What Peak Oil?

Is peak oil imminent? Lots of people seem to think so.

The data (released by BP a company who have a vested interest in oil scarcity) don’t agree. Proved reserves keep increasing:

The oil in the ground will run out some day. But as the discovery of proven reserves continues to significantly outpace the rate of extraction, the claims that we’re facing immediate shortages looks trashy.

Some may try to cast doubt on these figures, saying that BP are counting inaccessible reserves, and that we must accept that while there are huge quantities of shale oil in the ground, the era of cheap and readily accessible oil is over. They might cite the idea that oil prices are much higher than they were ten years ago. Yet this is mostly a monetary phenomenon resulting from excessive money creation beyond the economy’s productive capacity. Priced in gold, oil is still very cheap — almost as cheap as it has ever been:

The argument that the vast majority of counted reserves are economically inaccessible is fundamentally flawed. In the long run there is only one equation that really matters in determining whether oil is extractable, and that is whether there is a net energy gain; whether energy-in exceeds energy-out. If there’s a net energy gain, it’s feasible. Certainly, we are moving toward a higher cost of energy extraction. Shale oil (for example) has a lower net energy gain than conventional oil, but still typically produces five times as much energy as is consumed in extraction.

But the Earth’s extractable hydrocarbons will eventually dry up, whether that’s in 500 years or 200 years. If we want humanity to have a long-term future on Earth, we need to move to renewables; solar, hydroelectric, thorium, synthetic hydrocarbons. And the market will ensure that, eventually — as the cost of renewable energy continues to fall, more and more of us will adopt it. I don’t buy the myth that markets are stupid — if humanity needs renewable energy (I believe we do) the market will see to it (I believe that is slowly happening). Markets are just the sum of human preferences.

According to the International Renewable Energy Institute:

Power from renewable energy sources is getting cheaper every year, according to a study released Wednesday, challenging long-standing myths that clean energy technology is too expensive to adopt. The costs associated with extracting power from solar panels has fallen as much as 60 percent in just the past few years.The price of  from other renewables, including wind, , concentrating solar power and biomass, was also falling.

So no. I’m not lying awake at night worrying about imminent peak oil. There’s plenty of extractable oil, and renewable energy will eventually supplement and replace it. But will politics get in the way of energy extraction? The United States has huge hydrocarbon reserves, yet regulation is preventing drilling and shipment, leaving America dependent on foreign oil. And the oil companies themselves are largely to blame — after Deepwater Horizon, should anyone be surprised that politicians and the public want to strangle the oil industry?

If there’s an imminent energy crisis, it will be man-made. It will come out of the United States’ dependency on foreign oil. Or out of an environmental catastrophe caused by mismanagement and graft (protected cartels like the energy industry always lead to mismanagement). Or out of excessive red tape. Or war.

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The Real Problem with Carbon Trading

A reader brings a bizarre leaked e-mail to my attention:

date: Mon, 18 May 1998 10:00:38 +010 ???
from: Trevor Davies ???@uea.ac.uk
subject: goldman-sachs
to: ???@uea,???@uea,???@uea

Jean,

We (Mike H) have done a modest amount of work on degree-days for G-S. They
now want to extend this. They are involved in dealing in the developing
energy futures market.

G-S is the sort of company that we might be looking for a ”strategic
alliance” with. I suggest the four of us meet with ?? (forgotten his name)
for an hour on the afternoon of Friday 12 June (best guess for Phil & Jean
– he needs a date from us). Thanks.

Trevor

++++++++++++++++++++++++++
Professor Trevor D. Davies
Climatic Research Unit
University of East Anglia
Norwich NR4 7TJ
United Kingdom

Tel. +44 ???
Fax. +44 ???
++++++++++++++++++++++++++

Now, I don’t really have any problem with the idea that a highly active and productive species like human beings can heavily influence our climate. In fact, I think there is a good deal of circumstantial evidence to suggest that we have been doing it for millennia.

From the Economist:

The ice-core record shows that the level of carbon dioxide in the atmosphere made an anomalous upturn about 7,000 years ago, and that methane levels, which were also falling, began to increase about 5,000 years ago. These numbers correspond well with the rise of farming in Europe and Asia.

The implication is that this small uptick in greenhouse gases has warmed the Earth, staving off new glaciation and thereby creating conditions beneficial to the development of modern civilisation.

So my real problem is with the view that somehow humanity can accurately predict future climactic trends via simulations and models. The idea that economies are simply too complex to accurately model applies even more to climates, which are vastly more complicated systems. Nonetheless, human activity seems to have caused atmospheric changes:

While we can’t reliably predict what the precise results of this will be, keeping global greenhouse gas levels close to the pre-industrial ones seems to be a good insurance policy. 

Imposing emissions limitations using carbon credits which can then be traded on exchanges is no such thing. Why?

  1. It does not address atmospheric greenhouse gas levels; it merely affects emissions. Stabilising greenhouse gas levels requires removing gases from the atmosphere, either through traditional means like planting new forests, or through exotic technologies like carbon-scrubbing.
  2. It creates systemic financial fragility; imposing an artificial cap on emissions in an economy which is still heavily-carbon based will in all-likelihood lead to some form of carbon derivatives bubble. A widespread transition to alternative energy — supposedly, what is to be encouraged — would reduce the value of carbon credits, which would mean big losses for speculators. It is entirely plausible that this could lead to bank failures.
Most likely, Goldman has long understood this cycle, and will be looking to profit on the way up, and on the way down, just as they have done with various other derivatives.

If the influential climate scientists at CRU were looking for a strategic alliance with Goldman Sachs, they were barking up the wrong tree in creating an effective insurance policy. If they were looking to enjoy the fruits of the global derivatives ponzi, then Goldman Sachs were precisely the right people.

In reality, US foreign policy — with its deep focus on keeping the global energy trade flowing — acts as an implicit multi-trillion dollar subsidy on keeping oil and hydrocarbons cheap. This is an artificial disincentive against the development of decentralised alternative energy infrastructure (solar, thorium, synthetic oil, carbon scrubbing, etc). Climate scientists who want to see real change would do better to focus on decreasing this market distortion, rather than creating more market distortion through carbon trading.

Solar Dissenters

Quite often, an energy doomer will turn up commenting that I am overlooking the fact that the expansion of the last century has been oil-fuelled and that this century’s new oil scarcity means that the party is over.

These people are wrong — for the same reason that Malthus (and all Malthusians) have always been wrong about everything — they have ignored the hard-to-measure variable of human ingenuity.

Back in September I remarked:

The solar energy hitting the earth exceeds the total energy consumed by humanity by a factor of over 20,000 times. More solar energy hits the world in a day, than we use in fifty years, at current rates.

Nuclear fission has massive unquantifiable tail risk. Solar power has almost zero tail risk.

Goodbye, Fukushima.

The dissenters soon appeared, screaming unintelligibly about solar panels not working at night. Not so.

A new high efficiency solar cell design that can use almost the entire solar spectrum has been announced by Lawrence Berkeley National Laboratory.

What this means is that the resulting solar panels will be able to generate power while it’s dark! What’s more, the new solar technology can be made using existing low cost methods already in operation.

A conventional solar cell captures light from one part of the spectrum. This new solar technology uses different materials stacked in layers, which use different wavelengths. Significantly, these include low and mid-energy wavelengths.

Human ingenuity triumphs again. The beauty of solar is that nothing can compete with its ubiquity, its reliability and its decentralisation. The growth of solar energy melds with nature: solar energy is by far the most abundant source of energy on our planet, far more so than hydrocarbons. Oil and gas are a necessary stepping stone to the solar revolution, nothing more. They are, ultimately, solar energy from aeons ago locked away beneath the earth.

Directly harnessing the power of the stars is an obvious step in the development of any sustainable terrestrial species.

None of this excuses the excesses of Solyndra, though. Solar will deploy as it becomes economically viable for it to do so, not via the assent of politicians.

With conventional energy prices continuing their century-long march upward, that will not be long.

China Beats War Drum Over Taiwan?

As I have stated before, China has no reason to be belligerent to America, or to accelerate the death of the dollar as the global reserve currency. Firstly, this is because the current world order is strengthening China, and weakening America. Second, this is because China has accumulated a huge swathe of American debt, and wants to use it to acquire American (and global) productive assets and wealth.

America on the other hand, as the declining power, has every reason to be belligerent to China.

From the Economist:

An new book, discussed in this week’s Economics focus, by Arvind Subramanian of the Peterson Institute for International Economics argues that China’s economic might will overshadow America’s sooner than people think. Mr Subramanian combines each country’s share of world GDP, trade and foreign investment into an index of economic “dominance”. By 2030 China’s share of global economic power will match America’s in the 1970s and Britain’s a century before. Three forces will dictate China’s rise, Mr Subramanian argues: demography, convergence and “gravity”. Since China has over four times America’s population, it only has to produce a quarter of America’s output per head to exceed America’s total output. Indeed, Mr Subramanian thinks China is already the world’s biggest economy, when due account is taken of the low prices charged for many local Chinese goods and services outside its cities. China will be equally dominant in trade, accounting for twice America’s share of imports and exports. That projection relies on the “gravity” model of trade, which assumes that commerce between countries depends on their economic weight and the distance between them.

So should it come as no surprise that America continues to arm and train China’s enemies.

From Reuters:

China’s top official newspaper warned on Friday that “madmen” on Capitol Hill who want the United States to sell advanced weapons to Taiwan were playing with fire and could pay a “disastrous price,” as the Obama administration nears a decision on a sale.

The People’s Daily, the main paper of China’s ruling Communist Party, said the United States should excise the “cancer” of the law which authorizes Washington’s sale of weapons to the self-ruled island of Taiwan that China considers its own territory.

Taiwan’s biggest ally and arms supplier, the United States is committed under a 1979 law to supply it with the weapons it needs to maintain a “sufficient self-defense capability.”

Is America making a mistake? Should they instead be looking to integrate with the rest of the world, so that the necessity of a shared future means that war, threats and belligerence are in nobody’s interest?

I think so.

Job Creation 101

How would you spend $50 billion?

Last week I talked about how Warren Buffett got both the American credit rating, and the utility of gold very wrong.

This week, Warren Buffett has made a similarly provocative statement, but one I am more sympathetic to. From the New York Times:

While the poor and middle class fight for us in Afghanistan, and while most Americans struggle to make ends meet, we mega-rich continue to get our extraordinary tax breaks. Some of us are investment managers who earn billions from our daily labors but are allowed to classify our income as “carried interest,” thereby getting a bargain 15 percent tax rate. Others own stock index futures for 10 minutes and have 60 percent of their gain taxed at 15 percent, as if they’d been long-term investors.

These and other blessings are showered upon us by legislators in Washington who feel compelled to protect us, much as if we were spotted owls or some other endangered species. It’s nice to have friends in high places.

Last year my federal tax bill — the income tax I paid, as well as payroll taxes paid by me and on my behalf — was $6,938,744. That sounds like a lot of money. But what I paid was only 17.4 percent of my taxable income — and that’s actually a lower percentage than was paid by any of the other 20 people in our office. Their tax burdens ranged from 33 percent to 41 percent and averaged 36 percent.

While I agree that this is a fundamentally absurd situation, and that so-called “progressive” American taxation is now regressive, alas, the economics of the situation are nothing like as simple as Buffett makes out. Namely, if the system is rigged to favour the rich, then the system is rigged to favour the rich. Stating that fact doesn’t change the 20% youth unemployment rate, the record numbers of Americans claiming food stamps, and the simple reality that not enough jobs are being created to fill the supply of people graduating from school, college and being laid off. Tax reform will not directly address any of America’s problems with malfunctioning infrastructure, its dependence on Chinese imports, or its citizens’ addiction to debt: raising taxes on the rich might help pay down the deficit, but so too would cutting spending on wars and the military industrial complex. But while tax reform cannot directly solve these problems, Warren Buffett and his “progressive oligarch” friends can. How?

Job creation.  Investment in infrastructure. Investment in young people. Look at the humungous of levels bank reserves. There is cash just sitting idly that could instead be channeled into real investment in jobs and infrastructure — the kind that Paul Krugman calls for, just without the government involvement (or the Alien invasion). No doubt government has its own role to play. But why run sheepishly into the arms of government when the private sector has the means and resources to solve many of the humanity’s challenges — and at a profit? So without further ado, here’s where I would invest my money ($50 billion), if I were Warren Buffet:

  1. Carbon-Scrubbing Trees:
    While we don’t know exactly what effects climate change will have on Earth, we do know that keeping Earth’s carbon dioxide level as close to the pre-industrial baseline as possible is undoubtedly a good insurance policy. And doing so could undoubtedly create a lot of jobs. Carbon scrubbing trees allow us to do that by removing carbon dioxide from the air and releasing oxygen using a carbon dioxide removal process called “humidity swing.”
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