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Peak
Economy
Peak
Economy
Richard HeinbergPost Carbon Institute
September 2009
Richard HeinbergPost Carbon Institute
September 2009
The economic crisis changes everything
before crisis I after crisis
• Understand the crisis and its historical context, so that we can
• Respond effectively
It is essential that we….
What is economic growth?
• GDP: total amount of money changing hands
What is economic growth?
• GDP: total amount of money changing hands
• Money is a claim on goods and services
What is economic growth?
• GDP: total amount of money changing hands
• Money is a claim on goods and services
• Provision of goods and services requires energy and material resources
Economic growth correlates with energy usage
Winning the energy lottery
During the fossil fuel era we developed an economy…
…based on the expectation that growth can go on forever
Tomorrow’s growth is
collateral for today’s debt
• With compound interest, fractional reserve banking, and debt leverage, growth became necessary to the monetary health of nations
Growth becomes institutionalized
Remember…growth requires more energy!
World oil discoveries
Global oil production falls when loss of output from countries declining
exceeds gains from those expanding
2007 oil production balanceyear on year change
(thousand barrels/day
How did Peak Oil contribute to the financial crisis?
1. Energy growth becomes difficult and expensive (oil at $147 a barrel!)
The drivers of crisis:
Past recessions & oil spikes
1. Energy growth becomes difficult and expensive
2. Growth-and-debt-based economy goes bust
The drivers of crisis:
• Mortgage/finance crisis and oil price spike would each have caused a recession
• Both happened at the same time
• Result: simultaneous crises in auto, airline, banking, housing sectors
• Once the house of cards started falling, debt de-leverage created a snowball effect
Colliding recessions
Cost of the Wall St. Bailout
“The value of global financial assets including stocks, bonds, and currencies fell by more than $50 Trillion in 2008, equivalent to a year of world GDP.”
--Asian Development Bank
• Demand destruction
• Hedge funds in, hedge funds out
Why did oil prices drop?
• Though demand is down, depletion of existing fields continues: capacity erosion
July 2008: the all-time oil peak
• Though demand is down, depletion of existing fields continues: capacity erosion
• Lack of investment (given low oil prices and credit crisis) means new oil projects are being cancelled. Not enough capacity is being replaced!
July 2008: the all-time oil peak
July 2008: the all-time oil peak
• Raymond James Associates
• Macquarie Investment Bank
• Jeff Rubin (Formerly CIBC)
• Energy Watch Group
• Association for the Study of Peak Oil
The post-peak dilemma
• Oil price needed to justify the development of new oil production capacity: $60-70 (and rising)
• Minimum oil price likely to trigger economic recession: $80
The trap
• If oil prices rise, economic recovery is nipped in the bud
• If oil prices fall, not enough investment is made in future supply; this leads to high oil prices later (see above)
But it’s not just oil
Antimony China Thermoelectric/paraelectric materialsBarium China Thermoelectric/paraelectric materialsBismuth China, Mexico Thermoelectric/paraelectric materialsCobalt Kinshasa, Australia PhotovoltaicsGallium China PhotovoltaicsGermanium Belgium, Canada PhotovoltaicsIndium China, Canada Photovoltaics, thermo/paraelectric mat’lsManganeseGabon, S. Africa PhotovoltaicsNickel Canada Fuel cellsPlatinum S. Africa Fuel cells, para/thermoelectric materialsRare Earths China Fuel cells, para/thermoelectric materials Tellurium Belgium, Germany Solar cells, semiconductorsTitanium Australia, S. Africa Solar cellsZinc Canada, Mexico Photovoltaics, fuel cells
Depleting materials
World water usekm
3/
yea
r
Marine fish catch
A giant science experiment
So, back to the economic crisis…
Unemployment nears 10%
“We’re in the midst of a once-in-a-lifetime set of economic conditions. The perspective I would bring is not one of recession. Rather, the economy is resetting to a lower level of business and consumer spending based largely on the reduced leverage in the economy.”
Steven BallmerChairman, Microsoft Corp.
V
The shape of the recovery
U
The shape of the recovery
W
The shape of the recovery
L
The shape of the recovery
• Unemployment
• Homelessness
• Bank failures
• Hunger
• Crime
• Political instability
• International conflict
What to expect
Will reduced energy per capita result in reduced
carrying capacity?
Not necessarily; there are other factors:
• Equity
• Efficiency
But the end of growth means we have entered
a new era
• If population increases, per-capita consumption will decline more rapidly
• Resource conflicts likely
What are our levers?
• Population
• Equity
• Development of renewables
• Efficiency
• (we also need a steady-state economy and global conflict resolution)