Monday, November 03, 2008

Why fungibility matters (Part 2)

Finishing up last week's post on the disappearance of fungibility in energy markets, let's look at the other factors that are contributing to "fixedness" in our civilizational energy flows:

Sunk cost fixedenss: In the '90s and early part of this millenium, the United States invested in massive natural gas-driven electricity generation capacity. Now, with natural gas much more expensive, that sunk cost is forcing up the price of electricity. Likewise, while it is certainly possible to generate the power needed to get our cars and trucks from point A to B, we've invested in a hugely expensive fleet of liquid-fuel driven vehicles. There is a great deal of fixedness introduced by this sunk cost, and it is slowing the transition to both electric-powered vehicles, and to our transition away from single-commuter modes of transportation.

Project timeline fixedness: Additionally, the increased volatility in energy supplies is wreaking havoc with the long time-lines to plan, permit, and build our energy infrastructure. Not only does it take years to get a project off the ground, that project must operate for years to decades to be financially viable. Because we effectively lock in energy choices a decade or more in advance, the volatility of supply and demand for different types of energy, and the volatility for demand at different locations is causing serious problems. It has taken over a decade to get a liquid natural gas terminal operational in Baja California (to serve San Diego and Los Angeles), during which time the viability of LNG, the global demand, and the supply, have all dramatically shifted. It takes over a decade to bring a nuclear plant online in the US--how certain are we about our supply of uranium 10+ years from now, especially when China can (and is) bringing on new nuclear plants in two to three years, meaning the demand picture will shift significantly before our plant ever gets online. The credit crisis--both in terms of capital availability and the illiquidity of long-range derivatives to hedge energy supply isues--is only exacerbating this issue.

Geopolitical fixedness. If oil (or gas, or coal, or uranium, or rare earth metals used in photovoltaics, etc.) was equally available from anywhere, then geopolitics wouldn't enter into the discussion of supplies. But because resources are increasingly located in geopoliticaly challenging locales, the worlds of geopolitics and energy are increasingly interrelated. Europe is largely dependent on Russia and North Africa for its supply of natural gas, for example. Because of the massive investment necessary to bring trans-national pipelines to operation, long-term commitments to certain geopolitical alliances are required. Additionally, because these infrastructure assets represent fixed-targets, they incur very fixed vulnerabilities for consumers.

Now, it's important to point out that energy fungibility as it existed in the 20th Century was truly a historical anomaly. The utter dominance of the West over global trade routes and the temporary surplus of high energy-surplus, easily transported, and truly interchangeable crude oil created a "golden age" of energy fungibility. This didn't exist in the Middle Ages, in Rome, at the height of the Caliphate, or at any other time in our historical past. In fact, the level of free energy that we enjoyed during the 20th Century was a huge historical abberation. It funded the explosive growth in population and in the "middle class." It has come to an end. Oh, there will be plenty of energy around for quite some time to come, but phenomena such as decreasing fungibility of that energy will make our access to it--and our enjoyment of the benefits it provides--far more intermittent, far more regionally concentrated, and far less certain.

5 comments:

iridescent cuttlefish said...

Geopolitical fixedness. If oil (or gas, or coal, or uranium, or rare earth metals used in photovoltaics, etc.) was equally available from anywhere, then geopolitics wouldn't enter into the discussion of supplies.

Well, yes it would, actually, just as long as the interlocking scarcity rackets can maintain the illusion of "necessity." It's a scam, Jeff, and you know it. Remember what you wrote about the inability of the "free market" to accommodate renewable energy because of the difficulty of commodification?

Artificial scarcity. Manipulation. Arbitrary, byzantine financial "structures"--it's all a scam. Why can't we get fungible about this central truth of our existence?

Jeff Vail said...

I agree that "artificial scarcity" exacerbates the issue, but I think there's a foundation (and the majority problem) of very real scarcity. I recognize the more cornucopian-leaning argument that "there's plenty to go around if we just took power out of the equation," and even agree with this IF we equate "taking power out of the equation" with "eliminating the structural prerequisite to growth." So I think in that sense geopolitics wouldn't be an issue if there was *true* (after any artificialities) equal availability anywhere. Even without any "scam," that isn't the case, so I don't think we need to look to conspiracy theories (even structural one, which are my personal favorite) to explain the conflict over resources. Our "scams" certainly make this situation worse, but the "central truth" of our existence, in my opinion, is not a conscious scam at all but rather a very subconscious structural bias toward growth, centralization, and hierarchy.

On the trend toward energy-fixedness, the current manifestation of this phenomena is, in my opnion, a joint result of a highly ossified civilizational power structure that is nearing the end of its useful life (the subconscious scam, if you will), and a fundamental scarcity of resoruces (the landscape on which the play of the "subconsicous scam" takes place)...

Jim said...

Great couple posts Jeff; really shining a succinct and relevant light on the 'above ground' factors that provide another layer of complexity and trouble on our many rapidly-approaching predicaments (though I tend to agree with your assessment of them as largely facets of a central organizational-framework predicament).

I suspect project-timeline fixedness is likely where our failure to act on our many resource/ecosystem problems in a timely manner will really come back with a particular vengeance. More generally, all these fixedness elements are likely to metastasize into feedback-loops, accelerating any broader systemic decline.

chperret said...

Just in margin of this specific debate an interesting point on president-elected agenda, from http://change.gov/agenda/urbanpolicy/

"Support Regional Innovation Clusters: Thriving innovation clusters across the country (...) Clusters prove that local stakeholders can successfully come together and help reshape their local economies. Barack Obama and Joe Biden will create a federal program to support "innovation clusters" - regional centers of innovation and next-generation industries"

iridescent cuttlefish said...

Thanks for responding, Jeff--sorry I couldn't get back to the computer sooner. First off, talking about the level of conscious manipulation of scarcity is hardly "conspiracy theory," at least insofar as such discussions are not necessarily or inherently framed for the purpose of revealing "secrets" about how the world is run. Edwin Black had to dance around the CT stigma with extraordinary care in Internal Combustion in order to recount even the conventional history of resource manipulation, the "version" accepted by most historians, without falling under the shadow of that very useful cloud.

The truth, in all its many colors and sometimes contradictory facts, is that the rise of empire culture is inextricably bound with the domination and control of resources, both material and human (not to mention the strange contest over ideas, which is actually the most important and entirely coincidentally non-material resource--if manifest destiny is dressed up as the stirring patriotic duty to expand & subdue beyond the Pale, then it's somewhat difficult to explain the very same phenomenon as the true colors of "the market," lebensraum for the Plutocrats, etc...)

The fact is that convincing anyone that America is an imperial power is an uphill battle, given the staggeringly successful image that's been constructed in the past two centuries. It seems to me that the whole question is better approached from a common sense, apolitical perspective. For example, if we start with the notion that we have been able to both feed the world and simultaneously heal the planet for two generations and yet have not, then we can steer the conversation away from why we haven't and toward how this amazing claim could possibly be true.

And that's where the fun begins.

Consider: 2% of the workforce produces much more food than we can eat--why the hell are the rest of us working? To support the national and global economies, working at jobs which have no personally, socially or environmentally redeeming qualities? Why is it that we reward actions which take away from the world instead of add to it? This is no theorectical or hypothetical question; it's a question that is being increasingly asked by writers who are not satisfied with the "everything must be this way" mindset of those practical people working in economic circles today.

I'm sure you know the work of Peter Corning and Michael Lerner and Hermman Scheer--have you ever read Eugene Tsui? Do we dare look back to Bucky Fuller or Murray Bookchin yet, or is the politics of their work still "suspect"? Has Malthus not had his comeuppance; has the obvious alternative to his "laws" not been boldly or widely enough declared? Why can we still not talk about economies of abundance yet--for the same reason that the word Luddite is still so (incorrectly, tellingly) loaded?

Or is it because we have bought into the current myth so heavily that we can't face the graveyard epiphany that Hamlet keeps having, as in this version from Iain M. Banks (the guy whose Culture novels are nearly unique in that they posit a society that has seen money for what it is--a rationing system--and moved beyond it altogether)? From his uncharacteristically grim A Song of Stone:

The hand’s grasp near fits the skull, the covering bone by bone enclosed. And saying this, we grasp that.
We each contain the universe inside our selves, the totality of existence encompassed by all that we have to make sense of it; a grey, ridged mushroom mass ladled into a bony bowl the size of a smallish cooking pot…In my more solipsistic moments, I have conjectured that we do not simply experience everything within that squashed sphere, but create it there too. Perhaps we think up our own destinies, and so in a sense deserve whatever happens to us for not having the wit to imagine something better.
(p.165)


I'm working on a book myself right now that ties these threads together in a nicely jumbled knot; you might guess where I'm going with it from its ridiculously long (and growing!) title. So far, it's called--Autonomy, Synergy & Infinity: Achieving Escape Velocity from the Illusion of Entropy and the Pornography of Despair--one relevant aspect of which I did once happen to share with some real conspiracy theorists...

...just as you and I were once featured together in a magnificent post on bright green futures by a man down under...

It's time, Jeff, to ditch the leaking steam engine of the capitalist "dream," either by recognizing it for what it is or by concentrating on its replacement. What we can't afford to do is to keep pretending.