Peak Oil

No Need for Panic

By Ryan McGreal
Published September 28, 2005

In his column in the Daily Collegian, author David Lawrence typifies the head-in-the-sand reaction to peak oil coming from the libertarian pundits of the world. (Thanks to Jason Leach for sending this to me.)

At first, I actually thought it was a parody of the sort of pro-market, "no need for panic" blather clogging the brains of too many ostensibly intelligent people.

Then I realized it was meant to be taken seriously. My guess from reading this is that the author is a second-year business student who just finished taking a course on classical microeconomics. Unfortunately, the same arguments are showing up among pundits who are old enough to know better.

Lawrence writes that reports about the "peak oil" phenomenon:

generate fear and panic by implying that the oil supply is going to suddenly dry up, leaving us helpless and unable to get to work or heat our homes. This "drying up" actually won't occur in days or years even, but over the course of decades.

In fact, anyone with more than a passing understanding of the issue recognizes the oil supply isn't going "to suddenly [sic] dry up". Rather, it will go into a slow but steady decline. Since economic growth is a function of growth in the oil supply, our economy will also go into a slow but steady decline until it can wean itself off petro-dependence. According to a report Robert Hirsch prepared for the US Department of Defense earlier this year, sich a transition will take at least two decades of accelerated transition.

Lawrence goes on:

During this time alternative energy sources will also gradually increase in popularity and use, as they fill in the gaps that decreasing oil production leaves.

Alternative energy sources cannot step up at the rate that oil will be declining, let alone fill the gap *and* increase by the 2-3 percent to which we've grown accustomed. The ratio of economic growth to growth in the oil supply is not 1:1 (in fact, the economy has grown considerably more efficient in real dollars since the 1970s), but economic growth is still tightly correlated with energy supply growth. It will not be business as usual once the global oil supply starts to contract.

Alternatives to fossil fuels already exist. ... The reason they aren't used as much as oil is because they are in general much more expensive than oil. The average person isn't going to pay five times as much as he could to get to work each morning because we are going to run out of oil 50 years from now.

First, those alternatives cannot step up to replace the gap between declines in the oil supply and our economic expectation of growth in the energy supply. Second, even if they could, there will be a lot less money available for consumer spending if people must shell out "five times as much" for transportation.

The "invisible hand" of the free market will solve the problem even before it arrives.

There's just that small matter of a twenty-year economic crisis as we attempt to convert our entire continental transportation system off oil dependence. (I haven't even mentioned the related crunches in agriculture or home heating.)

This is not to mention that the "invisible hand" has had a little historical help from the invisible fist of hundreds of billions of dollars in government spending on public infrastructure projects, tax breaks and subsidies for oil companies and airlines, regulations encouraging sprawl development, and so on.

By the way: I can't wait to see how that electric airplane works.

Ryan McGreal, the editor of Raise the Hammer, lives in Hamilton with his family and works as a programmer, writer and consultant. Ryan volunteers with Hamilton Light Rail, a citizen group dedicated to bringing light rail transit to Hamilton. Ryan writes a city affairs column in Hamilton Magazine, and several of his articles have been published in the Hamilton Spectator. He also maintains a personal website and has been known to post passing thoughts on Twitter @RyanMcGreal. Recently, he took the plunge and finally joined Facebook.

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By dlawrenc (registered) | Posted October 20, 2005 at 07:57:47

Why such detailed criticism of a 2nd-year business major who doesn't know better?

Incidentally I'm a senior physics major, though I am known to act sophomorically on the weekends.

The structure of your criticism is worth note. First in position are the ad hominem attacks. Second comes a shaky rejection of my argument based on the unproven assumption that economic growth is permanently locked to energy production.

I'm not convinced, Ryan- guess again.

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By Ryan (registered) - website | Posted October 21, 2005 at 05:42:06

Perhaps it's unfair to pick on a university student, but I have this old-fashioned idea that university education should produce dynamic, critical thinking, not knee-jerk dogmatism.

With all due respect, I'd like to see an example of an economy that has grown while its energy supply declined. The historical record, not to mention the biological record, is pretty clear on the relationship between energy and activity.

All economic activity ultimately rests on a foundation in material transactions. Economists who forget this wander into nonsense like the "weightless economy" where we all get rich designing websites for each other while our houses, cars, and other material items magically appear, produced by a mystical process called "globalization".

We've managed to hide the economic activity on which we depend, but we haven't yet managed to eliminate it, despite increases in energy efficiency and "productivity gains" achieved by reducing per-unit labour costs. Unless we can continue to increase the efficiency of our tools and systems by at least six percent a year (three percent to offset declines in fossil fuel energy and three percent to maintain GDP growth), every year, our economy will contract and our lives will be disrupted.

The Pentagon-commissioned report by a renowned energy policy expert I cited (the so-called Hirsch Report) makes a compelling case for at least a twenty-year transitional period as our economy adjusts to declining energy, marked by severe economic and social dislocations.

I highly recommend following the link and reading it.

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