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Energy the nexus of everything: August 2010 Archives

An interesting paper has recently been published in the Proceedings of the National Academy of Sciences entitled "Public perceptions of energy consumption and savings" (see by Attari et al. This paper provides insights into how people view the quantity of energy consumed for various tasks that are normal in an industrial society. The paper authors conclude that people generally overestimate the energy savings for changing habits related to saving low quantities of energy while underestimating energy savings associated with saving larger quantities of energy.

This research shows some of the difficulties in using surveys to assess perceptions and reality of how energy impacts our lives. Take for example the following in which the respondent is asked to select how strongly he/she agrees or disagrees with the statement:

"We are approaching the limit of the number of people the earth can support."

Today, human population is approximately 6.7 billion. If you believe that the earth can only support 2 billion people, then you could strongly disagree with the statement on the grounds that we are not approaching that limit, but that we have far surpassed the limit. However, if you believe the earth can support 12 billion people, then you might also strongly disagree with the statement because you think we are far from the earth's limits (i.e. we are not yet "approaching the limit"). So two completely different answers might prompt selecting the same response to the statement.

The results for the questions pertaining to values and behavioral questions (e.g. how hard do you think it is to change your energy consuming habits) are not presented in the PNAS paper by Attari, but these are important questions to ask. Many people believe that the vast majority of people will not willfully conserve energy without financial penalties (e.g. high prices or taxes) for consumption. I fall into that category myself. We find ourselves in an interesting time as for only the second time in the last 40 years we (in the US) have reached a point where over 10% of GDP was spent directly on primary and secondary energy.

The first time period was from the mid 1970s-mid 1980s and likely in 2008 as well (see figure). The first time over 10% of GDP was spent on energy was driven by political events - particularly the Arab Oil Embargos and the Iran-Iraq War. This most recent worldwide economic recession starting in 2008 was not driven by a particular political event, but has been a growing trend for almost a decade (at least with particular reference to the US).

The US broke out of the recessions cause by the oil shortages of the 1970s by investing in energy efficiency for vehicles (Corporate Average Fuel Economy, or CAFE, standards), only to find itself equally or more dependent upon oil for economic growth today as in 1970. Important questions are: Will the US meet its new CAFE goals (reaching 35.5 miles per gallon for vehicles sales; 39 mpg for cars and 30 mpg for trucks and sport-utility vehicles) by 2016? This targeted increase is approximately the same percentage increase in fuel efficiency as occurred from the 1970s to the late 1980s in meeting the original CAFE standards. If the US (and the world) is successful in reducing oil consumption per mile traveled by 2016 (or soon thereafter), will we only find ourselves in the same position 10-30 years down the road? In other words, will we just wait until we consume too much gasoline for it to take too much out of our wallets to again think about restructuring the way our economy functions and consumes energy?

There are reasons to think this time is different. This time we are well past peak oil production for the US. Perhaps we have reached peak crude oil production in the US and so far the statistics seem to point to that possibly being true (but it will take several more years to confirm the full truth). In reading the August 15, 2010 issue of Science which talks about scaling up of renewable energy, there are two articles about biofuels. One article in particular ("Challenges in Scaling up Biofuels Infrastructure" by Tom Richard) notes the logistical issues with making fuels out of biomass. Richard discusses much about how we are supposed to create a viable supply chain for the relatively low-density biomass materials to go from the farm to the biorefinery and finally to the consumer. The reason that this is such a hard problem is that the net energy of the biomass fuel is so low that it is not obvious that we can run our current economy as designed if using these fuels to any large degree. That is also a major difference now from the 1970s - we're actually really trying to grow an economy using biofuels instead of just making cars run on less fuel and importing more oil.

The current conundrum discussed in the news and the public is between (1) Western government spending to keep stimulating their economies after the decade-long period of overspending and (2) savings to prevent future collapse of governments under their own debt burden. Unfortunately, energy resource availability is rarely a part of the discussion, and pundits never point to it as a core driver. This is quite unfortunate.

There is no one consensus on the "economic growth" issue among mainstream economists as the proper choice, or series of choices, is quite unclear. There appears to be no good path, only a choice between bad paths. Ecological or biophysical economic arguments have historically been quickly dismissed as invalid, yet no other economic theories are based upon anything tangible. We hear of the need to "consumer confidence" as if that is a tangible and meaningful reason to invest. Irrational exuberance, or extreme confidence, is exactly what pushed us to two boom-bust cycles (dot-com and now housing) over the last two decades. Confidence only takes you so far, and at some point you need something tangible upon which to base economic theory. That tangible good is essentially natural resources, primarily energy, and the technologies that convert those resources to consumer products and services.

Because increasing consumption of natural and energy resources are the key driver of economic growth, if you do not increase their consumption, you do not grow. Yes, more efficient energy production and conversion systems (power plants, vehicles, mining, etc.) also induce economic growth, but the past only indicates the higher efficiency begets higher total consumption - due to Jevon's Paradox. However, when fossil resource availability does decline due to depletion, we'll be happy for higher efficiency services even when total consumption decreases.

Adding or switching to energy resources and technologies, where they exist, takes decades. Translation: this is longer than election cycles. Thus, a US president that implements energy efficiency or conservation policies will generally not reap the rewards or drawbacks of those policies. The next President, or perhaps a second one down the line, will be dealing with those problems. Since 2000, the United States has consumed roughly the same total amount of primary energy, about 100 quadrillion Btus per year. There has never been a time in US history at which total energy consumption was stagnant for this long. Much of the reason for the stagnation in energy consumption was offshoring of energy-intensive industries to developing countries, and thus there are less and less non-skilled jobs available after each economic downturn. The US economy restructured based upon increasing energy prices during the last decade, and companies traded cheap energy in the form of the muscle of Chinese, for more expensive energy, in the form of natural gas and petroleum.

Thus, major structural changes in the US economy have occurred over the last decade, and no policy can reverse these trends in less than another decade. The reason that economists, and even Federal Reserve Chairman Ben Bernake are calling the economic future "unusually uncertain" is that the US has never encountered the situation at which we now reside. Energy consumption is flat. World oil production is at a plateau. We have shipped jobs to China and borrow their profits to feed our consumption habit. Unemployment is high.

Policy can't ship more jobs to China because hindering employment even further is a political death nail. Policy can promote offshore oil and renewable energy technologies, but those resources and technologies have lower energy return on energy invested (EROI) than the resources we have used in the past. Lower EROI means more of the economy must focus on energy production itself rather than producing other more discretionary economic goods. And a change in transportation mode (electric cars, electric and/or high speed trains) will take decades, and these changes can work, but they may never be as economically as productive as burning petroleum at $20/BBL to $60/BBL.

So the reason that economists see a "sluggish" or "low-growth" economy in the foreseeable future is due to energy. From 2000-2008, we pretended that high rates of GDP growth could occur without increasing energy consumption. Increasing prosperity of the developing world has strained energy resources to the point that we must adjust to a future with energy consumption that is both lower and from new resources and technologies. These technologies and resources, even without considering altering them to prevent greenhouse gas emissions, are less productive. So if you put these concepts together, you end up with the result that we must (1) invest in new energy technologies that (2) employ more people per output (kWh, liter of fuel, etc.) and produce (3) lower net energy than historical coal, natural gas, and oil (even future coal, oil, and natural gas are less productive) such that (4) the energy sector grows as a proportion of the economy and (5) by definition the rest of the economy must shrink. Either this reality we become true, or the scientists working on fusion will pull a rabbit out of hat. No tax policy of a President will do much to significantly alter this equation. Only energy consumers can wait to see if we do or do not pull off sufficient technology solutions, and adjust their habits accordingly.