Tuesday, September 27, 2011

Peak Oil Revisited

Simple logic tells us that the fossil fuels we extract from the earth’s crust are necessarily finite resources.  Oil, natural gas, and coal come from fossilized organic matter deposited millions of years ago in a geological process of limited extent and duration.  If we continue to extract fossil fuels at anywhere near current rates, their deposits will ultimately approach exhaustion and production will necessarily decline.  This constitutes the concept of peak oil.  Daniel Yergin, a widely respected expert on energy, questions the near-term validity of peak oil in his new book,The Quest.  Previous predictions of peak oil have failed to come to pass and advances in extraction technologies that allow access to more remote and diffuse deposits will likely frustrate forecasts of peak oil for years to come, according to Yergin.
Were we in fact soon to approach global peak oil, petroleum prices would permanently accelerate, causing economic trauma by shifting purchasing power from consumers to already wealthy petroleum sheiks and dictators and oil giants such as Exxon Mobil and BP.  If not offset by government fiscal actions, this shift in purchasing power would substantially dampen global economy activity as it did in the energy crisis of the 1970s.  A virtuous consequence of such a price rise would be a hastened shift to alternative sources of energy, such as solar, wind, biofuels, and nuclear power, and a retardation in the volume of carbon dioxide and other global temperature increasing greenhouses making their way into the earth’s atmosphere.  The trouble with waiting for peak oil is the economic damage it would cause and the added global warming that will result before the peak is reached.  Both can be avoided through a slowly increasing publicly imposed user fee per ton for greenhouse admissions that will encourage a steady and orderly shift to clean energy.  Polluters who cause public harm, simply put, ought to pay for the costs of their actions.  A greenhouse gas polluter user fee is a price paid for the disposal of wastes into the earth’s atmosphere, much as we currently pay for the cost of our trash disposal in landfills. The revenues from a user fee can be returned to the public as tax reductions or used to fund decreases in our public debt or to pay for needed public investments. In Daniel Yergin’s eyes, waiting for peak oil would be like waiting for Godot; we expect him to show up, but he never does.  
 Even if peak oil is not on the horizon, doing something about global warming still stands before us as a moral imperative, but one that will cost us very little in the end to achieve.  Let me review why I think this to be the case.  In my previous blog posts and in my book, The Coming Good Boom, I have made the case for the following conclusions which I will not repeat here:
  • A global greenhouse emissions user fee that by 2030 rises to $100 per ton of CO2 and equivalent emissions will stabilize climate by 2050 and cause fossil fuels to be largely supplanted by clean energy.  Cap and trade would work just as well to accomplish this goal, but its adoption now seems politically unlikely in the U.S.
  • Given such a user fee, by 2050 the bulk of U.S. spending on petroleum imports undertaken today will have been diverted to a domestic clean energy industry creating millions of new jobs.  In effect, income in the process will be transferred from wealthy owners of foreign oil reserves to American workers.  This gain will be dampened somewhat if China gets the upper hand in solar panel production, but not totally eliminated.  
  • An economic boom in the U.S. will in all probability be fostered by the process of adjusting to a new energy reality.  The engines of expansion will occur not only in the arenas of clean energy and energy efficiency, but also as the consequence of a move to a more compact form of living.  This will set off heavy investment in mass transit and urban development along new transit lines.  A revolution in agricultural will also likely occur shifting it from fossil fuel intensive practices in meat and dairy production to more labor intensive and environmentally friendly grass-based approaches.  
  • As greenhouse emissions user fees rise, households will see their energy bills increase, but will have the option of reducing such costs through improvements in energy efficiency and the substitution of clean for carbon-based energy purchases.  A greenhouse user fee will be increasingly avoidable over time as a new clean energy sector is created.  Economic theory predicts that the fossil fuel industry itself will bear an increasing share of the user fee over time because of such household actions.  By 2050 the cost of energy as a percent of average household under the new energy regime will be the same or only slightly more than it is today.
Households in this country will face very little real burden from polluter user fees that bring about climate stability, and a number of households will gain from expanding economic opportunities associated with new approaches to energy, agriculture, and urban living.  In short, solving the climate change problem will ultimately cost us very little and as a bonus will improve the health of our economy.  User fees provide a huge source of revenues that can be returned to consumers in an income equalizing fashion to offset recent harmful expansions in economic inequality.  Some of these funds can also be used for reducing the federal debt and to finance public investments that will move the energy revolution along.  Even if peak oil turns out to not be a problem, unhooking ourselves from fossil fuels will be a good deal.  

Energy consuming, spatially expansive living is our dream and passion in the U.S.  Yet our compactly developed older cities are experiencing something of a renaissance.  This phenomenon is not being driven by any special economic trends, such as dramatically higher energy costs on a European scale that would push people toward denser more energy efficient living.  Neither has there been any substantial shift in planning laws, such as a growing use of urban growth boundaries, that would force central city infill development and limit suburban expansion.   The trend seems to be occurring on its own, suggesting possibly a shift in attitudes about compact forms of living.  This is an especially virtuous trend for meeting the challenge of global warming.  Because they live at such high densities, New York City residents on average emit less than half the carbon of a typical American.  A simple increase in the density of urban settlement in this country would take us a long way toward limiting our greenhouse gas emissions. Transformations in human values and attitudes do occur, and to find out why with respect to compact living requires us to consider in detail the source of the things we care about most deeply.  We need a “philosophy of compact" living rooted in human perceptions of life’s meaning as it relates to how we arrange ourselves spatially in the world.  This topic I will take up in future posts.


  1. Interesting, and I agree...

    ...but how do you think the vast majority of US Americans would adapt to where I now live? I live in an earth walled house in an EU country. The living accommodation is some 70 square metres. It is what they call a "family house". I live alone in my 70 square metres but there are other similar houses right here in the village that house one or more aged grandparents, mother and father (daughter/son-in-law/vice versa) and one or two of mother and father's children with their spouses and their children.

    I fear that the vast majority of suburbanite US citizens in their McMansions would not tolerate such. If not, what then?

    It is a fact of life here and people are happy with very limited means. Few people have left the village in the 3.5 years I have lived here. Particularly the youngsters.

    Could it be that a huge problem with US suburbia is that it is based on aquiantenceship, and not on true community? I am blessed that I live in a real community. Next door to me is a lady on her own, some 91 years young. All her garden trimming, weeds, whatever come over the fence to help me feed my goats. Back over the fence goes some goat milk or goat cheese. I suspect it is a lifestyle unimaginable to US suburbians and it is an eye opener for my visitors from the UK from where I moved.

    When the lights go out I know where I would rather be, and it is not the US or the UK.

  2. Thanks for your comment. It sounds like you and your fellow village residents are doing way more than your share for climate stability.

    A shift toward more compact forms of living in American suburbs is unlikely to occur overnight, but their are signs that attitudes toward the suburban dream may be shifting. Densely packed neighborhoods in my own hometown, Milwaukee, Wisconsin, are gaining in popularity as places to live. We will never achieve a style of living like your own, but we can live more compactly, enjoy the fruits of urban living, and reduce our energy consumption much like many Europeans and our own New York City residents. In the end we will need a price on carbon emissions to move us along quick enough to substantially retard climate change. Right now McMansions are not selling too well and are no longer affordable for most American families. The current trend seems to be away from ownership of single family homes and toward renting less spacious dwellings.

  3. How do we get Americans to change values in the country of bigger is better.
    A catastrophe ? Economic incentives ? Wish I knew. Living simpler every day - but still not there.