Sunday 27 February 2011

Why The Economist doesn't understand energy

The following image is from The Economist which argues that the use of energy is being reduced as measured by Energy intensity of the economy (percentage of GDP).

An astute reader of energy physics and economics should understand the obvious failings of the above diagram for any argument about energy intensity of economies:

  1. The graph measures energy use per GDP unit, whilst including all of the financial GDP. However, financial GDP is pure speculative money, consuming very little energy, but also contributing very little to society. Further, using USA as a proxy for most OECD countries, financialization of the economy has been growing steadily for several decades now. It should be cleaned from the GDP to get a more meaningful measure of 'energy use per unit of GDP in the real productive economy'.
  2. The energy consumption is based on figures from BP, which does not account for grey energy imports. Grey energy imports have been rising for all OECD and lately even for developing countries. They can account for up to 25% to 30% of total energy consumption. If not included, the figures can be seriously skewed, especially for developed industrial countries within the OECD.
  3. The correction to GDP figures (PPI 2009 level) has probably been done using CPI figures. We know from energy consumption figures, growth of monetary aggregates  and statistical corrections done in the CPI calculations (i.e. hedonistics) that these figures are unreliable: they are likely to understate the inflation, thus overstating economic growth in real terms.

However, the most obvious and glaring misuse of the following graph to argument in favour of energy not being a problem for economic growth is thinking that GDP growth solves energy consumption growth. Make no mistake, absolute energy consumption is and has been going up (the only exception years being those of deep recessions). The energy consumption growth has just been relatively slower than the skewed GDP figures The Economist used above.

After all these minor statistical quibbles, the main problem is not the relative scarcity of energy sources to economic growth, but absolute consumption growth and absolute limits. Anybody with a half an hour's worth of reading in ecological economics should understand this immediately.

If energy consumption per capita as a % of GDP was the only problem, then we could avoid the rolling energy crisis by nationalizing everything and raising hourly wages for everyone by controlling prices. This would show up as increased GDP, near zero inflation and the amount of relative energy consumption to GDP would to go down.

That’s the theory anyway, if one is stupid enough to believe the misleading propaganda from The Economist.

Think for yourself. There is no substitute for it.

Thursday 24 February 2011

Over 100 years of Global Temperatures

Climate Change Visualization from 1880 to 2010 by NASA   

Sunday 20 February 2011

Shell on Energy Transition Predictions

Four minutes of optimistic scenarios that come with a warning:

Jeremy Bentham (Shell)

"We are entering, what I believe is an era, of volatile transitions and intensified economic cycles."

Thursday 17 February 2011

Oil Industry Insider: Peak Oil 2015-2016, $300USD oil by 2020

Charles T. Maxwell at Aspo

Charles T. Maxwell, a veteran and a highly respected long-time expert of the oil markets, was recently interviewed for the Barron's Magazine on oil supply. He had this to say on the supply of oil:

"[Oil production] will be a little bumpy in 2015, 2016, 2017 and 2018. But by 2020, the first signs will become very evident that we can't go any higher than that in production."
A bumpy plateau by 2015, basically. As for the decline, he's optimistic about the production not starting to decline until 2020.

And more on oil price:

"Then it goes to $95 in 2012 and $115 in 2013. The following year, 2014, we see the price going to $140 a barrel, followed by $180 in 2015. And then, by 2020, it's at $300, or roughly $225 discounted back to the present." 
"By 2020, I'm looking for about $300 a barrel, which is closer to $225 a barrel in today's dollars."

As for the impact on the economy, he's much more optimistic:

"Strangely enough, I don't think that it would bring the economy down. Rather, it is the suddenness of change that does that." 
"On a more gradual scale, and giving the effect of inflation its due, we will probably simply walk away from two-tenths or three-tenths or four-tenths of a percentage point of potential gross-domestic-product growth, which we will give up by being caught in this energy vise. But the world economy will advance, and it won't be brought down by this."

It is needless to say that The Energy Standard views Maxwell as a hopeless optimist. The world needs them, but they are rarely right. Here's hoping he's right this time around.

Monday 14 February 2011

Israel understands Peak Oil

Mr. Shaul Zemach, Director General, Ministry of National Infrastructures talks about the ramification and mitigation of Peak Oil:

And what does Finland do?

Utter silence...