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Peak Economy Richard Heinberg Post Carbon Institute September 2009 The economic crisis changes everything before crisis I after crisis It is essential that we…. • Understand the crisis and its historical context, so that we can • Respond effectively 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 Growth becomes institutionalized • With compound interest, fractional reserve banking, and debt leverage, growth became necessary to the monetary health of nations 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 balance year on year change (thousand barrels/day How did Peak Oil contribute to the financial crisis? The drivers of crisis: 1. Energy growth becomes difficult and expensive (oil at $147 a barrel!) Past recessions & oil spikes The drivers of crisis: 1. Energy growth becomes difficult and expensive 2. Growth-and-debt-based economy goes bust Colliding recessions • 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 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 Why did oil prices drop? • Demand destruction • Hedge funds in, hedge funds out July 2008: the all-time oil peak • 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 • 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 Depleting materials Antimony Barium Bismuth Cobalt Gallium Germanium Indium Manganese Nickel Platinum Rare Earths Tellurium Titanium Zinc China China China, Mexico Kinshasa, Australia China Belgium, Canada China, Canada Gabon, S. Africa Canada S. Africa Fuel cells, China Belgium, Germany Australia, S. Africa Canada, Mexico Thermoelectric/paraelectric materials Thermoelectric/paraelectric materials Thermoelectric/paraelectric materials Photovoltaics Photovoltaics Photovoltaics Photovoltaics, thermo/paraelectric mat’ls Photovoltaics Fuel cells para/thermoelectric materials Fuel cells, para/thermoelectric materials Solar cells, semiconductors Solar cells Photovoltaics, fuel cells km3/ year World water use 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 Ballmer Chairman, Microsoft Corp. The shape of the recovery V The shape of the recovery U The shape of the recovery W The shape of the recovery L What to expect • • • • • • • Unemployment Homelessness Bank failures Hunger Crime Political instability International conflict 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)