Those with a more apocalyptic bent seem to see the onset of a world peak in oil production and the current economic “credit crunch” as a sure sign that the end is nigh. I disagree—I think we’re in the midst of a “slow crash” that will unfold over the next several decades. That doesn’t, however, mean that I think the timing of the credit crunch won’t have a serious effect on peak oil…
I think that our economy is fundamentally strong, both in
This increase in transaction costs of our specialization-driven economy is the real problem, and it is driven by peak oil—actually peak primary energy. Right now, our global economy is fundamentally based on the easy energy surpluses available to us, primarily from crude oil, high-quality coal reserves, and natural gas. Evidence suggests that global production of crude oil has peaked, and that natural gas and then coal are not particularly far behind. But, while the peak may be here now (or very soon), significant decline in production has not yet arrived. This is highly significant for two reasons: 1) significant decline isn’t far off, and 2) these energy sources (oil, coal, natural gas) represent our society’s primary energy sources. By primary energy source I’m not pointing to the fact that they represent the largest share, but rather that they produce energy with such a high Energy Return on Energy Invested (EROEI) that they can fuel the economic energy of our society. This high EROEI keeps the benefit from exchange, especially the very complex and long-distance specialization and exchange in a modern industrial economy, providing benefits in excess of transaction costs. No “alternative” energy source can make this claim—not photovoltaics, not wind, not biofuels, and probably not nuclear (which, at least with current technology, is also subject to a peak in uranium production). I think that solar thermal power has the best chance of proving me wrong here, but no one has yet performed sufficiently inclusive analysis of an operational solar thermal plant to convince me that it can be our salvation. Some alternative energy advocates make outlandish claims about the EROEI of new sources, but when the totality of energy inputs is accounted for these claims fall flat, as I’ve argued many times. Here's one recent example of how the cost for wind generation--one of the "EROEI darlings" of the renewable power world--is (surprise) experiencing dramatic cost increases as an associated phenomena raises its ugly head, what I've called "boot-strap EROEI." That is, while renewables may produce an apparent 5:1 EROEI when they can leverage inputs and infrastructure that was build on 100:1 EROEI "easy oil," the EROEI of these renewables begins to drop precipitously when new or replacement supporting infrastructure, ores, transport, etc. must now be provided with 20:1 or even 10:1 EROEI oil. This drives home the criticality of primary energy to the functioning of our society.
It’s important to point out that we don’t know that these alternatives won’t, at some point in the future, become truly viable primary energy sources to fuel society (though this only raises the Problem of Growth, which I’ve covered previously). And I could certainly be wrong in my EROEI calculations—we could currently have technology sitting in some R&D lab that can power the world. But there is a fundamental difference between developing a new, sustainable primary energy source in a laboratory that *could* power society and actually building out the full panoply of energy generation facilities and accompanying infrastructure necessary to actually continue society as we know it. This is where the timing of the credit crunch and the onset of significant declines in global oil production due to peak oil becomes vitally important: the current economic slowdown due to the credit crunch is masking the price signals that will warn of the significant declines to come, and is postponing the political viability of any kind of crash-program to adapt our present society to one that is based on a sustainable energy source.
If the recovery from the credit crunch lingers on through 2008 and resolves in the middle of 2009, as I think seems likely, then America’s growth engine (and, to a lesser degree, the world’s) will get its feet under it again just about the time that global oil production will likely begin to experience significant declines, either from simple geologically driven declines, or from the addition of a more geopolitically-driven phenomena such as the Export-Land Model (LINK). Either way, the current “undulating plateau” of global oil production represents a vital, and probably fairly short-lived opportunity to seriously transition our economy to a sustainable energy source. It’s my opinion that, with the benefit of historical hindsight, it will be understood that the greatest significance of the credit crunch is that it caused us to squander 2+ years of our oil production plateau that could have been used to fuel an adaptation program. Just look at the political platforms of ALL the
By the time it becomes obvious that we must transition to a sustainable energy source, the huge “down payment” of primary energy required to affect that transition seems unlikely to be available. And there won’t be any “sub-prime lender” of primary energy willing to give us 125% of equity on our economy! Judging by both