A distinction people often fail to make is that between a prediction and a forecast. For someone who is, or claims to be, good at making predictions normally does so about very specific occurrences within a short time in the future. Forecasting is a different beast altogether, though it naturally pertains to the future. Forecasting is based on probabilities conditioned on whether or not something happens and it's relative effect on the forecast. For example: If the American consumer is feeling a little cocksure this holiday season, then we may avoid a post-holiday earnings slump in the market and reduce the chance of a double dip recession in 2010. If not, well.... I like to think of this in terms of shapes or forces shaping or forming the conditions under which we will likely be living under as a number of forces already underway impose themselves on human life.
I'd like to pick up where I abruptly left off in the last post on the subject of Peak Oil. Observers of this phenomenon have varied opinions about the impact declining oil production would have on the economy. The range is from a free market juggernaut into renewable energy technology that would fuel further economic growth on the one extreme to a decades-long decline into a post-industrial civilization that resembles more the pre-industrial civilization of our great-grandparents childhood. Whatever the case, nobody would dispute the importance of oil (energy) to economic activity and it's central role in industrial civilization. You could reduce these wildly divergent views to a continuum of the effects technology has on economic prosperity on one side and the role and nature of energy as a precondition for technological capacity on the other. To put it more simply, you could ask whether or not machine technology as we have today would be possible without fossil fuels. Are there replacement fuels we can harness from nature that could enable continued industrial prosperity? If indeed the peak of oil production has occurred then we shall find out sooner rather than later.
A way to peer into the madhouse of future narratives is to consider the energy side of the continuum and look at alternatives. The most developed alternative energy sources are by far wind and solar and to a lesser extent geothermal. Others, such as those used to make liquid fuels, like cellulosic ethanol or biogas, are not very close to marketable scale and quite possibly, won't ever be for reasons I'll get to in a moment. So the most promising replacements produce only electricity. This is useful to replace coal, the leading greenhouse gas emitter, but it won't do to run our cars on any time soon.
The global economy has just recently suffered the most serious downturn since the Great Depression and the prospects of a full recovery look shaky at best, especially since the de facto default of the Dubai World fund announced on Thursday. Whatever happens with this is certainly up for debate, but it brings up the relationship between energy and money. I've talked a little bit about this subject before, but I want to introduce some new observations that should be kept in mind. One immediate effect of the announcement was a significant drop in the price of oil. Probably, though I don't know for sure the most salient causes, the price fell for either or both of the following reasons. The first is that there was some need to raise money by some major party to pay off a contract that was hedged against an oil contract. The other is that, in the panic that followed Dubai's default, the perception reigned that the global economy would suffer, thus reducing demand for oil, in which case the price will drop.
I bring this up because it leads to a paper by a physicist who linked economic growth to energy consumption. The paper claims that all growth is directly and unremittingly tied to energy use by that economy. He even put a number on it: 9.97 watts of energy per 1990 constant dollar. This has yet to be peer reviewed so the question of it's accuracy or utility has to be determined, but it quantifies what many of those who believe that the peaking of oil production will be disasterous for the economy. If this idea holds up, it would be a simple matter to do pretty accurate calculations on how the economy will perform in a reduced energy scenario.
If a reduced energy scenario is an inevitable effect of reduced oil production and consumption. One of the concerns I have with a calculation like the one of this physicist is that it makes no distinction between types or sources of energy or the net energy principle. A replacement for oil must have certain shared qualities with oil before we can be certain of maintaining the kind of economic activity we in the U.S. are accustomed to enjoying(?). It must be cheap, portable, and pack an energy punch that can literally move mountains to continue the kind of mining operations and operate all the transportation needs of our economy. This is the kind of challenge the, what I will call, techno-optimists embrace. But sources of energy are at the heart of this problem, and the economic viability of these liquid fuel alternatives are where these things could get derailed.
Looking ahead, then, and to reintroduce the timeline, the declining production of oil could very well be accompanied by a commensurate decline in economic well-being. This need not be disasterous, but the possibilty that it could be disasterous cannot be ruled out. Whether the oil production peak can be definitively declared remains to be seen, but chances are, depending on whether we continue an economic recession, or a depression, we will know for sure within the next five years. To compare, the peaking of global gold production happened eleven years ago and it took until this year for there to be full acknowledgement of the fact by the gold mining industry. People in the oil industry will no doubt behave in a similar fashion, as it is psychologically difficult to admit that the means by which you earn your living has limits. I suspect that the acknowledgement will only come after the production limits are again reached, as they were in 2005-2008, and then there will be another recession.
Next week I will talk about the technology question and some of the forecasts and views of the techno-optimists, the viabilty of these as currently understood, and how the arguments of the Dark Greens foil their optimism. Cheers.
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