The economy is an energy and material system
With economies stumbling, the cost of living rising at rates not seen in forty years, and world markets gripped by nervousness, there are two ways to interpret current economic turbulence.
We can, if we choose to believe it, see these changes as temporary – caused by the lasting effects of the recent pandemic, compounded by the war in Ukraine – and assure ourselves that the ‘normal’ state of continuous economic growth will return once these crises are behind us.
The alternative is to face facts
Ultimately, the economy is an energy and material system, not a financial one—nothing that has any economic value whatsoever can be supplied without the use of energy and materials. And our current system is dependent on cheap, abundant supplies of fossil fuels. It’s not just oil and coal that are the problem: it’s also natural gas and even uranium. And in the near future it will be lithium and other rare minerals.
The vast and complex economy we know today was built on energy from coal, oil, and natural gas. The origins of this process can be traced back to James Watt when he completed the first really efficient engine for using heat to convert into work. This was a major turning point in the history of humanity, because it meant that we could use energy to do things that would have been impossible without it.
Whenever we use energy, some of that energy is consumed in the access process. For much of the time since 1776, the amount of energy consumed in accessing energy declined, driven down by economies of scale, technological progress, and a worldwide search for lowest-cost sources.
The positive impetus of scale and geographic reach, however, has faded out, leaving depletion – the process of using lowest-cost resources first, and leaving costlier alternatives for later – to push fossil fuel ECoEs (Energy Cost of Energy) back upwards.
Technology continues to advance, but it should never be forgotten that the laws of physics place limits on what can be achieved through technological innovation
This is particularly relevant to the assumption that a “transition” to renewable energy sources will occur. Instead of assuming that technological advances will continue on their current path, we need to note that renewables also have their limitations. Renewable energy sources are not “clean” in the sense that they do not produce any pollutants or greenhouse gases, but they can cause environmental damage in other ways. Solar panels and wind turbines require large amounts of land and materials to build, while hydropower dams can disrupt ecosystems and cause changes in local weather patterns.
One of these is the Shockley-Queisser limit, which determines the maximum potential efficiency of solar panels. Another is Betz’s Law, which does the same for wind turbines. These laws have already been exceeded by existing technologies. Moreover, dramatic expansion in renewable energy capacity will make huge demands on material resources, including steel, concrete, copper, cobalt and lithium. For the foreseeable future, these resources can only be made available through the use of legacy energy from oil, gas and coal. The rapid expansion of clean energy will put pressure on the existing energy infrastructure, whether or not it is able to meet that demand. This could lead to higher prices for consumers and businesses, as well as an increased risk of blackouts. The transition to a low-carbon system is likely to be expensive and challenging, but it’s also necessary if we are going to avoid dangerous climate change.
Let me be clear: we should make every effort to transition to renewables, not just on environmental grounds but also for economic reasons. At the same time, we are trying to find new ways to use solar energy even more efficiently with our institute. This new technology will be the foundation of a Bio/ Regenerative Infrastructure.
But we can't assume that the ECoE of renewables will ever fall to levels low enough to replicate the economic value of fossil fuels.
Environmental sustainability is a practical no-brainer objective. Sustained economic growth, on the other hand, is merely wishful thinking, and the probabilities are heavily stacked against it. What we have learned from trend ECoEs is that as they rise relentlessly, previous economic growth has petered out before going into reverse. Throughout a quarter-century precursor zone that has preceded the onset of economic contraction, we’ve become adept at deluding ourselves that we can continue to rely on ‘infinite growth on a finite planet’ because GDP measures financial activity rather than material prosperity.
Ultimately, of course, money has no intrinsic value. However, it commands value only as a claim on the goods and services produced by the energy economy. Prolonged financial gimmickry—sorry, innovation—has had the effect of driving a wedge between the real or material economy of energy and the financial or claim economy of money and credit. This has made it possible for us to continue to create more money out of nothing, which in turn fuels the illusion that we can grow our way out of debt. So far, so good—until reality intervenes and forces us to acknowledge our dependency on energy inputs.
The energy economy is a finite system. As we have learned to extract more and more of the primary energy required by industrial societies, we’ve also depleted many of the high-quality fossil fuels that powered previous generations. The result is an ever-increasing dependence on low-grade or unconventional fuels like tar sands and shale gas, which cost much more to produce than conventional oil and coal. In addition, our ability to generate electricity from renewable sources like wind turbines and solar panels is still limited by their small scale relative to demand for electricity worldwide.
We have also learned that societies that use too much energy tend to collapse. This is because the extraction, distribution and consumption of energy require a significant investment of labor and capital that cannot be sustained indefinitely. As the economy grows, it requires more and more energy to keep going—and eventually we reach a point where diminishing returns make further growth impossible.
Because prices are the point at which these two economies intersect, inflation is an inevitable consequence of the divergence between material and monetary values
If we continue to let inflation run hot, or raise interest rates in an effort to tame it, the end result is that we get poorer, either through an economic slump, or through the inflationary destruction of the purchasing power of money.
And there’s a sting in this tail too: most of those products and services that we deem “essential”—including water, food, housing, infrastructure and the transport of people and products—are energy-intensive, meaning that the real costs of necessities will continue to rise.
It means that the affordability of discretionary goods and services will contract, which will affect many sectors of the economy.
Finally, there are the environmental impacts of a debt-based money system. The whole point of this is that it allows us to exploit resources without having to pay for them. This means that we can continue living as if our planet has plenty of both natural resources and space for waste disposal, but in reality this isn’t true.
Orthodox economists continue to deny the existence of a material shortage, insisting that the economic “demand” can be used to push prices upwards
There is no way to produce anything that does not exist, because nature limits human production. Neither can any amount of technological genius overcome the laws of physics in general, or the laws of thermodynamics in particular.
Recent trends, albeit overshadowed by concerns over covid and Ukraine (which are already being addressed by the government), are confirming that the “precursor zone” has ended; that economic contraction has begun; and that even the myth of perpetual “growth” can no longer be sustained.
Beyond high inflation, deteriorating prosperity and the erosion of discretionary consumption, this also means that the financial system faces a process of drastic downsizing — which will happen even if we do not let it happen.
The debate—between orthodox “perpetual growth” and material (and environmental) physical constraints—may continue for some time, but the outcome is no longer in dispute.
The question now devolves into one of preparation and adaptation, which can only begin once we recognize the reality of economic limits.
More about the topic :
https://energyskeptic.com/
https://www.thegreatsimplification.com/
https://www.simonmichaux.com/