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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    

On Eight Pitfalls in Evaluating Green Energy Solutions

You might be interested in a couple of articles that came out about the time mine was written, talking about Google's reason why they stopped R&D in Renewable Energy, and what it would take to reverse climate change.

What it would really take to reverse climate change

Google engineers explain why they stopped R&D in renewable energy

One quote, in both pieces:

"Trying to combat climate change exclusively with today’s renewable energy technologies simply won’t work; we need a fundamentally different approach." 

 

November 22, 2014    View Comment    

On Eight Pitfalls in Evaluating Green Energy Solutions

I will admit that nuclear can provide base load. Its cost seems to vary a lot. Early plants were much less expensive than what are being put in place now. 

Compared to offshore wind and solar turbines, it is probably a better choice. There is question about long term fuel supply (unless thorium is used) as well as our ability to handle waste products and our ability to decommission them without oil products.

 

November 22, 2014    View Comment    

On Eight Pitfalls in Evaluating Green Energy Solutions

Energy efficiency are the purchases I have made for my home--more efficient furnace/ AC/refrigerator. Also tighter seals from air leaks and topped-up insulation.

I think that we are very near financial collapse right now, deterring me from making stock market investments. Since 2008, governments around the world have been attempting to offset the high cost of oil with super-low interest rates and Quantitative Easing. This also has the effect of pushing up the price of nearly all stocks on stock markets.

This huge amount of debt helps keep up "demand" for commodities, and thus keeps commodity prices high enough to justify extracting those commodities. But this effort is failing now, which is why the price of oil and many commodities is dropping. With low prices, those in extraction businesses are cutting way back on investment. This cannot end well--much worse than 2008-2009 revisted.

November 22, 2014    View Comment    

On Eight Pitfalls in Evaluating Green Energy Solutions

Carbon taxes are a good way to send industry elsewhere. We don't have a tax on imported goods from elsewhere to correspond, so we buy all kinds of goods, including solar panels and parts for wind turbines from China, where they are made with coal. In many ways, it stimulates the economies of coal intensitve countries without carbon taxes.

In theory, if every country put on CO2 taxes, it would lower fossil fuel use. But since eveyone doesn't, it just benefits the countries without the taxes. History shows that world emissions tend to rise more, in the period with CO2 taxes!

November 22, 2014    View Comment    

On Eight Pitfalls in Evaluating Green Energy Solutions

There is such a need for a "solution," that mainstream media and politicians show only a very one-sided version of the story.

Someone also made a comment my own blog, OurFiniteWorld.com, that burning biomass contributes to ocean acidification. Our policies today are such that deforestation gets worse each year. We are not protecting the forests we have--instead encouraging their burning.

November 22, 2014    View Comment    

On Eight Pitfalls in Evaluating Green Energy Solutions

Thanks! I haven't run in the DC-AC derate factor previously, but that would be another reason why not to add solar PV to the electric grid.

If people have the extra money, and want to buy it to use off grid for themselves (unsubsidized), I don't have a problem with that. But it is a huge waste of money for the electric grid, in most cases.

November 22, 2014    View Comment