Peak

Economy

Peak

Economy

Richard HeinbergPost Carbon Institute

September 2009

Richard HeinbergPost Carbon Institute

September 2009

The economic crisis changes everything

before crisis I after crisis

• Understand the crisis and its historical context, so that we can

• Respond effectively

It is essential that we….

What is economic growth?

• GDP: total amount of money changing hands

What is economic growth?

• GDP: total amount of money changing hands

• Money is a claim on goods and services

What is economic growth?

• GDP: total amount of money changing hands

• Money is a claim on goods and services

• Provision of goods and services requires energy and material resources

Economic growth correlates with energy usage

Winning the energy lottery

During the fossil fuel era we developed an economy…

…based on the expectation that growth can go on forever

Tomorrow’s growth is

collateral for today’s debt

• With compound interest, fractional reserve banking, and debt leverage, growth became necessary to the monetary health of nations

Growth becomes institutionalized

Remember…growth requires more energy!

World oil discoveries

Global oil production falls when loss of output from countries declining

exceeds gains from those expanding

2007 oil production balanceyear on year change

(thousand barrels/day

How did Peak Oil contribute to the financial crisis?

1. Energy growth becomes difficult and expensive (oil at $147 a barrel!)

The drivers of crisis:

Past recessions & oil spikes

1. Energy growth becomes difficult and expensive

2. Growth-and-debt-based economy goes bust

The drivers of crisis:

• Mortgage/finance crisis and oil price spike would each have caused a recession

• Both happened at the same time

• Result: simultaneous crises in auto, airline, banking, housing sectors

• Once the house of cards started falling, debt de-leverage created a snowball effect

Colliding recessions

Cost of the Wall St. Bailout

“The value of global financial assets including stocks, bonds, and currencies fell by more than $50 Trillion in 2008, equivalent to a year of world GDP.”

--Asian Development Bank

• Demand destruction

• Hedge funds in, hedge funds out

Why did oil prices drop?

• Though demand is down, depletion of existing fields continues: capacity erosion

July 2008: the all-time oil peak

• Though demand is down, depletion of existing fields continues: capacity erosion

• Lack of investment (given low oil prices and credit crisis) means new oil projects are being cancelled. Not enough capacity is being replaced!

July 2008: the all-time oil peak

July 2008: the all-time oil peak

• Raymond James Associates

• Macquarie Investment Bank

• Jeff Rubin (Formerly CIBC)

• Energy Watch Group

• Association for the Study of Peak Oil

The post-peak dilemma

• Oil price needed to justify the development of new oil production capacity: $60-70 (and rising)

• Minimum oil price likely to trigger economic recession: $80

The trap

• If oil prices rise, economic recovery is nipped in the bud

• If oil prices fall, not enough investment is made in future supply; this leads to high oil prices later (see above)

But it’s not just oil

Antimony China Thermoelectric/paraelectric materialsBarium China Thermoelectric/paraelectric materialsBismuth China, Mexico Thermoelectric/paraelectric materialsCobalt Kinshasa, Australia PhotovoltaicsGallium China PhotovoltaicsGermanium Belgium, Canada PhotovoltaicsIndium China, Canada Photovoltaics, thermo/paraelectric mat’lsManganeseGabon, S. Africa PhotovoltaicsNickel Canada Fuel cellsPlatinum S. Africa Fuel cells, para/thermoelectric materialsRare Earths China Fuel cells, para/thermoelectric materials Tellurium Belgium, Germany Solar cells, semiconductorsTitanium Australia, S. Africa Solar cellsZinc Canada, Mexico Photovoltaics, fuel cells

Depleting materials

World water usekm

3/

yea

r

Marine fish catch

A giant science experiment

So, back to the economic crisis…

Unemployment nears 10%

“We’re in the midst of a once-in-a-lifetime set of economic conditions. The perspective I would bring is not one of recession. Rather, the economy is resetting to a lower level of business and consumer spending based largely on the reduced leverage in the economy.”

Steven BallmerChairman, Microsoft Corp.

V

The shape of the recovery

U

The shape of the recovery

W

The shape of the recovery

L

The shape of the recovery

• Unemployment

• Homelessness

• Bank failures

• Hunger

• Crime

• Political instability

• International conflict

What to expect

Will reduced energy per capita result in reduced

carrying capacity?

Not necessarily; there are other factors:

• Equity

• Efficiency

But the end of growth means we have entered

a new era

• If population increases, per-capita consumption will decline more rapidly

• Resource conflicts likely

What are our levers?

• Population

• Equity

• Development of renewables

• Efficiency

• (we also need a steady-state economy and global conflict resolution)