Halting growth past 74 million barrels per day
A few days ago The Oil Drum carried an interesting article explaining the association of energy and resource constraints with the current financial and economic crisis.
An Overlooked Detail - Finite Resources Explain the Financial Crisis
Posted by Gail the Actuary on November 21, 2008 - 8:43am
We are reaching limitsOne of the links in this item points to a paper (pdf) that "tests several related hypothesis for explaining US economic growth since 1900."
No matter what kind of resources we are working with, they don?t simply ?run out?, as we use more and more of them. Instead, they become more and more difficult to extract. In the case of minerals, the ore concentrations become lower and lower. Mines need to be built deeper and deeper. Fossil fuels become of lower quality and more difficult to extract quickly.
For many years, depletion was not really an issue. Resources were so vast, and the leverage provided by energy from fossil fuels was so great, that we could extract as much of almost anything we wanted (oil, natural gas, coal, uranium, copper, phosphorous, gold, platinum, indium, gallium, fresh water, and many other things) very cheaply, in the quantities needed for whatever use was desired.
What has happened in the last few years is that we have started reaching the point where extraction of many of these resources is becoming much more difficult. In April, 2007, the CEOs of Royal Dutch Shell and of French oil company Total SA were quoted as saying that the days of "easy oil" are gone. Just this past week, the International Energy Agency released a report whose executive summary begins, "The world?s energy system is at a crossroads. Current global trends in energy supply and consumption are patently unsustainable environmentally, economically, socially.?
This paper "begins from the belief that consumption of natural resources ? especially energy (or, more precisely, exergy) ? has been, and still is, an important factor of production and driver of economic growth."
The experience of the last year suggests a fundamental instability in the economy. Wild oscillations have become typical. Hardly a day passes without the Dow Jones Industrial average experiencing a triple-digit swing. Oil has swung +100% and back -2/3 in less than two years. Capitalist business and finance is in pitched crisis and would collapse without immediate socialization of its debts. Is something very wrong here? The system seems to be blinking red.
Underlying that instability is the energy situation. Energy is not a paper asset that is manipulable by phony accounting. I believe we are beginning to see the systemic response to a situation where the rug has been pulled out from fundamental economic assumption that energy growth, hence economic growth, is limitless.
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