledge, there is no other organization taking this important leadership role. . .

Also see Roger Baker : The Reality of ‘Peak Oil,’ Part 1 by Roger Baker / The Rag Blog / April 7, 2009

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