As President-elect Trump spearheads plans to boost oil, coal and gas, a major new study by one of the world’s foremost energy experts shows just how dangerous this path would be—not just for the planet, but for the economy.
The new study, just published in January as part of the SpringerBriefs in Energy series, suggests that as long we remain dependent on fossil fuels, economic contraction is inevitable. And while renewable energy offers the only potentially viable future, it is also unlikely to sustain the sort of mass consumerism we are accustomed to—like three or more cars per household, SUVS or massive military projects like aircraft carriers.
The bottom line is that we can’t sustain our present rate of consumption no matter what energy source we rely on. And clinging to oil, gas and coal in the hopes of keeping the endless growth machine alive will be even worse: leading to a spiral of debt and economic recession that has already begun.
The Laws of Thermodynamics
According to the report,there is a direct link between a long-term slowdown in economic growth, and a corresponding decline in the value of energy generated from fossil fuels.
It all comes down to physics: the laws of thermodynamics. Economies need energy to function. And to grow, they need extra energy to fuel that growth in production and consumption. But as more energy is required just to extract new energy from fossil fuels, there is less “energy surplus” available to continue driving economic growth—to ramp up even more production and consumption. And increasingly, more and more energy is being used just to maintain the existing infrastructure of society as it is, leaving less room for further growth.
“Of perhaps greater concern than the quantity of oil and other energy sources is their declining EROI [energy return on investment]”, writes study author Charles Hall, ESF Foundation Distinguished Professor of Environment Science at the State University of New York. Hall is the founder of the concept of EROI.
Hall’s ground-breaking methodology is now used by scientists around the world to measure the total value of energy a resource can generate. It works by comparing the quantity of energy extracted to the quantity of energy inputted to enable the extraction.
He points out that throughout the energy literature “there is widespread concern that net energy returns (e.g. EROI) for oil and gas are declining and likely to continue declining.” This has economic implications:
“As the energy required to find and deliver high-quality energy becomes larger at the societal level, there may be too little energy surplus available for other activities or insufficient usable energy to drive economic growth.”
The most robust research suggests that all the world’s fossil fuel production will peak sometime between 2025 and 2050. However, Hall says that production levels might not be the most important issue:
“The world will not run out of hydrocarbons. Instead it has, and will increasingly, become difficult to obtain cheap petroleum, because what is left is an enormous amount of low-grade hydrocarbons which are likely to be much more expensive financially, energetically, politically, and environmentally.”
Growth Has Stopped Growing
Hall’s study, Energy Return on Investment: A Unifying Principle for Biology, Economics and Sustainability, demonstrates a correlation between the declining abundance of resources, “as reflected in lower production and EROI for oil and other important fuels”, and the decline of economic growth.
Fig 1. a. Growth rate of global oil production from 1950–2015; b Growth rate of US economy from 1950–2015 (Source: Hall) Charles Hall’s study notes that growth rates in Europe, Japan and many other developed countries are similarly declining but lower
As of mid-2016, the GDP of Europe has been stagnant for over a decade, and the US has reached a GDP growth rate of 1.1 percent, nearly the same as its population. This means that the US has actually experienced no average increase in “per capita wealth.”
This is part of a longer term trend of economic decline that conventional economics can’t explain, because it ignores the role of energy in making economic activity possible. As Hall argues, economics is “basically about how energy is used to transform raw materials from nature into the products and services that are traded in markets. Economics as a discipline should reflect this basic reality, but essentially does not.”
Fig 2. GDP growth rates of selected OECD entities (Source: Hall)
And that gets to the crux of the problem. We need more energy to get more stuff to grow the economy. So what happens when we can’t get as much energy as before? Growth slows.
That’s why Hall fingers the declining EROI of fossil fuels as the key culprit in decreasing rates of production, which in turn has played a key role in the economic slowdown: “Past investments— over the past century— were made at a time when the production of high quality fossil fuels was increasing at rates as high as 5% a year. At the time of this writing they have declined to no more than 1% a year, and the US (and global) economies show similar pattern.”
Hall argues that modern developed economies, with their enormous infrastructures, roads and cities, are rapidly approaching “a stage where all of the available energy is used in ‘maintenance metabolism’ to support the infrastructure that exists.” This leaves less and less energy “available for net growth.”
Hall appeals to politicians and business leaders to start facing this reality urgently: “It is critical for CEOs, government officials and the public to understand that the best oil and gas are simply gone, and there is no easy replacement.”
But Hall’s work is just the latest in a raft of new scientific research on the declining economics of fossil fuels. Last October, a team of European government scientists published a scientific paper on Cornell University’s Arxiv website warning that the global economy has entered a new era of slow growth, due to the decline in the value of energy generated from fossil fuels.
The paper, under review with an academic journal, was authored by Francesco Meneguzzo, Rosaria Ciriminna, Lorenzo Albanese, Mario Pagliaro, who conduct research on climate change, energy, physics and materials science at the Italian National Research Council (CNR) — Italy’s premier government agency for scientific research.
The scientists developed a new model to explore the relationship between global population growth, economic growth and total energy consumption. The latter, they find, is the driving force in the growth of global wealth. But now the world is experiencing “declining average EROIs for all fossil fuels; with the EROI of oil having likely halved in the short course of the first 15 years of the 21st century.”
In other words, in less than two decades, the total value of the energy being produced from oil has plummeted by half.
Like Hall, the team concludes that as the energy value that fossil fuels generate is declining, their investment costs of extraction are increasing. This is creating a geophysical brake on global economic growth. As long as the economy remains dependent on fossil fuels, it will remain tied to the recessionary impact of global net energy decline.
Borrowing From the Future
The lead author of the Italian study, Dr. Francesco Meneguzzo of the CNR’s Institute for Biometereology, told me that the economy can never truly recover, unless it transitions to an energy source which can substitute for oil.
In the absence of that, the system has relied on the expansion of debt—essentially borrowing from the future to finance our present lifestyle—to keep growth trundling along. “Debt piling, borrowing from the future, becomes a necessity, yet it is a mere trick to gain some time while hoping for something positive to happen,” said Meneguzzo.
“The reality is that debt, basically as a substitute for oil, does not work to produce real wealth.”
Where will this end up?
“Recently, debt has started shrinking, basically because it has failed to generate real wealth. Assuming no meaningful and fast transition to renewable energy, the economic growth can only deteriorate further and further.”
Meneguzzo outlined a bleak scenario for the global economy based on continued fossil fuel dependence. Manufacturing would rely on local, cheaper and dirtier energy sources; wages would be pushed down to reduce costs; lower wages would mean poorer populations overall, lowering consumption and demand. All this would fuel “a downward spiral of deflation and debt.”
The Great Transition
Is there a way out? Not with business-as-usual, according to Meneguzzo.
“Unless that debt is immediately used to exploit renewable sources on a massive scale, along with ‘accessories’ such as storage making them as qualified as oil, social and political derangements, even before an economic crash, look to be unavoidable.”
And not everyone agrees that a renewable energy transition is feasible. According to Charles Hall, the energy costs of installing renewable energy capacity for solar and wind could be too high. Renewables might not be able to produce enough surplus energy to maintain a complex civilization. And he is skeptical that there are enough affordable mineral resources to build a new clean energy infrastructure.
He suggests economists should begin exploring “the possibility that humans are capable of achieving happiness by means other than the acquisition of ever-increasing quantities of material goods— goods that cannot be produced with declining resources.”
He also flags up the world’s grossly unequal distribution of resources, advocating that better mechanisms are needed to ensure more equal access to a pie that “is not growing.”
Other researchers say that a renewable energy transition is still achievable despite the difficulties. A study last August by Professor Ugo Bardi of the Department of Earth Sciences at the University Florence concluded that the current geological epoch, the Anthropocene, will expire at century’s end due to the thermodynamic demise of fossil fuels.
The Anthropocene, according to some scientists, comprises a new geological era characterized uniquely by humanity’s overwhelmingly destructive impact on the earth.
Bardi’s paper in the journal Biophysical Economics and Resource Quality finds that the Anthropocene age represents a “carbon-generated power ‘pulse’” that cannot last much longer after the 21st century due to fossil fuel depletion. Yet this could be a good thing, leading to a new geological epoch in which humanity’s relationship to the planet is sustainable, and powered mainly by solar energy.
He calculates that the world’s total “technical potential” of energy production for solar PV plants could be around 500–1000 TerraWatts (TW), without significantly impacting on agricultural land.
Compare this colossal figure to the total power currently consumed by the world every year, which is about 17 TW.
Bardi’s vision of the post-Anthropocene age highlights the possibility of arriving at “a new stage of the earth system in which humans could have access to truly gigantic amounts of useful energy,” but without destroying ecosystems in ways associated with fossil fuels.
Bardi also contributed to a study on renewable transition published last September in Environment Research Letters. He and his co-authors, Denes Csala of Lancaster University, UK and Sgouris Sgouridis of the Masdar Institute in Abu Dhabi, found that the transition would be extremely tricky, but could be achieved by installing renewable energy plants at an accelerating rate from the 0.12 TW per year level of 2013, to a peak of 7.3-11.6 TW per year in the late 2030s.
This would avoid dangerous climate change and maintain enough energy flow to support the world’s economy. “There are enough fossil resources left…to move from the present energy infrastructure to a renewable infrastructure before oil becomes too expensive to extract,” Bardi told me.
Figure 3: Renewable energy consumption, partitioned between hydroelectricity and other sources, and its percentage on total consumption, during 1965-2015 (Source: Meneguzzo et. al)
Meneguzzo and his co-authors offer a similar scenario. Over the last eight years, the rise in renewable energy from 7 to 9.6 percent of total energy consumption was driven almost entirely by a near exponential increase in solar and wind (the green in ‘other renewables’ in Figure 3.). Both are set to “grow at significantly faster pace than so far.”
If successful, said Bardi, the post-transition economy would be prosperous, but “lean… as different as our economy is different from the coal based economy of the mid 19th century.” Extravagances “like SUVS and aircraft carriers” would be obsolete, but not due to lack of energy which “will be abundant, but because of constraints in the available mineral resources.”
Whoever is right about the potential for renewables, one thing is clear: there is no point hanging on to the declining economic value of fossil fuels. Trump’s agenda of achieving stratospheric economic growth by burning as much oil, coal and gas as possible is a delusional fantasy.
We need to start building the economy after fossil fuels.
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