Blog Archives

Our energy reality

According to Richard Heinberg’s latest article, “The Gross Society” (4-28-14), oil companies have given up on discovering new deposits of conventional oil, the fuel that’s powered our “way of life” for almost 200 years. Almost all new “oil” production is deepwater or shale oil or bitumen from Canadian tar sands. These resources are more expensive to produce, and give us less bang for the buck than conventional oil.

Not surprisingly, oil prices are rising and, as a result, demand is 20% what it would have been had everything stayed the same since the halcyon days of the 1950s or ‘60s. Bill McKibben says that in order to address climate change we need to allow the price of oil to reflect the true costs of its usage. European governments are closer to this than ours is, but a move in this direction would be way too unpopular for any US government to make.

Heinberg’s main concern is dealing with “energy descent,” the increasing unavailability of the kind of energy we’re used to at reasonable prices, and the fact that “there is virtually no discussion occurring among officials about the larger economic implications of declining energy returns on investment. Indeed, rather than soberly assessing the situation and its imminent economic challenges, our policy makers are stuck in a state of public relations-induced euphoria, high on temporarily spiking gross US oil and gas production numbers.

The obvious solution to declining fossil fuel returns on investment is to transition to alternative energy sources as quickly as possible. But from an energy accounting point of view, this may not offer much help. Renewable energy sources like solar and wind have characteristics very different from those of fossil fuels: the former are intermittent, while the latter are available on demand. Solar and wind can’t affordably power airliners or 18-wheel trucks. Moreover, many renewable energy sources have a relatively low energy profit ratio.”

So, what’s going to happen? Whether planned or not (and the latter looks most likely), we’re soon going to be living in what Heinberg calls a “leaner” society, one in which there will be a greater requirement for human labor and the skills of our great-great-grandparents. Society, Heinberg says, will be “able to support relatively few specialists in other activities.” We’ll be using some renewable energy sources, but they won’t be powering “a rerun of Dallas. This will be a simpler, slower, and poorer economy.

If our economy runs on energy, and our energy prospects are gloomy, how is it that the economy is recovering? The simplest answer is, it’s not,” Heinberg says, “except as measured by a few misleading gross statistics. Each month the Bureau of Labor Statistics releases figures for new jobs created, and the numbers look relatively good at first glance (175,000 net new jobs for February 2014). But most of these new jobs pay less than jobs that were lost in recent years. And unemployment statistics don’t include people who’ve given up looking for work. Labor force participation rates are at the lowest level in 35 years. All told, according to a recent Gallup poll, more Americans say they are worse off today than they were a year ago (as opposed to those who say their situation has improved).

Claims of economic recovery fixate primarily on one number: Gross Domestic Product, or GDP. That number is going up, albeit at an anemic pace in comparison with rates common in the 20th century; hence, the economy is said to be growing.” But a higher GDP can reflect lots of things, like increased military spending or higher healthcare costs, “that don’t actually improve people’s lives.” It also means increased burning of fossil fuels and worsening climate change. “Altogether, Gross Domestic Product does a really bad job of capturing how our economy is doing on a net basis.

Second, a growing money supply (which is implied by GDP growth) depends on the expansion of credit – increasing levels of outstanding debt, and there are limits to a country’s ability to perpetually grow GDP by increasing its total debt (government plus private). A warning sign that these limits are being reached would be a trend toward diminishing GDP returns on each new unit of credit created, exactly what we’ve been seeing in the US in recent years. Back in the 1960s, each dollar of increase in total US debt was reflected in nearly a dollar of rise in GDP. By 2000, each new dollar of debt corresponded with only 20 cents worth of GDP growth. The trend line will reach zero in 2016.

Meanwhile, since rates of consumer borrowing have been stuck in neutral since the start of the Great Recession, to keep total debt growing and the economy expanding, if only statistically, the Federal Reserve has kept interest rates low by creating up to $85 billion per month through a mere adjustment of its ledgers, using the money to buy Treasury bills (US government debt) from Wall Street banks. When interest rates are low, people find it easier to buy houses and cars (hence the recent rise in house prices and the auto industry’s rebound); it also makes it cheaper for the government to borrow. The Fed’s Quantitative Easing (QE) program props up the banks, the auto companies, the housing market, and the Treasury. But, with overall consumer spending still anemic, the trillions of dollars the Fed has created have generally not been loaned out to households and small businesses; instead, they’ve just accumulated in the big banks. This is money constantly prowling for significant financial returns, nearly all of which go to the one percenters. Fed policy has thus generated a stock market bubble, as well as a bubble of investments in emerging markets, and these can only continue to inflate for as long as QE persists.

The obvious way to keep these bubbles from growing and eventually bursting (with attendant financial toxicity spilling over into the rest of the economy) is to stop QE. But doing that will undermine the ‘recovery,’ such as it is, perhaps sending the economy into depression. The Fed’s solution to this damned if you do, damned if you don’t quandary is to ‘taper’ QE, reducing it gradually over time. This doesn’t solve anything; it’s just a way to delay and pretend.

Cheap, high-energy-returned-on-energy-invested energy and genuine economic growth are disappearing,” and we’re refusing to face these facts and adapt to “our new reality. We teach our kids to operate machines so sophisticated that almost no one can build one from scratch, but not how to cook, sew, repair broken tools, or grow food.

What would the world look and feel like if we deliberately and intelligently nudged the brakes on material consumption, reduced our energy throughput, and re-learned some general skills? You don’t have to move to an ecovillage to join in the fun; there are thousands of Transition initiatives worldwide running essentially the same experiment in ordinary towns and cities, just not so intensively. Take a look at to see reports on these experiments and tips on what you can do to adapt more successfully to our new economic reality.

These efforts are self-organized and -directed, not funded or overseen by government, which is not likely to be of much help in present circumstances. Even a little large-scale planning and support would help, and without it the transition will be more chaotic than necessary and a lot of people will be hurt needlessly.” But, Heinberg says, our political system is “broken.” I’d say totally in bed with the corporations more concerned with squeezing the last morsels of profit out of a dying system than facing and dealing with reality. But that’s the nature of the corporate beast.

“When it comes to energy,” Heinberg concludes, “we’ve deluded ourselves into believing that gross is the same as net. In the early days of fossil fuels, it very nearly was. But now we have to go back to thinking the way people did when energy profit margins were smaller. We must learn to operate within budgets and limits. This means decentralization, simplification, and localization. Becoming less reliant on long-term debt, paying as we go. It means living closer to the ground, learning general skills, and becoming involved in basic productive activities like growing food.

We can make this transition successfully, if not happily, if enough of us embrace Lean Society thinking and habits. But things likely won’t go well at all if we continue to hide reality from ourselves with gross numbers that delay our adaptation to accelerating, inevitable trends.”