Sunday, November 25, 2012

How the myth of fossil fuel abundance actually impedes progress on climate change

The great fear among those working to address climate change is that the seemingly vast resources of fossil fuels waiting to be burned will send the world hurtling toward certain catastrophe. By invoking fossil fuel abundance, climate activists believe that their argument for a rapid transition to alternative energy is made more persuasive. But, it is poor strategy to reinforce the myth of fossil fuel abundance when doing so actually makes many people less open to such an argument. And, as it turns out, the abundance argument is also contrary to the available data, logic and prudent risk management principles.

Here is what I mean. First, despite all the hype about marginal gains in U.S. oil production, world oil production has been on a plateau since 2005. Small gains in U.S. production have been offset by declining production in the rest of the world. The news for coal production is only slightly less discouraging as one study suggests that the rate of coal production worldwide could peak as early as 2025. In the United States, while coal tonnage has remained essentially flat from 1998 through 2011, energy content has actually declined. Has the available energy from U.S. coal production already peaked? We can't be sure. But the trend suggests caution. One recent study even concluded that world coal production from existing fields may have peaked last year. But, even if the authors are 10 years early, the prospects for creating a coal economy to follow the oil one are poor at best.

And finally, natural gas--much touted as a less polluting "bridge fuel" to a renewable energy future--may not be so plentiful as we are led to believe. Natural gas derived from deep shale deposits was first portrayed as so abundant that wells could simply be drilled anywhere in the vast shale basins of North America. But the record of drilling to date suggests that such deposits will yield far less than anticipated and be far more costly to develop.

Simple logic and prudent risk management suggests that we should already be making a rapid transition to renewable energy. No one--not the fossil fuel industry, not government, not private forecasters--can know for certain what our future supplies of fossil fuels will be. If those supplies are constrained as current trends and data suggest, then we will be forced to make an energy transition whether we want to or not. If fossil fuels turn out to be more abundant than current trends portend and we make a rapid transition to renewable energy starting now, the worst that can happen is that we will have completed that transition a little earlier than was absolutely necessary. But, if fossil fuel supplies begin to decline in the near future and we've made little additional progress on deploying new energy sources, we will surely be in for considerable economic and social pain, pain that might be so severe as to challenge the very stability of our global system. That's how central fossil fuel energy is to our society.

Many climate activists continue to believe, however, that the above data will make people less concerned about climate change. These activists think that the danger from supposedly overflowing fossil fuel abundance will somehow make it clear that we must move away from such fuels. But, I would contend that the current public relations campaign by the oil and gas industry designed to convince us that oil and natural gas will be abundant for decades to come is actually making the public less supportive of a transition away from fossil fuels. And, I believe that if the public understood the true risks to our energy supplies that come from relying so heavily on fossil fuels, it would be more inclined to support a rapid transition to alternative energy and increased efforts in conservation and efficiency.

Let's look for a moment at the public the way a political campaign does. Every campaign starts with basic triage. First, there are the people who are going to support you no matter what. These people need to be nurtured and encouraged to spread the word about your candidacy to those who can be persuaded to vote for you. Then, there are those who are never going to vote for you. You can't persuade these people, so you shouldn't spend any time on them. Your job is simply to beat them and their candidate on election day. Finally, there are those who can be persuaded to vote for you. Perhaps these people haven't made up their minds. Perhaps they are leaning toward your opponent, but can still be persuaded to vote for you with the right argument.

Naturally, those who support addressing climate change aggressively will be especially concerned about the amount of carbon-based fuels left to burn. But, those who are on the fence--or who, more likely, haven't really put much thought into the issue--are currently being bombarded with the industry's abundance message. Without much commitment one way or the other, their path of least resistance is to accept the industry position. It's an easy path that requires no changes in behavior. And, after all, isn't the fossil fuel industry promising to bring us cleaner burning natural gas in copious quantities? Won't that help use reduce our carbon emissions? And, what about "clean coal"? That should address our concerns about coal, shouldn't it?

Of course, activists will immediately spot the problems embedded in these assertions masquerading as questions. But, none of this would seem relevant to a persuadable member of the public if the myth of abundance hadn't already infected his or her mind. Once the abundance myth is undermined, it follows that we must move quickly to alternative, noncarbon-based energy. All the promises of clean natural gas and clean coal don't matter if their supply is in question. It's dead certain that all fossil fuels will at some point peak in their production and then decline irreversibly. Nobody knows for sure when, and that's a good enough reason to make an energy transition sooner rather than later.

Sowing doubt about the claim of fossil fuel abundance is the surest way to move the persuadable public toward supporting many of those actions which are consistent with addressing climate change. Those so persuaded don't even have to believe that climate change is a problem (though it would certainly help if they did). Why concede the abundance argument--an argument the fossil fuel industry is using like a club against climate change activists--when we don't have to?

Kurt Cobb is an author, speaker, and columnist focusing on energy and the environment. He is a regular contributor to the Energy Voices section of The Christian Science Monitor and author of the peak-oil-themed novel Prelude. In addition, he writes columns for the Paris-based science news site Scitizen, and his work has been featured on Energy Bulletin, The Oil Drum, OilPrice.com, Econ Matters, Peak Oil Review, 321energy, Common Dreams, Le Monde Diplomatique and many other sites. He maintains a blog called Resource Insights and can be contacted at kurtcobb2001@yahoo.com.

Sunday, November 18, 2012

Did oil decide the last three American elections?

Was the most recent American election outcome determined by the presidential debates, changing demographics, voter views on issues, Hurricane Sandy (and the president's reaction to it) or voter turnout? Probably all of these contributed to the result. Energy was actually one of the issues discussed during the campaign, particularly domestic production of oil and natural gas. But, it's not the debate over energy issues that interests me here so much as the price and supply of oil and their effects on voter attitudes.

Let's go back to the summer of 2008. The price of oil had been climbing all year reaching its highest level ever (even adjusted for inflation) at $147.27 a barrel on July 11. From there the price began to decline. Though few people knew it, an economy beleaguered by years of rising oil prices was already in recession. The financial markets eventually crashed that fall. And, the worst slump in the world economy since the Great Depression followed.

The bursting of the U.S. real estate bubble in the previous year was frequently cited as the cause of the crash. And, there is little doubt that stresses in the financial industry combined with the real estate collapse to create a financial meltdown. But, the work of economist James Hamilton suggests that high oil prices were also a significant factor in precipitating the bust and therefore the economic pain felt by American voters. All of this implies that the solid victory of Democrats and Barack Obama in 2008 resulted at least in part from discontent among voters over high oil prices. The conclusion seemed obvious even then.

After dipping into the $30 range in late 2008, oil prices rebounded to around $80 by the beginning of 2010 and remained in the $70 to $80 range through election day that year. If we accept Hamilton's work, then high oil prices produced a significant drag on the economy and may have caused swing voters, frustrated by a slow economic recovery and high unemployment, to hand the party out of power a huge victory. They gave Republicans control of the U.S. House and of many additional governorships and state legislatures.

Fast forward to 2012. Oil prices spent much of the year between $90 and $110 a barrel. As high oil prices continued to put a drag on the still slow economic recovery, the year seemed designed to give Republicans a decisive victory--but only if voters perceived that the Republican Party was still the party out of power. In fact, the flamboyance of the Republican-dominated U.S. House and its defiance of the president combined with the swift passage of the Republican agenda in a large number of states may have made the Republican Party seem to many voters like the party in power--put there to solve the problems not adequately addressed by Democratic politicians which voters had only just installed during the 2008 elections.

As I indicated, there are certainly other factors besides oil prices that determined this year's election outcome. But I can't help thinking that many voters--still frustrated by slow growth due in part to high oil prices--decided that Republican politicians had not acted to address their economic anxieties. So, those voters simply went the opposite direction and voted for Democrats.

If the pattern I see holds, then continuing high oil prices would lead to a resurgence of the Republican Party in the 2014 elections. Naturally, if prices decline and stay down, oil will not be a central issue. But here is the problem. If oil supplies are going to be constrained in the long term, as I believe they will be, then waiting for supply to rise and for prices to fall will not be a useful strategy for either party. Neither will touting the temporary and overhyped gains in domestic oil production that are, in any case, being offset by declines abroad. Keep in mind that oil is a worldwide market, so Americans will continue to pay world prices whether or not domestic production rises.

The party that addresses constraints in worldwide oil supplies by intensifying efforts to reduce U.S. consumption and speeding a transition to alternative energy would probably likely break the cycle of rapid swings from one party to the other every two years--but not in the way that that party would like. Broaching the subject of limits with voters and acting to address those limits could spell political suicide for the party that does it. Surely, during the next election the opposition party would say that we have plenty of oil and offer a vague plan, however preposterous, to overcome production constraints.

It is true that Democrats have emphasized renewable energy and conservation more than Republicans. And yet, President Obama has repeatedly asserted that he is working to increase permitting of oil and natural gas exploration on federal land as quickly as possible. That's hardly the equivalent of grasping the nettle and giving the voters the bad news, namely, that world oil production has been stagnant since 2005 and that there is little prospect that world production--which is what determines the oil price--will grow much from here.

It's possible that the myth of oil abundance and the powerful oil industry lobby behind it has locked us into a politics which will provide neither party with the decisive majority needed to enact the difficult agenda that would move us toward a more sustainable energy economy. But then, that's the way the oil industry must like it--high prices with promises that eventually, someday, perhaps just around the corner, prices will come down. All you have to do is trust us!

Kurt Cobb is an author, speaker, and columnist focusing on energy and the environment. He is a regular contributor to the Energy Voices section of The Christian Science Monitor and author of the peak-oil-themed novel Prelude. In addition, he writes columns for the Paris-based science news site Scitizen, and his work has been featured on Energy Bulletin, The Oil Drum, OilPrice.com, Econ Matters, Peak Oil Review, 321energy, Common Dreams, Le Monde Diplomatique and many other sites. He maintains a blog called Resource Insights and can be contacted at kurtcobb2001@yahoo.com.

Sunday, November 11, 2012

Does the IMF believe we have a peak oil problem?

Does the International Monetary Fund (IMF) believe we have a peak oil problem? The precise answer is that the IMF is currently studying how constraints in world oil supplies might affect economies around the world in two so-called working papers, "The Future of Oil: Geology versus Technology" and "Oil and the World Economy: Some Possible Futures."

We are admonished by the IMF that opinions expressed in working papers are "those of the author(s) and do not necessarily represent those of the IMF or IMF policy." But the fact that the organization has produced two papers on the subject this year gives some indication of how seriously it is taking the issue. One of the co-authors for both papers, Michael Kumhof, a senior researcher and deputy division chief for the fund, hasn't been keeping his concerns secret. In a presentation, he outlined his reasoning for why the price of oil would have to nearly double in real terms in order for oil production to increase the measly 0.9 percent per year projected by the U.S. Energy Information Administration between now and 2020.

Part of the problem is that we have already extracted the easy-to-get oil. Now comes the hard stuff: deepwater drilling, tar sands, arctic oil, and tight oil (often referred to erroneously as shale oil) which is produced by expensive hydraulic fracturing or fracking, something that typically costs millions to perform on a single well.

The new model presented in "The Future of Oil" takes into account both geologic constraints and the effect of price changes on oil production. The model has proven much better at explaining trends in oil production and prices than conventional economic analysis which assumes no long-term geologic production constraints. Standard economic theory--in which oil supplies always increase in response to high prices--has been unable to explain the apparent plateau in world oil production from 2005 onward in the face of record high oil prices.

(IMF researchers are interested in the global picture for oil production and have therefore not been taken in by the hype over recent marginal gains in U.S. oil production, gains that have been offset by declines elsewhere in the world. Because oil can be shipped to wherever the price is highest, it is world output which matters.)

All of this begs the question about how record prices and oil supply constraints are affecting the world economy. Kumhof and his IMF colleague Dirk Muir modeled several scenarios in which oil supplies actually fall for the next 20 years in their paper, "Oil and the World Economy: Some Possible Futures." In their baseline scenario they assume a small, but persistent decline in oil supplies from year to year. As a result oil prices rise by 200 percent in real terms over a 20-year period. GDP shrinks at a rate of 0.2 to 0.4 percent per year in the United States and the Euro area. Surprisingly, the declines are steeper in oil exporting countries. It is a situation that is difficult but not impossible to manage.

The authors then imagine a world economy much more capable of adjusting to declining oil supplies through, for example, switching to other fuels. That scenario would be less distressing for all economies and could lead to continued economic growth in countries other than oil exporters, the United States and Euro area countries.

A third scenario posits just the opposite, an economy which has increasing difficulty substituting other fuels and feedstocks for oil. The assumption is that the easy and obvious substitutions will be made first and subsequent substitutions will be harder to find and deploy. Under these conditions, oil prices increase by 300 percent in real terms over 20 years.

A fourth scenario assumes that oil is so intertwined with the world economy that its contribution to world output is far higher than the 5 percent its cost contribution suggests for what are called "tradeables," items that are easily exchanged in trade (which is most of the things we make) or the 2 percent cost contribution for what are called "nontradeables," items not easily shipped across an ocean for trade. (Public drinking water supply would be an example.) Instead, Kumhof and Muir assume that oil's true contribution is 25 percent and 20 percent respectively. The authors argue that "oil is an essential precondition for the continued viability of many modern technologies." They believe that many processes simply won't work and many devices can't be produced below a minimum supply of oil. They also assume that substitutes are difficult to make. This outlook spikes the price of oil by 400 percent in real terms over 20 years.

The negative economic effects of scenarios three and four are indeed profound. But, the authors recognize that such price increases are probably not realistic, even under the scenarios they posit. They assume that such extreme price outcomes imply "nonlinear effects on GDP" which the model cannot express. Translation: The world economy crashes before prices ever get that high.

There are other scenarios, each more grim than the previous, as problems detailed in earlier scenarios are essentially added to one another and to some new scenarios.

The point of the exercise is not to predict a specific outcome. Rather, the authors want to explore just how sensitive the world economy may be to oil supplies and highlight the uncertainties surrounding those supplies. While there has been much talk about how the world economy is becoming less oil-intensive per dollar of output, the researchers turn this observation on its head:

[I]f it really only takes a one third of one percentage point increase in oil supply per annum to support additional GDP growth of one percentage point, then it must also be true that it would only take a one third of one percentage point decrease in oil supply growth to reduce GDP growth by a full percentage point. And the kinds of declines in oil supply growth that are now being discussed as realistic possibilities are far larger than one third of one percentage point.

The IMF researchers also note that while an energy transition away from oil certainly seems possible, the extent to which oil is critical in the functioning in the world economy implies that such a transition will be costly and may require several decades. They wonder whether we have that kind of time, given that oil supplies have essentially been stagnant since 2005 and that some analysts believe a persistent decline in world oil production may begin within this decade.


Kurt Cobb is an author, speaker, and columnist focusing on energy and the environment. He is a regular contributor to the Energy Voices section of The Christian Science Monitor and author of the peak-oil-themed novel Prelude. In addition, he writes columns for the Paris-based science news site Scitizen, and his work has been featured on Energy Bulletin, The Oil Drum, OilPrice.com, Econ Matters, Peak Oil Review, 321energy, Common Dreams, Le Monde Diplomatique and many other sites. He maintains a blog called Resource Insights and can be contacted at kurtcobb2001@yahoo.com.

Sunday, November 04, 2012

Burning Picassos for heat: Why we need to electrify transportation

An oil executive once observed that burning oil for energy is like burning Picassos for heat. Oil is extraordinarily valuable as the basis for so many products we use every day that the thought of simply burning it ought to be unthinkable. So versatile are oil molecules that they can be transformed into substances that serve as clothing, medicines, building materials, carpet, skin care products, sporting goods, agricultural chemicals, perfumes, and myriad other products.

Increasingly, when we make oil-based products for homes and businesses, we are finding ways to reuse those products or recycle the materials they are made from (think: recyclable plastics). But, burning oil is always a one-time, irreversible act that leaves nothing of value behind and produces greenhouse gases and pollutants that harm us. And yet, because oil remains the most cost-effective and widely available source of liquid fuels, we are hooked on it for transportation with little prospect of substitutes on the scale we would require--unless we consider electricity.

It is worth remembering that electricity was a strong contender for powering automobiles at the beginning of the last century and that it ran the trolleys of the era (and still runs many today). Electricity was actually preferred over gasoline for powering cars at the time, especially cars that were used exclusively for local trips. Battery exchange was already available as a quick way to "charge" a car. But improvements in the internal combustion engine and the increasing availability and affordability of gasoline led to the extinction of the electric car no later than the 1930s.

More recently, despite all the hand waving about marginal gains in U.S. oil production, we have been experiencing a plateau in worldwide oil production since 2005. Ongoing tightness in oil supplies has led to high prices for gasoline and diesel, and so the world is turning once again to electricity to power transportation. Of course, many hybrid gas-electric vehicles are already in use, and some all-electric vehicles are now being produced for the mass market. But in a world increasingly faced with energy constraints and climate change, continuing to rely on the automobile as the main source of transportation may be a poor policy choice.

First, astute observers will note that electric vehicles of whatever kind are actually powered primarily by fossil fuels. According to the U.S. Energy Information Administration two-thirds of all electric power worldwide is generated using fossil fuels. That means coal and natural gas are being burned to produce the lion's share of electricity. Some oil is still used, especially in countries that export it and so have cheap supplies available to them.

To reduce overall greenhouse gas emissions, we would have to burn less overall fossil fuel. Only one-third of the heat energy produced in a typical fossil-fueled power plant actually gets turned into electricity. The rest is expelled as waste heat which is why we see huge volumes of steam coming from cooling towers wherever fossil-fueled generating plants operate. Were it not for the fact that renewable energy can be employed to make electricity, electric-powered vehicles on a mass scale would provide little advantage when it comes to pollution and greenhouse gas emissions. These vehicles would, however, still reduce dependence on petroleum.

There are two obvious moves that would substantially reduce our reliance on fossil-fuel produced electricity. One already mentioned would be vastly expanding renewable energy sources such as wind, solar and hydroelectric. Naturally, there are the problems of load-balancing and storage related to intermittent power sources such as wind and solar. These problems would have to be overcome in the long term in order to allow the electrification of transportation based primarily on renewable energy. But, there are plausible paths to such an outcome, especially if overall reductions in energy use are part of the path, something I'll discuss below. Naturally, nuclear generated electricity can also be used to power vehicles. But I am doubtful that in the post-Fukushima era, nuclear power will be a viable option for increasing nonfossil fuel-based electricity production, both for political and technical reasons.

A second move that would reduce our reliance on fossil-fuel based electricity would be a vast expansion of our mass transit systems. Done properly, this expansion would reduce overall energy use in transportation by moving people from energy-intensive automobiles into more efficient mass transit. An overall reduction in energy use is important because, for many reasons, it is unlikely that renewable energy production will be able to match the huge quantities of energy we currently get from fossil fuels. The expansion of mass transit would need to be executed in a way that would make such systems so ubiquitous, convenient and inviting that people would prefer them over cars as many do in major American and European cities.

Much of the mass transit infrastructure can run on electricity and already does including electric-powered subways, commuter trains, buses and trams. To that infrastructure we would need to add electric-powered, high-speed passenger rail service between major cities. That's already in place in Europe and Japan. In the United States such a high-speed rail system would reduce the need for short-haul air travel and thus reduce jet fuel use. And, we'd want to expand and electrify freight traffic over rails, something that would lessen the need for long-haul trucking. Even in trucking, hybrid trucks are starting to appear in commercial fleets, something that can further reduce use of diesel and gasoline.

Of course, some modes of transport are not going to be amenable to electric power. Electric-powered planes are not impossible, but would probably not be able to carry much weight given the current state of battery technology. Ocean-going freighters will likely continue to need liquid fuels, though sails are starting to appear on some to reduce fuel use.

On land we will almost certainly need some liquid fuels for four categories of vehicles: rural transport, farm machinery, heavy equipment and emergency vehicles. It probably isn't cost-effective to string wires in rural areas for local transportation because population densities are too low. Some people are working on electric farm machinery charged using solar cells. But, the work needs to progress further before it can be widely adopted. For some farm tasks, liquid-fueled engines may continue to be the most practical approach for a long time to come. Where construction and mining take place away from sources of electricity, heavy equipment will have to operate using liquid fuels. Emergency vehicles could use electricity, but would have to have liquid-fuel capabilities in case the electricity is unavailable.

In the United States 71 percent of the petroleum products consumed are used in transportation. If the country were able to run its transportation system entirely without oil, the United States would not only cease to import oil, but would have significant surplus oil production. Of course, such a change could only take place over many years. But the advantages to such a transition are so numerous that we should not dismiss it as too difficult or costly.

Only 5 percent of all oil is used to produce petrochemicals--chemicals which form the basis for the almost miraculous materials and substances that we now take for granted. By ceasing to burn the bulk of our oil to move goods and people, we could sustain the production of these products for a very long time. And, properly formulated, many could be recycled almost indefinitely. That seems like a much better use of an energy source that doubles as the "renaissance man" of the chemical industry.

When you add in the reduction in greenhouse gas emissions and air pollution; an end to oil imports for the United States and possibly many other countries adopting the same strategy; and the financial boost of keeping funds previously spent on imports at home, it's hard to see why electrifying transportation would not be a good idea--so long as it is done with any eye toward increasing renewable energy production while reducing overall energy consumption in the transportation sector.

Kurt Cobb is an author, speaker, and columnist focusing on energy and the environment. He is a regular contributor to the Energy Voices section of The Christian Science Monitor and author of the peak-oil-themed novel Prelude. In addition, he writes columns for the Paris-based science news site Scitizen, and his work has been featured on Energy Bulletin, The Oil Drum, OilPrice.com, Econ Matters, Peak Oil Review, 321energy, Common Dreams, Le Monde Diplomatique and many other sites. He maintains a blog called Resource Insights and can be contacted at kurtcobb2001@yahoo.com.