I've suggested in several previous posts that the peak oil
debate may be approaching a turning point—one of those shifts in the collective
conversation in which topics that have been shut out for years or decades
finally succeed in crashing the party, and other topics that have gotten more
than their quota of attention during that time get put out to pasture or sent
to the glue factory. I’d like to talk
for a moment about some of the reasons I think that’s about to happen, and in
the process, give a name to one of the common but generally unmentionable
features of contemporary economic life.
We can begin with the fracking bubble, that misbegotten brat
fathered by Wall Street’s love of Ponzi schemes on Main Street’s stark terror of
facing up to the end of the age of cheap abundant energy. That bubble has at
least two significant functions in today’s world. The first function, as
discussed in these essays already, is to fill an otherwise vacant niche in the
string of giddy speculative delusions that began with the stock market boom and
bust of 1987 and is still going strong today. As with previous examples, the
promoters of the fracking bubble dangled the prospect of what used to be normal
returns on investment in front of the eager and clueless investors with which
America seems to be so richly stocked these days. These then leapt at the bait, and handed
their money over to the tender mercies of the same Wall Street investment firms
who gave us Pets.com and zero-doc mortgages.
You might think, dear reader, that after a quarter century
of this, there might be a shortage of chumps willing to fall for such schemes.
Whatever else might be depleting, though, the supply of lambs eager to be led
to that particular slaughter seems to be keeping up handily with the demand. We
live in what will doubtless be remembered as the Golden Age of financial fraud,
an era of stunning fiscal idiocy in which even the most blatant swindles can
count on drawing a crowd of suckers begging to have their money taken from
them. Millennia from now, the grifters, con men, and bunco artists of
civilizations yet unborn will look back in awe at our time, and wish that they,
too, might be fortunate enough to live in an era when tens of millions of
investors passionately wanted to believe that the laws of economics,
thermodynamics, and plain common sense must surely be suspended for their
benefit.
To some extent, in other words, the fracking bubble is
simply one more reminder that Ben Franklin’s adage about a fool and his money
has not lost any of its relevance since the old rascal slipped it into the
pages of Poor Richard’s Almanac. Still, there’s more going
on here than the ruthless fleecing of the unwary that’s the lifeblood of every
healthy market economy. The fracking bubble, as most of my readers will be well
aware, has not only served as an excuse for ordinary speculative larceny; it’s
also provided a very large number of people with an excuse to scrunch up their
eyes, stuff their fingers in their ears, shout "La, la, la, I can’t hear
you," and thus keep clinging to the absurd faith that limitless resources
really can be extracted from a finite planet.
For the last three or four years, accordingly, the fracking
bubble has been the most common item brandished by practitioners of peak oil
denial as evidence that petroleum production can too keep on
increasing forever, so there! The very
modest additions to global petroleum production that resulted from
hydrofracturing shales in North Dakota and Texas got talked up into an
imaginary tidal wave of crude oil that would supposedly sweep all before it,
and not incidentally restore the United States to its long-vanished status as
the world’s premier oil producer. All that made good copy for the bunco artists
mentioned earlier, to be sure, but it also fed into the futile attempts at
denial that have taken the place of a sane energy policy in most industrial
societies.
The problem with this fond fantasy is that the numbers don’t
even begin to add up. The latest figures, neatly summarized by Ron Patterson in
a
recent post, show just how bad the situation has become. Each year,
on average, the oil industry has had had to increase its investments by 10%
over the previous year to get the same amount of oil out of the ground. Even $100-a-barrel oil prices won’t support
that kind of soaring overhead cost for long, and the problem has been made
worse by the belated discovery that many of the shale beds ballyhooed in recent
years don’t have anything like as much oil as their promoters claimed. As a result, oil companies around the world
are cutting back on capital investment and selling off assets. That’s not the
behavior of an industry poised on the brink of a new age of abundance; it’s the
behavior of an industry that has just slammed face first into hard supply
limits and is backing away groggily from the impact site while trying to stanch
the bleeding from deep fiscal cuts.
As a result, with mathematical certainty, a great many
overpriced assets are going to lose most of their paper value in the years
ahead of us, a great many businesses that have made their money providing goods
and services to the drilling industry are going to downsize sharply or simply
go bankrupt, a great many wells that can’t make money even at exorbitant oil
prices are going to be shut in or go undrilled in the first place, and a very,
very great many people who convinced themselves that they were going to get
rich by investing in fracking are going to end up poor. It’s not going to be
pretty. Exactly what effect this is
going to have on the price of oil is an interesting question; my guess, though
it’s only a guess, is that a couple of years from now the price of oil will
spike, possibly to the $250-$300 a barrel range, then crash to $60 a barrel,
and slowly recover to $175 or so over a period of several years.
This has a great deal of relevance to the project of this
blog. The last time petroleum production
failed to keep pace with potential demand, and the price of oil spiked
accordingly, peak oil came in from the fringes and got discussed publicly in
the pages of newspapers of record. That
window of opportunity gaped open from 2004 to 2010, roughly speaking, and during
that period a great deal got accomplished. That was when peak oil stopped being
a concern of the furthest fringe and found an audience in many corners of
contemporary alternative culture, when local groups—some under the Transition
Town banner, others outside it—began to organize around the imminence of peak
oil, and when books on resource depletion and its consequences found a market
for the first time since the early 1980s.
Those are significant gains. It’s true, of course, that
these achievements didn’t make peak oil go away, or find some gimmick that will
keep the lifestyles of the industrial world’s more privileged inmates rolling
merrily along for the foreseeable future. What sometimes gets forgotten is that
neither of those things was ever possible in the first place. The hard facts of
our predicament have not changed a bit:
the age of cheap abundant energy is ending; the economic systems, social
structures, and lifestyle habits that were made possible by that temporary
condition are accordingly going away, and nothing anyone can do will bring them
back again, not now, not ever.
It’s worth being precise here: for the rest of the time our species endures,
we will have to deal with much more sharply constrained energy supplies than
we’ve had handy over the last few centuries. That doesn’t mean that our
descendants will be condemned to huddle in caves until the jaws of extinction
close around them; I’ve argued at quite some length in
one of my books that the endpoint of the mess we’re currently in,
centuries from now, will most likely be the emergence of ecotechnic
societies—societies that maintain relatively high technology on the modest
energy and resource inputs that can be provided by renewable sources. I’ve
suggested, there and elsewhere, that there’s quite a bit that can be done here
and now to lay the foundations for the ecotechnic societies of the far future.
I’ve also tried to point out that there’s quite a bit that can be done here and
now to make the unraveling of the age of abundance less traumatic than it will
otherwise be.
To my mind, those are worthwhile goals. What makes them
difficult is simply that any meaningful attempt to pursue them has to start by
accepting that the age of cheap abundant energy is ending, that the lifestyles
that age made possible are ending with it, and that wasting all those fossil
fuels on what amounts to a drunken binge three centuries long might not have been
a very smart idea in the first place. Any one of those would be a bitter pill
to take; all three of them together are far more than most people nowadays are
willing to swallow, and so it’s not surprising that so much effort over the
last few decades have gone into pretending that the squalid excesses of
contemporary culture can somehow keep rolling along in the teeth of all the
evidence to the contrary.
The frantic attempts to sustain the unsustainable driven by
this pretense have done much to make the present day such a halcyon time for
swindles of every description. Not all of those, however, have taken aim at the
wallets of what we might as well call the lumpen-investmentariat, that class of
people who have money to invest and not a clue in their heads that Wall Street
might not have their best interests at heart. Some of the most colorful flops
of recent years have instead attracted money from a different though equally
gullible source: government subsidies for new energy technologies.
Those of my readers who were part of the peak oil scene a
decade ago, for example, may remember the days when ethanol made from American
corn was going to save us all. Many of
the same claims more recently deployed to inflate the fracking bubble were used
to justify what was described, at the time, as America’s burgeoning new ethanol
industry, but the target for these exercises was somewhat different. A certain
amount of investment money from the clueless did find its way into the hands of
ethanol-plant promoters, to be sure, but the financial core of the new industry
was a flurry of federal mandates and federal and state subsidies, which in
theory existed to lead America to a bright new energy future, and in practice
existed to convince the voters that politicians really were doing something
about gasoline prices that had just risen to the unheard-of level of $2 a
gallon.
You won’t hear much about America’s burgeoning new ethanol
industry these days. A substantial fraction of the ethanol plants that were
subsidized by governments and lavishly praised by politicians a decade ago are
bankrupt and shuttered today, having failed to turn a profit or, in some cases,
cover the costs of construction. The
critics who pointed out that the burgeoning new industry made no economic
sense, and that making ethanol from corn uses more energy than you get from
burning the ethanol, turned out to be dead right, and the critics who dismissed
them as naysayers turned out to be dead wrong. Still, the ethanol plants had
accomplished the same two functions as the fracking bubble did later: it sucked
a great deal of money into the hands of its promoters, and it helped everyone
else pretend for a while that the end of the age of cheap abundant energy
wasn’t going to happen after all.
It’s hardly the only example of the phenomenon. Since I don’t want green-energy proponents to
feel unduly picked on, let’s turn to the other side of the energy picture and
take a look at nuclear fusion. Since the 1950s, a sizeable body of nuclear
physicists have kept themselves gainfully employed and their laboratories
stocked and staffed by proclaiming nuclear fusion as the wave of the future. In
just another twenty years, we’ve repeatedly been told, clean, safe nuclear
fusion plants will be churning out endless supplies of energy, if only the
government subsidies keep pouring in. After sixty years of unbroken failure,
even politicians are starting to have second thoughts, but the fusion-power
industry keeps at it, pursuing a project that, as respected science writer
Charles Seife pointed out trenchantly in Sun In A Bottle: The Strange
History of Fusion and the Science of Wishful Thinking, has more in
common with the quest for perpetual motion than its overeager fans like to
think.
Every few years the media carries yet another enthusiastic
announcement that some new breakthrough has happened in the quest for fusion
power. Now of course it’s worth noting that none of these widely ballyhooed
breakthroughs ever amount to a working fusion reactor capable of putting power
into the grid, but let’s let that pass for now, because the point I want to
make is a different one. As I pointed out in a
post here last year, the question that matters about fusion is not
whether fusion power is technically feasible, but whether it’s economically
viable. That’s not a question anyone in the fusion research industry wants to
discuss, and there are good reasons for that.
The ITER project in Europe offers a glimpse at the
answer. ITER is the most complex and
also the most expensive machine ever built by human beings—the latest estimate
of the total cost has recently gone up from $14 billion to $17 billion, and if
past performance is anything to go by, it will have gone up a good deal more
before the scheduled completion in 2020.
That stratospheric price tag results from the simple fact that six
decades of hard work by physicists around the world, exploring scores of
different approaches to fusion, have shown that any less expensive approach
won’t produce a sustained fusion reaction. While commercial fusion reactors
would doubtless cost less than ITER, it’s already clear that they won’t cost
enough less to make fusion power economically viable. Even if ITER succeeds in
creating its "sun in a bottle," in other words, that fact will be an
expensive laboratory curiosity, not a solution to the world’s energy needs.
My more attentive readers will doubtless have noticed that
the flaw in the current round of glowing prophecies of a future powered by
fusion plants is the same as the flaw in the equally glowing sales pitches for
corn-based ethanol fuel plants a decade ago. Turning corn into ethanol, and
using the ethanol to fuel cars and trucks, is technically feasible; it just
doesn’t happen to be economically viable. In the same way, whether fusion power
is technically feasible or not may still be up in the air, but the question of
its economic viability is not. The gap between technical capacity and economic
reality provides the ecological niche in which both these projects make their
home, and a great many other alleged solutions to the energy crisis of our time
inhabit that same niche.
I’d like to suggest that it’s high time to put a name to the
technological fauna that fill this role in our social ecology, and I even have
a name to propose. I think we should
call them "subsidy dumpsters."
A subsidy dumpster, if I may venture on a definition, is an
energy technology that looks like a viable option so long as nobody pays
attention to the economic realities. Because it’s technically feasible, or at
least hasn’t yet been proven to be unfeasible, promoters can brandish
enthusiastic estimates of how much energy it will yield if only the government
provides adequate funding, and point to laboratory tests of technical
feasibility as evidence that so tempting a bait is within reach. The promoters
of such schemes can also rely on the foam-flecked ravings of economists, who
have proven to be so stunningly clueless about energy in recent years, and they
can also count on one of the pervasive blind spots in modern thinking: the
almost visceral inability of most people these days to think in terms of whole
systems. Armed with these advantages, they descend upon politicians, and if
energy costs are an irritation to the public—and these days, energy costs are
always an irritation to the public—the politicians duly
cough up a subsidy so they can claim to be doing something about the energy
problem.
Once the subsidy dumpster gets its funding, it goes through
however many twists and turns its promoters can manage before economic
realities take their inevitable toll. If the dumpster in question has to
compete in the marketplace, as fuel ethanol plants did, the normal result is a
series of messy bankruptcies as soon as the government money runs short. If it
can be shielded from the market, preferably by always being almost ready for
commercial deployment but never actually quite getting there—the fusion-research
industry has this one down pat, though it’s fair to say that the laws of nature
seem to be giving them a great deal of help—the dumpster can keep on being
filled with subsidies for as long as the prospect of an imminent breakthrough
can be dangled in front of politicians and the public. Since most people these
days consistently mistake technical feasibility for economic viability, there’s
no shortage of easy marks for this sort of sales pitch.
There are plenty of subsidy dumpsters in the energy field
just now. What makes this all the more unfortunate is that quite a few of them
are based on technologies that could be used in less self-defeating ways. Solar
power, to name only one example, could make a huge dent in America’s energy
needs, if the available resources focused on proven technologies such as solar
water heaters; once this sensible approach is replaced by attempts to claim
that we can keep the grid powered by paving some substantial fraction of Nevada
with solar PV cells, though, we’re in subsidy-dumpster territory, as a
recent study of Spain’s much-lauded solar program has shown.
Renewable energy is a viable option so long as its sharp limits of concentration
and intermittency are kept in mind; ignore those, and pretend that we can keep
on living today’s extravagant lifestyles on a basis that won’t support them,
and you’ve got a perfect recipe for a subsidy dumpster.
Now it’s only fair to point out that the energy issue is far
from the only dimension of modern life that attracts subsidy dumpsters. Name a
current crisis here in America—joblessness, urban blight, decaying
infrastructure, and the list goes on—and there are plenty of subsidy dumpsters
to be found, some empty and rusting like yesterday’s ethanol plants, some
soaking up government funds like the ITER project, and many more that are still
only a twinkle in the eyes of their eager promoters. Still, I’d like to suggest
that subsidy dumpsters in the energy field have a particular importance just
now.
* * *
In not unrelated news, I'm pleased to report that my latest book on peak oil and the future of industrial society, Decline and Fall: The End of Empire and the Future of Democracy in 21st Century America, is now in print. Those of my readers who have preordered copies will have them soon; those who haven't...well, what's keeping you? ;-)
