Recently, in an essay called The Consequence of Failure,
I described what many scientists see as the consequences of not halting
our exploding population and resource consumption . My good friend Jon Husband has pointed out, in his inimitable subtle way, that this portait is missing an ingredient -- a possible energy crash before the ecological crash. One of the best links he provided on this is from the venerable BBC, which has a whole series
of articles on this possibility. Current consumption is running at
about 28 billion barrels per year (see chart above, from the ASPO
site), and growing precipitously because of the skyrocketing demand
from China and India, while new finds are averaging only 5-10 billion
barrels per year, and many companies, like Shell, are actually reducing
the estimates of their reserves because new surveys found them
overstated by up to 30%. Even though there is, theoretically, 40-100
years' worth of hydrocarbons left in the ground at current consumption
levels (depending on whose numbers you use), much of this oil cannot be
extracted with current technology, or will cost 5-10 times as much as
today's oil costs to extract, and current consumption levels are rising.
The model above uses simple supply/demand economics to project a
soaring price per barrel (quadrupling to $160) over the next few years
as the consumption/discovery ratio worsens and new Asian markets bid up
the price for what's available. The combination of soaring price and
simple unavailability of supply will push down consumption, starting as
early as 2008.
Most of what I've heard, from alarmists and skeptics, about the consequences of all this, is of one of two extreme viewpoints:
- Civilization will collapse, so buy your Montana subsistence farm now, or
- Technology will rescue us, so there's no cause for alarm, or to pay any more than we do now for oil.
Both of these positions seem unrealistic to me, and represent more
wishful thinking than true scenario planning. So let's look at what
might happen if the chart above holds true, the price of oil jumps to
$160/barrel by 2008, then to Osama bin Ladin's "reasonable" price of
$200/barrel by 2012, and by an additional $10/barrel/year thereafter.
First of all, what do we use hydrocarbons for now? The top 10 uses are:
Food (it's the main ingredient in fertilizers, pesticides and
herbicides), transportation, heating, plastics and chemicals, asphalt,
medicines, clothing, furniture and carpets, cosmetics and household
products, and protective coatings and dyes. That's a pretty broad list.
So let's assume that the cost of each of these products will quadruple
in the next decade (the cost of materials may not quadruple, but add in
the cost of transporting it and the total cost to the consumer probably
will). I say a decade rather than four years because there's always a
time lag before price increases driven by the supply/demand curve reach
the consumer level, and because there will be fierce political pressure
to prevent or at least delay these increases. A 300% rise over a decade
is roughly 25%/annum inflation. Interest rates need to be adjusted, as
they were most recently in the 1980s (remember 18% mortgages?) to
provide a modest return to lenders beyond inflation, so we should
expect interest rates to jump to around 30%. That's what you'll pay on
your mortgage-secured loans (on unsecured consumer loans like credit
cards it will be even higher). This will cause a stock market crash, as
investors cash in to cover debts and as leveraged companies become
unable to pay their debts. It will cause a real estate crash because no
one will be able to buy houses with 30% mortgages. It will bankrupt the
US government, which owes trillions to foreign lenders, and force the
end of future military adventures (even those intended to secure more
oil), the virtual cessation of public services, the collapse of the
pension system, and massive increases in emergency taxes. This will
bring on a worldwide depression, because the rest of the world depends
on US imports, and on the US paying its bills.
What else? The other bad news is that, in a desparate and myopic move,
the US will pull out all the stops to find new energy sources, which
means arctic, offshore and wilderness drilling everywhere, strip mining
for coal, burning a lot more coal, with its catastrophic impact on
global warming, huge increases in nuclear power use, with its
horrendous dangers and insoluble waste disposal problems, and in some
countries, massive deforestation to provide wood for burning. The
impact will be especially bad in Northern areas like Canada and
Scandanavia, where the alternative to burning fuel is freezing to
death. These countries will need to completely restructure their
economies quickly.
Now let's look at the possible scenario for the top 10 uses one by one:
- Food, already heavily subsidized in the West by massive
government subsidies, will be even more subsidized -- to do otherwise
would be political suicide. In the US however, those subsidies will not
be affordable due to the massive debt load, so food prices there will
skyrocket. There will be a huge move to self-sufficiency (home
gardening, especially by the massive numbers unemployed due to the
depression), and to lower-cost foods (unprocessed fruits, vegetables
and grains that require relatively little fertilizing). Because of the
lack of resilience in the food industry, suppliers of more expensive
foods (meats, diary products, processed foods and those that must be
transported over long distances) will simply stop producing them,
leading to rationing and black market activities, and even food riots
in some countries.
- Transportation will become a luxury. Urban sprawl will stop
dead, as people move closer to work to reduce and even eliminate
commuting cost. Airplane travel will collapse. The auto industry will
collapse. Global trade will slow to a trickle as goods become too
expensive to move. The trucking industry will be bankrupted, and
governments (except the US, which won't be able to afford it) will turn
to more efficient rail transportation as the primary means of moving
both goods and people. There will be a huge black market for gasoline.
And gas rationing of course. Expect long lineups.
- Heating will suddenly become very innovative, since, unlike
in transportation, there are already some major viable alternatives to
hydrocarbons for heating -- solar, wind, geothermal, and biomass will
become huge industries. Millions of buildings will be re-insulated. The
value of large, inefficient suburban homes, already hit hard by high
mortgage rates and the exodus back to the cities, will be further
lowered by the difficulty in making them energy-efficient. In Northern
areas, heat will be both rationed and subsidized, through two-tier
pricing (low price for the first X BTUs per household, many times that price for the excess).
- Plastics will go from being the cheapest components and
containers to the most expensive. Reusable glass, paper and metal
containers will replace most plastic and recylable containers.
Computers and other electronics that depend on plastic components will
become unaffordable to most people. The trend to miniaturization, doing
more with less, will accelerate. Some chemicals we take for granted,
like lubricants, waxes, flavours, colours, stabilizers, preservatives,
aromatics, solvents, ammonias, chlorines and other cleaners, alcohol
products, latex, synthetic rubbers, phosphates, acrylics, polymers and
hundreds of other common ingredients in consumer, industrial and
agricultural products and processes will be replaced with natural
alternatives or eliminated altogether. (Even modern paper-making uses
petrochemicals to make the paper cleaner, smoother and whiter).
- Asphalt, upon which we all drive, is basically an oil
product. We're going to have to go back to cement, brick or gravel. But
with many fewer cars on the road, and other priorities for government
spending, most existing roads will probably fall into disrepair anyway,
at least until the depression ends. Asphalt is also heavily used in
roofing, so we may need to take a cue from other cultures and use straw
(there's a new, leak- and rodent-proof way of doing this) or tile
instead.
- Medicines and medical technologies for both humans and farm
animals will become much more expensive. Petroleum-based solutions and
ingredients will be largely replaced by biological and
non-petrochemical (e.g. ceramic) equivalents.
- Clothing made of polyester and other petrochemical fibres
will become uncompetitive compared to cotton and other natural fibres,
but clothing made from heavily fertlized plants will also become very
expensive. Innovation (e.g. the large-scale use of hemp and cellulose)
will transform the materials we wear.
- Furniture and floor-coverings will have to go 'back to
basics'. Most furniture today is made fire-retardent, dyed and coated
with petrochemicals, and stuffed with plastics. Floor coverings are
almost all either made with or coated with petrochemicals. We're going
to have to re-learn how they made furniture before oil came along, and
develop innovative ways to protect, fire-proof and (if we must) colour
it.
- Cosmetics and household products, at one time, copied and
used ingredients from nature. With petrochemical ingredients becoming
so expensive, we'll have to re-learn the old ways, at a commercial
scale. Or do without.
- Protective coatings and dies: Solvents, mineral oils and
pigments have dramatically reduced the maintenance that used to be
needed on exposed walls, outdoor furniture, and high-traffic surfaces.
We're going to have to learn to appreciate the weather-beaten look, use
natural materials that don't weather, or put more time into naturally
cleaning and replacing worn surfaces.
Taking these all together, I think the greatest hardships are going to
be surviving the economic depression (which I've argued is coming
anyway) and coping with high interest rates. Some of the needed
behaviour changes -- rediscovering old pre-oil ways of doing things,
doing with less, doing more with less, using more natural ingredients
and processes, and being innovative -- will actually be good for us,
and for our environment. So I don't see the oil crash, even under the
gloomiest scenario, being the end of the world or even of modern
civilization. At the same time, it's time we woke up to the reality
that we've been paying far too little for oil, and living on borrowed
time, for far too long.
Once we survive this disaster, maybe we'll be alert enough to realize
the much greater one that lurks behind it, and at least try to take
action to reduce our population, and our consumption of other
resources, in time to prevent it.
But I doubt it.
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MADE IN CANADA
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