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#215: Economic History in 10 Minutes

MuseLetter #215 / April 2010 by Richard Heinberg

Download printable PDF version here (PDF, 104 KB)

Economic History in 10 Minutes

Throughout over 90 percent of our species’ history, we humans lived by hunting and gathering in what anthropologists call gift economies. People had no money, and there was neither barter nor trade among members of any given group. Trade did exist, but it occurred only between members of different communities.

It’s not hard to see why sharing was the norm within each band of hunter-gatherers, and why trade was restricted to relations with strangers. Groups were small, usually comprising between 15 and 50 persons, and everyone knew and depended upon everyone else. Trust was essential to individual survival, and competition would have undermined trust. Trade is an inherently competitive activity: each trader tries to get the best deal possible, even at the expense of other traders. For hunter-gatherers, cooperation—not competition—was the route to success, and so innate competitive drives (especially among males) were moderated through ritual and custom, while a thoroughly entangled condition of mutual indebtedness helped maintain a generally cooperative attitude on everyone’s part.

Today we still enjoy vestiges of the gift economy, notably in the family. We don’t keep close tabs on how much we are spending on our three-year-old child in an effort to make sure that accounts are settled at some later date; instead, we provide food, shelter, education and more as free gifts, out of love. Yes, parents enjoy psychological rewards, but (at least in the case of mentally healthy parents) there is no conscious process of bargaining, in which we tell the child, "I will give you food and shelter if you repay me with goods and services of equivalent or greater value."

For humans in simple societies, the community was essentially like a family. Freeloading was occasionally a problem, and when it became a drag on the rest of the community it was punished by subtle or not-so-subtle social signals—ultimately, ostracism. But otherwise no one kept score of who owed whom what; to do so would have been considered very bad manners.

We know this from the accounts of 20th-century anthropologists who visited surviving hunter-gatherer societies. Often they reported on the amazing generosity of people who seemed eager to share everything they owned despite having almost no material possessions and being officially listed by aid agencies as among the poorest people on the planet. Anthropologists routinely felt embarrassed by this generosity, and, in one instance after another, after being gifted some prized food or a painstakingly hand-made basket, immediately offered a manufactured knife or ornament in return. The anthropologists assumed that natives would be happy to receive the trinkets, but the recipients instead appeared insulted. What had happened? The natives’ initial gifts were a way of saying, "You are part of the family; welcome!" But the immediate offering of a gift in return smacked of trade—something only done with strangers. The anthropologists were understood as having said, "No, thanks. I do not wish to be considered part of your family; I want to remain a stranger to you." It was the ultimate faux pas!

Here is all of economic history compressed into one sentence: As societies have grown more complex, larger, more far-flung and diverse, the tribe-based gift economy has shrunk in importance, while the trade economy has grown to dominate nearly every aspect of people’s lives, and has expanded in scope to encompass the entire planet.

With more and more of our daily human interactions based on exchange rather than gifting, we have developed polite ways of being around each other on a daily basis while maintaining an exchange-mediated social distance. This is particularly the case in large cities, where anonymity is fostered also by the sheer numbers of people one sees from day to day. In the best instances, we still take care of one another—through government programs and private charities. We still enjoy some of the benefits of the old gift economy in our families and churches. But increasingly, the market rules our lives. Our apparent destination in this relentless trajectory toward expansion of trade is a world in which everything is for sale, and all human activities are measured by and for their monetary value.

Humanity has benefited in many obvious ways from this economic evolution: the gift economy really only worked when we lived in small bands and had almost no possessions to speak of. So letting go of the gift economy was a trade-off for progress—houses, cities, cars, iPods, and all the rest. Still, saying goodbye to community-as-family was painful, and there have been various attempts throughout history to try to revisit it. Communism was one such attempt, and we know how that worked out. Trying to institutionalize a gift economy at the scale of the nation state introduces all kinds of problems, including those of how to reward initiative and punish laziness in ways that everyone finds acceptable, and how to deter corruption among those whose job it is to collect, count, and reapportion the wealth.

But, back to our tour of economic history. Along the road from the gift economy to the trade economy there were several important landmarks. Of these, the invention of money was arguably the most important. Money is essentially a tool to facilitate trade. People invented it because they needed a medium of exchange to make trading easier, simpler, and more flexible. Once money came into use, the exchange process was freed to grow and to insert itself into aspects of life where it had never been permitted previously. Money simultaneously began to serve other functions as well—principally, as a measure and store of value.

Today we take money for granted. But until fairly recent times it was an oddity, something only merchants used on a daily basis. Some complex societies, including ancient Egypt, managed to do almost completely without it; even in the U.S., until the mid-20th century, many rural families used money only for occasional trips into town to buy nails, boots, glass, or other items they couldn’t grow or make for themselves on the farm. In his marvelous book The Structures of Everyday Life: Civilization & Capitalism 15th-18th Century, historian Fernand Braudel wrote of the gradual insinuation of the money economy into the lives of medieval peasants: "What did it actually bring? Sharp variations in prices of essential foodstuffs; incomprehensible relationships in which man no longer recognized either himself, his customs or his ancient values. His work became a commodity, himself a ‘thing.’"

While early forms of money consisted of anything from sheep to shells, coins made of gold and silver gradually emerged as the most practical, universally accepted means of exchange, measure of value, and store of value.

Money’s ease of storage enabled industrious individuals to accumulate substantial amounts of wealth. But this concentrated wealth also presented a target for thieves. Thievery was especially a problem for traders: while the portability of money enabled them to travel for long distances to purchase rare fabrics and spices, highwaymen often lurked along the way, ready to snatch a purse at knife-point. These problems led to the invention of banking—a practice in which metal-smiths who routinely dealt with large amounts of gold and silver (and who were accustomed to keeping it in secure, well-guarded vaults) agreed to store other people’s coins, offering storage receipts in return. Storage receipts could then be traded as money, thus making trade easier and safer.

Eventually, goldsmith-bankers realized that they could issue paper receipts for more gold than they had in their vaults, without anyone being the wiser. They did this by making loans of the receipts, for which they charged a fee amounting to a percentage of the loan.

Initially the Church regarded the practice of profiting from loans as a sin—known as "usury"—but the bankers found a loophole in religious doctrine: it was permitted to charge for reimbursement of expenses incurred in making the loan; this was termed "interest." Gradually bankers widened the definition of "interest" to include what had formerly been called "usury."

The practice of loaning out receipts for gold that didn’t really exist worked fine, unless many receipt-holders wanted to redeem paper notes for gold or silver all at once. Fortunately for the bankers, this happened so rarely that eventually the writing of receipts for more money than was on deposit became a perfectly respectable practice known as fractional reserve banking.

It turned out that having increasing amounts of money in circulation was a benefit to traders and industrialists during the historical period when all of this was happening—a time when unprecedented amounts of new wealth were being created, first through colonialism and slavery, but then through the harnessing of the enormous energies of fossil fuels.

The last impediment to money’s ability to act as a lubricant for transactions was its remaining tie to precious metals. As long as paper notes were redeemable for gold or silver, the amounts of these substances existing in vaults put at least a theoretical restraint on the process of money creation. Paper currencies not backed by metal had sprung up from time to time previously; by the late 20th century, they were the near-universal norm.

Along with more abstract forms of currency, the past century has also seen the appearance and growth of ever-more sophisticated investment instruments. Stocks, bonds, options, futures, long- and short-selling, derivatives, credit default swaps, and more now enable investors to make (or lose) money on the movement of prices of real or imaginary properties and commodities, and to insure their bets, and even their bets on other investors’ bets.

Probably the most infamous investment scheme of all time was created by Charles Ponzi, an Italian immigrant to the U.S. who, in 1919, began promising investors he could double their money within 90 days. Ponzi told clients the profits would come from buying discounted postal reply coupons in other countries and redeeming them at face value in the United States—a technically legal practice that could yield up to a 400 percent profit on each coupon redeemed due to differences in currency values. What he didn’t tell them was that each coupon had to be redeemed individually, so the red tape involved would entail prohibitive costs if large numbers of the coupons (which were only worth a few pennies) were bought and redeemed. In reality, Ponzi was merely paying early investors returns from the principal amounts put down by later investors. It was a way of shifting wealth from the many to the few, with Ponzi skimming off a lavish income as the money passed through his hands. At the height of the scheme, Ponzi was raking in $250,000 a day, millions in today’s dollars. Thousands of people lost their life savings, in some cases having mortgaged or sold their houses in order to invest.

A few critics (primarily advocates of gold-backed currency) have called fractional reserve banking a kind of Ponzi scheme, and there is some truth to the claim. As long as the real economy of goods and services within a nation is growing, an expanding money supply seems justifiable, arguably necessary. However, a resource-consuming economy cannot continue to grow forever on a finite planet. Units of currency—which exist today mostly in the form of electronic bookkeeping entries—are essentially claims on labor and resources; and, as those claims multiply (with the growth of the money supply), and as resources deplete, eventually the remaining resources will be insufficient to satisfy all of the existing monetary claims. And so those claims will lose value, perhaps dramatically and suddenly. When this happens, paper and electronic currency systems based on money creation through fractional reserve banking will produce results somewhat similar to those of a Ponzi scheme: i.e., a few may profit, at least temporarily, but the vast majority will lose much or all of what they have.

Is this the end of the story? As society dramatically simplifies itself in the wake of fossil fuel depletion, will we revert to some form of gift economy? Or will we catch and steady ourselves on some intermediate rung on the ladder of economic development?

Only time will tell. Perhaps a general knowledge of our economic history can help us assess the options ahead and plan for a managed "money descent," just as some far-seeing Transition communities are planning for "energy descent."

It’s Time to Deal with Peak Oil

(Published in the National Post of Canada, March 19)

The "Peak Oil" concept — that the world’s petroleum-production rate will soon reach its maximum and commence an inevitable decline, with negative economic consequences — has been around in scientifically articulated form at least since 1998, long enough to see it confirmed in significant ways.

The rate of discovery of new oilfields has been falling since 1964. The biggest find in recent years is Tupi, in Brazilian waters, which is claimed to hold five-to-eight billion barrels of oil; but that’s only enough to slake the world’s thirst for 60 to 90 days. Most producing nations are past their domestic peaks and are experiencing slowing output, despite every effort to maintain flow rates.

Skeptics point out that total world oil reserves continue to grow. But this may not be a reliable indication of where we stand: Often, in nations that have seen a peak and subsequent decline in production, domestic reserves continued to rise right up to, or even past, the date of peak production. Why? Oil companies replace reserves of high-quality, cheaply-produced oil with reserves of low-quality, slow-, or expensive-to-produce oil or tar sands.

Rates of output decline in older, giant oilfields have proven to be more trustworthy indicators of long-term trends. (For instance, they’ve enabled successful peaking forecasts for the United States, the North Sea and other regions). For the world, the average decline rate from existing fields has been calculated by the International Energy Agency at 4.5% per year. The world needs to develop the equivalent of a Saudi Arabia’s worth of oil production capacity every four years to offset such declines. This is quite a burden for the industry, which must now look for oil in ultra-deep water, in polar regions, or in politically fractured nations, since all the easy-to-find, easy-to-extract oil already has been located and much of it pumped.

So far, the record year for world crude production was 2005, and the record month was July 2008. Tellingly, the leveling-off of extraction rates between 2005 and 2008 occurred in the context of rising oil prices; indeed, in July 2008, the price spiked 50% higher than the previous inflation-adjusted record, set in the 1970s. Yet as both oil demand and prices rose, production barely budged in response.

While many commentators believe the jury is still out on Peak Oil, the list of petroleum analysts who say world oil production has already peaked, or will do so in the next five years, lengthens almost daily, and includes CEOs and other well-placed leaders within the oil industry.

The argument that oil production could theoretically continue to grow past 2015 is mainly put forward by organizations such as Cambridge Energy Research Associates and Saudi Aramco, which explain away evidence of dwindling discoveries, depleting oilfields and stagnating total production by claiming that it is demand for oil that has peaked, not supply — a claim that hinges on the observation that oil prices are high enough to discourage potential buyers. But high prices for a commodity usually signify scarcity, so the "peak demand" argument doesn’t hold water.

Peak Oil has significant implications for our economy. In response to the 2008 price spike, the global airline industry nose-dived and auto companies suffered. Worldwide shipping slowed drastically and hasn’t recovered. Demand for oil plummeted in late 2008, and so did the price — temporarily. But today’s price is again high, almost to the point of nipping economic recovery.

What should we do about Peak Oil? Start with what the U.K. Industry Task Force on Peak Oil (which included Sir Richard Branson of Virgin Airlines) has done: Acknowledge the reality of supply limits. Then study the vulnerabilities of Canada’s transport and food systems to high and volatile oil prices, and start making those systems more resilient and less oil-dependent.

But do it fast. Adaptation will take decades, and we are starting very late.

Quacks Like a Duck…

According to an article in Le Monde on March 25, the U.S. Department of Energy "admits that ‘a chance exists that we may experience a decline’ of world liquid fuels production between 2011 and 2015 ‘if the investment is not there.’" This bombshell emerged in "an exclusive interview with Glen Sweetnam, main official expert on the oil market in the Obama administration."

The Le Monde article goes on: "The DoE dismisses the ‘peak oil’ theory, which assumes that world crude oil production should irreversibly decrease in a nearby future, in want of sufficient fresh oil reserves yet to be exploited. The Obama administration supports the alternative hypothesis of an ‘undulating plateau.’ Lauren Mayne, responsible for liquid fuel prospects at the DoE, explains : ‘Once maximum world oil production is reached, that level will be approximately maintained for several years thereafter, creating an undulating plateau. After this plateau period, production will experience a decline.‘"

In other words, we don’t believe that world oil production will soon reach a maximum and begin to decline (the "peak oil theory"); instead, we believe that world oil production will reach a maximum, stay there for a few years, and then decline. That decline could commence as soon as next year.

Two comments: First, what’s the difference? Is this just a way to announce Peak Oil without acknowledging it? The idea of the "undulating plateau" has been part of the Peak Oil discussion for years (see my book Powerdown), and world oil production has in fact been at a plateau since late 2004. Second, how is it that readers in France now know more about U.S. Department of Energy oil supply forecasts than Americans do? There has been no equivalent article in the mainstream press in North America.

It’s time for the DoE to answer some tough questions. Too bad U.S. media outlets are evidently too timid, busy, or uninformed to bother themselves with the trivial business of alerting the American people to an impending calamity that is entirely foreseeable and that a few people in government are evidently willing to speak about (at least in code), if only someone asks.

#214: Life After Growth

MuseLetter #214 / March 2010 by Richard Heinberg

Download printable PDF version here (PDF, 139 KB)
 
This month’s Museletter contains two pieces. The first is a rather long essay containing an autobiographical sketch of the path that led me to write full-time about the transition to a post-carbon world, titled “Life After Growth.” The second piece, “Goldilocks and the Three Fuels,” was recently published by Reuters.

Life After Growth

What if the economy doesn’t recover?

In 2008 the U.S. economy tripped down a steep, rocky slope. Employment levels plummeted; so did purchases of autos and other consumer goods. Property values crashed; foreclosure and bankruptcy rates bled. For states, counties, cities, and towns; for manufacturers, retailers, and middle- and low-income families, the consequences were—and continue to be—catastrophic. Other nations were soon caught up in the undertow.

In late 2009 and early 2010, the economy showed some signs of renewed vigor. Understandably, everyone wants it to get “back to normal.” But here’s a disturbing thought: What if that is not possible? What if the goalposts have been moved, the rules rewritten, the game changed? What if the decades-long era of economic growth based on ever-increasing rates of resource extraction, manufacturing, and consumption is over, finished, and done? What if the economic conditions that all of us grew up expecting to continue practically forever were merely a blip on history’s timeline?

It’s an uncomfortable idea, but one that cannot be ignored: The “normal” late-20th century economy of seemingly endless growth actually emerged from an aberrant set of conditions that cannot be perpetuated.

That “normal” is gone. One way or another, a “new normal” will emerge to replace it. Can we build a different, more sustainable economy to replace the one now in tatters?

Let’s be clear: I believe we are in for some very hard times. The transitional period on our way toward a post-growth, equilibrium economy will prove to be the most challenging time any of us has ever lived through. Nevertheless, I am convinced that we can survive this collective journey, and that if we make sound choices as families and communities, life can actually be better for us in the decades ahead than it was during the heady days of seemingly endless economic expansion.

In this essay, I would like to share my conclusions on this subject and the process by which I arrived at them. It’s a bit of a long story, so please bear with me. First, the conclusions.

Four Propositions

The following summary statements are fundamental both to grasping our current situation and managing our way toward a desirable future:

  1. We have reached the end of economic growth as we have known it. The “growth” we are talking about consists of the expansion of the overall size of the economy (with more people being served and more money changing hands) and of the quantities of energy and material goods flowing through it. The economic crisis that began in 2008 was both foreseeable and inevitable, and that it marks a permanent, fundamental break from past decades—a period in which economists adopted the unrealistic view that perpetual economic growth is necessary and also possible to achieve. As we will see, there are fundamental constraints to ongoing economic expansion, and the world is beginning to encounter those constraints. This is not to say the U.S. or the world will never see another quarter or year of growth relative to the previous year. Rather, the point is that when the bumps are averaged out, the general trend-line of the economy (measured in terms of production and consumption of real goods) will be level or downward rather than upward from now on.
  2. The basic factors that will inevitably shape whatever replaces the growth economy are knowable. To survive and thrive for long, societies have to operate within the planet’s budget of sustainably extractable resources. This means that even if we don’t know exactly what a desirable post-growth economy and lifestyle will look like, we know enough to begin working toward them.
  3. It is possible for economies to persist for centuries or millennia with no or minimal growth. That is how most economies operated until recent times. If billions of people through countless generations lived without economic growth, we can do so as well—now and far into the future. The end of growth does not mean the end of the world.
  4. Life in a non-growing economy can be fulfilling, interesting, and secure. The absence of growth does not imply a lack of change or improvement. Within a non-growing or equilibrium economy there can still be a continuous development of practical skills, artistic expression, and technology. In fact, some historians and social scientists argue that life in an equilibrium economy can be superior to life in a fast-growing economy: while growth creates opportunities for some, it also typically intensifies competition—there are big winners and big losers, and (as in most boom towns) the quality of relations within the community can suffer as a result. Within a non-growing economy it is possible to maximize benefits and reduce factors leading to decay, but doing so will require pursuing appropriate goals: instead of more, we must strive for better; rather than promoting increased economic activity for its own sake, we must emphasize whatever increases quality of life without stoking consumption. One way to do this is to reinvent and redefine growth itself.

The transition to a no-growth economy (or one in which growth is defined in a fundamentally different way) is inevitable, but it will go much better if we plan for it rather than simply watching in dismay as institutions we have come to rely upon fail, and then try to improvise a survival strategy in their absence.

In effect, we have to create a desirable “new normal” that fits the constraints imposed by depleting natural resources. Maintaining the “old normal” is not an option; if we do not find new goals for ourselves and plan our transition from a growth-based economy to a healthy equilibrium economy, we will by default create a much less desirable “new normal” whose emergence we are already beginning to see in the forms of persistent high unemployment, a widening gap between rich and poor, and ever more frequent and worsening financial and environmental crises—all of which translate to profound distress for individuals, families, and communities.


‘Limits to Growth’

The journey that led to my formulating these propositions began in 1972, when a book called Limits to Growth was making headlines. This relatively compact volume, which went on to become the best-selling environmental book of all time, provoked the first Great Wake-up Call of my adult life, changing the course of everything I have thought and done ever since.

Let me explain why Limits to Growth impacted me so deeply.

That book, which reported on the first attempts to use computers to model the likely interactions between trends in resources, consumption, and population, was also the first major scientific study to question the assumption that economic growth can and will continue more or less uninterrupted into the foreseeable future.

The idea was heretical at the time—and still is: during the past few decades, growth has become virtually the sole index of national economic well-being. When the economy grows, jobs appear, investments yield high returns, and everyone is happy. When the economy stops growing, financial bloodletting ensues. And so predictably a book saying that growth cannot and will not continue beyond a certain point proved profoundly upsetting in some quarters, and soon Limits to Growth was prominently “debunked” by public relations efforts organized by pro-growth business interests. In reality, this “debunking” merely amounted to taking a few numbers in the book completely out of context, citing them as “predictions” (which they explicitly were not), and then claiming that these predictions had failed. The ruse was quickly exposed, but rebuttals often don’t gain nearly as much publicity as accusations, and so today millions of people mistakenly believe that the book was long ago discredited. In fact, the original Limits to Growth scenarios have held up quite well*.

In principle, the argument for eventual limits to growth is a slam-dunk. If any quantity grows steadily by a certain fixed percentage per year, this implies that it will double in size every so-many years; the higher the percentage growth rate, the quicker the doubling. A rough method of figuring doubling times is known as the rule of 70: dividing the percentage growth rate into 70 gives the approximate time required for the initial quantity to double. If a quantity is growing at 1 percent per year, it will double in 70 years; at 2 percent per year growth, it will double in 35 years; at 5 percent growth, it will double in only 14 years, and so on. If you want to be more precise, you can use the Y^x button on your calculator, but the rule of 70 works fine for most purposes.

Here’s a real-world example: Over the past two centuries, human population has grown at rates ranging from less than one percent to more than two percent per year. In 1800, world population stood at about one billion; by 1930 it had doubled to two billion. Only 30 years later (in 1960) it had doubled again to four billion; currently we are on track to achieve a third doubling, to eight billion humans, around 2025. No one seriously expects human population to continue growing for centuries into the future. But imagine if it did—at just 1.3 percent per year (its growth rate in the year 2000). By the year 2780 there would be 148 trillion humans on Earth—one person for each square meter of land on the planet’s surface.

It won’t happen, of course.

In nature, growth always slams up against non-negotiable constraints sooner or later. If a species finds that its food source has expanded, its numbers will increase to take advantage of those surplus calories—but then its food source will become depleted as more mouths consume it, and its predators will likewise become more numerous (more tasty meals for them!). Population “blooms” (that is, periods of rapid growth) are always followed by crashes and die-offs. Always.

Here’s another real-world example. In recent years China’s economy has been growing at eight percent or more per year; that means it is more than doubling in size every ten years. Indeed, China consumes more than twice as much coal as it did a decade ago—the same with iron ore and oil. The nation now has four times as many highways as it did, and almost five times as many cars. How long can this go on? How many more doublings can occur before China has used up its key resources—or has simply decided that enough is enough and has stopped growing?

It makes sense that economies should follow rules analogous to those that govern biological systems. Plants and animals tend to grow quickly when they are young, but then they reach a more or less stable mature size. In organisms, growth rates are largely controlled by genes. In economies, growth seems tied to factors such as the availability of resources—chiefly energy resources (“food” for the industrial system). During the 20th century, cheap and abundant fossil fuels enabled rapid economic expansion; at some point, therefore, fossil fuel depletion could put a brake on growth. It is also possible that industrial wastes could accumulate to the point that the biological systems that underpin economic activity (such as forests, crops, and human bodies) begin to fail.

But economists generally don’t see things this way. That’s probably because most current economic theories were formulated during an anomalous historical period of sustained growth. Economists are merely generalizing from their experience: they can point to decades of steady growth in the recent past, and so they simply project that experience into the future. Moreover, they have ways to explain why modern market economies are immune to the kinds of limits that constrain natural systems; the two main ones concern substitution and efficiency.

If a useful resource becomes scarce, its price will rise, and this creates an incentive for users of the resource to find a substitute. For example, if oil gets expensive enough, energy companies might start making liquid fuels from coal. Or they might develop other energy sources undreamed of today. Economists theorize that this process of substitution can go on forever. It’s part of the magic of the free market.

Increasing efficiency means doing more with less. In the U.S., the number of inflation-adjusted dollars generated in the economy for every unit of energy consumed has increased steadily over recent decades (the amount of energy, in British Thermal Units, required to produce a dollar of GDP has been dropping steadily, from close to 20,000 BTU per dollar in 1949 to 8,500 BTU in 2008). That’s one kind of economic efficiency. Another has to do with locating the cheapest sources of materials, and the places where workers will be most productive and work for the lowest wages. As we increase efficiency, we use less—of either resources or money—to do more. That enables more growth.

Finding substitutes for depleting resources and upping efficiency are undeniably effective adaptive strategies of market economies. Nevertheless, the question remains open as to how long these strategies can continue to work in the real world—which is governed less by economic theories than by the laws of physics. In the real world, some things don’t have substitutes, or the substitutes are too expensive, or don’t work as well, or can’t be produced fast enough. And efficiency follows a law of diminishing returns: the first gains in efficiency are usually cheap, but every further incremental gain tends to cost more, until further gains become prohibitively expensive.

Unlike economists, most physical scientists recognize that growth within any functioning, bounded system has to stop sometime.

But this discussion has very real implications, because the economy is not just an abstract concept; it is what determines whether we live in luxury or poverty; whether we eat or starve. If economic growth ends, everyone will be impacted, and it will take society years to adapt to this new condition. Therefore it is important to be able to forecast whether that moment is close or distant in time.

Hence the Limits to Growth study. The authors fed in data for world population growth, consumption trends, and the abundance of various important resources, ran their computer program, and concluded that the end of growth would probably arrive between 2010 and 2050. Industrial output and food production would then fall, leading to a decline in population. (By the way, the Limits to Growth scenario study has been re-run repeatedly in the years since the original publication, using more sophisticated software and updated input data. The results were similar. See Limits to Growth: The 30-Year Update.)


My Personal Story of Waking Up to Limits

That’s why Limits to Growth meant so much to me when I encountered it at age 21. I realized that the world in which I had been born, raised, and educated was headed toward what is politely known as a “historical discontinuity,” but more colloquially termed “collapse,” “a cliff,” or “a brick wall.” Millions of young people today are having the same experience as they learn about climate change. Welcome to the club.

At the time, I had been trying to make my way as a young musician. My father had been a chemistry and physics teacher, but I had gravitated toward the arts: after being trained as a classical violinist, I had taught myself also to play electric guitar.

As I absorbed the implications of Limits to Growth, I realized that there were more important things than band rehearsals and gigs to attend to, so I mostly left the music business (though I continue to be an avid amateur violinist) and began looking for ways to help shift society toward a more sustainable path. I became a freelance writer-editor and started pursuing projects I thought might lead me toward a better understanding of global trends and of how our species might avert an overwhelming economic and environmental disaster.

It was clear that society would need to undertake fundamental changes. But what were those changes, exactly? I thought the best way to find out would be to form an intentional community as a kind of social laboratory in which to explore alternatives in energy, food production, and lifestyles. I ended up spending most of the next 20 years living in three communities—one in Toronto that I helped establish, and others in Colorado and southern California that had already been going for some time before I joined. Intentional communities (sometimes also known as communes, with many now thriving under the banner of “eco-villages”) are a fascinating social phenomenon, and hundreds still flourish worldwide.

By the early 1990s, I was eager to reconnect with mainstream society and bring what I had learned to a wider audience. My wife, Janet Barocco, and I had met in an intentional community in southern California; together we moved to a suburban home in Santa Rosa. By the latter years of the decade I was teaching in a college program on sustainability that I had helped initiate and design, while also continuing to make my way as a freelance environmental writer.

It was at this point, in 1998, that I heard a second Great Wake-up Call.


Peak Oil

It came in the form of an article in Scientific American by veteran petroleum geologists Colin Campbell and Jean Laherrère (both of whom had overseen exploration and production in major oil companies), explaining why world oil extraction would reach a maximum around 2010 and begin its permanent decline thereafter. I quickly realized that Peak Oil would likely be the first non-negotiable global limit to growth. The hazy forecast that industrial society would hit a wall sometime in the 21st century was suddenly focused to a painful specificity. Growth had acquired a hard expiration date.

Of course, oil does not pose our only societal limit, or even the most important one in the bigger scheme of things: climate, water, and topsoil are clearly more crucial in the long run. But the peaking of world oil production could potentially bring modern industrial civilization to its knees, while also undercutting coordinated efforts to deal with all sorts of other problems.

Up to this point I had little interest in the subject of oil, or energy generally. However, as I re-read the Scientific American article, I realized the pivotal role petroleum plays in the modern world—in transportation, agriculture, and the chemicals and materials industries. I began spending hours each day studying energy history and oil production statistics. I soon realized that the Industrial Revolution was really the Fossil Fuel Revolution, and that our modern food system is based on cheap fossil energy. Further, the entire phenomenon of continuous economic growth—including the development of the financial institutions that facilitate growth, such as fractional reserve banking and the marketing of derivatives—is ultimately based on ever-increasing supplies of cheap energy. Growth requires more manufacturing, more trade, and more transport, and those all in turn require more energy. This means that if energy supplies can’t expand and energy therefore becomes significantly more expensive, economic growth will falter and the financial system built on expectations of perpetual growth will fail, possibly in a rather spectacular way.

As early as 1998, Campbell, Laherrère, and others were discussing a Peak Oil impact scenario that went like this. Sometime around the year 2010, they theorized, stagnant or falling oil supplies would lead to soaring and more volatile petroleum prices, which would precipitate a global economic crash. This rapid economic contraction would in turn lead to sharply curtailed energy demand, so oil prices would then fall; but as soon as the economy regained strength, demand for oil would recover, prices would again soar, and the economy would relapse. This cycle would continue, with each recovery phase being shorter and weaker, and each crash deeper and harder, until the economy was in ruins. Meanwhile, volatile oil prices would frustrate investments in energy alternatives: one year, oil would be so expensive that almost any other energy source would look cheap by comparison; the next year, the price of oil would have fallen so far that energy users would be flocking back to it, with investments in other energy sources looking foolish. Investment capital would be in short supply in any case because the banks would be insolvent due to the crash, and governments would be broke due to declining tax revenues. Meanwhile, international competition for dwindling oil supplies might lead to wars between petroleum importing nations, between importers and exporters, and between rival factions within exporting nations.

Naturally, I also examined the arguments against the likelihood of a near-term peak in global oil production. What if Campbell and Laherrère were simply wrong? There are those who claim that new technologies for crude oil extraction will increase the amount of oil that can be obtained from each well drilled, and that there are nearly endless reserves of alternative hydrocarbon resources (principally tar sands and oil shale) whose development will seamlessly replace conventional oil, thus delaying the inevitable peak for decades. There are also those who say that Peak Oil won’t be much of a problem even if it happens soon, because the market will find substitutes as quickly as needed—whether electric cars, hydrogen, or liquid fuel made from coal. I found all of these arguments weak: the new oil extraction technologies won’t come into wide use for several years, and will be applicable mostly to newly developed fields (of which there are fewer and fewer each year as exploration efforts continue to show mostly disappointing results), not to the old super-giant oilfields that produce the great bulk of oil that we use today. Tar sands and oil shale will be slow to extract; indeed, in the case of oil shale, we may never derive liquid fuels in any substantial quantity due to the enormous costs of processing this very low-grade material. And substitutes like electric cars, liquids from coal, and hydrogen will take a very long time to develop and will in most cases be much more costly than the equivalent elements of our current system of petroleum fuels and internal combustion engines.

I continued to study the world energy situation for the next few years. And, with every passing year, events appeared to be supporting the Peak Oil thesis and undercutting the views of the oil optimists. Oil prices were trending upward—and for entirely foreseeable reasons: discoveries of new oilfields were continuing to peter out, with most new fields being much more difficult and expensive to develop than ones found in previous years. More oil-producing countries were seeing their extraction rates peaking and beginning to decline despite efforts to maintain production growth using high-tech, expensive secondary and tertiary extraction methods like the injection of water, nitrogen, or CO2 to force more oil out of the ground. Production decline rates in the world’s old, super-giant oilfields, which are responsible for the lion’s share of the global petroleum supply, were accelerating. Production of liquid fuels from tar sands was expanding only slowly, while the development of oil shale remained a hollow promise for the distant future.

I corresponded with and met the authors of the Scientific American article, and interviewed other petroleum geologists and engineers. One expert after another offered further reasons for concluding that the thesis of “The End of Cheap Oil” was correct, that there were no ready substitutes for crude oil, and that the consequences of a near-term global oil production peak would be profound.

Given the almost complete absence of mainstream media coverage of the subject, I spent several months assessing whether I should step into the breach and write a book on Peak Oil. The fact that I had no background in the oil industry or in any relevant academic field weighed against doing so. Yet the need was clearly overwhelming, so I decided to try. I spent 2001 and 2002 writing The Party’s Over: Oil, War and the Fate of Industrial Societies, which was published the following year and went on to sell over 50,000 copies with translations in six languages. I began receiving lecture invitations, and, over the next few years, gave over 300 talks to a wide variety of audiences in a dozen countries. More books followed: PowerDown: Options and Actions for a Post Carbon World (2004); The Oil Depletion Protocol: A Plan to Avert Oil Wars, Terrorism and Economic Collapse (2006); Peak Everything: Waking Up to the Century of Declines (2007); and Blackout: Coal, Climate and the Last Energy Crisis (2009).

I was determined to sound a warning not just to the general public, but especially to politicians and appointed government officials. Members of a burgeoning informal global network of Peak Oil activists arranged for me speak to hundreds of national, state, and local politicians and appointed officials in the U.S., to about a hundred members of the European Parliament, and to national Parliamentarians in the U.K., Australia, and New Zealand.


From Scary Theory to Scarier Reality

Then in 2008, the Peak Oil scenario became all too real. Global oil production had been stagnant since 2005 and petroleum prices had been soaring upward. In July, 2008, the per-barrel price shot up nearly to $150—half again higher (in inflation-adjusted terms) than the price spikes of the 1970s that had triggered the worst recession since World War II. By summer 2008, the auto industry, the trucking industry, international shipping, agriculture, and the airlines were all reeling.

But what happened next riveted the world’s attention to such a degree that the oil price spike was all but forgotten: in September 2008, the global financial system nearly collapsed. The reasons for this sudden, gripping crisis apparently had to do with housing bubbles, lack of proper regulation of the banking industry, and the over-use of bizarre financial products that almost nobody understood. However, there are reasons for concluding that the oil price spike was a much more important contributor to this economic meltdown than is generally discussed (see www.energybulletin.net/node/49798).

In the aftermath of that global financial near-death experience, both the Peak Oil impact scenario proposed a decade earlier and the Limits to Growth standard-run scenario of 1972 seemed to be confirmed with uncanny and frightening accuracy. Global trade was falling. The world’s largest auto companies were on life support. The U.S. airline industry had shrunk by almost a third. Food riots were erupting in poor nations around the world. Lingering wars in Iraq (the nation with the world’s second-largest crude oil reserves) and Afghanistan (the site of disputed oil and gas pipeline projects) continued to bleed the coffers of the world’s foremost oil-importing nation.

Meanwhile, the debate about what to do to rein in global climate change exemplified the political inertia that had kept the world on track for calamity since the early ’70s. It had by now become obvious to nearly every person of modest education and intellect that the world has two urgent, incontrovertible reasons to rapidly end its reliance on fossil fuels: the twin threats of climate catastrophe and impending constraints to fuel supplies (with most of the remaining oil reserves located in just a few countries). Yet at the Copenhagen climate conference in December, 2009, the priorities of the most fuel-dependent nations were clear: carbon emissions should be cut, and fossil fuel dependency reduced, but only if doing so does not threaten economic growth.

The cruel irony, obvious to my Peak Oil-aware colleagues but apparently not to the delegates at Copenhagen, was that the decades-long era of rapid economic growth based on increased fossil-fueled production and consumption is over anyway. The world’s last chance to collectively, cooperatively negotiate a turn away from the precipice was being squandered for the sake of a goal that was no longer achievable.

I could take no satisfaction from these confirmations of the Limits to Growth and Peak Oil scenarios; being able to say “I told you so” hardly made up for the shock of knowing that our last opportunities to change direction had been missed and that the train of industrial civilization was now not merely still chugging toward a broken bridge, but was actually starting to plummet into the gorge below. We had succeeded somewhat in helping increase public awareness of an issue: due to the efforts of thousands of scientists, writers, and activists, “peak oil” had become a recognizable term in public discourse. But we had failed to budge government policy in more than very minor ways (I had, for example, assisted the City Council-appointed Peak Oil Task Force of Oakland, California, which produced a sensible report on which, so far, little action has been taken).

The world has entered a new era. The project of awakening and warning policy makers and the general public was worthy of the investment of all the effort we could muster. In fact, it would have been negligent of the Limits to Growth authors, Colin Campbell, Jean Laherrère, and thousands of climate and environmental scientists and activists (myself included) not to give it our best shot. But it is now too late to avert a collapse of the existing system. The collapse has begun.

It is time for a different strategy.

By saying this, I am not suggesting that we should all simply give up and accept an inevitable, awful fate. Even though the collapse of the world’s financial and industrial systems has started, effort now at minimizing further dire consequences is essential. Collapse does not mean extinction. A new way of life will almost certainly emerge from the wreckage of the fossil-fueled growth era. It is up to those of us who have some understanding of what is happening, and why, to help design that new way of life so that it will be sustainable, equitable, and fulfilling for all concerned. We all need practical strategies and tools to weather the collapse and to build the foundation of whatever is to come after.


Journey to a New Economy

The propositions described above, and my personal journey, are the starting points for a search that can be summarized in a single question: What are the guideposts toward a livable, inviting post-growth society?

This search has in many instances entailed a literal, geographic journey. During the past few years, as I traveled the lecture circuit, I met thousands of people who had already concluded on their own that the global stage was being set for an economic crash of epic proportions. They had passed through the psychological stages of grief—denial, anger, bargaining, depression, and acceptance. They were thinking creatively, building new lives, and experimenting with a wide range of strategies for meeting basic human needs while using much less of just about everything.

Some of these folks, like me, had been thinking along these lines for a long time—since the 1970s. Many were much younger, though, had learned about Peak Oil or climate change just within the past few years, and had recently decided to devote their lives to building a post-hydrocarbon world. Some were clearly members of what was known in the 1970s as the “counterculture.” Others were mainstream citizens—investment bankers, real estate sellers, high school teachers, small business owners, corporate middle managers—who had chanced upon information that awakened them forcibly from their routines. Many of these folks lived in large cities, but others in small towns or on farms; some were rich, some poor (a few by choice); some were devout, others agnostic or atheist; some were working alone on survivalist projects, while others were building community organizations; some saw the transition as a business opportunity while others were working through non-profit organizations. Here are just three examples that stand out.

In 2005, while on a lecture tour in Ireland, I met a young college teacher named Rob Hopkins who believed that life could be better without fossil fuels. He had led his students in developing an “Energy Descent Action Plan” for their town, and believed he had the seed for something larger and more significant. He soon moved back to his native England to earn his Ph.D., and designed his thesis project around helping the village of Totnes begin a cooperative, phased process of transitioning away from its dependence on fossil fuels. This project in turn led to the start of a series of Transition Initiatives in villages, towns, and neighborhoods throughout the U.K. In 2007, a version of Rob’s written Ph.D. thesis was published as a book (The Transition Handbook) that quickly began inspiring others to take up this strategy. Today there are hundreds of Transition Initiatives at various stages of development in a dozen countries (including over 50 in the U.S.).

While in Montana for a speaking engagement at the University of Montana in Helena in spring 2009, some local Peak Oil activists drove me to the town of Ronan and introduced me to Billie Lee, who had helped start Mission Mountain Food Enterprise Center. The Center is housed in a fairly small, non-descript building and features medium-scale food processing equipment that local small food producers can rent at reasonable rates. This enables small farmers to produce value-added products (everything from canned soups to herbal tea bags) that are profitable and are price-competitive with those made by industrial food companies located hundreds or thousands of miles from Ronan. Local food has become an obsession for the sustainability-minded during the past few years, and local food systems will be a necessary pillar of post-growth economies. Yet aspiring small-scale farmers often have a hard time getting started because they cannot afford the equipment to enable them to produce profitable value-added products. Here in the tiny hamlet of Ronan was an ingenious solution to the problem, and one that deserves to be replicated in every agricultural county in the nation.

On a trip to New England in 2007, I met Lynn Benander, a community energy activist and entrepreneur who had started a project called Co-op Power to bring renewable energy to low-income and multi-ethnic communities throughout the Northeast. Typically, renewable energy projects cost more to get going than conventional coal or gas power projects, and so they tend to be found in wealthier communities and regions. Conversely, the most polluting energy projects tend to be sited in or near poor neighborhoods or regions. Co-op Power aims to change that imbalance of power—in a way that any community can copy. A typical project: You help four people put up a solar hot water system and everyone comes to help you put up yours; you save 40 to 50 percent off your total system price, get to know your neighbors, and learn how your system works. Co-op Power had also pioneered a cooperative financing method that cuts through the usual roadblocks to renewable energy projects in poorer neighborhoods by leveraging member equity.

Individually, these initiatives and projects may seem to be on too small a scale to make much of a difference. But multiplied by thousands, with examples in nearly every community, they represent a quiet yet powerful movement.

Few of these efforts have gained national media attention. Most media commentators who address economic issues are focused on the prospects—positive or negative—of the existing growth-based economy. These projects don’t seem all that important within that framework of thinking. But in the new context of the no-growth economy, they may mean the difference between ruinous poverty and happy sufficiency.

The trends are already in evidence: as the financial crisis worsens, more people are planting gardens, and seed companies are working hard to keep up with the demand. More young people are taking up farming now than in any recent decade. In 2008, more bicycles were sold in the U.S. than automobiles (not good news for the struggling car companies, but great news for the climate). And since the crisis started, Americans have been spending much less on non-essentials—repairing and re-using rather than replacing and adding.

Many economists assume these trends are short-term and that Americans will return to consumerism as economic crisis shifts into recovery. But if there is no “recovery” in the usual sense, then these trends will only grow.

This is what the early adopters are assuming. They believe that the nation and the world have turned a corner. They understand something the media either ignore or deny. They’re betting on a future of local food systems, not global agribusiness; of community credit co-ops rather than too-big-to-fail Wall Street megabanks; of small-scale renewable energy projects, not a world-spanning system of fossil-fuel extraction, trade, and consumption. A future in which we do for ourselves, share, and cooperate.

They’re embarking on a life after growth.

* * *

The realization that growth is at an end raises many questions. Will the financial impact be inflationary or deflationary? Will some nations fare better than others, leading to protectionist trade wars? Will the “down-sizing” of social and economic complexity lead also to a substantial die-off of the human species? How quickly will all of this happen?

There simply are no hard and fast answers to such questions. The financial, energy, food, transport, and political systems on which we rely are complex, so it is almost impossible to reliably model their response to a shock such as a resource limits-imposed end to economic growth. The only reasonable response, it seems to me, is to act as if survival is possible, and to build resilience throughout society as quickly as can be, acting locally wherever there are individuals or groups with the understanding and wherewithal. We must assume that a satisfactory, sustainable way of life is achievable in the absence of fossil fuels and conventional economic growth, and go about building it. This will be the focus of my work from now on—and it is likely to be the work of the next few generations as well. Call it Transition, call it cultural survival and renewal, call it what you will, it is the only game in town for the foreseeable future.

* A recent study by Australian Commonwealth Scientific and Industrial Research Organization (CSIRO) concluded, “[Our] analysis shows that 30 years of historical data compares favorably with key features of [the Limits to Growth] business-as-usual scenario….”

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Goldilocks and the Three Fuels:

A Cautionary Tale of Resource Depletion
(published by Reuters, Feb. 18, 2010)

Where are oil prices headed in 2010? Forecasts for the end of the year are all over the map, from over $100 a barrel to under $50. The difference hinges mostly on assumptions about whether the economy will recover or relapse. But it may be that price volatility has become an inherent feature of the oil market—and fossil fuel markets in general—for reasons that can perhaps best be explained with the help of a little history and an old children’s story.

Once upon a time (about a dozen years past), oil sold for $12 a barrel and a lot of people thought it would get even cheaper because the market was glutted. But instead the price rose: many big oilfields were aging and yielding less, and it was getting harder to find new ones—especially in places easy and cheap to drill. So the glut eroded and petroleum prices rose. Seeing a perfect opportunity (a necessary commodity with stagnating supply and growing demand), speculators drove the price up even further.

As prices lofted, oil companies and private investors also saw opportunity and started funding expensive projects to explore for oil in remote and inconvenient places, or to make synthetic liquid fuels out of lower-grade carbon materials like bitumen, coal, or kerogen.

But then in 2008, as the price of a barrel of oil reached its all-time high of $147, the economy crashed. Airlines and trucking companies downsized, motorists stayed home, and demand for oil plummeted. So did the price, bottoming out at $32 at the end of 2008.

But with prices so low, investments in hard-to-find oil and hard-to-make substitutes began to look tenuous, so tens of billions of dollars’ worth of projects got canceled. Yet the industry had been counting on those projects to maintain a steady stream of liquid fuels a few years out, so worries about a future supply crunch began to make headlines.

By mid-2009 the oil price had settled within a Goldilocks range—not too high (so as to kill the economy and, with it, fuel demand), and not too low (so as to scare away investment in future energy projects and thus reduce supply). That just-right price band appeared to be between $60 and $80 a barrel.

How long prices can stay in the Goldilocks range is anybody’s guess, but production declines in the world’s old super-giant oilfields continue to accelerate and exploration costs continue to mount, which means that the lower boundary of that just-right range will inevitably continue to migrate upward. Meanwhile the world economy remains frail, so that even $80 oil could strain the recovery.

When discussing the increasing perils of the current oil supply-demand-price balancing act, some commentators opine that the world supply of oil has peaked; others say it is demand that has peaked. It is a distinction without a difference.

There are similarities with U.S. natural gas. Recent shale gas projects have yielded significant quantities of fuel, and reserves of the stuff are enormous. But drilling costs and per-well decline rates are high, so producers can make a profit only if gas prices are toward the upper end of their historic range.

Nearly everyone believes that U.S. coal supplies are virtually endless, but the Goldilocks syndrome is coming into play there, too. Coal prices just about doubled in the two years leading up to the economic crash of 2008, and high-quality coals from the eastern region of the country are depleting fast.

We will never run out of coal, oil, or natural gas—in the absolute sense. The Industrial Revolution started in British coalfields, and there is still an enormous amount of coal in Britain; but the coal that’s left there is prohibitively expensive to mine, so that nation’s coal industry is virtually gone. Goldilocks grew dissatisfied with her options, got up, and left. The same has been gradually transpiring in the U.S. oil patch over the past four decades, and the same will happen wherever useful non-renewable resources are found.

Economic theory says the Market will always find a substitute for whatever resource is depleting to the point of scarcity. When it comes to fuels, the substitutes are alternatives to coal, oil, and gas—primarily, renewables like wind and solar. Investing in them should be a no-brainer. But, during the Goldilocks interval, increasing price volatility for oil, gas, and coal can make all energy investments dicey. That means that, as a society, our main strategy for navigating the energy transition will almost certainly have to be conservation.

The lesson of the parable: If you’re an investor, beware—oil prices are going to be increasingly hard to predict over the longer term. And if you make energy policy, don’t get any more hooked on non-renewable resources than you already are. If you do, you’ll eventually be spending much of your time chasing fickle Goldilocks—and in the end, she’s a bear.

#213: China or the U.S.: Which Will Be the Last Nation Standing?

MuseLetter #213 / February 2010 by Richard Heinberg

Download printable PDF version here (PDF, 111 KB)

View a Spanish translation of this article

China or the U.S.:

Which Will Be the Last Nation Standing?

Silly me. Here I had thought that world leaders would want to keep their nations from collapsing. They must be working hard to prevent currency collapse, financial system collapse, food system collapse, social collapse, environmental collapse, and the onset of general, overwhelming misery—right? But no, that’s not what the evidence suggests. Increasingly I am forced to conclude that the object of the game that world leaders are actually playing is not to avoid collapse; it’s simply to postpone it a while so as to be the last nation to go down, so yours can have the chance to pick the others’ carcasses before it meets the same fate.

I know, that sounds unbearably cynical. And in fact it may not accurately describe the conscious attitudes of leaders of some smaller nations. But for the U.S. and China, arguably the countries most likely to lead the way for the rest of the world, actions speak louder than words. (Mental health advisory: readers with a low tolerance for bad news should turn back now; there are lots of cheerier articles on the Internet and this might be a good time to find and enjoy one.)

For these two nations, avoiding collapse would require solving a range of enormous problems, of which at least four are non-negotiable: climate change; peak fossil fuels (in effect, stagnating and, soon, declining energy supplies); the inherent instability of growth-based financial systems; and the vulnerability of food systems to factors like fresh water scarcity and soil erosion (in addition to global warming and fuel scarcity). If they fail to address any one of these, societal collapse is inevitable—in a few decades certainly, but perhaps in just the next few years.

So how are our contestants doing? There’s not much to report on the climate score—just vague promises for future action. So their apparent strategy in this case is to delay (not to delay the impacts, mind you, but to delay efforts to address the problem).

Likewise, there is little positive action occurring regarding food systems: the assumption appears to be that conventional industrial agriculture—which is responsible for most of the global food system’s enormous and growing vulnerabilities—will somehow shoulder the task of feeding seven to nine billion humans. We just need to continue with what we are already doing, but on a larger scale and using more gene-engineered crop varieties.

Officially, peak energy is not even a concern, so evidently the strategy being adopted here is denial. We’ll see how that works out.

How about the financial mess? Here the U.S. and China are in situations so different that a more extended discussion seems justified.

China Surges to the Lead!

The U.S. is in debt up to its eyeballs and has mortgaged the paychecks of every generation approximately until hell freezes over in order to bail out its “too-big-to-fail” banks. In contrast, China has piles of cash (resulting from its enormous trade surpluses) and has bought a mountain of U.S. debt in order to keep its main customer’s currency from losing value. It would seem that, in this department, one nation is set to flag while the other is poised to leap into first place as world economic superpower.

And that happens to be the conventional wisdom on the subject. It’s not hard to find commentators who say the United States is a has-been for a variety of reasons. In addition to its huge debt burden, the U.S. also suffers from a shrinking manufacturing base, a big trade deficit, eroding quality of education, and a foreign policy that serves the interests of arms manufacturers while undermining the long-term interests of the nation. Regarding the last of these items, a 2006 World Public Opinion poll showed large majorities in four leading ally nations (Egypt, Morocco, Pakistan, and Indonesia), together accounting for a third of the Muslim world’s population, believe the U.S. is determined to destroy or undermine Islam. Within those countries, most people surveyed support attacks on American targets. And it just so happens that most of the world’s future oil supplies will be coming from Muslim nations. Brilliant.

By contrast, China is enjoying springtime on amphetamines. It now has the biggest car market in the world. And, according to Stuart Staniford in a recent fact-filled article, “if present trends continue, the Chinese expressway system will likely grow larger than the U.S. interstate highway system within the next couple of years, and Chinese car ownership will exceed U.S. car ownership by somewhere in the neighborhood of 2017.” As of 2010 China is the leading producer of hydroelectric and solar power and by 2011 will be the top producer of wind power. China’s smart grid investments dwarf those of the U.S. by 200 to one. The Chinese are also investing heavily in nuclear energy. Staniford goes on: “Oversimplifying greatly, it’s as though the U.S. borrowed a pile of money from China in order to fight a war to free up oil supply in Iraq in order that China could become the greatest industrial power the world has ever seen.”

China’s foreign policy consists largely of buying friends by purchasing rights to oil, gas, coal, and other resources (in Canada, Australia, Venezuela, Iraq, Kazakhstan, and throughout Africa), while the U.S. spends money it doesn’t have rooting out bad guys and making more enemies in the process.

In an October, 2009 lecture, George Soros showed refreshing candor about the seriousness of the continuing global financial crisis: “What differentiated [the recent economic crisis] from the Great Depression is that this time the financial system was not allowed to collapse, but was put on artificial life support. In fact [however], the magnitude of the credit and leverage problem we have today is even greater than the 1930s.” Soros then went on to discuss the relative positions of the U.S. and China:

In the short term, all countries were negatively affected. But in the long term, there will be winners and losers. . . . To put it bluntly, the U.S. stands to lose the most, and China is poised to emerge as the greatest winner. . . . China has been the primary beneficiary of globalization, and it has been largely insulated from the financial crisis. For the West, and the U.S. in particular, the crisis was an internally-generated event [that] led to the collapse of the financial system. For China, it was an external shock [that] has hurt exports, but left the financial, political, and economic system unscathed.

China Stumbles!

But remember: without solutions to climate change, peak energy, and the looming food crisis, winning the financial contest is only temporary solace. Consider just the energy conundrum: China may be building nukes and windmills, but there’s no way it can maintain 8 percent annual growth for long with flat or declining energy from coal. China and India, between them, are currently planning to build 800 new coal-fired power plants by 2020. Where will the coal come from? Both countries are already experiencing domestic production shortfalls and are starting to import the fuel. But coal-exporting countries will be unable to keep up with their growing combined demand.

Moreover, there is a school of thought that says China’s apparently unstoppable economic miracle is a bubble waiting to burst. Beijing’s housing market is overheated, like that of Las Vegas circa 2006. Last year, the Chinese economy enjoyed 9 percent GDP growth—on paper. But in order to achieve that goal, the government and banks had to loan out 30 percent of China’s GDP (the rate of growth in loans accelerated during the latter part of the year; at year-end rates, banks were on track to loan out an amount equal to the nation’s entire GDP in 2010). In any case, much of that growth probably occurred through speculation on real estate and questionable stocks.

Generally, China is at a Wild West stage of economic development: it is a collection of powerful local capitalist power bases unaccountable to anyone, all jockeying to create and inflate assets and credit. While the central government has recently exerted control over the banks, its ability to halt regional Ponzi schemes is still limited.

In January the Chinese banking regulatory commission attempted to rein in lending in order to slow the rapid increase in real estate and stock market values. (On the other hand, during the same month, China’s cabinet agreed to permit margin trading and short selling of stocks and to launch a stock futures index.) Significantly, there is evidence that China’s central bank’s attempts to harmlessly deflate the housing and stock market bubbles may be going badly. The sudden suspension in lending has, according to Joe Weisenthal in Business Insider, “caught importers, along with many other companies, by surprise and could cause turbulence in China’s import orders. Letters of credit (LoC) suddenly became unavailable, despite previous agreements. We believe that this will inevitably lead to delays or cancellations in China’s imports. Import orders for commodities and machineries could be affected most.” Translation: the government was faced with the options of letting a rapidly growing bubble burst, taking the economy down; or deliberately deflating the bubble, risking taking the economy down by another route. The central bank chose the latter, and the risked takedown may be unfolding.

Meanwhile Google and the Obama Administration have been exerting external pressure on China to relax its censorship of electronic communications—moves that some see as reducing the central government’s options for controlling both information flow and the economy.

In a recent op-ed, New York Times columnist Tom Friedman countered worries about a bursting of the China bubble with a robust display of confidence in Beijing’s unstoppable expansionary momentum. Given Friedman’s record (remember his columns in 2003 extolling the benefits that would flow to America from an invasion of Iraq?), this alone should be cause to doubt whether the Chinese locomotive can stay on its tracks much longer.

What Does It Mean to “Win”?

In his book Reinventing Collapse: The Soviet Example and American Prospects, Dmitry Orlov discusses the “collapse gap” between the United States and the old Soviet Union: the latter, he argues, was in effect much better prepared for economic crisis and the fall of its central government; when the U.S. eventually goes the way of the U.S.S.R., the pain and suffering of its citizens will be much greater. (I can’t adequately summarize Orlov’s evidence and reasoning here, but they are persuasive; if you haven’t read the book, do yourself a favor.)

So: How is the U.S. doing today in terms of collapse preparedness as compared to China?

After six decades of nearly uninterrupted economic growth, Americans have developed unrealistic expectations about the future. They are urbanized consumers whose manufacturing capability has shriveled and whose practical survival skills are in most cases vestigial. The Chinese, in contrast, have less of a steep fall ahead of them. Most still dwell in the countryside, and many who live in the cities are only one generation removed from subsistence agriculture and can still draw on their own, or their parents’, practical skills learned during decades of poverty and immersion in a traditional farming culture.

Both nations face fierce political challenges. In the U.S., the central government has reached nearly complete paralysis: it is evidently incapable of solving even relatively minor problems, and confidence in it among the citizenry has largely evaporated. Political leaders have succeeded in polarizing the people geographically with “hot-button” issues, few of which have anything to do with the factors currently undermining the nation’s ability to survive. The Chinese central government appears far more capable of acting decisively and strategically, but it is confronted with nasty facts of geography and history: there is an extreme and growing economic and social division between the wealthy coastal cities and the poor, rural interior; and a demographic schism between those 40 years old or younger who have high economic expectations, and the older generation who grew up under Mao, with an ethic of collectivism and self-sacrifice. The young, especially, have accepted a trade-off between civil freedoms and economic prosperity. If the latter is not delivered, there will be shrill demands for the former. These divisions are so deep and profound that they could tear society apart if expectations are dashed—and the leaders know this.

Thus, in the event of collapse, both nations face the possibility of a breakdown in their political systems, entailing widespread violence (uprisings and crackdowns).

China still maintains a crucial advantage in one key area: its food system. Far more of its citizens still grow food, even taking into account recent trends toward rapid urbanization (in the U.S., full-time farmers make up only about two percent of the population and the average farmer is approaching retirement age). This is not to say that China will have the capacity to feed all its people; it is already moving in the direction of being a major net food importer. Meanwhile, the U.S. remains a significant food exporter. The key difference has to do with the resiliency of the two nations’ respective food systems: that of the United States is more centralized, more highly fuel dependent, and therefore probably more vulnerable.

The Geopolitics of Collapse

It’s easy to see the advantage of collapse preparedness for the citizenry—with better preparation, more will survive. But does a higher survival rate during and after collapse translate to some sort of geopolitical advantage?

The process of collapse will be determined by many factors, some hard to predict, and so it is difficult to know the size or scope of the political power structure that might re-emerge in either country. It’s possible that one nation, or both, could devolve into smaller political units squabbling among themselves and unable to engage much in global jockeying for resources. All new political units emerging within the present territories of China or the U.S. would be immediately beset with enormous practical problems, including poverty, hunger, environmental disasters, and mass migrations.

Presumably some potent weaponry from the age of global warfare would remain intact and usable, so it is possible in principle that one or another of these smaller political entities could assert itself on the world stage as a short-lived, bargain-basement empire of limited geographic scope. But even in that case “winning” the collapse race would be small comfort.

The possibility of armed conflict between the two powers prior to mutual collapse is not to be entirely excluded if, for example, U.S. efforts to contain Iran’s nuclear ambitions were to set off a deadly chain reaction of attacks and counter-attacks possibly involving Israel, with world powers being forced to choose sides; or if the U.S. were to persist in arming Taiwan. But neither the U.S. nor China wants a direct mutual military confrontation, and both nations are highly motivated to avoid one. Thus all-out nuclear war—still the worst-case imaginable scenario for homo sapiens and planet Earth—seems thankfully unlikely, though in the few decades ahead the use of some of these weapons, on some occasions, by one nation or another, is probable.

Trade wars are another matter, and we might even see one this year, according to Michael Pettis at Financial Times, who notes that

. . . trade imbalances are more necessary than ever to justify increased investment in surplus countries [i.e., China], but rising unemployment makes them politically and economically unacceptable in deficit countries [i.e., the U.S.]. Rising savings in the U.S. will collide with stubbornly high savings in China. Unless a long-term solution is jointly worked out immediately, trade conflict will worsen and it will become increasingly hard to reverse offensive policies. Most importantly, if deficit countries demand structural change faster than surplus countries can manage, we will almost certainly finish with a nasty trade dispute that will . . . poison relationships for years.

How likely is the prospect for the last nation standing to be able to, as I put it in the first paragraph above, “pick the carcasses” of its competitors? Such a scenario presupposes that one nation will be able to stay on its feet for at least a few years after others fall. But this may not be possible. Recall the prophetic words of Joseph Tainter in The Collapse of Complex Societies (1988):

“A nation today can no longer unilaterally collapse, for if any national government disintegrates, its population and territory will be absorbed by some other [or bailed out by international agencies]. . . . Collapse, if and when it comes again, will this time be global. No longer can any individual nation collapse.”

When the U.S.S.R. crashed, the U.S. and various multinational corporations were able to sweep in and gobble up some of the treasure left lying around. One example: U.S. nuclear power plants have for many years been using uranium fuel cannibalized from old Soviet missile warheads. Soon, international institutions such as the World Bank and IMF helped organize new financial structures for Russia, Ukraine, Belarus, Lithuania, Estonia, and the other nations born from Soviet political and economic disintegration, so as to limit and reverse the process of social disintegration that had already passed beyond its early stages.

But now the game has changed. A collapse of the U.S. would leave China devastated. Not only would Beijing lose its main customer, but the hundreds of billions of dollars’ worth of treasury notes it has accumulated would be rendered worthless. If China were internally stable, such impacts could be absorbed with difficulty. But in light of China’s own simmering social and financial predicaments, a U.S. collapse would almost certainly be enough to tip Beijing’s economy into a tailspin, resulting in both social and political crises.

A collapse of China would similarly devastate the U.S. Obviously, the loss of a source of cheap consumer products would discomfit WalMart shoppers, but the shock soon would go much deeper. The Treasury would lose its main foreign buyer of government debt, which means that the Fed would be forced to step in and monetize that debt (in common parlance, “turn on the printing presses”), undermining the dollar’s value. The result: a hyperinflationary economic crash. Such a crash is probably inevitable at some point anyway, but a collapse of the Chinese system would hasten and worsen it.

In neither instance would international institutions be capable of preventing substantial social and political fall-out. The last nation standing would not stand for long. We have reached the stage where, as Tainter says, “World civilization will disintegrate as a whole.”

The Transition Marathon

Okay, so there is no serious effort on the part of U.S. or Chinese leaders to avoid collapse in the long run (say, over the next 10 to 20 years). Perhaps this is because they have concluded that it is impossible to do so—there are just too many trends leading in the same direction, and actually dealing with any of those trends head-on would entail huge, immediate political risks. In reality, however, it is much more likely that they simply refuse seriously to think about these trends and their implications, because they do have another option—to postpone collapse through deficit spending, bailouts, and more financial bubbles, while enacting their parts in a climate-policy kabuki play and engaging in resource geopolitics. This way blame will at least fall on the next set of leaders. Postponing collapse is itself a big job, enough so as to take all of one’s attention away from having to contemplate the awfulness and inevitability of what is being postponed.

Do these short-term efforts in any way reduce the risk of dissolution? Hardly. In fact, the longer the reckoning is delayed, the worse it will be.

What would make more sense than just trying to put off the inevitable is quite simply to build resilience throughout society, re-localizing basic social systems involving food, manufacture, and finance. There is no need to rehearse the existing discourse about this strategy: readers who are not familiar with it can find plenty of useful pointers at www.transitiontowns.org, or in the books and articles of authors such as Rob Hopkins, Albert Bates, David Holmgren, Pat Murphy, and Sharon Astyk (and in some of my own writings, including Museletter #192).

It is understandably hard for national politicians to think along those lines. Building societal resilience means disregarding the dictates of economic efficiency; it means systematically reducing the power of the central government and national/global commercial institutions (banks and corporations). It also means questioning the central dogma of our modern world: the efficacy and possibility of unending economic growth.

So if the best outcome lies in a strategy of resilience and re-localization, and our national leaders can’t even contemplate such a strategy, that means those leaders are, in one sense at least, irrelevant to our future.

Some blog readers are so in tune with this line of thinking that they no longer see any point in paying attention to the global scene. They may even think this article is a waste of time (and I expect to get an email or two to that effect). But following world events is more than a matter of infotainment: when and how China and the U.S. come apart at the seams is a question of far greater consequence than that of whether the New Orleans Saints or the Indianapolis Colts will win the Superbowl. The reality is that no nation, and no community will be able to completely protect itself from the sudden, harsh winds that will rush to fill the vacuum left by an implosion of either superpower.

By the way, my apologies to the other 190 or so nations of the world, large and small: my singling out of the U.S. and China for discussion does not signify that other countries are unimportant, or that their destinies will not be as unique as their cultures and geographies; merely that those destinies will probably unfold in the context of a global collapse spreading from the two nations we have been discussing. For any nation—India, Bolivia, Russia, Brazil, South Africa—and for any community or family, survival will require some comprehension of the direction of large events, so as to get out of the way when debris is flying and to anticipate opportunities to regroup.

So: Pay attention to the weather reports from Washington and Beijing, but meanwhile build local resilience wherever you are. If the roof needs mending, don’t dawdle.

Meanwhile, after a long day of organizing neighborhood Transition gardens, you may want to get a foretaste of post-collapse America by reading James Howard Kunstler’s A World Made by Hand; or savor an entertainingly erudite discussion of collapse as an extended process (which it will likely be), rather than as a sudden, all-out event, by reading John Michael Greer’s books The Long Descent and The Ecotechnic Future.

Just because the sky is falling, that doesn’t mean it’s time to stop thinking.

#212: The Meaning of Copenhagen

MuseLetter #212 / January 2010 by Richard Heinberg

Download printable PDF version here (PDF, 125 KB)

It was the pivotal international conference of the new century. Tens of thousands showed up, including heads of state, officials at all levels of government, representatives of environmental organizations, and ordinary citizens from nearly 200 countries. Scientists had warned that, without a strong agreement to reduce carbon emissions, the consequences for civilization and the world’s ecosystems would be cataclysmic.

On the sidelines sat powerful forces (including pro-growth business interests and fossil fuel companies) that preferred a weak agreement or none at all. Their strategic public relations efforts (“by far and away the biggest public relations campaign that I’ve ever seen,” according to PR veteran James Hoggan, cofounder of DeSmogBlog.com and author of Climate Cover-Up: The Crusade to Deny Global Warming) paid off when, only days before the meeting, thousands of private emails between climate scientists were hacked and released to the public; during the next few days, prominent right-wing commentators assured one and all that “climategate” completely undercut any scientific basis for thinking that human actions cause global warming. While nothing in the emails did in fact call established climate science into question, the desired and actual effect of the exercise was to destabilize public support for a strong agreement in Copenhagen.

On the streets were tens of thousands of mostly young activists and NGO campaigners, and even a few scientists, who were prepared to raise hell if world leaders didn’t act boldly to reduce carbon emissions.

So, on the whole, heads of state still felt obliged to come up with some results—but nothing too radical.

U.S. President Barack Obama’s role in the proceedings seems to have been pivotal. He jetted in on the final day of negotiations and gave a tepid speech stating his country’s modest bargaining position. This was greeted coolly (some accounts mention choruses of boos). Then, later in the day, he apparently burst in on a meeting including heads of state or high-level negotiators from China, India, Brazil, and South Africa, insisting that an agreement be reached (up to this point, according to most accounts, the Chinese had been obstructing any deal). Obama managed to persuade the other leaders to sign onto a three-page, non-binding Accord, which, at a midnight press conference, he presented to the other 189 nations attending the conference for their acceptance (no changes to the text were to be permitted). The full text of the document can be found at [UNFCC Framework Convention on Climate Change].

Environmental activists and representatives of poor nations most vulnerable to rising sea levels or desertification were unhappy with these results. Bill McKibben of the organization 350.org called it “an end far worse than most [climate activists] had imagined.” Ian Fry of the drowning island nation of Tuvalu likened it to “being offered 30 pieces of silver to betray our people and our future.” Kumi Naidoo, the head of Greenpeace International, called Copenhagen simply “a crime scene.”

On the other hand, U.N. secretary-general Ban Ki-moon told a press conference that he welcomed the Accord as “an important beginning,” and Sierra Club executive director Carl Pope released a statement calling it “an historic, if incomplete, agreement.”

What was agreed—and what wasn’t

The main points of the Copenhagen Accord are easy to summarize:

  • Industrial countries must list their individual emissions reductions targets, and less-industrialized countries must list the actions they will take to cut emissions by specific amounts.
  • All countries must accept a transparent system for monitoring their emissions.
  • Poor countries will be paid to prevent deforestation.
  • Wealthy nations will establish a fund (growing from 30 billion dollars per year to $100 billion per year by 2020) to help poor and vulnerable nations adapt to climate change.
  • Signatory nations accept a goal of limiting global warming to 2 degrees Celsius by 2050.
  • The Accord creates a Technology Mechanism to accelerate development of low-carbon technology, but supplies no details.

It is important to emphasize that this is not a binding legal or political agreement. The Accord is not a U.N.-sanctioned document, though the U.N. has officially moved to “take note” of it, which essentially means it may be considered in future climate gatherings as the framework for a legally binding agreement. The U.S. delegation made it clear that the U.N. cannot modify the Accord. While it was negotiated effectively in secret by five countries, many other nations have now signed on to it, and the signing countries together account for over 80 percent of total global emissions. Some countries, including the island nation of Tuvalu, have strongly repudiated the document.

Criticisms of the Accord’s substance (leaving aside complaints about the exclusion of most nations from negotiations, its abandonment of the U.N. framework, and so on) include the following:

  • The limit of 2 degrees C is too high. A limit of 1.5 degrees was already supported by over 100 countries and is necessary to avert catastrophic climate impacts.
  • The Accord offers no cap for CO2 concentrations. The scientific consensus a few years ago was that an atmospheric CO2 level of 450 parts per million would translate to a temperature increase of 2 degrees over pre-industrial levels. But that conclusion has been called into question due to the likelihood of feedbacks (e.g., as arctic ice melts, it reflects less sunlight back into space, causing even more global warming). This is one of the reasons most scientists now support a 350 ppm cap on atmospheric CO2. By setting a limit of 2 degrees temperature increase without specifying a CO2 cap, the Accord may implicitly be adhering to the older scientific consensus, which would mean a 45o ppm cap and 3 degrees or more of real temperature increase. Any scientific assessment of temperature and CO2 targets is delayed until 2015.
  • There is no target date for peaking of emissions mentioned in the Accord, just a vague suggestion that emissions should “peak as soon as possible.”
  • There are no global emissions targets for 2020 or 2050. Instead, the Accord merely proposes listing the voluntary targets of developed and developing countries. Based on current assessments of country promises, these 2020 targets will put the world on a track toward 3.5 to 4 degrees of warming.
  • The Accord makes general statements about need for adaptation and an end to deforestation, but there is no concrete deal on reducing emissions from deforestation and forest degradation (although this may be a relatively good thing, as the negotiations were veering toward offset loopholes).
  • The promised finances for poor nations are too small. For example, African countries had sought $400 billion in short-term financing for climate change adaptation, with an immediate amount of $150 billion needed. In the longer term they say 5 percent of the industrial world’s GDP is needed (about $2 trillion). Not only were much smaller amounts offered, but U.S. negotiators including Hillary Clinton implied that poor nations needed to “associate” themselves with the Accord in order to be eligible for funds.

On the bright side: the Clean Development Mechanism negotiated in Copenhagen seems to have excluded carbon capture and storage, thus reducing the incentive for wasting money on this dead-end technology. Expect pushback from the coal industry on that.

Why agreeing was hard (and will continue to be)

The battle to rescue the planet from climate calamity has been waged uphill from the start. That’s essentially because we humans tend to discount future events, whether they’re perceived favorably or unfavorably: immediate profits are worth more to companies than similar profits ten years hence; similarly, the immediate cost of averting climate change looms large compared to the estimated cost of dealing with its consequences decades from now. This attitude was exemplified, for example, in the comment of U.S. House of Representatives member Joe Barton, who told Reuters on the sidelines of the Copenhagen conference, “We’re not going to let jobs be destroyed in America for some esoteric environmental benefit 100 years from now.”

But there’s more to it than that. Over the past couple of centuries economic growth has been closely tied to increased burning of fossil fuels. And economic growth has become the universal measure of national well-being. Thus when talking to politicians, climate scientists often try to gain traction by describing the impact of future CO2 emissions in terms of the cost to future economic growth. Their hope is that this future cost will be high enough to justify the immediate economic sacrifice that would result from phasing out the use of fossil fuels. This is a tough argument to win, though it plays differently according to the audience: relative receptivity depends on who will be impacted most by climate change and who will bear the highest immediate costs during the energy transition. (Sometimes environmentalists go so far as to suggest that the transition from fossil fuels to “green” energy sources will result in enormous economic growth; however, this ignores the very real economic benefits of cheap fossil fuels and the problems with most of the renewable alternatives, as outlined for example in the report “Searching for a Miracle”.

And so, at the climate talks in Copenhagen, bargaining positions closely reflected countries’ relative vulnerability to long-range environmental impacts versus short-range economic costs for adaptation.

As mentioned, China evidently obstructed any agreement from the start. No doubt this was largely due to the fact that this nation is the world’s top greenhouse gas emitter, uses over twice as much coal as the next country in line (the U.S.), and requires at least 8 percent economic growth per annum to stave off domestic political unrest. While China is quickly becoming the world leader in renewable energy technologies, it has no realistic prospect of phasing out coal without giving up its high GDP growth rates. China produces half the world’s cement and 40 percent of its iron and steel; over the next 15 years, it plans to urbanize a number of its people about equal to the total population of North America—a continent that took more than a century to accomplish a similar-sized task. That means more cement, steel, appliances, power plants, and all the other energy-guzzling accouterments of urban existence. Mark Lynas, an environmental writer who was present at the final Friday night negotiations at Copenhagen, summarized the situation this way: “China knows it is becoming an uncontested superpower; indeed its newfound muscular confidence was on striking display in Copenhagen. Its coal-based economy doubles every decade, and its power increases commensurately. Its leadership will not alter this magic formula unless they absolutely have to.” [How do I know China wrecked the Copenhagen deal? I was in the room]. In effect, by subverting a strong, binding climate agreement while directing blame for failure toward western nations, China is playing brilliant climate politics—with deadly consequences for all.

India’s economy is also highly coal dependent, also growing rapidly, also on a trajectory of rapid urbanization. And so it should come as no surprise that this country largely echoed China’s position.

There are many who correctly point out that wealthy western industrial nations are responsible for the vast bulk of historic greenhouse gas emissions, and who then go on to conclude that future climate policy must therefore center on achieving economic justice by requiring rich nations to reduce fossil fuel consumption much faster than poor ones while financing climate change mitigation and adaptation in those less-industrialized countries. If China and India have now grown big enough to bully their way around international negotiations, we should applaud them, say climate justice activists, because this means the already-rich countries are no longer in the driver’s seat. Those who hold this view tend to blame western nations (especially the U.S.) for lack of progress in the Copenhagen talks. The problem with this framing is that it doesn’t take account of the reality that China and India have little real interest in forging a strong, binding climate accord, and without them there can be no global agreement.

There’s plenty of blame to go around for slow progress on climate policy, but the bottom line is this: once we’re done fairly apportioning that blame, is there still a viable path toward an agreement?

Not if Russia gets a veto. This nation played a less visible role in wrecking the Copenhagen process, but that may be because it allowed China to play the spoiler on its behalf. Russia is the world’s top oil producer, the world’s biggest gas exporter, has the world’s second-largest coal reserves, and can claim hardly even a token renewable energy sector.

Some fossil fuel exporting nations are rich (think Australia or Kuwait) but most are poor (think Nigeria or Angola). Prior to Copenhagen, OPEC floated the proposal that fossil fuel importers should pay exporters for the oil, coal, or gas that the latter keep in the ground to avoid greenhouse gas emissions. It’s a nice idea, in the same way that that it’s nice to imagine money trees or horns of plenty. But in the real world nations grow their economies by using energy to produce goods and services, not by paying for energy they’ll never use.

Among the fossil fuel exporters, Venezuela was most vocal in promoting strong climate policy in Denmark: the politics and personality of that nation’s president, Hugo Chavez, in this instance evidently led to a bargaining position contrary to what would be expected based on his country’s economic interests. Or maybe Chavez was the originator of that OPEC policy proposal—which, by ensuring that his county’s oil was paid for even if it isn’t burned, would obviate almost all the economic sacrifice implied by strong climate policy.

Anyway, Venezuela’s oil production is generally declining, a situation this nation holds in common with Britain—which also favored a strong global climate agreement. The European countries (with the exception of Norway) are fossil fuel importers, which means they are more or less forced to plan for a future of ever more expensive fossil fuels. For them, a climate agreement that would phase out fossil fuels globally is not as scary as it is for those that make money from fuel exports.

Small island nations and very poor countries with few indigenous fossil fuel resources were of course the countries most in favor of a strong climate agreement. They have the least to lose from increased prices for fuels they hardly use anyway, the most to lose from climate change, and the most to gain when wealthy nations establish a climate adaptation fund.

That leaves the U.S., the biggest per capita carbon emitter (well, almost—Australia and a couple of OPEC members actually rank higher), but also the world’s top fossil fuel importer. With its domestic oil production long in decline but its oil and coal companies still powerfully wielding domestic political influence, the U.S. is deeply conflicted. This ambivalence is reflected in domestic climate politics and was also on display in President Obama’s efforts at Copenhagen.

The nations that negotiated the Accord included the world’s first and second foremost coal burners (China and the U.S.); the country home to the world’s largest coal company (India); a prominent coal exporter (South Africa); and what will probably prove to be the last nation to have luck finding large amounts of oil (Brazil). It should be noted that Brazil, which is also a major biofuels producer, has just (as of December 28) announced that it has unilaterally made its ambitious 2020 emissions reduction targets legally binding. Nevertheless, with the rest of this cast of characters at the table, it should have surprised no one when the Accord turned out to be non-binding and weak.

Further, the Accord’s implementation could turn out to be a joke. The document says nothing about how voluntary targets are to be achieved—whether through carbon taxes, cap-and-trade, or other mechanisms. And, as climate scientist James Hansen has pointed out tirelessly during the past few months, cap-and-trade programs, unless set up and managed flawlessly, can easily be “gamed” by fossil fuel producers by buying phony offsets while continuing to increase total emissions.

If all of this sounds shamefully self-interested and corrupt, just put yourself in the shoes of a high-level politician. No would-be leader who fails to promise economic growth is taken seriously to begin with, so the only politicians we have are ones committed to producing growth. Those who succeed at this are rewarded; those who fail are sidelined and forgotten.

Should we ever seriously have expected a much different outcome from Copenhagen?

What nobody talked about

Normally we humans like to focus on one problem at a time. It’s how our brains are wired, and it’s how the political process is set up to function. But reality is not always so simple and clear-cut.

Climate change is just one of several enormous interrelated dilemmas that will sink civilization unless all are somehow addressed. These include at least five long-range problems:

  • topsoil loss (25 billion tons per year),
  • worsening fresh water scarcity,
  • the death of the oceans (currently forecast for around 2050 based on current trends),
  • overpopulation and continued population growth, and
  • the accelerating, catastrophic loss of biodiversity.

As events are unfolding now, these problems, together with climate change, will combine over the next few years or decades to trigger a food crisis of a scale and intensity that will dwarf to insignificance any famine in human history.

To make matters even more grim, there are two near-term dilemmas that may make climate change and these other problems much harder to address: peak oil and economic collapse.

Some of my friends who were on the streets of Copenhagen in early December assure me that most activists and concerned citizens they talked to there knew about peak oil. But the media offered no clue that the officials negotiating in the Bella Center ever mentioned fossil fuel supply limits. For many years the default assumption in all climate negotiations has been that the world has enough conventional fossil fuels to enable it to continue increasing oil, coal, and gas consumption (and hence carbon emissions) up until at least the end of this century. In fact, global oil production has probably already entered its terminal decline and coal and gas extraction will likewise do so in about 15 years—which means that the world may have seen its all-time peak of total energy production from fossil fuels during the years 2005 to 2008. Earth probably has enough economically extractable conventional fossil fuels to raise atmospheric CO2 levels to about 470 ppm—high enough to trigger human and environmental catastrophe (remember, the “safe” level is 350 ppm), but not nearly as high as the projections commonly mentioned in U.N. climate literature. (The potential amount of carbon emissions from unconventional fossil fuels, such as tar sands and oil shale, is immense, but actual production of those fuels is likely to be constrained by a variety of economic factors, as discussed in “Searching for a Miracle”.)

Because petroleum has been the driver of most economic expansion during the past few decades and there is no ready substitute for it, peak oil basically means the end of economic growth as we have known it. And without economic growth, our entire financial system comes apart. Indeed, that’s exactly what we’ve been seeing over the past 18 months in the failure of trillions of dollars’ worth of bets on future economic expansion. (For a discussion of the role of peak oil in the financial crisis, see “Temporary Recession or the End of Growth?”.

No politician can ignore the worldwide economic crisis, yet its significance for the climate talks is rarely discussed. Now that people can’t afford to drive as much, or even heat their homes in many cases, global carbon emissions have declined during the past year. That means that if the economy is in only a temporary state of “recovery” and resumes its swoon (as many financial analysts anticipate), and if global oil production has indeed peaked, then global carbon emissions have probably already peaked too. In which case, the world has achieved its first major goal in mitigating climate catastrophe.

Economic crisis makes climate change much harder to solve in the way everyone wants to see—i.e., with lots of green-tech growth. But it makes almost inevitable a “solution” that nobody wants: dramatic economic contraction leading to sharply declining energy demand. This is similar to famine “solving” overpopulation.

Responsible officials can discuss none of this in public lest investors lose their nerve and head for the exits. But a conversation that excludes such essential realities is delusional.

How might that pivotal Friday night negotiation in the Bella Center have gone if it had been grounded in reality?

President Obama might have said something like this: “Colleagues, global oil production has peaked and we have witnessed the resulting carnage in the global economy. We have likely seen the last of economic growth, in an overall sense. We are in an entirely new era. Adopting strict carbon emissions caps will help us end our dependence on fossil fuels—which we must do both to mitigate climate change and also to reduce the economic impacts of fuel scarcity. While giving up fossil fuels means reducing opportunities for growth, continuing to use them is no longer an option. We must adapt to this new reality.”

The Chinese delegate would have objected: “But our nation needs to continue using coal in ever-increasing amounts. If we don’t continue to grow our economy at 8 percent annually, the people will revolt. We’re doing all we can to develop renewable energy, but only coal can give us the growth we need.” To which Obama might have replied: “Your coal production will be peaking during the next few years anyway, and you won’t be able to import enough from Australia and Indonesia to maintain growth in total energy production. Your economy is about to stall in any case—it is heavily dependent on exports, and Americans just aren’t going to be buying a lot more Chinese goods. Your only hope, as ours, is to build renewable energy infrastructure at top speed, provide as much of a basic safety net for citizens as we can, try to enlist them in the overall energy transition, and hope for the best. Meanwhile, a strong climate agreement can at least help us change direction toward reducing our reliance on fossil fuels, and we are obligated to produce such an agreement anyway for the sake of the planet and future generations. Let’s get this done.”

But that’s evidently not what transpired. Instead, all accounts suggest the negotiations amounted to a theatrical set piece in which each player stayed rigidly on script.

If governments are having a difficult time addressing climate change in any serious fashion, they’re not doing much better with regard to any of the other problems mentioned. Key nations are going about “solving” their financial crises by shoveling money by the billions and trillions at bankers who were largely responsible for creating the mess to begin with. Peak oil is regarded by heads of state as a subject unworthy of mention. The crisis of fresh water scarcity is being dealt with by pumping ancient aquifers until they’re dry. Topsoil erosion has slowed in a few places, but overall continues at a staggering pace.

These problems, which will shape our destiny over the next few years and decades, are for the most part discussed only by experts in relevant fields. Meanwhile citizens are subjected to a steady stream of “infotainment” and political rhetoric utterly divorced from crumbling physical reality. This is easy to illustrate with ludicrously disinforming statements from industry-backed climate-change deniers. But responsible advocates of a strong climate policy are often nearly as soaked in delusion.

Here’s just one example. Professor Mark Maslin, Director of the Environment Institute at University College London, was recently quoted as saying: “The science tells us that we must drastically cut the amount of carbon going into the atmosphere to avoid catastrophic climate change. But we must also protect the moral and ethical right of countries to develop and achieve the same standard of living as we have in the west.” This is a completely unremarkable statement with which nearly everyone at the climate talks in Copenhagen would probably have agreed—at least publicly. But think about it: what does this “development” consist of? The assumption is that poor countries can and should use more fossil fuels while rich ones wean themselves. But there just aren’t enough fossil fuels available to enable that to happen. Poor countries will never achieve “the same standard of living as we have in the west.” Rather, in the decades ahead, as nonrenewable resources deplete, people in the west will involuntarily give up their material standard of living until their way of life is supported only by renewable resources and the recycling of non-renewables. That means economic contraction, big time. We have a very long downward ramp to negotiate until that sustainable baseline is achieved.

Economic justice or leveling is to some extent inevitable during the energy transition. But it won’t consist of poor families in Senegal adopting the living standards of folks in Seattle or Stuttgart. It will be a matter of industrialized countries seeing a huge increase in rates of absolute poverty.

In the meantime, countries of the global north could do a lot of good just by canceling the southern nations’ debts and by ceasing to enforce trade rules that continue to transfer wealth mostly from poor countries to rich. Moreover, if our goal is to achieve global equity, there is one other thing that actually might make a significant difference: that is the shifting of wealth and income away from truly rich individuals—from bankers, CEOs, and hedge fund managers—and from the global weapons industry. The money could be used to fund public programs for food, shelter, and medical care in the industrialized nations as these careen into economic depression, and to bankroll Asia, Central and South America, and Africa, not in “development” as conventionally conceived (meaning urbanization), but in adopting simple, cheap technologies to avoid burning wood, charcoal, and dung for cooking and home heating; in helping them replace slash-and-burn agriculture with small-scale ecological farming; and in supporting them in scrapping and (where possible) replacing inefficient, polluting, hand-me-down diesel vehicles and factories. None of these things would be easy to achieve, but they are all at least within the realm of the possible.

In summary, the discussions in Denmark took place in a conceptual fantasy world in which climate change is the only global crisis that matters much; in which rapid economic growth is still an option; in which fossil fuels are practically limitless; in which a western middle class staring at the prospect of penury can be persuaded voluntarily to transfer a significant portion of its rapidly evaporating wealth to other nations; in which subsistence farmers in poor nations should all aspire to become middle-class urbanites; and in which the subject of human overpopulation can barely be mentioned.

Once again: it’s no wonder more wasn’t achieved in Copenhagen.

Where does that leave us?

Copenhagen was a watershed event. Climate change has become, in many people’s minds, the central survival issue for our species, and the Copenhagen talks provided a pivotal moment for addressing that issue. The fact that the talks failed to produce a binding agreement is therefore of some significance.

The next opportunity to forge a binding global climate treaty will be the 2010 U.N. climate conference in Mexico City. Many see this as a chance to achieve what proved elusive in Copenhagen. But the same challenges will face leaders there. And if the global economy relapses in the meantime, national politicians may be even more reluctant to take bold action to limit fossil fuel consumption, as they’ll want to keep all their economic options open. Indeed, it seems likely that for the foreseeable future economic implosion will be sucking the air from any room in which heads of state are gathered.

So, international policies are needed if we are to deal with a potentially game-ending global issue like climate change, yet there is now convincing evidence that national and supra-national institutions are incapable of producing effective climate policies.

The same could be said for other crises mentioned above. It’s not enough that national governments can’t get together to solve climate change. They can’t solve economic meltdown, peak oil, water scarcity, soil erosion, or overpopulation either. Yes, there are individual nations like Tuvalu that can muster a decent policy on one issue or another. Denmark is probably the shining example among industrial nations: it has reduced its greenhouse gas emissions by 14 percent since 1990 while maintaining constant energy consumption and growing its GDP by more than 40 percent. But these are the rare exceptions, and apparently destined to stay that way. We have no global means of dealing with the toxic debt that is strangling the world economy. We have no agreements in place to prevent the death of the oceans. There is no global policy to avert economic impacts from fossil fuel depletion. There is no worldwide protocol to protect the precious layer of living topsoil that is all that separates us from famine. There is no effective global convention on fresh water conservation.

This is not to say there is nothing that can be done about these problems. In fact, there are organizations and communities in many nations doing path-breaking work to address each and every one of them. Some examples:

  • Agronomists at the Land Institute in Salina, Kansas, led by Wes Jackson, have for years been patiently developing perennial grain crops capable of feeding billions without destroying topsoil.
  • The city of Zurich has decided through popular vote to become a 2000-Watt society. This means cutting energy consumption from the current 6000 Watts per person to one-third that amount over the next three or four decades. This was evidently a response both to climate change and the problem of energy security.
  • Here in Sonoma County, California, a Go Local Co-op has formed; it’s an extension of the national organization, Business Alliance for a Living Local Economy (BALLE). One of its projects is “Sustaining Capital”—a community cooperative capital formation model that, if successful and replicated widely, could end local economies’ dependence on Wall Street banks.
  • At Sunga in Madhyapur Thimi, Nepal, a community-supported project has built a water treatment plant based on reed-bed constructed wetlands that also serves as the main source of irrigation for farmers in the region.

These are just a few items out of hundreds, maybe thousands that could be cited. But, in aggregate, are they enough? Obviously not—even in the estimation of the folks who are doing this admirable work. Some problems are more easily tackled at the local level than others (local efforts can help maintain biodiversity, but without international agreements it’s not obvious how the oceans could be rescued). And many local success stories actually depend on global systems of finance and provisioning (for example, the Nepalese water treatment plant mentioned above was built with financial support from the United Nations Human Settlements Program, U.N.-Habitat’s Water for Asian Cities Program, the Asian Development Bank, and Water Aid, and received technical support from the Environment and Public Health Organization).

Discouraging? Of course. But absent global agreements, local efforts are what we’ve got, and we will simply have to make the most of them that we can.

Meanwhile, given the amount of carbon emissions already in the atmosphere, climate impacts are in store no matter what happens at the U.N. negotiations in Mexico City. Something similar could be said with regard to all the other problems mentioned: even if strong policies could somehow be forged tomorrow, serious challenges will arise in the years ahead with regard to water, food, energy, and the economy.

If such impacts are unquestionably coming, then we should be doing something to prepare. Since we don’t know exactly what the impacts will be, or when or where they will land, the most sensible strategy is simply to build resilience throughout the system. Resilience implies dispersed control points and dispersed inventories, and hence regional self-sufficiency—the opposite of economic efficiency, the central rationale for globalization—and so it needs to be organized primarily at the local level.

To summarize: three factors—the need for resilience, the lack of effective policy at national and global levels, and the tendency of the best responses to emerge regionally and at a small scale—argue for dealing with the crushing crises of the new century locally, even though there is still undeniable need for larger-scale, global solutions.

Does this mean we should give up even trying to work at the national and global levels? Each person will have to make up her or his own mind on that one. To my thinking, Copenhagen is something of a last straw. I have no interest in trying to discourage anyone from undertaking national or global activism. Indeed, there is a danger in taking attention away from national and international affairs: policy could get hijacked not just by parties even less competent than those currently in command, but by ones that are just plain evil. Nevertheless, this writer is finally convinced that, with whatever energies for positive change may be available to us, we are likely to accomplish the most by working locally and on a small scale, while sharing information about successes and failures as widely as possible.

A final note: As 2010 begins we are about to enter the second decade of the 21st century. Historians often remark that the character of a new century doesn’t make itself apparent until its second decade (think World War I). Perhaps peak oil, the global financial crash, and the failure of Copenhagen are the signal events that will propel us into the Century of Decline. If these events are indeed indicative, it will be a century of economic contraction rather than growth; a century less about warnings of environmental constraints and consequences than about the fulfillment of past warnings; and a century of local action rather than grand global schemes.

I suspect that things are going to be noticeably different from now on.

#208: Temporary Recession or the End of Growth?

MuseLetter 208 / August 2009 by Richard Heinberg
Download printable PDF version here (PDF, 127 KB)

richardheinberg.com

Everyone agrees: our economy is sick. The inescapable symptoms include declines in consumer spending and consumer confidence, together with a contraction of international trade and available credit. Add a collapse in real estate values and carnage in the automotive and airline industries and the picture looks grim indeed.

But why are both the U.S. economy and the larger global economy ailing? Among the mainstream media, world leaders, and America’s economists-in-chief (Treasury Secretary Geithner and Federal Reserve Chairman Bernanke) there is near-unanimity of opinion: these recent troubles are primarily due to a combination of bad real estate loans and poor regulation of financial derivatives.

This is the Conventional Diagnosis. If it is correct, then the treatment for our economic malady might logically include heavy doses of bailout money for beleaguered financial institutions, mortgage lenders, and car companies; better regulation of derivatives and futures markets; and stimulus programs to jumpstart consumer spending.

But what if this diagnosis is fundamentally flawed? The metaphor needs no belaboring: we all know that tragedy can result from a doctor’s misreading of symptoms, mistaking one disease for another.

Something similar holds for our national and global economic infirmity. If we don’t understand why the world’s industrial and financial metabolism is seizing up, we are unlikely to apply the right medicine and could end up making matters much worse than they would otherwise be.

To be sure: the Conventional Diagnosis is clearly at least partly right. The causal connections between subprime mortgage loans and the crises at Fannie Mae, Freddie Mac, and Lehman Brothers have been thoroughly explored and are well known. Clearly, over the past few years, speculative bubbles in real estate and the financial industry were blown up to colossal dimensions, and their bursting was inevitable. It is hard to disagree with the words of Australian Prime Minister Kevin Rudd, in his July 25 essay in the Sydney Morning Herald: “The roots of the crisis lie in the preceding decade of excess. In it the world enjoyed an extraordinary boom…However, as we later learnt, the global boom was built in large part…on a house of cards. First, in many Western countries the boom was created on a pile of debt held by consumers, corporations and some governments. As the global financier George Soros put it: ‘For 25 years [the West] has been consuming more than we have been producing…living beyond our means.'” (1)

But is this as far as we need look to get to the root of the continuing global economic meltdown?

A case can be made that dire events having to do with real estate, the derivatives markets, and the auto and airline industries were themselves merely symptoms of an even deeper, systemic dysfunction that spells the end of economic growth as we have known it.

In short, I am suggesting an Alternative Diagnosis. This explanation for the economic crisis is not for the faint of heart because, if correct, it implies that the patient is far sicker than even the most pessimistic economists are telling us. But if it is correct, then by ignoring it we risk even greater peril.

Economic Growth, The Financial Crisis, and Peak Oil

For several years, a swelling subculture of commentators (which includes the present author) has been forecasting a financial crash, basing this prognosis on the assessment that global oil production was about to peak. (2) Our reasoning went like this:

Continual increases in population and consumption cannot continue forever on a finite planet. This is an axiomatic observation with which everyone familiar with the mathematics of compounded arithmetic growth must agree, even if they hedge their agreement with vague references to “substitutability” and “demographic transitions.” (3)

This axiomatic limit to growth means that the rapid expansion in both population and per-capita consumption of resources that has occurred over the past century or two must cease at some particular time. But when is this likely to occur?

The unfairly maligned Limits to Growth studies, published first in 1972 with periodic updates since, have attempted to answer the question with analysis of resource availability and depletion, and multiple scenarios for future population growth and consumption rates. The most pessimistic scenario in 1972 suggested an end of world economic growth around 2015. (4)

But there may be a simpler way of forecasting growth’s demise.

Energy is the ultimate enabler of growth (again, this is axiomatic: physics and biology both tell us that without energy nothing happens). Industrial expansion throughout the past two centuries has in every instance been based on increased energy consumption.(5) More specifically, industrialism has been inextricably tied to the availability and consumption of cheap energy from coal and oil (and more recently, natural gas). However, fossil fuels are by their very nature depleting, non-renewable resources. Therefore (according to the Peak Oil thesis), the eventual inability to continue increasing supplies of cheap fossil energy will likely lead to a cessation of economic growth in general, unless alternative energy sources and efficiency of energy use can be deployed rapidly and to a sufficient degree. (6)

Of the three conventional fossil fuels, oil is arguably the most economically vital, since it supplies 95 percent of all transport energy. Further, petroleum is the fuel with which we are likely to encounter supply problems soonest, because global petroleum discoveries have been declining for decades, and most oil producing countries are already seeing production declines. (7)

So, by this logic, the end of economic growth (as conventionally defined) is inevitable, and Peak Oil is the likely trigger.

Why would Peak Oil lead not just to problems for the transport industry, but a more general economic and financial crisis? During the past century growth has become institutionalized in the very sinews of our economic system. Every city and business wants to grow. This is understandable merely in terms of human nature: nearly everyone wants a competitive advantage over someone else, and growth provides the opportunity to achieve it. But there is also a financial survival motive at work: without growth, businesses and governments are unable to service their debt. And debt has become endemic to the industrial system. During the past couple of decades, the financial services industry has grown faster than any other sector of the American economy, even outpacing the rise in health care expenditures, accounting for a third of all growth in the U.S. economy. From 1990 to the present, the ratio of debt-to-GDP expanded from 165 percent to over 350 percent. In essence, the present welfare of the economy rests on debt, and the collateral for that debt consists of a wager that next year’s levels of production and consumption will be higher than this year’s.

Given that growth cannot continue on a finite planet, this wager, and its embodiment in the institutions of finance, can be said to constitute history’s greatest Ponzi scheme. We have justified present borrowing with the irrational belief that perpetual growth is possible, necessary, and inevitable. In effect we have borrowed from future generations so that we could gamble away their capital today.

Until recently, the Peak Oil argument has been framed as a forecast: the inevitable decline in world petroleum production, whenever it occurs, will kill growth. But here is where forecast becomes diagnosis: during the period from 2005 to 2008, energy stopped growing and oil prices rose to record levels. By July of 2008, the price of a barrel of oil was nudging close to $150—half again higher than any previous petroleum price in inflation-adjusted terms—and the global economy was beginning to topple. The auto and airline industries shuddered; ordinary consumers had trouble buying gasoline for their commute to work while still paying their mortgages. Consumer spending began to decline. By September the economic crisis was also a financial crisis, as banks trembled and imploded. (8)

Given how much is at stake, it is important to evaluate the two diagnoses on the basis of facts, not preconceptions.

It is unnecessary to examine evidence supporting or refuting the Conventional Diagnosis, because its validity is not in doubt—as a partial explanation for what is occurring. The question is whether it is a sufficient explanation, and hence an adequate basis for designing a successful response.

What’s the evidence favoring the Alternative? A good place to begin is with a recent paper by economist James Hamilton of the University of California, San Diego, titled “Causes and Consequences of the Oil Shock of 2007-08,” which discusses oil prices and economic impacts with clarity, logic, and numbers, explaining how and why the economic crash is related to the oil price shock of 2008. (9)

Hamilton starts by citing previous studies showing a tight correlation between oil price spikes and recessions. On the basis of this correlation, every attentive economist should have forecast a steep recession for 2008. “Indeed,” writes Hamilton, “the relation could account for the entire downturn of 2007-08…If one could have known in advance what happened to oil prices during 2007-08, and if one had used the historically estimated relation [between price rise and economic impact]…one would have been able to predict the level of real GDP for both of 2008:Q3 and 2008:Q4 quite accurately.”

Again, this is not to ignore the role of the financial and real estate sectors in the ongoing global economic meltdown. But in the Alternative Diagnosis the collapse of the housing and derivatives markets is seen as amplifying a signal ultimately emanating from a failure to increase the rate of supply of depleting resources. Hamilton again: “At a minimum it is clear that something other than housing deteriorated to turn slow growth into a recession. That something, in my mind, includes the collapse in automobile purchases, slowdown in overall consumption spending, and deteriorating consumer sentiment, in which the oil shock was indisputably a contributing factor.”

Moreover, Hamilton notes that there was “an interaction effect between the oil shock and the problems in housing.” That is, in many metropolitan areas, house prices in 2007 were still rising in the zip codes closest to urban centers but already falling fast in zip codes where commutes were long. (10)

Why Did the Oil Price Spike?

Those who espouse the Conventional Diagnosis for our ongoing economic collapse might agree that there was some element of causal correlation between the oil price spike and the recession, but they would deny that the price spike itself had anything to do with resource limits, because (they say) it was caused mostly by speculation in the oil futures market, and had little to do with fundamentals of supply and demand.

In this, the Conventional Diagnosis once again has some basis in reality. Speculation in oil futures during the period in question almost certainly helped drive oil prices higher than was justified by fundamentals. But why were investors buying oil futures? Was the mania for oil contracts just another bubble, like the dot.com stock frenzy of the late ’90s or the real estate boom of 2003 to 2006?

During the period from 2005 to mid-2008, demand for oil was growing, especially in China (which went from being self-sufficient in oil in 1995 to being the world’s second-foremost importer, after the U.S., by 2006). But the global supply of oil was essentially stagnant: monthly production figures for crude oil bounced around within a fairly narrow band between 72 and 75 million barrels per day. As prices rose, production figures barely budged in response. There was every indication that all oil producers were pumping flat-out: even the Saudis appeared to be rushing to capitalize on the price bonanza.

Thus a good argument can be made that speculation in oil futures was merely magnifying price moves that were inevitable on the basis of the fundamentals of supply and demand. James Hamilton (in his publication previously cited) puts it this way: “With hindsight, it is hard to deny that the price rose too high in July 2008, and that this miscalculation was influenced in part by the flow of investment dollars into commodity futures contracts. It is worth emphasizing, however, that the two key ingredients needed to make such a story coherent—a low price elasticity of demand, and the failure of physical production to increase—are the same key elements of a fundamentals-based explanation of the same phenomenon. I therefore conclude that these two factors, rather than speculation per se, should be construed as the primary cause of the oil shock of 2007-08.”

Aftermath of the Peak

There is also controversy over to what degree troubles in the automobile, trucking, and airline industries should be attributed to the oil price spike or the economic crash. Of course, if the Alternative Diagnosis is correct, the latter two events are causally related in any case. However, it may be helpful to review the situation.

Everyone knows that GM and Chrysler went bankrupt this year because U.S. car sales cratered. The current forecast is for sales of about 10.3 million vehicles in the U.S. for 2009, down from last year’s 13.2 million and 16.1 million in 2007. U.S. car sales have not been this low since the 1970s. Sales of light trucks, the most profitable vehicles, took the biggest hit during 2008, as fuel prices soared and car buyers avoided gas-guzzlers. It was at this point that the auto companies really began feeling the pain.

The airline industry’s ills are summarized in a recent GAO document: “After 2 years of profits, the U.S. passenger airline industry lost $4.3 billion in the first 3 quarters of 2008 [as jet fuel prices climbed]. Collectively, U.S. airlines reduced domestic capacity, as measured by the number of seats flown, by about 9 percent from the fourth quarter of 2007 to the fourth quarter of 2008…To reduce capacity, airlines reduced the overall number of active aircraft in their fleets by 18 percent…Airlines also collectively reduced their workforces by about 28,000, or nearly 7 percent, from the end of 2007 to the end of 2008…The contraction of the U.S. airline industry in 2008 reduced airport revenues, passengers’ access to the national aviation system, and revenues for the Trust Fund.”(11)

For the trucking industry, fuel accounts for nearly 40 percent of total operational costs. In 2007, as diesel prices rose, carriers began losing money and added fuel price surcharges; meanwhile the volume of freight began falling. After July 2008, as oil prices crashed, tonnage continued to decline. Overall, the cumulative decrease in loads for flatbed, tanker, and dry vans ranged between 15 percent and 20 percent just in the period from June to December 2008. (12)

This last set of statistics raises a couple of questions crucial to understanding the Alternative Diagnosis: Why, if global oil production had just peaked, did petroleum prices fall in the last five months of 2008? And, if oil prices were a major factor in the economic crisis, why didn’t the economy begin to turn around after the prices softened?

Why Did Oil Prices Fall?

And Why Didn’t Lower Oil Prices Lead to a Quick Recovery?

The Peak Oil thesis predicts that, as world oil production reaches its maximum level and begins to decline, the price of oil will rise dramatically. But it also forecasts a dramatic increase in the volatility of prices.

The argument goes as follows. As oil becomes scarce, its price will rise until it begins to undermine economic activity in general. Economic contraction will then result in substantially reduced demand for oil, which will in turn cause its price to fall temporarily. Then one of two things will happen: either (a) the economy will begin to recover, stoking renewed oil demand, leading again to high prices which will again undermine economic activity; or (b), if the economy does not quickly recover, petroleum production will gradually fall due to depletion until spare production capacity (created by lower demand) is wiped out, leading again to higher prices and even more economic contraction. In both cases, oil prices remain volatile and the economy contracts.

This scenario corresponds very closely with the reality that is unfolding, though it remains to be seen whether situation (a) or (b) will ensue.

Over the past three years, oil prices rose and fell more dramatically than would have been the case if it had not been for widespread speculation in oil futures. Nevertheless, the general direction of prices—way up, then way down, then part-way back up—is entirely consistent with the Peak Oil thesis and the Alternative Diagnosis.

Why has the economy not quickly recovered, given that oil prices are now only half what they were in July 2008? Again, Peak Oil is not the only cause of the current economic crisis. Enormous bubbles in the real estate and finance sectors constituted accidents waiting to happen, and the implosion of those bubbles has created a serious credit crisis (as well as solvency and looming currency crises) that will likely take several years to resolve even if energy supplies don’t pose a problem.

But now the potential for renewed high oil prices acts as a ceiling for economic recovery. Whenever the economy does appear to show renewed signs of life (as has happened in May-July this year, with stock values rebounding and the general pace of economic contraction slowing somewhat), oil prices will take off again as oil speculators anticipate a recovery of demand. Indeed, oil prices have rebounded from $30 in January to nearly $70 currently, provoking widespread concern that high energy prices could nip recovery in the bud.(14)

A barrel of oil from newly developed sources costs in the neighborhood of $60 to produce, now that all of the cheaper prospects have been exploited: finding new oilfields today usually means drilling under miles of ocean water, or in politically unstable nations where equipment and personnel are at high risk. (15) So as soon as consumers demand more oil, the price will have to stay noticeably above that figure in order to provide the incentive for producers to drill.

Volatile oil prices hurt on the upside, but they also hurt on the downside. The oil price collapse of August-December 2008, plus the worsening credit crisis, caused a dramatic contraction in oil industry investment, leading to the cancellation of about $150 billion worth of new oil production projects—whose potential productive capacity will be required to offset declines in existing oilfields if world oil production is to remain stable. (16) This means that even if demand remains low, production capacity will almost certainly decline to meet those demand levels, causing oil prices to rise again in real terms at some point, perhaps two or three years from now. Volatile petroleum prices also hurt the development of alternative energy, as was shown during the past few months when falling oil prices led to financial troubles for ethanol manufacturers. (17)

One way or another, growth will be highly problematic if not unachievable.

Big Picture Diagnosis: Continuing the Trail of Logic

At this point in the discussion many readers will be wondering why alternative energy sources and efficiency measures cannot be deployed to solve the Peak Oil crisis. After all, as petroleum becomes more expensive, ethanol, biodiesel, and electric cars all start to look more attractive both to producers and consumers. Won’t the magic of the market intervene to render oil shortages irrelevant to future growth?

It is impossible in the context of this discussion to provide a detailed explanation of why the market probably cannot solve the Peak Oil problem. Such an explanation requires a discussion of energy evaluation criteria, and an analysis of many individual energy alternatives on the basis of those criteria. I have offered brief overviews of this subject previously and a much longer one is in press. (18)

My summary conclusions in this regard are as follows.

About 85 percent of our current energy is derived from three primary sources—oil, natural gas, and coal—that are non-renewable, whose price is likely to trend sharply higher over the next years and decades leading to severe shortages, and whose environmental impacts are unacceptable. While these sources historically have had very high economic value, we cannot rely on them in the future; indeed, the longer the transition to alternative energy sources is delayed, the more difficult that transition will be unless some practical mix of alternative energy systems can be identified that will have superior economic and environmental characteristics.

But identifying such a mix is harder than one might initially think. Each energy source has highly specific characteristics. In fact, it has been the characteristics of our present energy sources (principally oil, coal, and natural gas) that have enabled the building of an urbanized society with high mobility, large population, and high economic growth rates. Surveying the available alternative energy sources for criteria such as energy density, environmental impacts, reliance on depleting raw materials, intermittency versus constancy of supply, and the percentage of energy returned on the energy invested in energy production, none currently appears capable of perpetuating this kind of society.

Moreover, national energy systems are expensive and slow to develop. Energy efficiency likewise requires investment, and further incremental investments in efficiency tend to yield diminishing returns over time, since it is impossible to perform work with zero energy input. Where is there the will or ability to muster sufficient investment capital for deployment of alternative energy sources and efficiency measures on the scale needed?

While there are many successful alternative energy production installations around the world (ranging from small home-scale photovoltaic systems to large “farms” of three-megawatt wind turbines), there are very few modern industrial nations that now get the bulk of their energy from sources other than oil, coal, and natural gas. One example is Sweden, which obtains most of its energy from nuclear and hydropower. Another is Iceland, which benefits from unusually large domestic geothermal resources not found in most other countries. Even for these two nations, the situation is complex: the construction of the infrastructure for their power plants mostly relied on fossil fuels for the mining of the ores and raw materials, for materials processing, for transportation, for the manufacturing of components, for the mining of uranium, for construction energy, and so on. Thus a meaningful energy transition away from fossil fuels is still a matter of theory and wishful thinking, not reality.

My conclusion from a careful survey of energy alternatives, then, is that there is little likelihood that either conventional fossil fuels or alternative energy sources can be counted on to provide the amount and quality of energy that will be needed to sustain economic growth—or even current levels of economic activity—during the remainder of this century. (19)

But the problem extends beyond oil and other fossil fuels: the world’s fresh water resources are strained to the point that billions of people may soon find themselves with only precarious access to water for drinking and irrigation. Biodiversity is declining rapidly. We are losing 24 billion tons of topsoil each year to erosion. And many economically significant minerals—from antimony to zinc—are depleting quickly, requiring the mining of ever lower-grade ores in ever more remote locations. Thus the Peak Oil crisis is really just the leading edge of a broader Peak Everything dilemma.

In essence, humanity faces an entirely predictable peril: our population has been growing dramatically for the past 200 years (expanding from under one billion to nearly seven billion), while our per-capita consumption of resources has also grown. For any species, this is virtually the definition of biological success. And yet all of this has taken place in the context of a finite planet with fixed stores of non-renewable resources (fossil fuels and minerals), a limited ability to regenerate renewable resources (forests, fish, fresh water, and topsoil), and a limited ability to absorb industrial wastes (including carbon dioxide). If we step back and look at the industrial period from a broad historical perspective that is informed by an appreciation of ecological limits, it is hard to avoid the conclusion that we are today living at the end of a relatively brief pulse—a 200-year rapid expansionary phase enabled by a temporary energy subsidy (in the form of cheap fossil fuels) that will inevitably be followed by an even more rapid and dramatic contraction as those fuels deplete.

The winding down of this historic growth-contraction pulse doesn’t necessarily mean the end of the world, but it does mean the end of a certain kind of economy. One way or another, humanity must return to a more normal pattern of existence characterized by reliance on immediate solar income (via crops, wind, or the direct conversion of sunlight to electricity) rather than stored ancient sunlight.

This is not to say that the remainder of the 21st century must consist of a collapse of industrialism, a die-off of most of the human population, and a return by the survivors to a way of life essentially identical to that of 16th century peasants or indigenous hunter-gatherers. It is possible instead to imagine acceptable and even inviting ways in which humanity could adapt to ecological limits while further developing cultural richness, scientific understanding, and quality of life (more of this below).

But however it is negotiated, the transition will spell an end to economic growth in the conventional sense. And that transition appears to have begun.

How Do We Know Which Diagnosis Is Correct?

If the patient is an individual human and the cause of distress is uncertain, more diagnostic tests can be prescribed. But to what sorts of blood tests, x-rays, and CAT scans can we subject the national or global economy?

In a sense, the tests have already been done. During the past few decades thousands of scientific surveys of natural resources, biodiversity, and ecosystems have showed increasing rates of depletion and decline. (20) The continuing increase in human population, pollution, and consumption are likewise well documented. This information formed the basis for the Limits to Growth studies, previously mentioned, which use computer modeling to show how current trends are likely play out—and most resulting scenarios show them leading to an end of economic growth and a collapse of industrial output some time in the early 21st century.

Why are the results of such diagnostic tests not universally accepted as a challenge to expectations of continued growth? Primarily because their conclusion runs counter to the beliefs and proclamations of most economists, who maintain that there are no practical limits to growth. They deny that resource constraints provide an eventual cap on production and consumption. And so their diagnostic efforts tend to ignore environmental factors in favor of easily measured internal features of the human economy such as money supply, consumer confidence, interest rates, and price indices.

Ecologist Charles Hall, among many others, has argued that the discipline of economics, as currently practiced, does not constitute a science, since it proceeds primarily on the basis of correlative logic rather than through the building of knowledge by a continuous, rigorous process of proposing and testing hypotheses. (21) While economics uses complex terminology and mathematics, as science does, its basic assertions about the world—such as the principle of infinite substitutability, which holds that for any resource that becomes scarce, the market will find a substitute—are not subjected to careful experimental examination. (It is worth noting that Hall and others have made the effort to lay the conceptual foundations for a new economics based on scientific principles and methods, which they call “biophysical economics.” (22)

Moreover, mainstream economists failed on the whole to foresee the current crash. There was no consistent or concerted effort on the part of Secretaries of the Treasury, Federal Reserve Chairmen, or “Nobel” prize-winning economists to warn policy makers or the general public that, sometime in the early 21st century, the global economy would begin to come apart at the seams. (23) One might think that this predictive failure—the inability to foresee so historically significant an event as the rapid contraction of nearly the entire global economy, entailing the failure of some of the world’s largest banks and manufacturing companies—would cause mainstream economists to stop and re-examine their fundamental premises. But there is little evidence to suggest that this is occurring.

At the risk of repetition: physical scientists from several disciplines have indeed foreseen an end to economic growth in the early 21st century, and have warned policy makers and the general public on many occasions.

Whom should we believe?

The specifics of the Alternative Diagnosis are falsifiable. If economic activity were to rebound above 2007 levels, or if oil production were to rise above the July 2008 high-water mark, then the attribution of the current economic crisis to resource-tied limits to growth may be considered at least partly disproven. However, even if these things were to occur, the underlying reasoning behind the Alternative Diagnosis might still be correct. If the world oil production peak is delayed until, let us say, 2015 or 2020, and if another—this time bottomless—global economic crash results then, the ultimate outcome will be essentially the same. But if, meanwhile, the Alternative Diagnosis were to be taken seriously and acted upon, the consequences of doing so would be beneficial: a decade would have been spent preparing for the event.

Could the Alternative Diagnosis be altogether wrong? That is, might conventional economists be right in thinking that growth can continue forever? It is often said that anything is possible, but some things are clearly much more possible than others. The perpetual growth of human population and consumption within the confines of a finite planet seems like a very long shot indeed, especially since warning signs are everywhere apparent that ecological limits are already being reached and surpassed. (24)

What Not to Do: Prescribe Punishingly Expensive Placebos

If the physical scientists who warn about limits to growth are right, confronting the global economic meltdown implies far more than merely getting the banks and mortgage lenders back on their feet. Indeed, in that case we face a fundamental change in our economy as significant as the advent of the industrial revolution. We are at a historic inflection point—the ending of decades of expansion and the beginning of an inevitable period of contraction that will continue until humanity is once again living within the limits of Earth’s regenerative systems.

But there are few signs that policy makers understand any of this. Their thinking appears to be shaped primarily by mainstream economists’ assurances that growth can and must continue into the indefinite future, and that the economic contraction the world is currently experiencing is only temporary–a problem that can and must be solved.

Still, the problem is not a minor one in the eyes of economists and policy makers. Consider the gargantuan size of the Treasury and Federal Reserve bailouts and stimulus packages that have been deployed in the possibly futile attempt to end contraction and restart growth. According to the special inspector general of the U.S. government’s Troubled Asset Relief Program (TARP), in remarks submitted to the House Committee on Oversight and Government Reform on July 21, $23.7 trillion have been committed in “total potential federal government support.” This is expensive medicine indeed. It takes a moment to even begin to comprehend the enormity of the figure. It represents about half of annual world GDP, and is over three times the total amount spent by the U.S. government, in inflation-adjusted dollars, on all wars combined, from 1776 to the present. It is nearly fifty times the cost of the New Deal.

Other nations, including Britain, China, and Germany have committed to paying for stimulus packages and bailouts that, while much smaller in absolute terms, represent an impressive (or should we say frightful?) share of national GDP.

If the Alternative Diagnosis is valid, none of this will work in the end, because existing financial institutions—with their basis in debt and interest and their requirements for constant expansion—cannot be made to function in a context where energy and resource constraints impose effective caps on manufacturing and transport.

Are the bailouts and stimulus packages working? Much evidence suggests that they are not, except in limited ways. In the U.S., unemployment continues to increase, while real estate values continue to fall. And most of the reputed “green shoots” in the economy so far sighted amount merely to an arguably temporary decline in the rate of contraction. For example, the home price index released July 28 of this year showed that in May, seasonally adjusted prices fell just 0.16 percent from the previous month. That represents an annual rate of decline of a little under 2 percent, which is a substantial improvement over the annualized rate of more than 20 percent that prevailed from September 2008 through March of 2009. Many commentators seized upon this news as a sign of an imminent turnaround. Nevertheless, new home sales are down from 1.4 million per year in 2005 to 350,000 per year today, and house prices are down 50 percent from the bubble peak and still declining in most places. Moreover, manufacturing is still shrinking, small businesses are in trouble, there are still significant danger signs on the horizon, including a new round of mortgage resets, a likely dive in commercial real estate values, and the looming reality that toxic assets at the center of the banking crisis have yet to be dealt with. (25)

President Obama has made the argument that bailouts are justified to stabilize the system long enough so that leaders can make fundamental changes to institutions and regulations, enabling the economy to then go forward healthier and more immune to similar crises in the future. But there is little to suggest that the kinds of systemic changes that are actually needed (ones that would enable the economy to function during a prolonged period of contraction) are under way or even contemplated. Meanwhile, as growth-based institutions are temporarily propped up, the ultimate scale of the damage is likely only to increase: when the inevitable collapse of those institutions does come, the consequences will likely be even worse because so much capital will have been squandered in attempting to salvage them.

In using up non-renewable resources like metals, minerals, and fossil fuels, we have stolen from future generations. Now in effect we are stealing from those generations the financial wherewithal that could have been used to build a bridge to a sustainable economy. The construction of a renewable energy infrastructure (including not only generating capacity, but distribution and storage infrastructure, as well as post-petroleum transport and agriculture systems) will require enormous investments and decades of work. Where will the investment capital come from if governments are already buried in debt? If we have committed nearly $24 trillion to propping up an old economy with no real survival prospects, what’s left with which to finance the new one?

If the current prescription for our economic malady is wrong-headed, the same is true of many proposed cures for our energy problems. According to the Conventional Diagnosis, today’s high oil prices are due to speculation; the cure must therefore lie in the tighter regulation of oil futures trading (which may be a good idea, though it doesn’t get to the heart of the problem), while providing more opportunities to oil companies to explore for domestic oil (even though the likely production rates from currently off-limits reserves would be relatively paltry, and would have a negligible effect on oil prices). In fact, though, investing further in fossil fuel energy systems (including “clean coal” technology) will yield declining returns, given that the highest quality resources have already been used up; meanwhile, doing so takes investment capital away from the development of renewable energy, which we will have to rely on increasingly as fossil fuels deplete. (26)

What is required but is still utterly lacking is a fundamental recognition that circumstances have changed: what worked decades ago will not work now.

What To Do: Adapt to the New Reality

If the Alternative Diagnosis is correct, there will be no easy fix for the current economic breakdown. Some illnesses are not curable; they require that we simply adapt and make the best of our new situation.

If humanity has indeed embarked upon the contraction phase of the industrial pulse, we should assume that ahead of us lie much lower average income levels (for nearly everyone in the wealthy nations, and for high wage earners in poorer nations); different employment opportunities (fewer jobs in sales, marketing, and finance; more in basic production); and more costly energy, transport, and food. Further, we should assume that key aspects of our economic system that are inextricably tied to the need for future growth will cease to work in this new context.

Rather than attempting to prop up banks and insurance companies with trillions in bailouts, it would probably be better simply to let them fail, however nasty the short-term consequences, since they will fail anyway sooner or later. The sooner they are replaced with institutions that serve essential functions within a contracting economy, the better off we will all be.

Meanwhile the thought-leaders in society, especially the President, must begin breaking the news—in understandable and measured ways—that growth isn’t returning and that the world has entered a new and unprecedented economic phase, but that we can all survive and thrive in this challenging transitional period if we apply ourselves and work together. At the heart of this general re-education must be a public and institutional acknowledgment of three basic rules of sustainability: growth in population cannot be sustained; the ongoing extraction of non-renewable resources cannot be sustained; and the use of renewable resources is sustainable only if it proceeds at rates below those of natural replenishment.

Without cheap energy, global trade cannot increase. This doesn’t mean that trade will disappear, only that economic incentives will inexorably shift as transport costs rise, favoring local production for local consumption. But this may be a nice way of putting it: if and when fuel shortages arise, fragile globe-spanning systems of provisioning could be disrupted, with dire effects for consumers cut off from sources of necessary products. Thus a high priority must be placed on the building of community resilience through the preferential local sourcing of necessities and the maintenance of larger regional inventories—especially of food and fuel. (28)

It currently takes an average of 8.5 calories of energy from oil and natural gas to produce each calorie of food energy. Without cheap fuel for agriculture, farm production will plummet and farmers will go bankrupt—unless proactive efforts are undertaken to reform agriculture to reduce its reliance on fossil fuels. (29)

Obviously, alternative energy sources and energy efficiency strategies must be high priorities, and must be subjects of intensive research using a carefully chosen spectrum of criteria. The best candidates will have to be funded robustly even while fossil fuels are still relatively cheap: the build-out time for the renewable energy infrastructure will inevitably be measured in decades and so we must begin the process now rather than waiting for market forces to lead the way.

In the face of credit and (potential) currency crises, new ways of financing such projects will be needed. Given that our current monetary and financial systems are founded on the need for growth, we will require new ways of creating money and new ways of issuing credit. Considerable thought has gone into finding solutions to this problem, and some communities are already experimenting with local capital co-ops, alternative currencies, and no-interest banks. (30)

With oil becoming increasingly expensive in real terms, we will need more efficient ways of getting people and goods around. Our first priority in this regard must be to reduce the need for transport with better urban planning and re-localized production systems. But where transport is needed, rail and light rail will probably be preferable to cars and trucks. (31)

We will also need a revolution in the built environment to minimize the need for heating, cooling, and artificial lighting in all our homes and public buildings. This revolution is already under way, but is currently moving far too slowly due to the inertia of established interests in the construction industry. (32)

These projects will need more than local credit and money; they will also require skilled workers. There will be a call not just for installers of solar panels and home insulation: millions of new food producers and builders of low-energy infrastructure will be needed as well. A broad range of new opportunities could open up to replace vanishing jobs in marketing and finance—if there is cheap training available at local community colleges.

It is worth noting that the $23.7 trillion recently committed for U.S. bailouts and loan guarantees represents about $80,000 for each man, woman, and child in America. A level of investment even a substantial fraction that size could pay for all needed job training while ensuring universal provision of basic necessities during the transition. What would we be getting for our money? A collective sense that, in a time of crisis, no one is being left behind. Without the feeling of cooperative buy-in that such a safety net would help engender, similar to what was achieved with the New Deal but on an even larger scale, economic contraction could devolve into a horrific fight over the scraps of the waning industrial period.

However contentious, the population question must be addressed. All problems that have to do with resources are harder to solve when there are more people needing those resources. The U.S. must encourage smaller families and must establish an immigration policy consistent with a no-growth population target. This has foreign policy implications: we must help other nations succeed with their own economic transitions so that their citizens do not need to emigrate to survive. (33)

If economic growth ceases to be an achievable goal, society will have to find better ways of measuring success. Economists must shift from assessing well-being with the blunt instrument of GDP, and begin paying more attention to indices of human and social capital in areas such as education, health, and cultural achievements. This redefinition of growth and progress has already begun in some quarters, but for the most part has yet to be taken up by governments. (34)

A case can be made that after all this is done the end result will be a more satisfying way of life for the vast majority of citizens—offering more of a sense of community, more of a connection with the natural world, more satisfying work, and a healthier environment. Studies have repeatedly shown that higher levels of consumption do not translate to elevated levels of satisfaction with life. (35) This means that if “progress” can be thought of in terms of happiness, rather than a constantly accelerating process of extracting raw materials and turning them into products that themselves quickly become waste, then progress can certainly continue. In any case, “selling” this enormous and unprecedented project to the general public will require emphasizing its benefits. Several organizations are already exploring the messaging and public relations aspects of the transition. (36) But those in charge need to understand that looking on the bright side doesn’t mean promising what can’t be delivered—such as a return to the days of growth and thoughtless consumption.

Can We? Will We?

It is important to state the implications of all this as plainly as possible. If the Alternative Diagnosis is correct, there will be no full economic “recovery”—not this year, or the next, or five or ten years from now. There may be temporary rebounds that take us back to some fraction of peak economic activity, but these will be only brief respites.

We have entered a new economic era in which the former rules no longer apply. Low interest rates and government spending no longer translate to incentives for borrowing and job production. Cheap energy won’t appear just because there is demand for it. Substitutes for essential resources will in most cases not be found. Over all, the economy will continue to shrink in fits and starts until it can be maintained by the energy and material resources that Earth can supply on ongoing basis.

This is of course very difficult news. It is analogous to being told by your physician that you have contracted a systemic, potentially fatal disease that cannot be cured, but only managed; and managing it means you must make profound lifestyle changes.

Some readers may note that climate change has not figured prominently in this discussion. It is clearly, after all, the worst environmental catastrophe in human history. Indeed, its consequences could be far worse than the mere destruction of national economies: hundreds of millions of people and millions of other species could be imperiled. The reason for the relatively limited discussion of climate here is that (assuming the Alternative Diagnosis is correct) it is not climate change that has proven to be the most immediate limit to economic growth, but resource depletion. However, while there is not as yet general agreement on the point, climate change itself and the needed steps to minimize it both constitute limits to growth, just as resource depletion does. Moreover, if we fail to successfully manage the inevitable process of economic contraction that will characterize the coming decades, there will be no hope of mounting an organized and coherent response to climate change—a response consisting of efforts both to reduce climate impacts and to adapt to them. It is important to note, though, that the measures advocated here (including the development of renewable energy sources and energy efficiency, a rapid reduction of reliance on fossil fuels in transport and agriculture, and the stabilization of population levels) are among the steps that will help most to reduce carbon emissions.

Is this essay likely to change the thinking and actions of policy makers? Unfortunately, that is unlikely. Their belief in the possibility and necessity of continued growth is pervasive, and the notion that growth may no longer be possible is unthinkable. But the Alternative Diagnosis must be a matter of record. This essay, composed by a mere journalist, in many ways represents the thinking of thousands of physical scientists working over the past several decades on issues having to do with population, resources, pollution, and biodiversity. Ignoring the diagnosis itself—whether as articulated here or as implied in tens of thousands of scientific papers—may waste our last chance to avert a complete collapse, not just of the economy, but of civility and organized human existence. It may risk a historic discontinuity with qualitative antecedents in the fall of the Roman and Mayan civilizations. (37) But there is no true precedent for what may be in store, because those earlier examples of collapse affected geographically bounded societies whose influence on their environments was also bounded. Today’s civilization is global, and its fate, Earth’s fate, and humanity’s fate are inextricably tied.

But even if policy makers continue to ignore warnings such as this, individuals and communities can take heed and begin the process of building resilience, and of detaching themselves from reliance on fossil fuels and institutions that are inextricably tied to the perpetual growth machine. We cannot sit passively by as world leaders squander opportunites to awaken and adapt to growth limits. We can make changes in our own lives, and we can join with our neighbors. And we can let policy makers know we disapprove of their allegiance to the status quo, but that there are other options.

Is it too late to begin a managed transition to a post-fossil fuel society? Perhaps. But we will not know unless we try. And if we are to make that effort, we must begin by acknowledging one simple, stark reality: growth as we have known it can no longer be our goal.

Notes

1. “Pain on the Road to Recovery”. (http://www.smh.com.au/national/pain-on-the-road-to-recovery-20090724-dw6q.html?page=-1).

2. Here, for example, are a few relevant excerpts from the present author’s book The Party’s Over: Oil, War and the Fate of Industrial Societies (Gabriola Island, BC: New Society, 2003): “Our current financial system was designed during a period of consistent growth in available energy, with its designers operating under the assumption that continued economic growth was both inevitable and desirable. This ideology of growth has become embodied in systemic financial structures requiring growth…Until now, this loose linkage between a financial system predicated upon the perpetual growth of the money supply, and an economy growing year by year because of an increasing availability of energy and other resources, has worked reasonably well—with a few notable exceptions, such as the Great Depression… However, [when global oil production peaks] the financial system may not respond so rationally…This might predictably trigger a financial crisis…”

3. See Albert Bartlett, “Arithmetic, Population and Energy” (lecture transcript). (http//www.globalpublicmedia.com/transcripts/645).

4. Donella H. Meadows, Dennis L. Meadows, Jorgen Randers, and William W. Behrens III, Limits to Growth (New York: Universe Books, 1972); Donella H. Meadows, Dennis L. Meadows, and Jorgen Randers, Beyond the Limits (Post Mills, VT: Chelsea Green, 1992); Donella H. Meadows, Dennis L. Meadows, and Jorgen Randers, Limits to Growth: The 30 Year Update (White River Junction, VT: Chelsea Green, 2003). See also the recent CSIRO study, “A Comparison of the Limits to Growth with Thirty Years of Reality” (2009) (http://www.csiro.au/files/files/plje.pdf).

5. See, for example, Robert U. Ayers and Benjamin Warr, The Economic Growth Engine: How Energy and Work Drive Material Prosperity (Cambridge, UK: Edward Elgar Publishing, 2005); and Robert Barro and Xavier Sala-i-Martin, Economic Growth (Cambridge, MA: MIT Press, 2003) (http://www.bookrags.com/research/economic-growth-and-energy-consumpt-mee-01/).

6. See Richard Heinberg, The Party’s Over: Oil, War and the Fate of Industrial Societies (2003, 2005); Powerdown: Options and Actions for a PostCarbon World (2004); and The Oil Depletion Protocol: A Plan to Avert Oil Wars, Terrorism, and Economic Collapse (2006); as well as books by Kenneth Deffeyes, Colin Campbell, and Matthew Simmons; and websites www.theoildrum.com and www.energybulletin.net. The Association for the Study of Peak Oil organizes international conferences to study issues related to oil and gas depletion (www.peakoil.net and www.aspo-usa.com), and the U.S. chapter of ASPO publishes a weekly survey of relevant news, “Peak Oil Review,” compiled by former CIA analyst Tom Whipple. At the annual Association for the Study of Peak Oil conference in Cork, Ireland, in September 2007, former U.S. Energy Secretary, James Schlesinger, said: “Conceptually the battle is over. The peakists have won. We’re all peakists now.” See also Steve Connor, “Warning: Oil supplies are running out fast,” The Independent, August 3, 2009 (http://www.independent.co.uk/news/science/warning-oil-supplies-are-running-out-fast-1766585.html).

7. The declining rate of discovery of new oilfields, and the list of past-peak oil producing countries, are widely documented; e.g.: Roger D. Blanchard, The Future of Global Oil Production: Facts, Figures, Trends and Projections by Region (Jefferson, NC: McFarlane and Co., 2005).

8. A May 4, 2009 report from Raymond James Associates (“Stat of the Week”) argued that world oil production peaked in July 2008 (http://blogs.wsj.com/environmentalcapital/2009/05/04/peak-oil-global-oil-productions-peaked-analyst-says/). In a subsequent interview, Marshall Adkins, author of the report, suggested that most knowledgeable players within the petroleum industry now accept the Peak Oil thesis in some form, whether or not they acknowledge it publicly (http://www.aspousa.org/index.php/2009/07/interview-with-marshall-adkins/).

9. Brookings Papers on Economic Activity, March 2009 (http://eepurl.com/cSPu).

10. See Joe Cortright, “Driven to the Brink: How the Gas Price Spike Popped the Housing Bubble and Devalued the Suburbs,” Discussion paper, CEOs for Cities, 2008 (http://www.ceosforcities.org/).

11. U.S. Government Accountability Office, “Commercial Aviation: Airline Industry Contraction Due to Volatile Fuel Prices and Falling Demand Affects Airports, Passengers, and Federal Government Revenues,” April 21, 2009 (http://www.gao.gov/products/GAO-09-393). For a detailed discussion of the likely future impacts of high oil prices and oil shortages on the airline industry, see Charles Schlumberger, “The Oil Price Spike of 2008: The Result of Speculation or an Early Indicator of a Major and Growing Future Challenge to the Airline Industry?” Annals of Air and Space Law, Vol. XXXIV, [2009], McGill University (http://www.globalpublicmedia.com/the_oil_price_spike_of_2008).

12. American Trucking Association (http://www.truckline.com/Pages/Home.aspx).

13. This scenario is implied in Robert L. Hirsch, Roger Bezdek, and Robert Wendling, “Peaking of World Oil Production: Impacts, Mitigation and Risk Management” (U.S. Department of Energy: 2005): “As peaking is approached, liquid fuel prices and price volatility will increase dramatically…” (http://www.netl.doe.gov/publications/others/pdf/Oil_Peaking_NETL.pdf).

14. See, for example, “Troubling Signs That Oil Prices Could Hamper Recovery,” Wall Street 24/7, May 8, 2009 (http://247wallst.com/2009/05/08/troubling-signs-that-oil-prices-could-hamper-recovery/)

15. See, for example, James Herron, “Low Oil Prices, Credit Woes Could Spell Trouble for UK North Sea,” Rigzone, November 14, 2008 (http://www.rigzone.com/news/article.asp?a_id=69507).

16. Jad Mouawad, “Big Oil Projects Put in Jeopardy by Fall in Prices,” New York Times, December 15, 2008 (http://www.nytimes.com/2008/12/16/business/16oil.html).

17. See David R. Baker, “Low oil prices take wind out of renewable fuels,” San Francisco Chronicle, October 27, 2008 (http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/10/26/MNSK13NNK4.DTL).

18. See The Party’s Over, Chapter 4; Powerdown, Chapter 4; The Oil Depletion Protocol, pages 23-31. A longer treatment of the subject, tentatively titled Energy Limits to Growth, will be published by International Forum on Globalization and Post Carbon Institute in September.

19. This conclusion is echoed in, for example, Ted Trainer, Renewable Energy Cannot Sustain a Consumer Society (Dordrecht, The Netherlands: Springer, 2007); and (with some reservations), David J. C. McKay, Sustainable Energy Without the Hot Air (Cambridge, UK: UIK Cambridge, 2008), (www.withouthotair.com).

20. Just one example, from a press release April 20, 1998 describing the results of a poll commissioned by the American Museum of Natural History: “The American Museum of Natural History announced today results of a nationwide survey titled Biodiversity in the Next Millennium, developed by the Museum in conjunction with Louis Harris and Associates, Inc. The survey reveals that seven out of ten biologists believe that we are in the midst of a mass extinction of living things, and that this loss of species will pose a major threat to human existence in the next century.”

21. Charles A. S. Hall and Kent A. Klitgaard, International Journal of Transdisciplinary Research, Vol. 1, No. 1 (2006) (http://www.peakoil.net/files/the%20need%20for%20a%20new%20biophysical-based%20paradigm%20in%20economics%20….pdf) “The Need for a New, Biophysical-Based Paradigm in Economics for the Second Half of the Age of Oil,”, Charles A. S. Hall, D. Lindenberger, R. Kummell, T. Kroeger and W. Eichorn, “The Need to Reintegrate the Natural Sciences with Economics.” Bioscience 51:663-673, 2001 (http://web.mac.com/biophysicalecon/iWeb/Site/Downloads_files/Hall_2001_NeedtoReintegrate.pdf).

22. Cutler J. Cleveland, “Biophysical Economics, The Encyclopedia of Earth (http://www.eoearth.org/article/Biophysical_economics). See also the related field of Ecological Economics, especially the books of Herman Daly, including Toward a Steady State Economy (New York: Freeman, 1973); and, with Joshua Farley, Ecological Economics: Principles and Applications (Washington: Island Press, 2004).

23. The quotation marks around the Nobel name are justified because the Nobel family has never acknowledged economics as a science: the so-called “Nobel prize in economics” is awarded by a Swedish Bank.

24. See The Millennium Ecosystem Assessment (http://www.millenniumassessment.org/en/index.aspx).

25. See, for example, J. S. Kim, “Irrational Exuberance of the Green Shoots,” July 24, 2009 (http://seekingalpha.com/article/151101-irrational-exuberance-of-the-green-shoots).

26. See Richard Heinberg, Blackout: Coal, Climate and the Last Energy Crisis (Gabriola Island, BC: New Society, 2009), pages 137-143, 145-168.

27. The opinion that banks and insurance companies should be allowed to fail rather than being bailed out was voiced by many knowledgeable observers throughout late 2008 and early 2009. See for example Ambrose Evans-Pritchard, “Let banks fail, says Nobel economist Joseph Stiglitz,” London Daily Telegraph, Feb. 2, 2009 (http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/4424418/Let-banks-fail-says-Nobel-economist-Joseph-Stiglitz.html).

28. See Jeff Rubin, Why Your World Is About to Get a Whole Lot Smaller: Oil and the End of Globalization. (New York: Random
House, 2009).

29. See Richard Heinberg and Michael Bomford, “The Food and Farming Transition” (Sebastopol, CA: Post Carbon Institute, 2009) (http://postcarbon.org/food).

30. See Bernard Lietaer, “White Paper on All the Options for Managing a Systemic Bank Crisis” (http://www.lietaer.com/images/White_Paper_on_Systemic_Banking_Crises_final.pdf). JAK in Sweden is a cooperative, member-owned bank that operates without interest (http://en.wikipedia.org/wiki/JAK_members_bank).

31. See Richard Gilbert and Anthony Perl, Transport Revolutions: Moving People and Freight Without Oil (Gabriola Island, BC: New Society, 2009).

32. The Passivhaus Institute pioneers construction methods that reduce energy input to buildings in many cases to zero. Roughly 20,000 Passivhauses have been built in Europe, only about 12 in the U.S. (http://www.passivehouse.us/)

33. See websites of Population Media Center (http://www.populationmedia.org/issues/), and SUSPS (http://www.susps.org/overview/immigration.html).

34. The organization Redefining Progress has developed a Genuine Progress Indicator (GPI) that incorporates many such indices (http://www.rprogress.org/sustainability_indicators/genuine_progress_indicator.htm).

35. See, for example, “Understanding Human Happiness and Well-Being,” The Sustainable Scale Project (http://www.sustainablescale.org/AttractiveSolutions/UnderstandingHumanHappinessandWellBeing.aspx).

36. The burgeoning Transition Town movement (www.transitiontowns.org/) proceeds from the premise that “life can be better without fossil fuels.” YES! Magazine (www.yesmagazine.org) is a publication of the Positive Futures Network and highlights examples of low-impact ways of living that bring personal and social benefits. And the Simple Living Network (www.simpleliving.net/) provides “resources, tools, examples and contacts for conscious, simple, healthy and restorative living.”

37. See Jared Diamond, Collapse How Societies Choose to Fail or Succeed (New York: Viking, 2005); Joseph Tainter, The Collapse of Complex Societies (Cambridge, UK: Cambridge University Press, 1988); and John Michael Greer, The Long Descent (Gabriola Island, BC: New Society, 2008).

Richard Heinberg is a Senior Fellow of the Post Carbon Institute and author of five books on resource depletion and societal responses to the energy problem. www.richardheinberg.com, www.postcarbon.org.

#207: Peak Oil Day

MuseLetter 207 / July 2009 by Richard Heinberg
Download printable PDF version here (PDF, 91 KB)

On July 11, 2008, the price of a barrel of oil hit a record $147.27 in daily trading. That same month, world crude oil production achieved a record 74.8 million barrels per day.

For years prior to this, a growing legion of analysts had been arguing that world oil production would max out around the year 2010 and begin to decline for reasons having to do with geology (we have found and picked the world’s “low-hanging fruit” in terms of giant oilfields), as well as lack of drilling rigs and trained exploration geologists and engineers. “Peak Oil,” they insisted, would mark the end of the growth phase of industrial civilization, because economic expansion requires increasing amounts of high-quality energy.

During the period from 2005 to 2008, as oil’s price steadily rose, production remained stagnant. Though new sources of oil were coming on line, they barely made up for production declines in existing fields due to depletion. By mid-2008, as oil prices wafted to the stratosphere, every petroleum producer responded to the obvious incentive to pump every possible barrel. Production rates nudged upward for a couple of months, but then both prices and production fell as demand for oil collapsed.

Since then, with oil prices much lower, and with credit tight to unavailable, up to $150 billion of investments in the development of future petroleum production capacity have evaporated. This means that if a new record production level is to be achieved, further declines in production from existing fields have to be overcome, meaning that all of those canceled production projects, and many more in addition, will have to be quickly brought on-stream. It may not be physically possible to turn the tide at this point, given the fact that the new “plays” are technically demanding and therefore expensive to develop, and have limited productive potential.

On May 4 of this year, Raymond James Associates, a prominent brokerage specializing in energy investments, issued a report stating, “With OPEC oil production apparently having peaked in 1Q08, and non-OPEC even earlier in 2007, peak oil on a worldwide basis seems to have taken place in early 2008.” This conclusion is being echoed by a cadre of other analysts.

Maybe it’s a stretch to say that the production peak occurred at one identifiable moment, but attributing it to the day oil prices reached their high-water mark may be a useful way of fixing the event in our minds. So I suggest that we remember July 11, 2008 as Peak Oil Day.

We are now approaching the first-year anniversary of Peak Oil Day. Where are we now? The global economy is in tatters, yet oil prices have recovered somewhat (they’re now about half what they were in July 2008). World energy consumption is down, world trade is down, the airline industry is shrinking, and most of the world’s automakers are on life support.

It is too late to prepare for Peak Oil–a year too late, in fact. Now the name of the game is adaptation. We are in an entirely new economic environment, in which old assumptions about the inevitability of perpetual growth, and the usefulness of leveraging investments based on expectations of future growth, are crashing in flames. Even if economic activity picks up somewhat, this will occur in the context of an economy significantly smaller than the one that existed in July 2008, and energy scarcity will quickly cause most green shoots to wither.

It is impossible to say what will happen in the future with regard to oil prices. Clearly, very high prices kill demand by undercutting economic activity. Thus it is possible that the barrel price of petroleum may never break last year’s record. On the other hand, if the value of the dollar were to collapse, then the sky’s the limit for prices in dollars per barrel.

It is easier to forecast the oil supply trend: though we’ll see level-to-rising production temporarily from time to time, in general it’s down, down, downhill from now on.

Even though Peak Oil is now in the past, its annual commemoration on Peak Oil Day may serve an important purpose by reminding us why our economy is shrinking, and by focusing our thoughts on ways to facilitate the transition to a post-petroleum world.

What are some appropriate ways to commemorate <ahttp://www.thepetitionsite.com/1/peak-oil-dayPeak Oil Day? I'd suggest spending time in nature, engaging in a 24-hour oil fast, or organizing a neighborhood bicycle parade and solar-cooker bakeoff.

Mark your calendar. What will you be doing on July 11?

Help us “celebrate” Peak Oil Day by signing our petition.

2. Interview with Hervé Duval (www.voltairenet.org)

HD: We were told by most media that the origin of the financial crisis is to be found within the financial system. Is that satisfactory to you or, as you hinted with foresight in The Party’s Over, could the lack of confidence in future growth due to cheap oil production peaking also be a major factor?

RH: In 2008 we saw the biggest energy price spike ever. Historically, energy price spikes have always led to recessions. Therefore it would have been reasonable to expect a serious recession beginning around the first quarter of 2008. In fact, the recession began somewhat earlier and has proven to be deeper and more persistent than any other in recent decades. This is because a financial collapse had also become more or less inevitable due to the existence of multiple bubbles in the housing and finance sectors.

The impacts on the airline, trucking, and automotive industries are largely from energy prices; the fall in real estate values and rise in foreclosures is not so directly related to oil.

However, at the deepest level, our societal expectation of perpetual economic growth is based on the assumption that we will always have increasing amounts of cheap energy with which to power the engines of production and distribution. This expectation of growth became institutionalized in ever-increasing levels of debt and in increased financial leveraging. Thus when the amount of energy available started to level off or decline, the entire financial house of cards came tumbling down.

Unfortunately, world leaders have largely misunderstood the crisis. They assume it to be entirely financial in origin, and they also assume it to be transient; they believe that if we can prop up the banks sufficiently, the economy will begin to grow again and all will be well. In fact, our current financial system cannot be made to function in an era of declining energy supplies. We need an economy that can supply basic human needs without increasing the rate at which we consume resources. That will require the creation of monetary systems and financial institutions that are not based on debt, interest, and leveraging.

HD: Do you think speculation on energy markets is going to gather pace again in spite of last year’s episode? If so, according to you what is the best solution for the snake to stop eating its own tail?

RH: Speculation in energy futures is not helpful in our collective process of adjusting to the winding down of the era of cheap fuel. Without some controls on the futures market, we are likely to see more big swings in fossil fuel prices, as we witnessed over the past 18 months. When fuel prices skyrocket, the economy takes an enormous hit–again, as we have just seen. When the price collapses, that discourages investment in future energy production.

OPEC has actually helped somewhat to moderate these price swings by increasing or decreasing production to keep the oil price steadier than it would otherwise be. But OPEC is losing its already limited ability to do this, because most member nations are seeing declining production and have little or no spare production capacity. Saudi Arabia is the only major swing producer left, and one nation really cannot balance production rates for the whole world much longer.

The only real solution is some sort of international agreement to ration production and consumption, as I suggest in my book The Oil Depletion Protocol.

HD: What do you think of the growing number of scientists casting doubt on the human origin of climate change? Within the peak oil movement, people like Jean Laherrère are also very skeptical…

RH: I’m not aware that the number of scientists casting doubt on the human origin of current climate change is growing; my perception is the opposite. Yes, I know that Jean Laherrère, whom I respect enormously, has raised questions on this score. As a geologist, he is accustomed to thinking in terms of millions of years, and the Earth’s climate is indeed quite variable on such long time-scales. And so I can understand why he might wonder whether what we are seeing now is due to climate processes involving changes in solar radiation, eccentricities in the Earth’s orbit–the well-known Milankovitch effect–and changes in ocean circulation patterns. However, climate scientists have thoroughly investigated the likely role of factors other than carbon emissions and found that they are insufficient to explain the warming that is currently occurring.

Essentially, I concur with the conclusion of most climate scientists: that we humans are taking an inherently unstable system–the atmosphere and climate–and forcing it to its breaking point by adding enormous quantities of greenhouse gases.

HD: What do you think about this hypothesis: the international carbon trade project is but a way for the financial elite to keep afloat and for the financially rich/resource poor countries to obtain the right to burn the last fossil fuel reserves in exchange for money and thus deprive financially poor/resource rich countries of the right to develop? To put it another way, the heart of the matter is not really “Are we going to burn the last fossil fuel reserves?” (we surely are, lest we give up on economical growth), but “Who is going to burn them?”.

RH: I am skeptical of international carbon trading schemes for many reasons, including the fact that they will result in the creation of an enormous derivatives market that will require tight regulation if huge financial bubbles and crashes are to be avoided. Carbon caps are necessary, but there are probably better ways of enforcing those caps than the creation of a new class of derivatives; for example, a rationing system that engages the entire citizenry, such as Tradeable Energy Quotas (TEQs), could work.

In the end, fossil fuels will be used by those who can pay for them. Sometimes this occurs indirectly: China burns coal on behalf of North America and Europe so that it can produce cheap goods for export.

In any case, however, development based on consumption of fossil fuels is no longer a path to wealth and security, as it was in the early 20th century. Today it is a trap. It merely creates dependence upon energy sources that are becoming more scarce and expensive. Poor nations will now be much better off avoiding that trap altogether.

I realize that this is much easier for a mere a journalist to say than for a leader of some nation whose people have been denied the benefits of the modern era. However, this is one of the stark realities of this still-new century.

HD: What should be the priority in terms of public decision-making? Preparing for the energy crisis or climate change?

RH: In many respects, the solutions to both problems are similar: reduce fossil fuel dependency, and increase renewable energy production.

However some proposed solutions to the climate crisis make no sense in light of fossil fuel supply limits. An example is the capture and storage of carbon from coal-fired power plants. This is a project that will require enormous investment and decades for deployment; but meanwhile, coal prices will be escalating, and this fact is seldom included in the cost estimates for “clean coal.” The peak of world coal production is probably less than two decades away, as I discuss in my new book Blackout: Coal, Climate and the Last Energy Crisis. It therefore makes more sense to use scarce investment capital to build renewable energy production capacity rather than to build a vast, costly infrastructure to support continued use of a depleting, increasingly expensive, carbon-intensive fuel.

HD: Do you see an increasing trend toward resource conflicts? If so, how do you explain it?

RH: This is to be expected. Humans have always fought over essential resources. Now that the energy resources that fuel modern society are poised to become more scarce and valuable, it is foreseeable that conflict over control of those resources will increase. Given this, it is incumbent upon policy makers at the national level to anticipate where such conflicts are likely to erupt, and to seek to prevent them. Ultimately the only way to do so is to reduce competition for those resources by reducing dependence upon them where possible (some resources, such as water, we simply cannot do without), and by forging agreements to limit production and consumption of fossil fuels via depletion protocols.

But of course this will require an enormous shift in attitude on the part of world leaders. Currently their thinking revolves entirely around gaining competitive advantage–in essence, they are more interested in knowing how to win resource conflicts than in how to avoid them. And that is an increasingly dangerous way of thinking as the world becomes more populous and resource-constrained.

HD: According to you, how big is the part played by the increase in fuel/fertilizer/pesticides costs in the developing food crisis?

RH: There are some aspects of the food crisis that do not immediately seem to be related to fossil fuel dependency. For example, there are increasing shortages of fresh water for irrigation–but many times this is due to climate change, which is in turn due to carbon emissions from the burning of fossil fuels. Then there is soil erosion–but this is often caused by modern industrial production methods involving the use of tractors and other fuel-fed farm machinery. Another factor is the genetic uniformity of modern crops, which makes them more susceptible to evolving pests, and hence requires the use of more petroleum-based pesticides. As one follows out the causal chains leading to these disparate threats to our food system, nearly all of them tend to lead back to one source.

Altogether, our modern fuel-based food system is critically vulnerable on many levels, and most of that vulnerability is traceable to our reliance on fossil fuels. The inevitable reduction in the supply of tractor fuel will hurt farmers, and agricultural chemicals will become increasingly unaffordable. High petroleum prices will make the long-distance distribution of food more costly. Climate change and drought will shrink crop yields.

We face a global food crisis that is entirely foreseeable, and whose causes are obvious. The needed policies are also obvious: we must reform our entire food system so as to reduce its reliance on fuel.

HD: Can you tell us briefly about the goals and impact so far of the work you are doing with your colleagues at Post Carbon Institute?

RH: Currently we are assembling a stellar group of Fellows who share a similar understanding of the global crisis, and who are interested in collaborating with regard to public education. We see this as a critical historical moment for rethinking our culture’s basic assumptions about economic growth, energy consumption, food systems, climate change, and population–issues that are closely intertwined, but rarely addressed systemically by policy makers.

At the same time, Post Carbon Institute is working closely with the Transition Initiatives, which is a grass-roots network of communities seeking to promote a post-fossil fuel economy. Unless needed policy changes are being adopted, modeled, experimented with, and promoted by individuals and communities, national leaders will continue to drag their feet.

We see the current economic crisis as a fundamental and historic turning point. The global economy has reached non-negotiable limits to growth. Now everything depends upon our willingness to cooperatively adapt to those limits.

We believe that life can in fact be better without fossil fuels, and without continual growth in population and consumption. But the transition from our current fuel-fed growth paradigm to a steady-state, renewable-energy future will likely be very difficult. Humanity will get there one way or another: resource limits ensure that. We simply want to make the transition easier, fairer, and more survivable for all concerned.