Part Three of Four. Link to  Part 1 and Part 2

A transcript of our interview on Extraenvironmentalist #76 by Scott Bohachyk

Editor’s note:  In this installment we discuss the potential role of renewable energy in transition and macroeconomic models in the face of supply constraints.

Chris: I’ve made that argument myself. I’m very concerned about it. If we do in fact have global oil production beginning to decline around 2015, which has been my call for quite a few years now, and when you actually calculate the decline rates to look at how much oil would be lost on the global market, year after year… then you start to think about the effect on the global economy of losing 5%… and then 10%… and then 20% of global oil production. Then it doesn’t take a huge leap of imagination to think, ‘Wow, it is really going to be difficult to maintain a functioning economy.’ It is going to be hard to maintain global shipping. It is going to be hard to maintain an industry of, for example, big wind turbines where the supply chain for the parts in those turbines might go all around the world.

My view has been that we should build as much renewable capacity as possible for the next 20 years while the availability of oil is reasonably good, and the price is reasonably acceptable. I think once you get out past say… 2030, it is going to be quite difficult, and quite expensive, to build or deploy anything that requires a lot of shipping or requires parts coming from all around the world.

Now some people will take this question a step further and say, ‘What about later in the century when you get out to 2070 or 2080 when most of the oil is gone, most of the natural gas is gone, what about that? How do we build wind turbines and solar panels and get them installed?’ Well, I think that’s an interesting question, but the more I think about it, the more I conclude that we just don’t have enough information to answer that question right now. It is just formally unanswerable because there’s too many questions, too many uncertainties about how people will react. What will happen to the geopolitical environment? What will happen to population, what will happen to energy supply? There’s just way too many X factors and we don’t know.

I think it is conceivable, maybe somewhat remotely conceivable, that at some point, in the 22nd century perhaps, we could have an economy entirely powered by renewable energy where we’re actually able to do things like… mining, smelting, manufacturing, transportation and installation and more using only renewable electricity as the energy source and to drive all the machines. Or, maybe we’ll have some very small fraction of the stuff that we currently use liquid fuels for. Maybe this can be powered using some sort of biofuels, but this is just not a formally answerable question.

I’ve batted this question around a lot, especially with people who are literate on the energy return on investment (EROI) question. What’s the EROI of these renewable fuels? Can you run a civilization on them? I’ve looked at these studies on solar and on cellulosic ethanol or other types of biofuels, wind and so on, and I just don’t think they’re conclusive. I’ve got so many issues with these analyses, I don’t think it’s possible to really be terrible conclusive about what it all means. Though one thing I do know, is that we have to build as much renewable capacity as we possibly can in the next 20 years, while oil is reasonably available and reasonably priced.

You were just saying that projecting out several decades, the situation is going to get much worse. Do you think the kind of thinking that you were putting forward there will gain any kind of mainstream traction? That the reason why the economy is growing so slowly and a major reason behind the malfunctioning of our economic system is because of energy depletion?.

Chris: Yeah, I think it is sort of a fait accompli at some point. There’s a really small group of people who really understand energy and economics. Many people seem to understand energy, or understand economics, but not both.

Some of us started to look deeply into energy supply, particularly the fact that oil supply stopped growing in 2005, as a real factor in the global economic situation. As it became increasingly difficult to produce new supply, the rising price of oil acted as a break on the global economy. James Hamilton did some nice work on that and quite a number of other people that have looked into that question. I think this is very much the case.

Kopits’ presentation was fantastic. I think anyone could take an hour to look at his presentation and would understand everything they could possibly need to know about the global oil supply and demand and price situation. It was just a perfect encapsulation of everything you need to know.

One of the key things he really brings out in his presentation is that historically, every one has modeled future oil supply from a demand perspective. That’s what the IEA and EIA does. That’s what the whole alphabet soup of agencies do, they forecast demand and then they say ‘well, there will be supply, and it’ll be at an acceptable price’. That’s fine while you’re in a century of continually growing oil supply that’s relatively cheap, but that’s not the case anymore. We’ve exited that era in history and we’ve now gotten into a supply constrained world.

That’s what Kopits’ firm does, they look at a supply based model. It has actually given much better guidance for what price has actually done and for what’s actually happening in the global economy along with modeling what’s likely to actually happen in the future. I absolutely subscribe to that.

Ideally, we would have very sophisticated models that would actually be able to dynamically model what the future supply of fossil fuels is likely to be, what it’s price is, what the effect will be on demand, what the possible substitutions will be, how geopolitics will react to that and so on, but this is just a very complex question and as far as I know, nobody is even close to having a good model. No one in the world has a model that’s sophisticated enough to do all of that, to really provide a multi-variant model of the global economy with with a constrained oil supply.

Justin: Germany has an interesting energy transition underway right now. Is their strategy one that might work? Should the US think about adopting that strategy?

Chris: I think the Germany model [for energy transition] is fantastic. I’ve written quite a bit about it myself. They have managed to shut down most of their nuclear capacity and they’re on course to phase it out entirely while growing their renewable supply from almost nothing to 25% of their energy supply, in a little more than a decade.

So far it’s been a very popular thing; most Germans support it, most Germans want to see the energy transition continuing. Most of the solar capacity and wind capacity, I believe, in Germany is actually not owned by the utilities, it is actually owned by the public where they buy small shares in these little solar and wind projects so everyone’s a stakeholder and it’s been highly effective. Germany does not have a great solar resource but they have managed to do it at a reasonable price. They have more solar capacity per capita than any other country in the world.

Naturally they’ve been the target of incumbents who are trying to fight energy transition and their mouthpieces in the press. Der Spiegel is constantly talking down the energy transition, constantly distorting the debate with sort of mistaken narratives about why grid power is so expensive. Well guess what, most of it isn’t because of the FIT for the solar. You know how expensive grid power would’ve been without it? Their recent uptake in coal power, well, it’s not really because they are phasing out nuclear and it’s not really because of their adoption of renewable power.

If Germany brought its nuclear reactors back online today, it would not displace coal. It would displace gas, because gas if far more expensive then coal over there. While it is a complex topic, I’m definitely a fan and I think Germany is doing a wonderful job of sort of showing the rest of the world how you can produce a large percentage of your grid power from variable sources like wind and solar at a reasonable price without the grid falling down. In fact Germany now has the most reliable grid in Europe. If you go back to 1993, people were saying, ‘If Germany ever had more than 3% of its grid power from renewables the grid would fall very because it is intermittent and it is much too expensive, stilly and stupid.’ Well guess what, they are getting 25% of their power from such sources and the most reliable grid in Europe.

The other side of this story is that the incumbent utility industry in Germany is now in serious serious trouble. The three largest utilities: EON, RWE and ENBW are struggling with what the CEO of RWE called, “the worst structural crisis in the history of energy supply.” They have falling consumption and growing renewable power which has made it unprofitable to continue operating coal, gas and oil fired plants. EON and RWE are going to close or moth ball 15 GW of gas and coal fired plants in the coming years and there’s another 12GW of nuclear plants that are going to be retired by 2020.

Chris: That’s right, RWE is going to write down about 4 billion on those assets. The returns on invested capital of these three utilities are going to fall from about 7.7% in 2013 to 6.5% in 2015. Well guess what? At that point, pension funds and other fixed income investors who have normally been invested in the utility industry are going to start looking at green bonds and climate bonds which are based on renewable energy projects and energy efficiency projects, because that’s where they can get at least a fairly equivalent return but with a lot less risk.

There’s no risk of investing in a solar plant and then having its cost suddenly explode in the future. Once it is built, that’s it, your cost is sunk the day it goes into operation. The costs aren’t going to go up again. There’s essentially no regulatory risk, there’s no risk to the public. A solar spill is a nice day… so the risk is just so much less in renewables. If the returns from the utility industry are actually falling, we’ve got every reason to believe that this money is going to start looking into green bonds and the climate bonds sector. In fact, it already is. Bond issuance in green bonds jumped from two billion dollars globally in 2012, to 11 billion in 2013. This year it is going to double. We’re probably going to see another 15 billion dollars invested in green bonds this year.

20 Comments on "Toward a Supply Constrained World"

Plantagenet on Fri, 23rd May 2014 10:43 am 



Nelder is right—Solar power is looking like a big winner. The price of PV installations is plummeting.

J-Gav on Fri, 23rd May 2014 11:34 am 



He might be right about the green bonds thing … though, as in any market, investors will still have a fair chance of getting screwed (i.e. invest in which? green energy companies and where?) After all, a number of solar companies have gone belly-up recently.

One thing he’s definitely right about is: Watch that Steven Kopitz presentation if you haven’t already seen it!

Jerry McManus on Fri, 23rd May 2014 12:29 pm 



Except for that pesky little detail that solar panels are not made with solar power.

How unfortunate that all those panels will be just so much junk when the massive amount of fossil fuels required to mine, refine, fabricate, transport assemble and maintain them, and maintain their complex electrical infrastructure, is no longer economically available.

Solar power is like pennies from heaven, except it only works when the pennies are actually falling to the ground and you have to walk all day to pick up enough to pay for dinner.

GregT on Fri, 23rd May 2014 12:55 pm 



Solar power will be good for the transition. A small 12 volt fridge will be a welcomed luxury, and being able to read books at night is an extra added bonus, but only if you have a battery back up system. Solar doesn’t produce much electricity at night. After a decade or two, the fridge will have most likely packed it in, and the batteries will be dead, making the light bulbs redundant.

Also, make sure that your neighbours have solar systems too, a house lit up at night will stand out like a homing beacon, when all of the other houses are dark.

Dave Thompson on Fri, 23rd May 2014 3:10 pm 



Lets all stop kidding ourselves, there will be no transition to a renewable energy economy. There is no replacement for liquid transportation fuels, none, zero, done. The only thing that one can hope for is to be in a situation wherein you are mentally prepared, for a world that is manual labor driven. Learn to do stuff that makes your skill set desirable.

Beery on Fri, 23rd May 2014 3:18 pm 



“Also, make sure that your neighbours have solar systems too, a house lit up at night will stand out like a homing beacon, when all of the other houses are dark.”

Yeah, because as we all know, the middle class are just waiting for the opportunity that peak oil will give them to turn into a ravening mob of psychotic banditos.

Meanwhile, here in the real world, the reality is that people without solar will behave much as poor people without electricity do today. Just as is the case today, we are unlikely to find them rampaging through rich neighborhoods, looting, raping and pillaging en masse. People have dealt reasonably with vast inequality for millennia, so I don’t see why the end of the age of oil will suddenly turn everyone who doesn’t have solar panels into criminals.

GregT on Fri, 23rd May 2014 3:52 pm 



Beery,

We had a boil water advisory in Vancouver a few years back. The water was still safe to drink, but it was cloudy. People were getting into fist fights in grocery stores all over the city, over bottled water.
One guy was even knifed. And you’re trying to tell me that when the grocery store shelves go bare that people will calmly go about their business and won’t resort to violence? Good luck with that.

GregT on Fri, 23rd May 2014 4:06 pm 



Oh ya,

People are already looting all over the city at night. Anything of value that isn’t bolted down will be gone within a matter of days. Even things that are bolted down, like the catalytic converter on my pickup truck a couple of months back, are routinely stolen. Last week I had all of the landscape lighting at my home disappear. Even telephone cables are being stolen from telephone poles 30 feet up in the air.

Times are very good here right now, somehow I don’t see things getting better, post oil.

peakyeast on Fri, 23rd May 2014 4:36 pm 



Beery: The big difference today is the amount of people and the lack of wild life. When/If the system breaks down that very thin layer of civilisation built on top of a psychotic ape will disappear like dew to the sun.

It all depends on the speed of the decline and the ability to adapt. Both are impossible to know in advance.

J-Gav on Fri, 23rd May 2014 5:05 pm 



GregT – S’what I say – far from perfect now, but about as good as things are ever gonna get. Ouch!

Beery/Peaky – Hard one to call. I wouldn’t say, as Peaky does, that we are all psychotic apes. Neurotic for sure but not all psychotic, that’s a big difference. Which tendency will win out if panic strikes is another question. Pray? Do dope? Yoga? Alcohol? All-out sports/fitness? Some combination of the above? Your guess is as good as mine. I don’t give advice, other than trying to be who we are.

GregT on Fri, 23rd May 2014 5:05 pm 



Peaky,

It also depends on population density. If you live in a town of a thousand, and 5% go off the deep end, you only need to worry about 50 people. If you live in a city of a million, 5% of the population becomes 50,000. If lack of food becomes the motivating factor, which it will, and people get hungry enough, there will be hundreds of thousands of people doing whatever it takes to keep themselves alive. If those people have starving children, they will be motivated even further.

The only house on the street, that has lights on at night, would become an instant target for anyone looking for a meal.

Makati1 on Fri, 23rd May 2014 7:49 pm 



GregT, as usual, you see the true picture. Just as you would not want to build a multi-million dollar house in the middle of a slum, or wear a Rolex and a lot of jewelry when you walk through a poor area, you don’t want to advertise your one step above your neighbors. If possible, help them get at least a one panel system so they too have lights at night. I think our future will depend on us being good neighbors.

Perk Earl on Fri, 23rd May 2014 9:11 pm 



“Also, make sure that your neighbours have solar systems too, a house lit up at night will stand out like a homing beacon, when all of the other houses are dark.”

Also try to control the odor as you heat/cook food, especially if you do so on a deck. For example, if someone is cooking food on a barbecue using a propane tank (because the electricity is out). Might also want to avoid smoking salmon and other meats, the scent of which will waft on a soft breeze to nearby hyenas (humans). The sound of beer cans popping might attract attention as well.

keith on Fri, 23rd May 2014 9:54 pm 



Beery it’s all about carrying capacity now. Remove fossil fuels from the equation and then ask how far did the human species overshoot it’s carrying capacity in our ecosystem(biosphere). Transition will mean a huge reduction in world population. There has been little talk of this, except in dark corridors. Also, this is now a Hollywood movie. There will not be a beginning, middle, and end in a 2 hour time frame. It will be generational. T.V and Cinema has conditioned us to think like they do in fantasy land. I don’t know how things will develop, but I do know most people today see themselves as the stars of some series or block busting movie.

R1verat on Sat, 24th May 2014 12:04 am 



It will be chaos & your worse nightmare.

Being in a post-hurricane situation, shows one what happens when societal norms crack, due to those doing “whatever it takes” to survive.

I am sure others who have personally experienced other critical situations will attest, experience is the best teacher. But one can never be prepared for everything.

MSN Fanboy on Sat, 24th May 2014 2:09 am 



Keith, the way our financial system works(or does not) means that when oil limits are met… we crash, done, GAME OVER.
when people cant take money out of ATMs and food isn’t being delivered to supermarkets through a lack of payment & liquid fuels we will see the chips fall.
Ironically the further we go on BAU the more likely a big crash will happen over a gentle decline. Guess more complexity being undone equals more chaos.
Combine this with with overpopulation and well, you get the picture. GAME OVER

Kenz300 on Sat, 24th May 2014 5:02 am 



Endless population growth makes every other problem harder to solve.

Overpopulation facts – the problem no one will discuss: Alexandra Paul at TEDxTopanga – YouTube

https://www.youtube.com/watch?v=fNxctzyNxC0

J-Gav on Sat, 24th May 2014 1:02 pm 



Yep Makati, good neighbor relationships will be more important than ever – everywhere, including in cities. Doesn’t always come easy though. I’ve walked past people on the street where I live who avoided eye contact for 20 years – until I prevented their apartment from being burglarized. Now they’re all “hello” and smiles …

DMyers on Sat, 24th May 2014 1:12 pm 



Just to add another dimension to the “only house with lights on” discussion, consider the following interactions.

Ms. Jones: “Look nobody else has electricity. Please, just let me plug in my cell phone…..I have to call my daughter in Michigan!”

Mr. Smith: “My kids are going nuts. Can’t we just plug in here somewhere so they can play their video games for a while? Please!”

Mr. Jones: “All I ask is just let me plug in my hot plate for a while and cook up some of this soup. That’s all, one plug in for fifteen minutes…”

Ms. Livengood: “Please, let me plug in my electric toothbrush. I’ll stay out here in the yard. I have an extension cord….My teeth will fall out without an electric toothbrush…”

Mr. Lovejoy: “I have a battery that will charge. You have juice. Come on. You know me. We’re friends…”

It won’t only be direct life and death issues that drive people to the yard with shadows. There will also be huge accumulations of the will to flick a switch. All any one needs is “just a little”, and only for a “very exceptional reason.” Those who deny such innocuous requests will appear so selfish and callous, they will also seem to deserve whatever they get.

J-Gav says: “Neurotic for sure but not all psychotic, that’s a big difference.” He’s right, in both his assertion and his conclusion. Neurosis is insecurity with oneself, while psychosis is a break with reality.

We’re talking about a situation where objective, physical reality will have changed dramatically. A new reality consensus may not settle in rapidly, or at all. All might be in a position of having to make up their own reality, and that is, in essence, what psychotics do. Fortunately, not everyone can be crazy at the same time, because that would be a contradiction in terms.

Kenz300 on Sat, 24th May 2014 6:47 pm 



Quote — “My view has been that we should build as much renewable capacity as possible for the next 20 years while the availability of oil is reasonably good, and the price is reasonably acceptable. I think once you get out past say… 2030, it is going to be quite difficult, and quite expensive, to build or deploy anything that requires a lot of shipping or requires parts coming from all around the world.”

————————————-

The clean energy transition is unstoppable, so why fight it? – SmartPlanet

http://www.smartplanet.com/blog/the-take/clean-energy-transition-unstoppable-so-why-fight-it/?tag=nl.e662&s_cid=e662&ttag=e662&ftag=TRE383a915

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Can the Kochs Hold Back History? – NYTimes.com

http://www.nytimes.com/2014/05/09/opinion/egan-can-the-kochs-hold-back-history.html?emc=edit_th_20140509&nl=todaysheadlines&nlid=21372621