The Conjoined Twins: Peak Oil and Climate Change

Of modern-day dystopias, the conjoined twins of climate change and peak oil energy (or rather peak energy) are poor dance partners, forever out of tune and stepping on one another’s toes. Despite being conjoined through carbon, the interaction between the two is complex and, at times, contradictory. Accordingly, while most of the environmental movement has embraced both issues, it is a somewhat awkward clinch.  At the most extreme, the thesis of one negates the other: a peak energy carbon constraint caps warming; while a carbon concucopia allows economies to grow head long into a climate crunch (that they may or may not have the wealth to cope with).

Peak oil’s path to respectability has been a little more convoluted than that of climate change.  Indeed, it is still quite far from becoming the consensus. For peak oil theorists to emerge victorious they need to slay an even more entrenched existing consensus, that of neoclassical economics. Laurence Summers—a feted economist whose resume includes an academic professorship at Harvard, the role of Chief Economist at the World Bank and stints with both the Clinton and Obama administrations—had this to say about resource constraints back in 1991:

“There are no limits to the carrying capacity of the earth that are likely to bind any time in the foreseeable future. There isn’t a risk of an apocalypse due to global warming or anything else. The idea that we should put limits on growth because of some natural limit, is a profound error and one that, were it ever to prove influential, would have staggering social costs.”

Summers is no free market libertarian, but he does still buy into the central thesis of market economics that price signals lead to substitution away from the resource suffering from scarcity. Throw in some technological change, both endogenous (within) and exogenous (outside of) the economic system, and constraints that may appear insurmountable will melt away within a year or two according to this system of belief.

In the case of climate change, the time horizons are somewhat longer and the neoclassical defence of doing little near term a little more convoluted. The logic goes thus: climate change is admitted to be a market failure similar to ‘the tragedy of the commons’, but it is a very slow burn market failure. In the meantime, the world grows richer. Accordingly, procrastination appears almost an ethical act: do nothing about carbon emissions in order to bring the world’s poor out of poverty. And once we have all grown rich we will have the resources to both mitigate against, and adapt to, climate change. For the most lucid exposition of this view read William Nordhaus’ excellent book “A Question of Balance: Weighing the Options on Global Warming Policies” (large parts of which  I disagree with, but it is still a great read).

The perceptive reader may have already noticed that in order for the neoclassical economic approach to climate change to work, then the neoclassical riposte to any energy constraint must also be true. There is no chance of us buying our way out of climate change (and I would argue that that argument is flawed as well, but that is for a later post) unless we have the energy to grow our wealth. Nonetheless, if a possible energy constraint to growth did manifest itself, this could in and of itself ameliorate the possibility of dangerous climate change through reducing carbon emissions.

In the footsteps of the Intergovernmental Panel on Climate Change (IPCC) Special Report Emissions Scenarios (see my post here), we are thus able to map out four broad storylines that combine climate change with peak energy (which I prefer to the term peak oil) in my graphic below (click to get a larger image):

The bottom left-hand corner is the conucopian view of the world:  the combined magic of the free market plus the miraculous manna from heaven provided by technological progress combine to provide mankind with all the clean energy that it needs. This is the kind of world that Matt Ridley trumpets in his recent book “The Rational Optimist“. It rests heavily on mankind’s experience since the industrial revolution and especially the post-War period. According to the story Ridley tells, successive resource and environmental scares—such as the 1973 oil crisis and the disappearing ozone hole—have been easily defeated by mankind’s ingenuity, set loose by the triumph of free markets and global capitalism.

In the bottom right hand corner we have a rapid energy descent. Indeed, so rapid as to cause economic collapse and a major cessation of carbon emission flows into the atmosphere—and thus far more benign climate change impacts. This scenario provides the backdrop to a range of doomer blogs of varying intensity such as the jagged descent of John Michael Greer. Another example is James Howard Kunstler‘s  nonfiction book “The Long Emergency” and his “World Made by Hand” novels, where we all (at least those that survive) become more like The Amish—but with lots more sex and violence.

Other sites that could be termed Self Help for the Coming Energy Crash include The Automatic Earth and Casaubon’s Book, where the bloggers in question are in effect putting their money (or at least time) where their mouths are by coming off the grid and making themselves and their families resilient to a world economy that could suddenly shrink. The Transition Town movement ploughs a similar furrow, but with the emphasis on building resilient communities as the best defence to the upcoming end of growth.

The top-right hand corner presents the worst of both worlds. It is a scenario where Charles Hall’s Energy Return on Investment (EROI) methodology turns vicious and our luck runs out in terms of climate change sensitivity and the stability of the carbon cycle (see my posts here and here). Hall defines EROI as follows:

Energy return on investment is the ratio of energy returned from an energy-gathering activity compared to the energy invested  in that process.

This definition is taken from Hall and Klitgaard’s book “Energy and the Wealth of Nations: Understanding the Biophysical Economy“. If you want to become peak energy literate—and my suggestion is that this would be a very sensible thing to do from a risk perspective—then I strongly recommend you read this book.

The top-right hand scenario will arise if technological progress within renewables (or their own resource constraints such as the availability of rare earth metals for windmill magnets and photo-voltaic cells) lead to disappointment over the rate of roll out and the production of conventional oil plummets (see such books as Matt Simmons “Twilight in the Desert“).

In such a case, the energy complex is forced to rely on the rapid deployment of unconventional hydrocarbons such as tar sands oil, shale oil and shale gas, but these sources of energy have sharply lower EROI’s than conventional sources of oil. At the same time, coal-fired electricity generation takes an ever larger share of the energy mix. Thus the carbon intensity of each unit of energy output (and so unit of economic growth) rises.  At worst, we could envisage a scenario where economic growth plateaus, but annual carbon emissions jump by 20% as we are forced to replace high EROI fossil fuels as they run out with low EROI fossil fuels.

The high carbon emission, no growth equilibrium is, however, unstable. Ever rising levels of atmospheric CO2 will eventually take temperature rise through three, four and five degree Celsius of warming over pre-industrial levels. At some point, climate change impacts will bludgeon growth downward, the product of a world not nearly wealthy enough to either mitigate or adapt (in contrast to the world of William Nordhaus).

Finally, we have the top-left hand corner scenario of high economic growth but high climate change impacts. In this scenario, the business as usual projections from BP and the International Energy Agency rein supreme. The peak oil theorists are proved wrong and oil-equivalent production reaches 100 billion barrels a day and beyond as  shown in the BP chart below (taken from here):

Nonetheless, climate change appears an ever-growing challenge in terms of sea level rise, desertification and extreme weather. The world is in a far wealthier position to adapt to global warming, but whether we have the technological capabilities to reverse it decades in the future must remain an unknown. In short, this scenario could be one of a spike in growth and then collapse, or spike in growth and technological El Dorado—we just don’t know. Much will depend on climate sensitivity to CO2 and the carbon cycle, for which we have only a limited degree of certainty. So overall, this is a very risky scenario, with widely divergent pay offs.

Against this background, most of mankind takes a very backward-looking, adaptive expectations approach to longer term risks. The default setting is that the future will look very much like the past. The majority of the population thus bet all their chips on the bottom left-hand outcome (although they are totally blind to the bet they are making); in other words, a world of ever-expanding wealth, much as we have seen since WW2.

My case for considering alternative scenarios is twofold: first, both climate change and energy constraints have collapsed civilisations before. Just read John Perlin, Brian Fagan and Jared Diamond. Second, there are tentative signs that things are looking a little different. Take the oil price (chart from, click for larger image):

The neoclassical economic approach appears to be struggling. Short-term scarcity led to higher prices, but higher prices have not led to sufficient substitution and investment to bring prices back down. There are a lot of other moving parts (demographics, the impact of technology on income distribution, and the rise of China to name just three), but higher resource costs in general, and energy prices in particular, appear to be dampening growth (at least in developing countries) and leading to growing global economic imbalances.

Consequently, a whole range of scenarios exist for which tomorrow does not look like today; and long-term decision making over savings, employment, pensions, housing and education should take this into account. How would our current economic choices look in a world that suddenly goes ex-growth, or a world in which globalism goes into rapid retreat? From a risk perspective, to consider only the one scenario with a rosy outcome appears an incredibly reckless bet.

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