Beginning this month, Transition United States is publishing a three-part series of papers titled Economic Resilience, authored by Joanne Poyourow. The first of the series is Economic Contraction.

Poyourow sets out to confront the the “triple crisis” of global warming, peak oil, and economic collapse. Any long-term plan we come up with is futile unless we anticipate that it will unfold amidst a world of economic contraction:

We have to plan for it, and put alternative financial tools in place to weather it, or it will undermine all of our other efforts.

Poyourow says it takes “raw courage” to confront the end of growth on a personal level, and even more to violate social and political taboos by doing so in public. But in the end, we have no choice – and our options are severely constrained:

Whether it will be a full-scale collapse into chaos like Jared Diamond writes about or Stoneleigh forecasts, or whether we will be successful in creating locally-managed “surge breakers” in time, remains to be seen.  But either way, we’d better try our best to get something in place.

The “techno-fantasy” conceptualized in the chart below – continued growth, “business as usual” – is just that, a complete fantasy. And the “green-tech stability” projection is also a fantasy: it represents a form of bargaining with rather than accepting the reality that renewable .

The uncomfortable reality is, no renewable energy sources are on hand that approach the energy density of fossil fuels. That leaves us with two options. We can choose to accept and deal with reality, with all the creativity, wisdom, and grace we can muster. Or we can continue to deny and resist reality,  destroy the land, the oceans, and the atmosphere and in the end suffer collapse as a consequence of our obdurateness.

The reality is, we  can’t force or cajole a finite world to accommodate infinite growth. As available energy and other resources become more scarce and expensive, there must be a descent.  A a severe contraction in our economic systems is inevitable. And we will have to adapt, voluntarily or involuntarily.

Against the backdrop of this reality, it’s no wonder that our politics – for example, Obama’s nonspeech outlining an energy nonpolicy – are nothing less than an absurdity.

Huge Bardi observes that we can learn an important lesson from the Japaneses – the pre-modern, pre-Fukushima, Edo period Japanese, that is. Like Japan, Earth is an island. To live sustainably and successfully on that island, the winning strategy is adaptation. We need to adjust our needs to what this planet can give us.

The United Nations Food and Agriculture Organization reported earlier this month that the Food Price Index rose for the eighth consecutive month in February, to a new record high.

Stuart Staniford at Early Warning discounts the importance of last summer’s heat wave and drought in Russia to the current global spike in food prices, instead attributing the spike to diversion of food crops to biofuels. The results of his analysis are shown in this graph.

The biofuel feedstock appears as a negative quantity (the idea being it’s a deduction from global food supply). Staniford’s conclusion: biofuels are much more significant than Russian weather fluctuations as a factor affecting cereal food supplies.

Still think biofuels are a good idea? That it’s more important to feed our cars than our people?

A piece I posted a few days ago – How realistic are electric cars? – included a calculation of how much U.S. production of wind and solar energy would have to be increased over the next 20 years if electric cars were to become a significant component of the U.S. vehicle fleet. That calculation was off by an order of magnitude. A more careful recalculation finds that wind and solar generation capacity would have to be increased by a factor of 2,500 – 5,000. The post has now been corrected.

So how are we doing on our project to massively increase U.S. wind and solar generation capacity? This chart posted by Stuart Staniford at Early Warning is not reassuring, at least regarding wind.

The American Wind Energy Association’s Q4 2010 market report reveals that new installations collapsed in 2010.

The worsening nuclear crisis in Japan raises questions. What would be the consequences of shutting down nuclear reactors in the U.S.? In light of fresh doubts about the wisdom of nuclear power, is swapping out the U.S. vehicle fleet with all-electric vehicles realistic?

The chart below shows what the U.S. energy mix is today, and what the U.S. Energy Information Agency projects it to be over the next 25 years. The nuclear and coal part of the mix are expected to drop only a bit, coal from 45% to 43% and nuclear from 20% to 17%.

[Note that 43% of 5+ trillion kilowatt hours per year is a lot more than 45% of the 4+ trillion kilowatt hours coal accounts for today - meaning coal consumption in electricity generation is thus expected to increase substantially.  So much for doing anything about global warming.]

The University of California, Berkeley Center for Entrepreneurship and Technology has published a technical brief which considers three scenarios for “maximum penetration” of electric cars into the market, projecting market share of new cars at 2015, 2020, 2025, and 2030 under differing cost assumptions.

The “market” in the above chart is defined as those likely to buy electric vehicles – 20% of the total market is excluded as not likely to buy electric vehicles.

Under the baseline scenario, 81 million electric vehicles would be on the road by 2030; under the operator-subsidized scenario, 151 million.

The U.C. study calculates that by 2030 the fleet of electric cars is estimated to require between 190 and 350 million megawatt hours of electricity per year. Currently, electricity generation in the U.S. totals around 4 billion megawatt hours per year. Powering an electric car fleet would require that the U.S. increase electricity generating capacity by 4.75%-8.75% by 2030. And that’s assuming no growth in electricity usage elsewhere in the economy, despite population and presumably economic growth.

In 2009, U.S. nuclear plants generated 798.7 billion kilowatt hours (or 7,987 million kilowatt hours) from 104 commercial nuclear generating units; “nuclear generating units” in the U.S. thus average 7.68 megawatt hours per year in output. The 602 coal power plants in the U.S. produce on average ~3.88 megawatt hours per year. Powering the projected U.S. electric car fleet would therefore require building 25-46 additional “nuclear generating units” by 2030. Or 50-90 coal-fired power plants.

Renewable sources, including wind and solar, currently account for about 10% of U.S. electricity generation – but two thirds of existing renewable capacity is hydroelectric, which is about tapped out and even under threat of decline. Solar and wind together account for only a little over 2% of renewable electric energy – about 72,000 megawatt hours per year. Powering the projected electric fleet from solar and wind alone would require increasing our solar and wind capacity by a factor of 2,500 – 5,000. Just to power electric cars,  nothing else: no growth, no phasing out of nuclear or decommissioning aging plants, no shutting down of CO2-emitting coal plants.

Phasing out nuclear power while we are still able so to as avoid catastrophic accidents, and phasing out coal to save the planet as we know it, would seem to be of a bit higher priority than powering our go-carts.

Challenging times indeed. Replacing our gasoline-powered cars with electric cars is about the last thing we should be focusing on.

According to the latest International Energy Agency (IEA) data, November 2010 saw a new high of monthly liquid fuel production.  Stuart Staniford at Early Warning has posted this graph.

The IEA revised November up by 300 kbd (thousand barrels/day), and then showed December falling by the same amount.  OPEC and EIA data do not show a new peak being reached.

The IEA’s rose-colored glasses are focused on the future as well as the past.  Its latest monthly oil market report sees production continuing to climb this year,  predicting that world oil demand would average 89.13 million b/d in 2011, 360,000 b/d higher than previously forecast a month ago and some 1.8 million b/d higher than OPEC’s forecast which was published on January 17. The IEA’s projections prompted a nasty response from OPEC secretary-general Abdalla el-Badri. Badri berated the IEA for what he called “unrealistic assumptions and forecasts,” saying these served only to cause confusion and even fear on world oil markets:

Supplying the world’s media with unrealistic assumptions and forecasts will serve only to confuse matters and create unnecessary fear in the markets. Ultimately, this is adding to volatility in the oil market and destroying the stability that OPEC works so hard to support.

While we may or may not have reached a peak in production of “all liquids”, there’s no disputing that global peak oil per capita occurred in 1979.

And as we’ve discussed before, for example here and here, “all liquids” is not at all the same as crude oil.

Kenneth Worth at Seeking Alpha reminds us that global production of crude oil and condensate has now approached the levels of production seen in 2005 and 2008, just shy of 74 million barrels per day (mbpd) on a twelve month rolling average of production. Crude production is shown in the chart below.

Worth notes:

Six years of frenzied drilling and elevated prices have not yet produced the additional barrels needed by a growing global economy.

Prices remain high despite significant unemployment in the OECD and anemic economic growth. This is very nearly unprecedented. Only in the 1970’s, after OPEC voluntarily held about 10 mbpd in production capacity off the world market to sustain oil prices at artificially high levels, have we had oil production declining over a six year period. Are we perhaps now at “Peak Oil?”

Worth warns that the stage is set for another price shock.

[T]en percent unemployment in the US, and significant unemployment in Europe, has significantly reduced OECD crude oil demand over the three years since the 2008 oil price shock. The slack created by OECD economic contraction, however, has been picked up by increasing demand from China, India, OPEC and the rest of the developing world. Now that US and other OECD demand is increasing as well, albeit anemically, due to the economic recovery, the stage has been set for a second global oil price shock. Welcome to 2011.

There isn’t any evidence that crude production can increase beyond ~74 mbpd. Production in most of the world is declining, and increases from marginal producers are most unlikely to offset production declines from the much larger producers elsewhere in the world which continue unrelenting and unabated. And if the declining EROEI on crude isn’t bad enough . . .

Crude Oil EROEI in the U.S.

. . . take a look at these U.S. government estimates of the EROEI on the stuff other than crude that make up “all liquids”:

And don’t be surprised if some of these estimates prove wildly optimistic.

Historically, economic growth has been highly correlated to the growth in energy supplies.

Bumping up against limits to growth in net energy supplies implies the end of economic growth as we have come to know it.

The Environmental Law Institute recently conducted a review of U.S. government fossil fuel and renewable energy subsidies for Fiscal Years 2002-2008. The findings are presented in the paper, Estimating U.S. Government Subsidies to Energy Sources: 2002-2008 – and illustrated in the graphic “Energy Subsidies Black, Not Green.”

Key findings include:

• The vast majority of federal subsidies for fossil fuels and renewable energy supported energy sources that emit high levels of greenhouse gases when used as fuel.
• The federal government provided substantially larger subsidies to fossil fuels than to renewables. Subsidies to fossil fuels – approximately $72 billion over the study period, as opposed to $29 billion for renewables.
• Almost half of the subsidies for renewables went to corn-based ethanol [which at best has a barely positive EROEI, and whose climate and environmental consequences are questionable].
• The largest subsidies to fossil fuels were written into the U.S. Tax Code as permanent provisions. By comparison, many subsidies for renewables are time-limited initiatives implemented through energy bills, with expiration dates that limit their usefulness to the renewables industry.
• The vast majority of subsidy dollars to fossil fuels can be attributed to just a handful of tax breaks, such as the Foreign Tax Credit ($15.3 billion) and the Credit for Production of Nonconventional Fuels ($14.1 billion, though this credit has since been phased out).

Obama is touting his deal with the Republicans as “stimulus” – as a spur to economic growth. Leaving aside the fact that the deal is a very good deal for corporations and the rich but rotten for ordinary Americans, the gamble is this: paying off the huge debt we already have, plus the additional $1 trillion in debt that’s being taken on, will be made possible if we can just get the economy moving again, back on the growth track.

Dan Weintraub argues at The Automatic Earth that the folks in charge really know better. They’re embracing “extend and pretend” fiscal policies in the present because they are deathly afraid of the alternative. They’re kicking the fiscal can down the road for a while longer so as head off the discontent and civil strife that always accompanies increases in austerity along with its attendant human suffering. The ruling elite understands all too well that present fiscal and monetary policies will fail to fix the underlying and most fundamental and socially destructive of all economic ills – those of an ever-widening gap between rich and poor, and the absolute disaster caused by an ever-shrinking, formerly self-sustaining American middle class. According to Weintraub, Krugman advocates for, and Bernanke is pursuing, policies whose aim is to keep civil strife from destroying, in the near term, the very fabric of American society. Weintraub errs, I think, only in failing to include Obama in his circle of conspirators.

As Tom Whipple observes, what we’re experiencing isn’t a routine downturn in the business cycle which can be cured by Keynesian stimuli favored by the Democrats or tax cuts favored by the Republicans. Rather, it’s the ending of a period of 200 years of abundant energy that allowed us to build an extremely complex civilization based on dozens of interrelated systems without which we can no longer live. The most important and the most overlooked system is the global biosphere. The consequences of its devastation for humans and all life on Earth are only now, too late, beginning to become evident.  At the same time our very complex civilization has begun to exhaust the sources of energy and numerous other raw materials that built and maintained it.

In our politics, we are struggling to return to a civilization which is no longer possible – and the inevitable failure of that effort is likely to be explosive. Whipple seconds Weintraub’s warnings of impending social chaos:

If anyone thinks the employment situation is difficult, wait a few years until the very high priced motor fuels makes discretionary car travel unaffordable. Millions upon millions of jobs in the retail, travel, hospitality, recreational, and dozens of other industries will be lost.The current efforts by various levels of government to stimulate job creation or save people from home foreclosures will prove to be ridiculously inadequate. A completely new paradigm of what we do to sustain life is going to have to emerge or things will become far worse than most of us have ever known. Modern civilization simply cannot stand a situation in which a substantial share of its people is destitute. The potential for social disorder is too great.

“A completely new paradigm” – doesn’t that sound lovely? Carolyn Baker is more blunt: what we are experiencing is the collapse of industrial civilization. And while we we can wax eloquent about rebirth, we absolutely refuse to acknowledge the death that makes it possible.  We don’t dare talk about the pain and suffering that collapse will entail. Any transition to a new paradigm of resilience and self-sufficiency won’t be accomplished without great suffering and painful loss. The path leads where it will, whether we like it or not. As Baker reminds us, transition requires an internal journey as well – a journey of the human spirit, the hero’s journey. And each of us is being called.

Gail Tverberg at the Energy Bulletin lays out three possible scenarios for our energy and economic future. First, there’s business as usual: growth will continue practically indefinitely, as shown in the chart below.

Under this scenario, people in the U.S. would expect to be twice as wealthy in 2050 as in 2005.

Then there’s the slow decline scenario, as oil supplies and other fossil fuel sources peak and then gradually decline.

In this scenario oil production starts dropping off about now by about 2% a year. Natural gas production doesn’t drop off as quickly. The big concern is adapting to having a little less oil and gas each year.

Then there’s a third possibility – a very rapid drop off in fossil fuels of all types, resulting from a financial crash, or a major disruption of international trade, affecting world economies.

Tverberg also has another chart showing the historic correlation between oil production and GDP growth.

If history is any guide, there’s a good chance that if oil production stops growing and even starts declining, our expectations we’ll be wealthier in the future than we are today may be dashed. We could even face a systemic collapse, finding ourselves faced with having to conjure up news ways to carve out a living in the world.

Energy expert Carey King of The University of Texas at Austin thinks an overlooked cause of the economic recession in the U.S. is a decade long decline in the quality of the nation’s energy supply.  In a new study titled Energy intensity ratios as net energy measures of United States energy production and expenditures, King compares two measures of energy quality for the fossil fuel consumption and production of the United States: energy return on energy invested (EROI), and a new measure he’s developed – the energy intensity ratio (EIR). EIR is easier to calculate, is highly correlated to EROI, is in some ways more powerful than EROI – and the basic data behind the EIR calculations come out annually as opposed to every five years for EROI.

The higher EIR becomes, the higher the value of the resource to the overall economy. The corollary is that low EIR presents a higher burden to economic growth. He shows the EIR and EROI of oil and gas as well as coal were all in decline for two time periods within the last 40 years, and both time periods preceded economic recessions.

He concludes by pointing out the main challenge for new, “sustainable” sources of energy:

It is also likely insufficient to have energy resources with EROI just greater than unity, and researchers to date have given very little attention to the minimum EROI that may be required for a modern complex society.

The buzz this week is over the IEA’s newly-released World Energy Outlook 2010. The two most interesting commentaries I’ve run across are by Kjell Aleklett at Countercurrents.org and by the staff at The Oil Drum.

Here’s Aleklett:

In WEO 2010 the IEA continues its tradition of predicting future oil demand without considering if supplying it is possible. Last year the IEA stressed the importance of oil for economic growth and concluded that 106 million barrels per day (mb/d) would be required by 2030, an increase of about 20 mb/d above current production. This year the IEA only predicts 99 mb/d by 2035 and avoids any discussion of economic growth. We can interpret this as meaning that the desired economic growth is not possible.

* * *

In WEO 2010 the IEA presents facts that mean only one thing – the peak of oil production is imminent. By showing this data without announcing this obvious conclusion the IEA is making a cry for help to do what, for them, is politically impossible. WEO 2010 is a cry for help to tell the truth about peak oil.

The Oil Drum piece ticks off the dubious assumptions underlying the report, which include:

• Net Energy. The WEO assumes all energy resources are equal, without considering ‘net energy – or in other words, energy return on energy invested (EROEI).
• Quality of Energy. One cannot simply substitute one type of energy for another, for example, electricity for gasoline.
• Economic consequences. Recessionary impacts may be the signal that the amount of net energy that the economy is receiving is too low.
• OPEC Politicized Reserves. The reserve figures from many of the countries that are being relied upon for increased oil production are untrustworthy.
• Questionable USGS Reserves. USGS published its last major set of reserve estimates in 2000, but it is not clear that these estimates are very useful in determining how much is actually extractable at prices economies can afford to pay. For example, just last week the USGS announced that most of the oil resources it had previously estimated to be in the National Petroleum Reserve in Alaska were in fact natural gas resources (of little economic value because the natural gas can’t be delivered to markets).
• No consideration of the “export land model.” As oil use by oil exporters rises each year, oil available for export to oil-consuming countries has been declining for the past five years.
• Overly Rosy View of Unconventional Natural Gas. Currently, production of shale gas is high and prices are low – but this may be a temporary aberration. Some think, as argued in this article and this article at The Oil Drum, that production costs are in reality much higher than current market prices, reflecting the low net energy return of these deposits. If the energy return of unconventional gas is too low, it may end up being left in the ground.
• Assumption that major improvements in energy intensity of GDP can be expected in the future. The EIA assumes huge reductions in energy usage per unit of GDP. Is this realistic?

• Failure to consider constraints other than oil – such as lack of water; depleting mineral ores; shortage of rare earth minerals; and limits on biofuels, such as lack of arable land and soil degradation repeated removal of organic material.
• Failure to consider cumulative costs. Under any scenario, huge investments in new energy and related systems will be required. Where will the capital come from, when governments are already spending far more than they are taking in in taxes and when the world’s financial system is already on the ropes?

The 2010 edition of the World Energy Outlook was released today (9 November), providing the International Energy Agency’s updated projections of energy demand, production, trade and investment, fuel by fuel and region by region to 2035.

The report, in a new approach, considers three scenarios: current policies; new policies (which assumes commitments on climate change action are honored);  and 450 (this last scenario assumes aggressive action to limit global warming to 2° C  – but not enough to get back to the 350 ppm necessary to minimize the risk of climate catastrophe).

The assumptions underlying the “new policies” scenario are far from realistic. Gail the Actuary has posted this chart from the report at The Oil Drum revealing the questionable assumptions regarding future crude oil production.

Conventional crude oil is shown as holding steady to 2035 at a level slightly below peak levels reached in the period 2005-2008, reflecting some cutback in demand as a result of changes in governmental policies from the “current policies” scenario. In the “new policies” scenario, the IEA projects that oil will not peak until at least 2035 (production does peak, at 86 mb/d, just before 2020 in the 450 scenario – but not due to resource constraints). But notice where the bulk of the world’s oil is projected to come from by then: from “fields yet to be developed or found.” Are we willing to bet our future on the come?

Also, Saudi Arabia is expected to provide the major portion of increased production.

Unfortunately for the EIA, greatly increasing production is something the Saudis have said they won’t be doing. Rather, Saudi Arabia’s King Abdullah has said the kingdom will be saving the country’s hydrocarbon wealth for future generations. Saudi production, at least so far, peaked in 2005 at 9.6 million barrels/day. The Saudis themselves are saying that their production will never exceed ~12 million b/d, under the best of circumstances. And when Ghawar peaks, all bets on future Saudi production are off. Bottom line: even if Saudi Arabia is capable of increasing production and maintaining those increased levels of production over time – which is doubtful – the kingdom has said it won’t do so.

The agency forecasts that China’s demand will soar by 75% between 2008 and 2035, compared to an overall surge of 36% in international energy use. While Americans would still lead the world in per capita energy use, China will overtake the United States as the world’s largest energy user. China’s increased energy use is bad news for Earth’s climate.

The most troubling thing about the EIA’s approach is that it’s demand-driven: the EIA first figures out what the demand for energy would be under its various scenarios, and then deduces where the energy will come from.For example, here’s their scenario of oil demand through 2035 should nations take aggressive action to limit atmospheric CO2 to 450 ppm.

What’s missing is any realization that geological constraints rule, that economic constraints are a consequence of underlying geological realities, and that demand is just a poor stepchild. The current economic crisis should have driven that lesson home.