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Post-peak scenarios

Looking to the future of scarce resources
By Matthew Wild 

If you thought the idea of peak oil was controversial enough, you ain’t seen nothin’ yet! Speculating on outcomes is where the debate begins to resemble war minus the shooting. Our future planet will either resemble the Garden of Eden or the tribulations of Revelation, depending on who’s talking.

On this page I’d like to evaluate visions of the future and present a few ideas of my own.

First, an overview: I’ve broken this whole peak oil backgrounder into three page-length essays, and this is the middle section. The first, What is peak oil, is a news-based examination of the concepts behind the debate: what is peak, and when and how fast will oil supplies decline. This current section follows on where that leaves off, looking at possible outcomes of oil becoming scarce and expensive. Next will be Survive peak oil, an examination of what you can do to survive and thrive.

I apologise in advance that this section is going to be the most philosophical of the trio, but I’m not one to state that something will or won’t definitely happen, as I don’t know what the future holds. My writing style is to present various arguments, including what I believe might happen, and have the reader reach their own conclusions. Survive peak oil will be more practical and list concrete activities I feel everyone should be doing.

Perils of prediction

Most people’s peak oil scenarios reveal a lot about their political beliefs, fears and fantasies.

Of course, the greater majority of the world’s population deny peak oil is imminent, while others suggest that when it does finally happen, free markets will efficiently handle the whole thing, or that technology will come to the rescue with alternative sources of energy. I regard this as living in denial, even though I’m excited about some of the promises of the hydrogen economy, when it can be brought out of the realm of science fiction. Then there are those who see peak oil as bringing in an era of agricultural bliss, or else doomsday.

You could lay out these scenarios according to the proponent’s political views. Furthest to the left you find the green revolution people; at centre-left the technological salvation crowd; at centre-right the free market faithful; and further right the survivalists. I’m not saying there is anything wrong with any of these political positions, just that it’s all a little bit predictable.

Personally, I try to be as apolitical as I can be, and find it harder to tell between left and right once they are in office. I can’t buy wholesale into the above cornucopian, technological, market-led or dystopian fantasies – although I think there is an element of truth in all of them. But I’m not being dismissive, as right now, anything can happen..

Variables: how to interpret possible outcomes

I’ll try and be as fair to the various arguments as I can, but in my mind, the outcomes will come down to three peak oil variables:
•  How fast oil output drops compared to demand: this will determine oil prices and the level of resulting economic chaos (and ultimately whether science and the market will prevail)
•  How central oil is to our lives, and how rapidly we can find alternatives: are we talking about a liquid fuels problem, or is oil central to our agriculture and economies? (This is more of subjective area.)
•  Geographic location: regions that are only liveable due to energy-intensive practices such pumped water, imported food and air conditioning will not be viable (and will slip into anarchy further and faster)

If oil supplies tail off gently, it will be a relatively painless process: prices will rise in an orderly fashion, and the world will switch from one primary source of energy to another, much like the way we went from coal to oil. Despite personal discomfort felt by those that lose jobs and have to relocate (with the subsequent collapse of housing prices in the suburbs), science and the free market will enable us to switch to “bridge fuels” – such as the greater use of natural gas – and governments will continue pretty much as they are. Alternatively, if oil suddenly becomes unobtainable on the world market, or the price jumps aggressively enough to cause markets to collapse, we will see a more chaotic world. The quicker the decline of oil, the greater the pain, to the point that governments will collapse, economies will be swept away, and people will experience real hardship – warfare and starvation.

The more central oil is to the functioning of modern society, the more harsh the outcome. This is a multiplier, something that will compound things. If we “eat oil” as some peak writers suggest, because our agriculture relies on oil-based inputs such as fertilizers, then people will starve. If our economies rely on oil inputs for continued growth, they might collapse.

These are intertwined, as the slower oil runs out, and the more able our economy is to function with decreasing energy inputs, the lesser the problem. It could be a perfect storm: the thing that modern life depends on is suddenly withdrawn.

The third variable, where in the world you are, is less of an unknown. My view is that some places are going to get hit harder than others – particularly poorer areas and those with extreme climates. Putting it as broadly as I can, the best way of evaluating this is to consider what conditions were like 100 to 150 years ago, before the age of oil. If it was an unproductive desert where people scratched an existence in poverty, there’s a good chance it might return to that without constant energy inputs. If a region relies on pumped water, there is a good chance water will become expensive and scarce. If it relies on imported food, the cost of living is going to rise. Conversely, a wealthy area, with a climate suited to growing, will be better placed to weather the storm. Of course, the population today is much greater than it was back then, so nothing is a given. . .

Judge everything I say, and anyone else does for that matter, against this or similar criteria.

The past as an example

I also highly recommend some study into previous empires that have collapsed, from pre-history to modern-day failed states. While understanding the past does not allow us to predict the future, it does allow us to talk with more knowledge than the armchair generals. If nothing else, it helps us begin to realize how difficult life will become.

In the first instance, look at the collapse of global superpowers from history – for instance, the Roman Empire and the Soviet Union.

The Roman Empire took a long time to collapse, possibly as long as 320 years. Have a look at the Wikipedia entry to see some of the theories for its decline. Some of them might be written about us:
Arnold J. Toynbee and James Burke argue that the Roman Empire itself was a rotten system from its inception, and that the entire Imperial era was one of steady decay of institutions founded in Republican times. In their view, the Empire could never have lasted longer than it did without radical reforms that no Emperor could implement. The Romans had no budgetary system and thus wasted whatever resources they had available. The economy of the Empire was a Raubwirtschaft or plunder economy based on looting existing resources rather than producing anything new. The Empire relied on booty from conquered territories (this source of revenue ending, of course, with the end of Roman territorial expansion) or on a pattern of tax collection that drove small-scale farmers into destitution (and onto a dole that required even more exactions upon those who could not escape taxation), or into dependency upon a landed élite exempt from taxation. With the cessation of tribute from conquered territories, the full cost of their military machine had to be borne by the citizenry.
The empire devolved into a group of independent states, where taxation was lesser and government more local. The Romano British era saw people in the UK attempting to cling on to the Roman way of life. Villas were still being built for around 200 years after the Romans left, although things were stagnating. This could be a useful example of denial in life after cheap oil.

More recently, the Soviet empire took a little over a decade to collapse. It was instigated by the state’s failure to make money from oil reserves. (I’ll write more about the Soviet collapse and predictions for the US in the next section.)

Cornucopia to dystopia – popular projections

Painting with a broad brush, the main views of the post peak oil world are:

The garden of Eden hypothesis: a view of the world returning to agriculture, but this time around with the population tending their land using a scientific approach – permaculture, not a return to the peasantry of the Middle Ages. Industry, factory farming, and government will be diminished without massive amounts of cheap energy, leaving the people leading essentially rural lives. We will be a nation of homesteaders, organized as communities. There will be no more 3,000-mile Ceasar salads after the cheap oil is gone.

Technological salvation: science will come to the rescue, just like it always has. Our vehicles, homes and industry will be powered by some new alternative to oil, and life will go on without interruption. After all, there is a great interest in this, and a lot of money invested in modern life. Probably the best place to read about this is at the excellent Peak Oil Debunked website – which does not debunk peak oil so much as the doomer worldview.

The free market is all we need: oil reserves are not so much a geological fact as economic reality – it’s the price of oil that determines how much is extracted. When oil gets too expensive, less will be extracted; if we need it enough, we’ll pay for it, but then the market will promote alternatives – which will become more economically viable thanks to economies of scale. This view is closely allied with technological salvation. Mostly seen in the letters pages of right-of-centre newspapers.

Armageddon time: Our society runs on oil. Oil produces everything we consider civilisation, from large-scale farming (which is based on oil inputs) to electricity. Without cheap oil, the economy will crash. Governments will collapse. The grid will go down. The hungry mob will go on the rampage, stripping any foodstuffs you have been able to grow in your backyard. The best survivalist site I’ve seen is Jim Rawles’s passionate and compassionate SurvivalBlog.

My own view

My personal view is that all the above may contain an element of truth, at different locations and over various timescales, and should not be discounted out of hand. Anyone preparing themselves for a future of resource scarcity has to begin by considering all possible outcomes.

From the get go, we have to accept that there is no way around the fact that modern life is a slave to hydrocarbons. According to Life After the Oil Crash:
Nearly all the work done in the world economy, all the manufacturing, construction, and transportation, is done with energy derived from fuel. The actual work done by human muscle power is miniscule by comparison. And, the lion's share of that fuel comes from oil and natural gas, the primary sources of the world's wealth.
(Worldwide supplies of natural gas have been predicted to peak around 2020, although the ever optimistic US Energy Information Administration gives 2030.)

Biofuels are frequently touted as the answer to the decline of oil, but these are grown using the high-tech, oil-powered industrial methods of agriculture. They are not feasible without fossil fuel input, and so are not the solution.

Green technologies, particularly solar and wind power are often promoted as part of the mix. Wind and solar power are clean sources of energy, but they are not terribly efficient, and worse, intermittent; one not working in calm conditions and the other not working at night or when it’s overcast. We cannot go on living our current lifestyles based soley on renewables, but, on the other hand, we would be stupid to ignore them.

Paul Roberts, in his excellent book The End of Oil, tells a history of mankind according to increasing energy use. This began with the use of draft animals for ploughing, went through wood power to coal, and then oil. Each step of the way we were rewarded with a greater energy value.

Our economies rely on massive inputs of cheap energy. Life without energy means, essentially going back to being peasant farmers, scratching a living in the dirt – and going hungry in the years that the crops fail. (Don’t get romantic about subsistence farming, it's brutal; and remember, I’m not talking about oil vanishing overnight, let alone other energy sources – I’m talking about the end of cheap oil.)

In all reality, society is most likely to turne to a "bridge fuel" when oil gets too expensive. Natural gas is the most likely candidate. Gas burns cleaner than oil, but is more expensive to move around, contains less energy by volume, and is less suitable for transportation use – although cars and busses in many countries are currently driving around on natural gas power. It is similar to oil in that it’s peaked in the US, and has to be imported. Essentially, the map of natural gas producing and consuming countries is the same as that for oil. And that is likely to peak sometime in the near future.

In an ideal world, we would switch gently to a hydrogen economy – but the technology just isn’t there. Fuel cells are too expensive and not efficient enough right now. Fuel cell cars are not viable; laughable when compared to the internal combustion engine.

Hydrogen is an energy carrier, rather than a source itself, so don’t go thinking of free lunches. It takes electricity to generate hydrogen. That said, hydrogen is – in theory – is an ideal way to store electricity, just as wind and solar are ideal, but flawed, sources of clean energy. Combining the two is perfect, assuming the technology allows it. The main limitation of wind and solar is that they are not 24-hour options, and storing electricity is a poor solution. (Most people living off grid must store their electricity in golf cart batteries, which are expensive, inefficient and need replacing after a while.) In my techno fantasy, then, renewable options would be used to create a store of hydrogen, which in turn drives a fuel cell, providing electricity when it’s required. Every home should have one. . .

OK, that is my cornucopian fantasy. The only problem is that we’ve got to get through the decline of oil before the technology will be there - and there is a long way to go to increase the viability of non-renewables, make hydrogen storage more affordable and fuel cells a viable option. Once again, it all hinges on how much disruption rising oil prices will create, and how fast science fiction can become reality.

Roberts, in The End of Oil,writes that each time we historically changed our primary energy source - wood to coal, coal to oil - came about due to market forces, because the new fuel source brought clear advantages. "To continue using wood or coal when your competitors were using oil or gas would have put you or your company or your nation at a serious competative disadvantage," he writes. But alternatives to hydrocarbons offer no such advantages, even before you consider the inertia in the system - the oil companies have so much invested in, well oil, and the auto industry in the internal compustion engine, and so on, that things are not going to change in a hurry. We should not expect our current economies to shift away from oil, even though everyone knows that oil is finite - the question is when it will decline, not if. So we will continue using oil until it becomes very deeply uncompetitive. Hence we will see resource wars over oil, or at the very least, continued US involvement in the Middle East. We will be fighting over the scraps, and very expensive scraps, too. But we will be locked into an oil economy until something with a higher energy value comes along, or we just can't afford oil any longer.

Recession

It's very difficult to argue that a sudden spike in the price of oil won't cause a recession. Our economies are in quite a perilous state right now, and are not well placed to "eat" the extra costs that would appear at all levels, because oil figures in pretty much everything we do.

Looking at the sudden reduction of oil coming onto the world market, Paul Roberts in The End of Oil writes:
Fuel sensitive businesses, like airlines and trucking companies, would be affected immediately and drastically. Layoffs would ripple through the economy, sowing panic and causing companies to delay investments and expansions, and leading to more layoffs. And because energy costs affect the costs of producing goods and services and also hurt consumer buying power, higher oil prices would lead to the recession-inflation mix known as stagflation.
(This doesn’t have to be as a result of peak oil; it could be from upheaval in the Middle East, such as an Islamic revolution in Saudi Arabia. There is no swing producer to take up the slack, right now.)

Outstanding Investments, which bills itself as a “leading innovator in the financial advice industry, warns of coming turmoil in the oil markets, which will be transferred to uncertainty across national economies:
In the medium term -- the next year or so -- we will probably see oil prices swing wildly, perhaps down into the $50s per barrel and up toward the $100 range. These price swings will reflect much larger events that are floating like sea mines all through the world economy. We could see a dollar crisis, related to loss of confidence in the ability of the U.S. government to raise funds to pay its obligations. We could see a China bubble crisis, either through the ongoing tightening already apparent or through an outright Chinese crash
Recession, depression, collapse. . . it's your call.

Again, looking back to history, 10 of 11 recessions in the US since World War II and all six recessions since 1972 were preceded by a spike in the price of oil. According to an April 20 posting on the Econbrowser website:
With gas prices now about a dollar per gallon higher than they were a year ago, that leaves consumers with $12 billion less to spend each month on other things than they had in January of 2009.

My view is that it is not just the level of consumer spending but also a sudden change in its composition that sometimes contributes to an economic recession. When oil price increases are sufficiently sudden and dramatic, we see abrupt drops in consumer sentiment, postponement of purchases of consumer durables, and important changes in the kinds of vehicles consumers buy. Because labor and capital can not costlessly shift out of the affected industries, the result is unemployment in those sectors which is an important additional factor bringing the economy down. UCSD Professor Valerie Ramey and Federal Reserve Economist Dan Vine have a very interesting new paper demonstrating how shifts in the demand for light vehicles contributed to the U.S. recession of 2007-2009 in a similar way to what we observed in earlier downturns.
During the oil shocks of the 1970s, a five per cent shortfall in oil production caused the price of oil to nearly quadruple. My own view is the next time demand for oil outstrips supply, the very best we can hope for is a repeat of the volatile prices of 2008, when crude surged to a record $147 a barrel before causing such economic chaos that demand for oil plunged, with the price falling to $33 a barrel. According to the International Labour Organisation, this subsequent recession resulted in 200 million redundancies around the world and vast government deficits.

I believe there will be a repeat of this, as demand for oil will push the price high enough to cause global recession, which will probably kick in when oil passes the $100 a barrel mark. Of course, recession will temporarily lead to lower prices through reduced demand; if low prices stimulate demand, prices will again rise. I believe commentators will still be saying peak oil is nonsense as the price plunges (how can we have peak oil when it’s $30 a barrel?), but that this crazy market volatility will be a sure sign of resource depletion. It sure doesn’t happen in a slack market.

Recession will turn to depression, I believe. The world will slip into something echoing the Great Depression. Modern capitalism requires constant growth. Modern life is lived against a background of projected growth – it’s why we make investments, and what keeps the market running. (And yes, there were markets and international imports before the age of oil – I’m thinking about the shock in going from one system to the other, and the loss of luxury.)

According to writer George Mobus, Associate Professor of Computing and Software Systems at the University of Washington Tacoma, capitalism as we know it is going to die:
Growth is only possible when energy flow is increasing.

It is pretty simple really. When energy flow is increasing in each subsequent time period it is possible to increase the amount of work devoted to increasing the asset base of society. Alternatively, if the energy flow is decreasing...

Short of a miracle (let's pray for it!) energy flows are about to decline in a serious way. And as a result growth is an utterly fatuous notion. Unfortunately, the majority of the population, and especially the economists and politicians, don't get it. The economists still firmly believe that if energy costs (oil, coal, etc.) rise as a result of constraints on production then we will simply substitute other sources (wind, solar PV, etc.) and keep going as we have been for the last two hundred years. This is both stupid and foolish. It is a complete failure of intelligence and wisdom.

Over the next several decades we (humans) will have to change our understanding of what is feasible and what we need to be doing to have a future. The future does not include growth of the GDP or profits.
His model is that energy causes growth – the workers are happy because it brings them jobs and cheap goods – but when you take away most of this energy, what happens to the consumer economy and the jobs it creates? His best hope is for a peaceful reorganization of government and the economy.

Personally, I don't link peak oil and the death of capitalism, even with the caveat as we know it. I think there always will be capitalism, because it works, it's better than all the other systems we tried. While I think there will be recession, there will be an economy, with energy use and investment. Not quite business as usual, but not Mad Max, for that matter.

My conclusions

We are heading for economic turmoil. Oil is hovering at around $80 a barrel at the time of writing, and we know that our economy cannot stand a price greater than $100 for long, yet a lot of serious economists are suggesting this is likely. We are facing recession, and, most likely, stagnation and inflation. (If for no other reason than governments are always tempted to inflate away debts.)

Increasing oil prices takes money from the economy – and sudden spikes cause outright pandemonium, and loss of confidence.

I can’t see governments collapsing in the West, but I still think there will be turmoil – crime, hunger and violence in many places. There will be recession, possibly another Great Depression. Our lives will change. They will certainly become less luxurious, more local and more stressful. (If the grid goes down, we are into survivalist territory.)

We have to collectively weather that storm – presumably by switching to natural gas wherever possible – while coming up with a long-term alternative to oil. The better the market responds with innovations and the quicker we switch to alternate sources of power, the easier this will be. Likewise, the more suddenly oil depletion hits, the faster the price rises, and the least prepared we are, the harder we will be hit.

The one thing few people in the debate talk about all that much is the importance of reducing energy use. Increasing efficiency, through both techonology, government action and lifestyle changes, will soon be a big part of our lives. Cheap oil allows large houses, SUVs, air conditioning, round-the-clock central heating and suburban living - renewables cannot generate the massive energy requirements for all this.

The brightest prospect for the distant future is a hydrogen economy, especially considering that it can be run on renewables like wind and solar. When the technology is ready, power can be largely decentralized: homes can operate their own energy systems, even selling surplus back onto the grid at times. That is a long way off.

But as a society, we are woefully unprepared for the changes ahead. As we stand, it’s up to the individual to prepare themselves (which I’ll outline in the next section, Survive peak oil.)

I am optimistic, however, but realistic enough to see a lot of pain ahead.