Sunday 28 September 2008

$500 oil - Can't Wait!

There's an interview of Matthew Simmons, the energy banker, in Fortune magazine with the heading "Here comes $500 oil".

Now, it's impossible to know for sure whether we'll get price that or just shortages, but either way an abrupt change we will get, esp. if oil production drops sharply off the current plateau.

Either way, we're likely going to to turn to using coal, which will explode our carbon footprint. In fact, we are already doing that, but it can get worse. Much worse.

So, what's the impact?

The impact is that the 450ppm limits and max 2 degrees Celsius warming effects are starting to look like a pipe dream:

"The paper concludes that it is increasingly unlikely any global agreement will
deliver the radical reversal in emission trends required for stabilization at 450 ppmv carbon dioxide equivalent (CO2e). Similarly, the current framing of climate change cannot be reconciled with the rates of mitigation necessary to stabilize at 550 ppmv CO2e and even an optimistic interpretation suggests stabilization much below 650 ppmv CO2e is improbable"

- Kevin Anderson & Alice Bows, Tyndall Centre for Climate Change Research

So, it's either mitigate, reduce and adapt - or crash, scramble and die.

Here's hoping for that $500 dollar oil that is going to push up the price of natural gas and coal also so high we can't afford any of them.

The effect of $500 oil: we consume less oil. We'll be thankful in the end.

Wednesday 24 September 2008

Financial, Energy or Climate Crisis - take your pick

The last month and more has been consumed by the financial crisis all over the world. Everybody may not have noticed it, but it has tied up politicians, financiers, decision makers and opinion leaders. This blog will not venture into finance crisis territory in order to explain what it was and was not about, or why it's far from over. There are much better blogs about this available elsewhere.

However, it is perhaps worthwhile to ponder the following: with our whole worldwide financial system in jeopardy and facing a long term painful transition, and our oil production facing a near term peaking and energy infrastructure facing a long term transition, and our climate change accelerating and forcing us to both rapid and long term cultural transition, then how do we balance all this? How do we prioritise? Which one should we pick over the other? Can we do them all?

These questions are extremely difficult to tackle and the answer are bound to be systemic and complicated, so there is no easy set of solutions to all this.

With that said, it is useful to ponder some simplifications.

What would happen if the financial systems crashed?

Energy consumption would be reduced. Actually it's already happening now, with only problems in the financial system. A financial crash could push our painful energy questions a tiny bit into the future and theoretically give us bit more mitigation time. The same goes for climate change, as greenhouse gas emissions are mainly driven by fossil fuel driven economic growth (transport, industry, forest cutting, etc.).

Yes, people would be unemployed. Yes, there'd be less things to purchase. Food could turn out expensive. There'd be shortages. People would protest, perhaps riot. In short, hardship for most OECD consumers accustomed to the cheap credit and ever expanding economies.

Depending on the scale and depth of the crash, things could go to differen directions. Basic rebound and back to BAU. In a more prolonged and systemic case, we'd all have to switch to another economic system, slowly and painfully.


Energy consumption
Climate Change ↓

What would happen if our energy systems crashed?

Well, economic activity would initially be reduced forcefully. Less oil would mean less mobility, less global trade, less electricity, less plastics, less tourism, less of lots of various economic activities. It might also crash the financial system temporally, as economies would be forced to reduce the amount of money in circulation (deflation) in order to accommodate for the radically reduced activity in the actual productive economy (remember that financials do not produce anything, they merely facilitate things).

If economic activity would crash due to abrupt and worsening oil shortage, it would also reduce greenhouse emissions. For a while. However, a rapid and rabid dash for all possible replacement fuels would ensue - resulting in huge manifold emissions from alternatives, such ascoal-to-liquids, rain forest destruction and burning of almost any possible type of biomass available (wood, food, peat and). This would drive up our aggregate energy consumption enormously, as useful energy would be turned into liquid fuels at huge lossess and infrastructures were converted to electricity in a mad scramble.

As economic growth is currently sacred, and the basis of our debt-based monetary system, economic growth would be protected by any means necessary, regardless of the climate or environment at large.

So, it might be chaotic for a while, then there would be a very dirty energy rebound and more business-as-usual until those new & dirty energy resources ran out. Looking at what the climate scientists are saying now, it could well be the final nail in the coffin for climate change mitigation as well.
Energy consumption ↓...
Climate Change ↓...
What would happen if our climate system balance crashed?

Now, this is the biggie. If our climate system is thrown into a unstable state, looking for another balance equilibrium for a few hundred or thousands years, then all bets are off. Economy would slowly deteriorate as biological support system started diminishing: less food, less water, less predictable natural weather patterns, mass scale famines, immigration waves and resource wars.

No amount of energy consumption reduction would help after this. In fact, futile and panic-ridden attempts at techno-fixing the problem at a planetary scale would probably spike up energy use enormously. Further, no amount of throwing funny money (aka financials) at the problem would help either. Money just facilitates activity. On it's own it does not dicatate climate patterns. We would just have to ride it out and see what happens at the other end.

Barring extremely rapid lethal climate change the transition would be painful, yet slow, but from the humanity's point of view perhaps also crucial. Nobody knows for sure. The risks to long term survival would be extremely high.
Climate Change
Energy consumption ↑

Comparison of alternatives

Looking at the alternatives above, the choice between the options is easy.

Most would want to avoid extinction and a slow deterioration of conditions to worse, day by day. So we should mitigate climate change. Radically. Now.

Further, the risk to climate change from abrupt and unmitigated peak oil would very likely result in a huge increase in climate change. There are already weak signals about this in the air when leading politicians are saying that energy availability is more important than climate change mitigation. So, clearly this option must be considered as very risky as well and should be mitigated with good planning.

Now, the last crash, that of the financial system, starts to look comparatively benign in comparison. Less energy consumption: good. Less climate change acceleration: double good. Maybe after a long economic suffering we could come up with a better model than an illusion of perpetual exponential material growth in a limited system. At least we should try.

This should cause one to pause.

USA has thrown c. 1 500 billion at the financial crisis during the past year or so, including the now proposed $700 billion bail-out, which will surely balloon up to anything from $1500 billion to $3000 billion according to more abstute macroeconomic observers. One can roughly double that amount by calculating the money spent by all the other central banks in major economies of the world.

That's roughly 3000 to 6000 billion of money, spread over a very short time span - just a few years.

If we can spend that much money on a crisis that does not threaten our basic infrastructures or survival, then we should be willing to spend a considerably more brain-power, time and money on fixing the really risky issues.

However, currently it does not loook like this is the case. The causes may be many, but the way humans appear to be built for short-term reward cognition and energy maximization may play an important part in this.

Can we break out of this cycle of short-term orientation? What might that breaking out require? Is a crash or a threat of a looming, immediate crash always required?

Time will tell.