[JohnDenver]

This comes from another thread, but it's a really important point, so I think it deserves its own thread. The issue is whether conservation has a negative effect on the economy. My contention is that when people conserve oil, particularly at a time of scarcity and high prices, they save large sums of money and thus have extra money to spend. Hence conservation is good for the economy because it makes the savers richer.

dohboi and TonyPrep gave the most interesting objection to this idea. My rebuttal of their objection is given at the end.

$this->bbcode_second_pass_quote('dohboi', 'B')ut as MQ and others remind us if you save money by biking, you are going to spend it on something else that will require burning of oil. On average every dollar spent involves the burning of about a quart of oil somewhere along the line.

[mlit]

It seems to me if it was forced conservation because of a lack of oil the damage to the economy in other ways would more than destroy the extra money people save because of not buying gasoline.

[TheDude]

$this->bbcode_second_pass_quote('JohnDenver', 'T')o see why this is so, let's assume that oil has peaked and is declining. Oil prices are going through the roof. So the entire US population switches to bicycles. (Of course I'm not suggesting that as a real scenario. Just using an extreme to illustrate the point.)

This saves a huge amount of oil (roughly 8mbd), and as a consequence, puts a vast sum of money (about $2 billion/day at $150/barrel oil) into the pockets of the bicycling population. That is, all the vast sums which the population previously spent on gasoline, and which mainly went out of the country, are now in the pockets of the population, ready for spending in the domestic economy.

[frankthetank]

If thats the case these people have NO money because they have NO jobs... Screw the biking, they'll be robbing their neighbors and fire bombing subdivisions...

How about they buy NO gasoline and have NO money...therefore they have nothing to gain or lose

[JohnDenver]

Just to reiterate. This thread is NOT about the scenario where everyone suddenly starts riding bicycles. I just used that example to illustrate the concept.

This thread is about whether conservation of oil has a net negative effect on the economy.

Frank, if you want to do the doomer porn thing, please hang in one of the numerous doomer porn threads. This thread is meant to be a low-key economics discussion.

[IslandCrow]

I think a lot depends on what is conserved.

If it is a reduction in my use of energy then I think the effects could be like you said.

If it is a reduction in spending (such as going out to eat) then the effect on other people's jobs can be serious and that sort of personal saving will hit the local economy hard.


It also depends on where you spend the money saved. In my case, I replaced an oil furnace (oil coming from Russia) with a ground heat exchange (machine coming from Sweden), but using electricity generated in Finland. {Estimated pay back in 8-10 years - or less if I include the fact that the furnace was over 30 years old and needed replacing}. Now instead of most of the money going to Russia a chunk went to Sweden and the rest stays in Finland. Thus while my conserving may be a zero sum game on a world wide basis (within the first decade), it is clearly more beneficial to the national economy.

On a more localised scale, to suppliment the ground heat I have a wood burning stove in the kitchen (also good for when there are power cuts, and great for slow cooking the Christmas ham). Instead of the money going to a national electricity company, I buy wood from a local farmer (I don't have enough land to grow my own wood). So again while this may be a zero sum game on the national level, it clearly is of benefit to the local economy.

Against this local spending is the arguement on economy of scale. This is seem clearly in food processing, where at present if I were to cost my labour home made jams for example would be much more expensive than shop bought ones. Part of this is that despite transport costs there can be energy efficiency in scale. I am not sure how to feed all this into the economic equations.

Where am I going on all this? [apart from being rather confused on the overall picture] A deliberate spending of money saved from energy conservation, on local goods/supplies/services, can have a positive impact on the local economy. However, things are so intertwined nationally and globally I find it too hard to say what the overall impact would be.

[JohnDenver]

$this->bbcode_second_pass_quote('IslandCrow', 'I')t also depends on where you spend the money saved. In my case, I replaced an oil furnace (oil coming from Russia) with a ground heat exchange (machine coming from Sweden), but using electricity generated in Finland. {Estimated pay back in 8-10 years - or less if I include the fact that the furnace was over 30 years old and needed replacing}. Now instead of most of the money going to Russia a chunk went to Sweden and the rest stays in Finland. Thus while my conserving may be a zero sum game on a world wide basis (within the first decade), it is clearly more beneficial to the national economy.

On a more localised scale, to suppliment the ground heat I have a wood burning stove in the kitchen (also good for when there are power cuts, and great for slow cooking the Christmas ham). Instead of the money going to a national electricity company, I buy wood from a local farmer (I don't have enough land to grow my own wood). So again while this may be a zero sum game on the national level, it clearly is of benefit to the local economy.

[KrellEnergySource]

If someone's conservation efforts are directed only at reducing their use of gasoline, or even only oil-based products and activities, then that's a strange form of conservation. Most people I know that in their heart-of-hearts believe in conservation (even if they don't practice it) have a broader desire to reduce/reuse/recycle. If they did effectively act out on their conscience's calling, they would not be replacing their reduced consumption of oil with increasing consumption of other goods and services.

Actually, the mixed messages regarding reduce/reuse/recycle and "stimulating the economy" are the clearest sign, to me, that our economic system is dysfunctional and riandoes not serve our long-term human interests. At all.


Brian

[JohnDenver]

Here, I'll continue examining the following mechanism mentioned by dohboi and Tony Prep.

Shadow consumption mechanism: If a person saves money by conserving oil, and then spends that money, that spending will cause oil to be consumed, and eliminate the effect of the original conservation.

Let's look at this from the perspective of oil intensity. "Oil intensity" is defined as the amount of oil which an economy burns in order to generate $1000 worth of GDP. IMF figures give 2007 world GDP as $54.5 trillion, and 2007 US GDP as $13.8 trillion. According to the 2008 BP Stat. Rev., 2007 oil consumption was 85.2mbd for the world, and 20.7mbd for the US. Therefore, oil intensity of the world was .57 barrels/$1000, and oil intensity of the US was .55 barrels/$1000. Other countries for comparison are:

Japan: .44
Germany: .27
China: .91

Now, let's suppose that Joe in the US saves $1000 by reducing his consumption of gasoline. Gasoline in the US is currently retailing for about $2/gallon, so Joe has conserved 500 gallons of gasoline. That will correspond to about 556 gallons of crude oil (because about 10% of crude is consumed by the refining process). Now, suppose Joe spends his $1000 on goods and services in the economy. On the average, the amount of oil needed to produce those goods and services is about .57 barrels (using the oil intensity for the world). A barrel contains 42 gallons, so the amount of oil needed to produce those goods and services is roughly 24 gallons. This means that the net savings of oil due to Joe's conservation is 556-24=532 gallons. On the average, the rebound effect due to the shadow consumption mechanism only reduces the original conservation by 4%.

If Joe spends his $1000 on goods from China, the rebound effect will be larger because China uses more oil to produce goods and services. The original consumption will be reduced by about 7%. Likewise, if Joe buys stuff from Germany, the rebound will only be 2% due to the greater oil efficiency of the German economy.

Now, suppose the price of gasoline triples to $6/gallon. If Joe saves $1000, he will save $167 gallons of gasoline, or 186 gallons of crude. Assuming that oil intensity stays the same, spending the $1000 will result in consumption of .57 barrels=24 gallons, so the rebound effect will be significantly larger (13%). However, it seems unlikely that oil intensity will remain the same when gasoline is at $6/gallon because prices at that level will drive further efficiency and fuel switching, and thereby reduce oil intensity.

[TonyPrep]

$this->bbcode_second_pass_quote('JohnDenver', 'N')ow, the claim of dohboi and Tony above is that, when this money is spent, it will result in an expenditure of oil equal to the amount which was saved by bicycling. But that's clearly impossible because we're assuming here that oil has peaked and oil availability is falling.

[JohnDenver]

$this->bbcode_second_pass_quote('TonyPrep', '')$this->bbcode_second_pass_quote('JohnDenver', 'N')ow, the claim of dohboi and Tony above is that, when this money is spent, it will result in an expenditure of oil equal to the amount which was saved by bicycling. But that's clearly impossible because we're assuming here that oil has peaked and oil availability is falling.

[TonyPrep]

$this->bbcode_second_pass_quote('JohnDenver', 's')o we can resume growth based on growth-friendly resources like solar and nuclear.