Why Politician are lying to us about Energy
Citizens around the world are beginning to wonder if something is wrong. It is the beginning of a global movement.
Politicians don't want to tell us the real story of fossil fuel depletion. The real story is that we are running out of oil, coal and natural gas because the direct and indirect costs of extraction are reaching a point where the selling price of food and other basic necessities must be unacceptably high for the economic system as a whole to function.
At the same time, wind, solar, and other "clean energy" sources are nowhere close to replacing the amount of fossil fuels that are being lost. Currently, renewables are not replacing fossil fuels, they are just being added to them as we need more energy. This unfortunate energy story is essentially a physics problem: When energy per capita declines too far, civilizations tend to collapse.
When today's world economy is headed for collapse, it is understandable that politicians want to give the illusion that they are in charge. The self-organizing system tempts politicians to put forward reasons why the coming changes are desirable (to avert climate change) or at least temporary (because of sanctions against Russia).
In this post, I will try to explain at least a few of the issues involved. I am far from omniscient, but try to understand why we are in the position we are in today. Most of what you read in this article can be found in many books or has been reported by others.
Citizens all over the world feel that something is wrong economically. It looks like the economy is headed for a severe recession in the near future.
The Consumer Sentiment Index, which measures Americans' attitudes toward the economy, is at its lowest level since 2007, when the Great Recession hit. Forty-eight percent of consumers blame inflation for the deterioration in their standard of living; food prices have risen significantly in the past year.
The situation here in Europe is at least as bad or worse: citizens are concerned that they may "freeze in the dark" this winter if electricity generation cannot be maintained at adequate levels. Natural gas is less available and expensive because of pipeline purchases from Russia; coal is also highly priced because of the declining value of the euro against the dollar.
In other countries, currencies are low against the dollar. Argentina, India, Pakistan, Nigeria, Turkey, Japan, and South Korea all have problems with their housing markets. In Turkey, where I'm in a lot, housing prices have gone up 100%. Rents in some areas by 300%. To see change at such a rate is scary.
China is having problems with developers of condominiums for its citizens. Many of these homes cannot be delivered to buyers as promised. In protest, buyers are withholding payments on their unfinished homes. To make matters worse, condo prices have begun to fall, leading to a decline in the value of these supposed investments. All of this could lead to serious problems for the Chinese banking industry.
Although these measures are counterproductive, central banks in the U.S., the U.K. and the eurozone are raising target interest rates. The U.S. is also implementing quantitative tightening, which will make borrowing more expensive. This will likely force consumers to curtail spending and trigger a recession.
Politicians avoid talking about possible future economic problems related to inadequate energy supplies.
Politicians want to be re-elected and they want people to believe that things are going well. If there are problems with energy supply, they will try to present them as temporary or as a result of the war in Ukraine. Or they will discuss any problem as if it could be easily solved with new laws and maybe a little more debt.
The companies want to minimize the problems. They want citizens to order their goods and services without fear of being laid off. They want the news media to report that any dip in the economy is likely to be very mild and temporary.
Colleges don't mind problems, but they want problems framed in a way that is solvable for their students. A problem that seems unsolvable and doesn't offer opportunities for good-paying jobs isn't helpful. The situation here is similar for investments for research, etc.
The problem is a physics problem. We need energy of the right kind and quantity to keep our economy running smoothly.
The economy grows by what is called wasting energy. Examples include the digestion and subsequent release of energy in food, the burning of fossil fuels to generate electricity, and the use of electricity to run light bulbs. An increase in world energy consumption is closely linked to growth in the economy. A decrease in energy consumption is linked to a decrease in the economy.
Physically, the world economy is a dissipative entity. All plants, animals, and ecosystems are also dissipative structures. The lifetime of a dissipative structure is finite, so is the lifetime of the world economy. This insight is not well known, because economic researchers are not expected to understand physics and biology and how to apply it to economics. We certainly do not expect politicians to do so, and here it would be more than necessary. Although this discovery was made back in 1996, I am one of the few people in the world writing about this topic now.
Moreover, economic researchers are not expected to study the history of the many smaller and localized civilizations that have collapsed over time. Typically, the population of these smaller civilizations grew at the same time that the resources used by the population began to dwindle. By using technology, such as dams to divert water flows, they were able to stay afloat for a time, but eventually this was no longer enough. The combination of decreasing availability of high-quality resources and growing populations meant that these civilizations had little leeway to deal with bad times, which could occur at random. In many cases, such civilizations collapsed after disease epidemics, a military invasion, or a climate oscillation that resulted in a series of crop failures.
Many people have been confused by common misconceptions about what an economy is and how it works.
Standard economic models assume that the economy can grow without a corresponding increase in energy supply. The same is true for materials on Earth. When we design economic plans and want to build 50 gigafactories in Europe as an example, very few economists are concerned with where the resources are actually sourced and at what prices and whether this is still a good investment if it increases in 3 years. Disclaimer: No its not!
If economic models are designed in such a way that labor and capital are the most important inputs, energy supply does not seem to be necessary at all.
People often don't understand that low prices discourage them from continuing to produce. They do not make the same connection to actions taken to lower fossil fuel prices.
When actions are taken to lower fossil fuel prices (e.g., raising interest rates and injecting oil from U.S. petroleum reserves to increase total oil supply), we should expect production to be affected. One article reports that Saudi Arabia does not appear to be using recent record profits to quickly increase reinvestment to the levels that seemed necessary just a few years ago. This suggests that Saudi Arabia needs prices much higher than $100 per barrel to extract the country's remaining resources. This seems to contradict published reserves, which theoretically take current prices into account.
According to Reuters, Venezuela has reneged on its promise to supply more oil to Europe as part of an oil-for-debt deal and instead wants to generate revenue from bartering oil products. The country is unable to produce finished products from its oil and therefore cannot invest in the infrastructure needed to do so. The country has the highest oil reserves in the world (303.8 billion barrels), even more than Saudi Arabia (297.5 billion barrels), but neither country can be expected to take major steps to increase supply.
Although prices appear high enough to increase production, U.S. shale drillers reportedly have not invested in new production facilities. One reason is that the cost of new investment is very high. Another reason is that there is no guarantee that the price will remain high. There is also the question of whether suitable steel drill pipe and fracking sand will be available when they are needed.
Published estimates show that an enormous amount of fossil fuel can still be extracted given the current state of the art.
If we assume that technology will improve over time, it is easy to believe that a limit on fossil fuels is still centuries away. The way the economy works, the production limit is really a matter of affordability. If the cost of extraction becomes too high relative to what the people of the world have available as income, production will cease because demand (measured against what people can afford) will become too low. People will cut back on spending on leisure activities such as vacations and eating out at restaurants, thus reducing the demand for fossil fuels.
The mechanism of demand is poorly understood. Many people and researchers assume that demand for energy products will automatically remain high.
Many basic services-such as food, water, and housing-are necessary for human survival. Poor people need these basics just as much as rich people. There are literally billions of poor people in the world. If poor people's wages are too low relative to rich people's wages, the system cannot work. Poor people then have to spend almost all of their income on food, water and housing. As a result, they have little left over to pay taxes to fund basic government services. Without sufficient demand from poor people, commodity prices tend to fall too low to encourage reinvestment.
Commercial and industrial users of fossil fuels consume most of the fuels, such as natural gas. For example, natural gas is often used to produce nitrogen fertilizer. If the price of natural gas skyrockets, the price of fertilizer will rise higher than farmers are willing to pay for it. Farmers will cut back on fertilizer use, reducing crop yields. Farmers' own costs will be lower, but fewer of the desired crops will be grown, perhaps indirectly raising overall food prices. This relationship is not built into their models by economic modelers because they believe it is too difficult to measure.
The 2020 lockouts showed that governments can indeed increase demand for energy products by sending checks to their citizens. We now see that this approach leads to inflation rather than more energy production. In addition, the currencies of countries without their own resources could lose value against the U.S. dollar.
Types of energy are not easily interchangeable.
Energy modeling, such as the calculation of the "energy rate of return," often assumes that all energy sources are interchangeable. However, this is not always the case unless all the details of the transition between energy sources are considered and all the energy required to make such a transition is considered.
For example, intermittent power generated by wind turbines or solar panels cannot always be substituted for load-sensing power. Such intermittent power may not be available when people need it. For wind power, a lack of wind can last for a month or more; for solar power, a lack of sunlight means that not enough energy can be stored in the summer months to use in the winter. Adding batteries for a few hours is not enough to solve such problems.
To keep the lights on in winter, we need to use a fossil fuel system to fill in the gaps when wind and solar are not available. The catch is that this system must operate year-round, with trained personnel and adequate fuel storage. A modeler must consider that an entire dual system is needed instead of just one.
Because of the intermittency issue, electricity from wind and solar only replaces the fuels (coal, natural gas, uranium) that run our current system. Publications often talk about the cost of intermittent power being "grid parity" when the intermittent cost is equal to the cost of grid power. However, this is an "apples and oranges" comparison, because it does not take into account that the fuel costs for the power plants that generate the electricity are much higher than those for intermittent power sources.
It also assumes that electricity can be replaced by liquid fuels. In theory, for example, all farm equipment could be redesigned and converted to run on electricity instead of diesel. The catch is that a huge number of batteries would have to be built and then disposed of for this conversion to work. There would also have to be factories to build all these new machines. We would need an extraordinarily well-functioning international trading system to find all the raw materials we need. There probably still wouldn't be enough raw materials to make the system work.
This is true: we live in a unique time when a major energy problem is kept from the public.
Politicians avoid talking about the energy supply issue because it would be too scary for most people to hear. Instead, they talk about what would happen if the economy were allowed to go forward unchecked and the dire consequences that could have. Militaries around the world are no doubt aware of the fact that there will not be enough energy supplies to go around. This means that nations will be in a race to see who gets how much. In a war-like environment, we should not be surprised if communications are carefully controlled. We can assume that governments and influential people will voice loudly and repeatedly the views they want citizens to hear.