Special Report: Peak Oil

Uncertain Future for Green Energy

When energy prices rise, consumers tend to use less of it, after a little heart-wrenching and soul-searching, and with plenty of collateral damage in the economy.

By Andrew McKillop
Published March 09, 2010

In most OECD countries, climate change advocacy and carbon finance have gained high leverage, and corporate interests wrestle for the constantly changing government subsidies, aids, carbon credits, clean development offsets, feed-in tariffs and tax favors to develop alternate energy and make the economy "go green".

The base for these supports to carbon finance and trading, and to politically forced, very rapid development of "green energy" is government action, legislation and financial aid, depending on public funds, and these presently depend on public debt.

Debt financing of everything, especially the goal of energy transition, will continue being needed until and unless carbon taxes and trading attain annual turnover able to generate the funding needed for the ever larger targets announced by political leaders.

To date, the now complex and ramifying world of carbon finance is self-feeding and maintaining, with little to show in the way of falling CO2 emissions, but also generates relatively little spin-off from purely financial operations, to large and rapid development of "green energy", despite this being the nominal target of carbon finance and trading.

The goals of politically forced energy transition have attained extreme high levels, for example claimed targets of 80% reductions in CO2 emissions and implied cut of 80% in the dependence on fossil energy by 2040 announced by Obama, and the leaders of Germany, France and UK before the Copenhagen climate summit.

Financing of the programmes needed to achieve these extreme high goals will require much bigger financing than present methods and frameworks can deliver. Added to the costs of carbon finance, and presently small-scale carbon taxes, the net result will be energy prices rising, probably by large amounts.

Increasingly disconnected from reality, "going green" is presented by OECD political leaders as anideological quest "to save humanity" or "to save human civilization as we know it", in a forced march away from fossil fuels and a forced energy transition to energy saving and renewable energy.

The costs of this forced march, like national debts, are rarely announced and discussed, but are almost unlimited and can be estimated and analyzed. They are so high it is sure that a type of "Marshall Plan for Energy" would be needed, if the announced targets were treated as real, credible and feasible.

Cheap Oil Or Climate Catastrophe?

Several reasons exist for the energy focus of "preventing climate catastrophe", and these reasons especially include the oil price. Politically-motivated attempts to create widespread fear of climate change, and the culture shock of global warming extremism are however deemed to be the only politically correct ways to mobilize and channel the consumer herd into accepting forced energy transition.

When oil prices hit the level of USD 120 a barrel for the first time in May 2008, oil cornucopians knew they were in trouble: in the 5 years 2003-2008 oil prices had quadrupled, yet world oil production, in the exact same way as world mined gold production had not responded. Almost no new production was brought online.

World 'conventional crude' oil production flatlined at around 73 Mbd (million barrels per day), and stays close to that level today in 2010.

The sombre case for peak oil of course looks stronger with every new dollar rise in the barrel price, calling strenuous effort from the media and media-friendly 'experts' to explain this was an artificial situation, partly due to hostile anti-western regimes in oil exporter countries, and to 'demand side response' to unreaonably high oil prices by intelligent consumers.

The oil establishment, including major corporations such as BP and the Bush administration's favoured oil cornucopian Daniel Yergin of CERA, explained this non-response of world oil supply to a 300% price increase as due to modern IT-savvy consumers cutting their oil demand due to price rises, and more supply from the renewable energy alternatives like the basically uneconomic and high energy cost-to-produce food crop based biofuels.

The bottom line of oil cornucopians was and is simple: Peak oil will be neutralized by peak demand, increasing efficiency, biofuels, and most important and more real - by the worst recession, according to the IMF, since 1945 and an explosion of company failures and unemployment.

Star speakers working the climate change lode include Al Gore who continues to announce (in a February 27 interview with New York Times) that the world faces "unimaginable calamity" from global warming and must act now to save human civilization as we know it.

In recent high paid interviews, Al Gore now deftly extends his definition of "unimaginable calamity" to also include high oil prices, placed by him at a price level above USD 80 a barrel, describing the oil bill of the USA as costing "hundreds of billions dollars a year".

The most recent record annual net oil costs of the USA were around USD 220 billion in 2007. This can be compared with the USD 1300 billion US budget deficit for fiscal year 2010 recently announced by Obama, or the cumulative amount of financial bailouts to Wall Street by Poulson, under G W Bush, and Geithner under B H Obama in 2008-2009 and totalling about USD 1500 billion.

Similar government bailout of corporate financial gamblers in Europe has cost similar amounts, well above USD 1000 billion in 2008-2009.

Getting Others To Save Oil

Climate extremism reached its most-recent highwater mark and limit at the Copenhagen climate summit, but massively failed to move China and India into the forced march away from fossil fuels under the highly special terms dictated by the OECD countries, led by the USA, Germany, France and UK.

These terms included a rapid halt to oil-based and oil-fired economic growth in China and India, through immediate and uniform worldwide CO2 emissions limits being applied, whatever the energy intensity or average oil consumption per capita of the countries expected to join with the OECD countries.

The basic objective was simple: persuade China and India to reduce their growth of oil demand, to keep oil import prices down for OECD countries who can then maintain the consumer civilization party a little longer. To be sure, OECD politicians and media play act as if they are mesmerised by the fantasy of "unimaginable calamity" due to global warming, but this has an increasingly declared real world handle: act to stop oil prices from rising.

Chinese and Indian oil consumers are constantly increasing their consumption notably due to car production and ownership expanding at around 15% to 20% a year, every year, in both countries. Despite this feat of conventional economic growth, almost exactly the same as growth of car ownership in USA, Europe and Japan in the 'Trente Glorieuse' period of fast economic growth through 1950-1975, oil demand per capita in China and India trails very far behind consumption in the 'postindustrial' and 'ecological minded' societies of the OECD.

Average Chinese and Indian per capita oil consumption in 2010 is around 75% lower for China, and 90% lower for India, than the OECD average of 14 barrels per capita per year. When or if 'postindustrial' consumers in the OECD countries wanted to only waste as much oil as average industrialising Chinese and Indians do today, they would need to cut their oil consumption by around 75% to 90%.

Until then, dictating a forced march to energy transition is likely to get continued resistance from China and India.

The Catastrophe Of High Oil Prices

Fast energy transition away from fossil fuels is no longer presented as simply desirable, but an urgent necessity for preventing catastrophe in the OECD countries. The definition of "catastrophe" as announced by high priest Al Gore is now and/or climatic or economic, with economic catastrophe redefined as paying USD 80 for a barrel of imported oil.

Oil consumers in OECD countries who pay very high taxes to the state on their final consumption currently pay as much as USD 275 a barrel at the filling station pump, making USD 80 a barrel somewhat cheap and low by comparison.

In the speeches of the presidents, prime minister and chancellor of USA, Germany, France and UK many times repeated in public debate and in interview before the Copenhagen climate summit farce, massively cutting CO2 emissions in the shortest possible timeframe is the "last chance to save the planet".

This may with hindsight merely have been allusion to to consumers and motorists perhaps paying another 30 US cents per litre at the pump in the coming year, under the worst case scenario for oil price rises in 2010. If pump prices rose 30 US cents a litre - and no new taxes were applied - this would need a rise of USD 48 dollars on each barrel imported, raising import prices to USD 128 a barrel.

OECD political leaders however prefer to whine at the microphone about "climate calamity" and saving polar bears from paddling in slush by using less oil, to keep the price down. Favored and distorted claims of climate change extemists and their media followers include the "possible" melting of "nearly all" ice sheets in an undefined period, possibly 75 years.

The East Antarctic Ice Sheet, without polar bears but holding about 77% of all world ice by weight, has in fact grown by a few percent (by about 10 000 cubic kilometres in volume) since 1960. Melting all the world's ice inventory under the most extreme imaginable global warming, of a sustained +7.5°C rise in average world temperature, itself not possible, would probably take more than 5,000 years.

The real world possibility of this incredible temp rise being sustained for 5,000 years is probably less than 0.01%.

Cutting oil demand to keep the oil price low and maintain the throwaway consumer society in existence a little longer, an artisitic 'prolonging the agony' call, is therefore the real world goal of the 'climate change fraternity' now including the political leaders of all OECD countries and most of the media.

The major problem is that present energy consumption in the OECD countries, about 85% based on fossil fuel burning, is directly linked to OECD economic performance and the maintenance of high rates of personal consumption, that is high rates of throwing away one-trip resources and whining about the environmental devastation this causes.

Another basic problem for a forced march away from fossil fuels to renewable energy is that the non-fossil alternatives, outside large-scale hydropower, are relatively difficult and costly to develop, relatively diffuse or non-concentrated. Under the most optimistic scenarios including large and long-term subsidies and financial aid from goverment, financed by debt in current conditions, the present crop of increasingly massive, increasingly impossible official programmes in the USA, Europe, Japan, South Korea, Australia and other OECD countries "to save human civilization as we know it" could only replace and substitute about 7.5% to 10% of present energy demand by 2030-2040, according to the IEA.

Realities such as the above are however ignored, eluded, or denied by present-crop political leaderships in the oil and energy intensive OECD consumer societies. Probable reasons include the painful refusal of facts to fit panic-driven fantasy.

Nuclear Power

In a recent Facebook post, Energy Secretary Steven Chu made the case the USA must develop more nuclear power because solar and wind power are variable resources, and can only provide about 25% of current US electricity demand by around 2035 unless there is massive, very costly and quite rapid development of what are called Smart Grids.

These would operate to "spread the pain" by quickly cutting off consumers when power supplies are too low, and force the most efficient possible use of electricity by very variable tariffs, changing rapidly with supply-demand balances.

Other tech gimmicks are added to Smart Grid business proposals, notably new types of electricity storage other than costly pumped water storage, like compressed air and flywheels, but the basis of the concept is to raise final electricity prices and ration supply to give clean energy investors a good return on their bets.

And of course "to save the planet from catastrophe", as Al Gore, Rajendra Pachauri, and presidents, prime ministers and chancellors line up to say with eye-popping sincerity.

Nuclear power expansion itself faces numerous limits, notably uranium supply, waste disposal, and the decommissioning of aged nuclear reactors - and of course 'nuclear proliferation' or weapons production from nuclear materials and wastes. The decision of the Obama administration of the USA to 'push the restart button' on nuclear power is a simple choice dictated by the lack of realistic alternatives, including the unrealistic and forced energy transition to energy saving and renewable energy.

Credibility Problems

This basic problem with near-term future energy limits on global economic growth is not enough supply, and too much demand. Government policy and legislative changes to prevent this real menace of "permanent supply shortage" should have taken place 35 years ago, but nothing happened.

The age-old and hallowed principle of laissez aller-laissez faire generates its inevitable real world result: chaos. Older generations decided to do nothing and use up the "low hanging fruit", or cheaper and more abundant energy resources, and following generations have to clear up the mess - if they can.

Austerity and long term economic crisis are two likely real world sequels to the growth economy based on cheap fossil fuels, but other and more sombre sequels of doing nothing too long are easy to describe.

This reality is carefully eliminated from any discussion on green energy and transition to sustainability, other than the clear implication and clear proof that the present is unsustainable, can only change, and must change.

The demand side of the equation, for electricity and all other forms and types of energy, is confronted by massive upward growth potential but supply is difficult to raise, expensive, complicated and slow. World oil demand, for example, would rise more than 50% if China and India attained even one-half today's oil intensity of the OECD countries, of 14 barrels per capita per year.

Radically cutting energy intensity in the OECD countries is therefore decreasingly an option, and increasingly a No Alternative, but of course is rarely and openly discussed.

The "zero option", which 35 years back in time could have included Zero Population Growth with massive positive impacts on near-term future energy demand outlooks of today, is the near-term future for OECD "postindustrial" consumer society, engaged in the intensive consumption of every possible and imaginable type of industrial good and energy intensive service.

Zero demand growth for total energy consumption, with a growing role of renewables, is the only rational solution.

Current energy transition policies and programmes, and government or corporate plans to "fight climate change" by reducing oil consumption imply a direct increase in total electricity demand, simply because most renewable energy sources deliver electricity as their final energy putput.

The electric power demand implication of transition away from fossil fuels includes the heavily-touted and subsidized transition to all-electric car fleets. Millions of these cars, each taking 4 kW or more to recharge every day, could or might be produced in many countries by 2015-2020.

In the case of the USA, if today's car fleet of around 215 million was only 10% substituted by all-electric cars (assuming the lithium-based battery supply was in place), these 21.5 million electric cars would need about 85 million kW, that is 85 000 MW, to recharge. Exactly the same reasoning applies to a forced, government-backed introduction of all-electric cars in the EU27 countries, with a present total car fleet around 200 million.

We can surely imagine along with Steven Chu and green energy boomers that Smart Grids could or might limit other uses of electricity, for example heating, cooling, cooking and refrigeration, and we could hope the lighting of office blocks and publicity hoardings all day, all night, at weekends, and on public holidays.

Smart Grids could save power, and could satisfy some of the huge new power demand that will come from all-electric cars. We can also imagine that "responsible minded citizens" anxious to save the planet could or might recharge their planet conscious electric cars in off-peak power periods, but power demand capacity needed for recharging electric cars will very surely raise total demand - unless energy saving becomes draconian.

Draconian energy saving in the road transport sector could be simply and quickly achieved through legislation to limit the weight and engine size of cars. This of course flies against the notion of "liberty", so the no win route to attempts at massively replacing oil-fuelled cars with electric cars will go ahead.

Developing the needed new power capacity for recharging these cars can be costed and programmed, in cash amounts and time needed.

At current wind electric (peak output base), or natural gas power capacity investment costs, we could estimate the shift to a 10%-electric car fleet for the USA would need at least 200 billion US dollars in electric power investment. Costs in Europe would be similar.

In both cases, we should note, it is imagined that there will be zero growth in total car fleet numbers to 2020, and only the replacement of 10% of present oil-fuelled cars, with all-electric or electric-hybrid cars not needing more than 4 kW each to recharge.

No Trace Of Reality

To be sure, following the massive deficit-fianced bailout of the finance sector, and massive aid to the car industry, to encourage consumers to buy new oil-fuelled cars, 400 billion dollars of electric power investment over 10 or 15 years in Europe and USA to cover about 10% of their zero growth car fleet's energy demand can seem quite modest, rational and entirely feasible.

The industrial and technology implications are however real world, and totally different from multi-billion bailouts of failed financial operators. Building the new power plants and developing advanced energy storage and the Smart Grid need heavy and real industrial effort, starting now, and continuing far past the first 10 or 15 years, to 25 years or more. In fact a nearly permanent global programme for energy transition would be needed.

This can be called a "Marshall Plan for Energy", but present confused action and spending, both by governments and the corporate sector shows no trace of this.

Steven Chu, Al Gore, Rajendra Pachauri and many other defenders of a forced march to energy transition either avoid any discussion of cutting energy consumption, or claim that growth in total energy consumption is entirely possible.

In the case of Chu, however, there is already de facto admission that "greening" electricity supply will need growth of nuclear power, the Smart Grid, and major advances in energy storage.

Again in the US case, the very fuzzily-defined and technologically fragile domain of "advanced energy storage" is already forecast as needing tens of billions of dollars investment, on top of the tens of billions of dollars that Obama has made available for nuclear power because of its ability to generate constant baseload power.

Smart Grid development, to be sure, is also forecast as needing tens of billion dollars investment in the next 10-15 years.

Exactly like national debt, budget deficits and bailouts for "too big to fail" finance sector gamblers, the dozens of billions add on to the hundreds of billions elsewhere. On the ground, almost nothing happens.

Apart from the critical and basic lack of realism of most targets and costs of current-crop plans for energy transition, the most basic unreality concerns a very simply question: Who will pay for the Brave New World of soft energy? An even more basic question is: Do we need energy transition?

High Energy Prices And Austerity

These simple questions with a simple answer are always eluded, because the net result is that energy prices have to rise, will rise, and could rise very fast by future shock spiraling back from the fantasy future, to the tormented present. Much higher energy prices will work their own magic on future energy demand trends.

Whatever the attractive spin that is obligatorily added to green energy proposals, energy prices will rise. When energy prices rise, consumers tend to use less of it, after a little heart-wrenching and soul-searching, and with plenty of collateral damage in the economy.

Reduced energy demand then trims energy prices, often by a lot, making investment commitment to very high cost new technology even less attractive to investors, unless Big Government is there to intervene with deficit-financed aids and subsidies.

When this doesn't work, which will be increasingly evident in the near-term future, governments will legislate for austerity.

Welcome to energy transition!

Andrew McKillop is a writer and consultant on oil and energy economics. Since 1975 he has worked in energy, economic and scientific organizations in Europe, Asia, the Middle East, and North America. These include the Canada Science Council, the ILO, European Commission, Organization of Arab Petroleum Exporting Countries, the UN Economic and Social Commission for Asia and South Pacific, and the World Bank. He is a founding member of the Asian chapter of the International Association of Energy Economics. He is also the editor, with Sheila Newman, of The Final Energy Crisis (Pluto Press, 2005).


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By canbyte (registered) | Posted March 21, 2010 at 01:15:23

Thanks for another excellent article.

Don't forget to mention in your travels how the green agenda plans to usurp democracy, or what Bush left of it.

Maybe one shouldn't use the word 'cost' in such articles since the right recoils at the thought and the left rejoices at the implied taxes levied on big bad business. I propose that it is sufficient to simply point out that an 80% reduction involves losing about 80% of everything we use/move/eat, etc. Confounding this with costs only distracts the imagination from the required, simple but painful contemplation.

As for making a start, if we can characterize 'excess' as 'waste', we will be well on our way to starting the required adjustment. Hard on the ego but easy on the taxpayer. As in, A/Cs, SUVs & suburbia = excess = waste. Tens of millions of new immigration could throw a wrench in this thinking however. Is someone really gonna rebuild Haiti?

Just some random thoughts. Good luck.

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By Tungsten (anonymous) | Posted November 22, 2012 at 08:54:35

Say goodbye to Dalton McGuinty’s green industry strategy for jobs and manufacturing. The World Trade Organization may have put the boots to it. But the Ontario premier and his government were unwitting accomplices....

Under the WTO pact, Canadian provinces have wide leeway to demand local content in government procurement contracts. Ontario, for instance, requires that 25 per cent of public transit vehicles purchased by municipalities be manufactured in Canada.

But the key here is that a public body does the purchasing. In the green energy case, according to the newsletter Bloomberg WTO Reporter, Japan and the European Union successfully argued that the purchasers to whom Buy Ontario rules apply (the private generators) are not public bodies.

“It seems they (the government) left themselves open to a challenge,” Scott Sinclair, a trade researcher for the Canadian Centre for Policy Alternatives, said Wednesday.

Sinclair points out that Quebec has demanded local content rules for green energy projects since 2004, without facing any trade challenges.

But in that province, such projects — even if privately financed — come under the umbrella of crown corporation Hydro Quebec, a public body with an effective monopoly on power generation.


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By Pxtl (registered) - website | Posted November 22, 2012 at 09:46:32 in reply to Comment 83109

Hooray for the privatization of our energy system!

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