Monday, October 27, 2008

Why does fungibility matter (and where did it go)?

Why fungibility matters. Take any of a number of hypotheticals: revolution in Saudi Arabia cuts 8 million barrels per day of global oil supply; congress passes strict prohibition on burning coal; revolution in Algeria cuts natural gas supplies to Europe; dispute with the Ukraine cuts natural gas supplies to Europe; peak oil creates oil production supply drops much sharper than expected. What do they all have in common? Answer: our ability to cope, adapt, and overcome these problems is largely a function of substituting with alternatives. And our ability to substitute with alternative sources of energy is a factor of how fungible energy really is--how easily we can bring alternative B to replace lost supply of energy A.

Truly fungible? Traditionally, the term fungibility is used to describe the notion that a given energy commodity such as crude oil is of roughly equal value if it is delivered to China or the US. This is critical because it means that a drop in consumption in the US is negated by an equivalent rise in consumption in China. Likewise, it means that it's pointless to "remove our reliance on Middle Eastern oil" if that just means we buy the same amount of oil from elsewhere--the fungibility of oil simply tells us that when we stop buying from A and buy from B instead, the previous customer of B will now buy from A and little will change. But, of course, it isn't that simple. If you're protesting over the simplicity (naivete?) of my little A-B/B-A example a sentence ago, that's because there's no such thing as a truly fungible commodity. The point of this article is to discuss how the real world tends to intrude on fungibility of our various sources of energy and what this matters...

How do we define fungibility? Several ways. First, we can look at the characteristics of an energy source. Solar and wind supplies are seasonally, regionally, and temporally variable. In other words, sometimes the sun shines, sometimes the wind blows, and sometimes it doesnt--in very different patterns in different places. Fossil fuels are geologically constrained. Hydro has its own unique set of availability characteristics that are largely a result of decisions and compromises in dam construction. All of our energy sources are geographically constrained to some extent--you can't just "move" an oil field to China because that's where the demand is. In this sense, very few energy sources are "geographically fungible." Small nuclear reactors (as on naval vessels) and solar photovoltaics are eamples of energy sources that are geographically fungible, though one can argue that these are really conversion mechanisms, not sources. We can also define degree of fungibility by the characteristics of the energy produced. How easily can coal substitute for a shortfall in oil? How easily can uranium substitute for natural gas? Most importantly, we can define fungibility of an energy source by its characteristics transportability. Oil can be transported quite easily by tanker truck or tanker ship. Enriched uranium can be transported, as can liquified natural gas, coal, and electricity. It's important to point out, however, that the different problems encountered by the different means of transporting various types of energy introduce differing degrees of fixedness to our energy system.

Demand fixedness. How fixed is our demand for specific characteristics of energy? How important is is that we have the "instant on" of a natural gas stove versus a slower electric induction cooktop. How much have we already invested in liquid fuel-driven transportation that is keeping us from quickly and easily conveting to electrically-powerd transport. How long woudl it take and how much would it cost to make the switch? What about electric light vs. oil lamps? And what about electricity for communications and computers? It seems quite difficult to substitute any other form of energy to that end.

Storage/time fixedness. Likewise, how does the timing of our demand for a type of energy relate to our ability to store that type of energy? If we want hot water for a 6:00 a.m. shower, it makes it more difficult to rely on a solar hot water heater. If we want reliable electricity supply from solar or wind then we either need lots of batteries or a very expansive transmission grid with localized capacity to generate surplus electricity. This is one of the key characteristics that makes liquid fuels so fungible--they store easily in a readily accessible form and are relatively easily transportable.

Transport/geological fixedness. Pipelines introduce a very significant element of fixedness into our oil and gas supplies, just as transmission lines do for electricity.

Other generators of fixedness that I'll explore in future posts: Generation/conversion infrastructure fixedness; Project timeline fixedness; Fixedness due to sunk cost; Fixedness due to financing constraints; Geopolitical fixedness.

Is there a trend toward fixedness? While I've rambled a bit about these various sources, the real question that must be answered is whether our energy system is becoming less fungible, more fixed--and by imlication less adaptable to crisis, less resilient, more brittle.


energyblogwalter said...

Interesting article got a hit on energy bulletin. Although people equate one energy source to another as if they're hot-swappable, a discussion of ERoEI would allow one to compare resources.

I can tell you were around during the USSR, as most adults are. Note however that it's not 'the Ukraine' but just Ukraine. When under the USSR it was referred to as 'the Ukraine' as a means of lowering its status, but now the name is Ukraine. Out of respect for this new-ish country then, pretend you're saying France. If you wouldn't say 'the France', then you don't use 'the Ukraine'. Thanks.

Jeff Vail said...

I've actually been to "the Ukraine," briefly (overnight on a train), but I haven't been back to "Ukraine." I guess it's time for me to change my ways! It would help increase my tally of countries visited, at least by my method of counting: I count East Germany, West Germany, and "Germany" on my list, even though that's probably cheating...

bryant said...

Great counting I get British Honduras and Belize! What is your stance on Brazzaville / or two?

It seems to me that fixedness will need to be coupled with multiplicity. As we move towards less fungibility and more fixedness, we will also begin to install redundant systems.

On a household level, the fungibility of different energy sources is low unless significant investments are made. Multiple heating systems and cooking arrangements are expensive but are more redundant and resilient.

As a civilization, I think we will have to pay significant opportunity costs to adapt to more diverse energy sources, and this cost will be incurred at a time of diminishing available resources.

iridescent cuttlefish said...

Well, Jeff, I don't know what's happened to you in the past two years since you've morphed into a tie-wearing economist, but it looks as if your old rhizome/hamlet dream might finally have a chance, now that the big Ponzi scheme is collapsing under its own weight.

Michael Lerner attempted to proprose another model in The Left Hand of God; namely, that American politics has been hijacked by the Right and that, far more importantly, Western society in general (but America in particular, always the most extreme case) has begun to sicken from the disease of the bottom line mentality that has permeated every area of life. There's a great deal of attention swirling around the economic meltdown right now, but no one in any major media venue has yet been allowed to touch Lerner's "shocking" conclusion: a world based on the pursuit of profit is an inherently unstable and unsustainable construct.

Not to mention wasteful, on a scale that is truly shocking, as the late, great Murray Bookchin once described (in strangely Churchillian paraphrase) our capacity to end material scarcity and our apparent reluctance to do so:

The debasement of social life - all the more terrifying because its irrational, coercive, day-to-day realities stand in such blatant contradiction to its liberatory potentialities - has no precedent in human history. Never before has man done so little with so much; indeed, never before has man used his resources for such vicious, even catastrophic ends. The tension between 'what-could-be' and 'what-is' reaches its most excruciating proportions in the United States...

...Viewed from a purely personal standpoint, we are processed with the same cold indifference through elementary schools, high schools and academic factories that our parents encounter in their places of work. Worse, we are expected to march along the road from adolescence to adulthood, the conscripted, uniformed creatures of a murder machine guided by electronic brains and military morons. As adults, we can expect to be treated with less dignity and identity than cattle: squeezed into underground freight cars, rushed to the spiritual slaughterhouses called 'offices' and 'factories,' and reduced to insensibility by monoton- ous, often purposeless, work. We will be asked to work to live and live to work - the mere automata of a system that creates superfluous, if not absurd, needs; that will steep us in debts, anxieties and insecurities; and that, finally, will deliver us to the margins of society, to the human scrapheap called the aged and chronically ill - desiccated beings, deprived of all vitality and humanity.

Why, if all our looming, serial & interlocking catastrophes and scarcities are man-made--and they are, btw--do we not ever hear an open-ended inquiry into what would be needed to unmake these problems? Why indeed is so hard to discuss the fact that we live in post-scarcity world that just can't seem to let go of its economies of scarcity and the politics of division that play such an important role in preserving the whole rotten scam?

The topical microcosm is, of course, the Republican war on democracy: the existing order is preserved through secrecy, suppression and complicity (not to mention the twin sins of omission and active misinformation.) The greatest trick of the Republicans, however, is in getting all those uniformed plumbers to vote against their own interests, which they've always been able to do by scaring them with bogeymen they didn't understand.

Or why did we imagine we've had all those Red Scares and Wars of Terror every generation, so perfectly timed to coincide with the boom & bust cycle that is the overproduction and oversaturation of markets that plagues the so-called free market?

We can laugh or cry at the thought of Reagan Democrats who had no clue that that world doesn't have to be the way it is, but then neither do most of the rest of us, as, again, Murray put it:

The tension between 'what-could-be' and 'what-is' reaches its most excruciating proportions in the United States...

So what are we doing here, really? Trying to prop up a system that deserves an ignoble death? Triangulating the "paths to victory," the game that the Democrats have been so good at for the past 40 years? Look, it's not an either/or choice here (a mode of thought we have got to move beyond!)

All people want a beautiful, safe world filled with wonder & freedom...unsurprisingly, since we are, despite the carefully cultivated, vastly profitable divisions that have sown between us, the same.

So here's a suggestion. Forget these safe channels & chutes into which we've been herded. Don't further entrench the Duopoly and the racket it protects--expose & denounce it instead, now, when its flaws are so obvious! America does not have free and fair elections and never has because no matter how skillful & ruthless the disenfranchisement of the voter, the complicity of "the Left" has always been an essential component of the swindle.

As we see in the current complete lack of protest from the Democrats about the touchscreen machines and the bureaucratic Stalinism of the voter purges...

Consider the role of entropy, Jeff. You've looked into hierarchy; now try to picture how the illusion of entropy, the leaking vessel of our permanent trickle-down economy, justifies the predations of the ruling class. One way to do this is by examining synergy in Nature, as Peter Corning does in his bio-economic model: if the whole is always greater than the sum of the parts in natural relationships, why can't we model our societies the same way?

If I build my house so that it produces more energy & water (& produce!) than it consumes, providing a net "gain" to society and the environment, how might this be construed as a dangerous precedent by those who profit from things as they are?

The two most practical & immediate steps we can take right now are those outlined in the self-sufficient architecture of Eugene Tsui and the brilliant discussion of food policy written recently by Michael Pollan: top-down solutions and ideological constructs just get in the way. It's safe to be a Luddite again (and doesn't that say something, given the extent to which they have been excoriated by the Owners and the keepers of words?)

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