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On A New Theory of Energy and the Economy, Part 1: Generating Economic Growth

The idea that when additional energy is added from outside, the result is self-organizing systems is something that is fairly new. I have been correspoinding with Francois Roddier also. I don't necessarily see eye to with him on everything either. I think it is a better description of the world than all of the talk about closed systems, leading to an ever-less-interesting world.

January 24, 2015    View Comment    

On A New Theory of Energy and the Economy, Part 1: Generating Economic Growth

The idea that when additional energy is added from outside, the result is self-organizing systems is something that is fairly new. I have been correspoinding with Francois Roddier also. I don't necessarily see eye to with him on everything either. I think it is a better description of the world than all of the talk about closed systems, leading to an ever-less-interesting world.

January 24, 2015    View Comment    

On A New Theory of Energy and the Economy, Part 1: Generating Economic Growth

Thanks! I haver read some of Tim Garrett's work and corresponded with him. He works in a climate change department. I agree that energy efficiency is not going to reduce overall energy use, basically because of Jevons' paradox. He doesn't seem to understand the impact of diminishing returns, and what that does to the economy.

The issue I see is that the world economy is going to collapse from financial effects related to limits we are reaching, long before other popular issues, like climate change, become important. It is a here and now problem, a likely indirect impact of low oil prices.

 

January 24, 2015    View Comment    

On Oil and the Economy: Where are we Headed in 2015-16?

Think about the situation we are in as being like a Ponzi Scheme. We have been borrowing from the future for a long time. Now the return we are getting on the borrowed money doesn't pay back enough to provide interest, so the debt comes back to bite us. (The government has been hiding this situation with 0% interest loans.) We can't keep borrowing from the future, and that is what brings the whole system down at once.

The financial system connects all the other systems, so it is the one that is first to collapse. When it starts to go, we are in deep trouble. It is not obvious to folks, though, because the financial system is so opaque. We almost had a major system collapse in 2008, and the financial wizzards found a lot of scotch tape (QE and ZIRP) to hold the system together. Now the scotch tape is failing.

January 8, 2015    View Comment    

On How Increased Inefficiency Explains Falling Oil Prices

We need to keep in mind, though, that these countries are truly dependent on high oil revenue at this point. If Venezuela , Iran, Russia, and Saudi Arabia stop producing oil because of civil disruption in their countries, we will be in a heap of trouble. Even a drop by one or two of these countries could be a problem. And as we have seen in Libya, it is not clear that if production drops, it will ever reliably rise again.

January 1, 2015    View Comment    

On How Increased Inefficiency Explains Falling Oil Prices

Ethanol is in effect, largely a (natural gas + oil) to liquids operations, because of the large amount of energy used in growing and transporting corn, then making ethanol, and transporting it the desired location. If electricity in the areas where corn is grown and ethanol made is powered by wind, at least part of the heavy energy use be from a somewhat renewalbe sorce, reducing the need for natural gas or coal. One issue of concern is whether corn producers can make money at recent prices. If they can't then we are just talking about a temporary situation where we are benefitting from low corn prices. But I would agree that if we have a way to make a liquid fuel like ethanol, it does help to cap oil prices, partly because it adds to supply.

One issue with ethanol is that we are talking about at most a small haircut off oil prices. It doesn't get prices down to the level that they would need to be for the economy to function well. Most of today's infrastructure was built at $20 barrel oil prices. Trying to run the economy on oil prices that are several times that level doesn't work.

I am afraid I am not as optimisitic about electric cars as you are. For one thing, our problems are here today, so we don't ahve much time for a changeover.

 

January 1, 2015    View Comment    

On Ten Reasons Why a Severe Drop in Oil Prices is a Problem

The issue is timing. Our financial system is in danger of failing in the short term, as our debt-based system of financing everything in the economy collapses. We have reached the point where incomes are not high enough to take on more debt. Governments have been trying to cover up this problem with Quantitative Easing (QE), which has the effect of lowering interest rates.

Unfortunately, QE has adverse impacts as well, including creating bubbles in prices of many things, including stocks on the stock market  and land prices. The US government has recently tapered to zero its QE program, while otther QE programs elsewhere continue. The loss of the US program is part of what is causing the price of oil and the price of all commodities to drop. If the US government goes forward with its plan to raise interest rates next year, commodity prices including oil prices are likely to drop even further. This will have a very adverse impact on oil exporters and on the US shale industry.  

If we had a long time for transition, and a financial system that would support transition, I might agree with you about transition. Everything I can see says that we are headed for a near term major-debt problem, however. This might be rising interest rates, making new debt unaffordable. Or it could be defaults on existing debt, particularly on commoditiy related loans. It also could be problems with derivative defaults, that get passed on to other parts of the financial system.

The US government and other governments have been severely criticized for bailing out banks and insurance companies in 2008, so that they are intent on getting out of supporting this risk. So there seems to be a substantial risk that this time around, failures will feed through the system differently. I don't know exactly how this will work. It could mean that businesses with large bank balances (intended for payrolls) will lose a major share of their bank balances. We could see failures of important businesses, such as electric utilities. Some reports say that pension plans could be affected as well.

So I think we are on the road to extremely severe near-term debt-related problems that will put an end to the possibility of a transition to any other fuel type. I know some poeple say, "All we need to do is put in place a new financial system." This is more easilty said than done. For one thing, debt is a necessary part of such a system, because businesses have to contract severely, if they are to finance projects only on accumulated earnings. We really need economic growth to keep the debt cycle going, and it is economic growth that is failing now (indireclty because of diminishing returns, or as some people think of the problem, falling EROEI).

December 11, 2014    View Comment    

On Ten Reasons Why a Severe Drop in Oil Prices is a Problem

We can't run our economy without oil. We can't produce food. Most of us are likely to end up dead. I consider that a bad outcome. The story about renewables saving us is just a story.

December 10, 2014    View Comment    

On Eight Pitfalls in Evaluating Green Energy Solutions

The problem with uranium is not the price of uranium; it is the fact that you have to keep the whole system working. The issues that give rise to the need for all of the uranium (oil limits close at hand, for example, and pollution limits from coal), tend to push the world toward an imbalance between

(1) What people can afford

(2) The higher cost of extraction of uranium, oil, water, etc., plus the cost of attempting to mitigate pollution from coal. 

The big issue is that wages don't go up to handle all of these additional costs. It is not the uranium cost per se that is the killer. It is the combined cost of all of the items in (2) that is the killer. That, and the fact that a disproportionate share of the workforce ends up working in oil extraction, coal pollution mitigation, water desalination, and uranium extraction. This leaves fewer workers and fewer resource to operate the rest of the economy.

 

 

November 24, 2014    View Comment    

On Eight Pitfalls in Evaluating Green Energy Solutions

In order to work, you also have to level out the differences in wage levels that the use of coal in the system allows. A different issue is the difference in costs because competing countries are willing to pollute the landscape, while we would require manufacturers to use techniques that are more protective of the environment. I think you really need very high tarriffs are imported goods from coal producing countries to fix the multiple issues involved. 

November 24, 2014    View Comment    

On Eight Pitfalls in Evaluating Green Energy Solutions

I talk about the issues involved, and show a graph of the big leap in carbon emissions after the Kyoto Protocol was signed in this post, from about two years ago: Climate Change: The Standard Fixes Don’t Work

November 24, 2014    View Comment    

On Eight Pitfalls in Evaluating Green Energy Solutions

!. Timing is a big piece of the problem. We need a solution now.

2. Cost is another big piece of the problem. We need a cheap to implement solution.

3. Physical resources--atoms of the right kind--are a big piece of our problem. We make a great many types of goods out of petroleum products, from plastics to medicines to asphalt to herbicides and pesticides. We use minerals from around the world to make computers. More energy, in and of itself, does not fix our problem.

4. The cost of a changeover from petroleum based fuels to devices using electricity would amazing, because we would first need inventions allowing this to happen, and then we would need to actually replace all of the devices, without overusing minerals in scarce supply. We might need different approaches to electric cars, for example. The changeover would take a very long time, certainly more thant 20 years, probably more than 50 years.

November 22, 2014    View Comment