Ah, the blissful days of an approaching August. Like the long Edwardian summer that preceded World War I, it seems we are coming to the end of the Cheap Oil Era without any real expectation of what lies ahead.
Yet the warnings come. The latest is from those notorious doomsayers, Lloyd’s of London and the Royal Institute of International Affairs, known as Chatham House.
One of the City’s most respected institutions has warned of “catastrophic consequences” for businesses that fail to prepare for a world of increasing oil scarcity and a lower carbon economy.
Richard Ward, chief executive of Lloyd’s:
We are in a period akin to a phony war. We keep hearing of difficulties to come, but with oil, gas and coal still broadly accessible – and largely capable of being distributed where they are needed – the bad times have not yet hit …
The report – “Sustainable energy security: strategic risks and opportunities for business” – argues that “companies which are able to take advantage of this new energy reality will increase both their resilience and competitiveness. Failure to do so could lead to expensive and potentially catastrophic consequences.”
Once again, mention of “catastrophic consequences” – the words that seem to shut down serious conversation, the trigger for the first stage of denialism.
Here’s another example: the psychology that pervaded Wall Street at the height of the securitization boom in 2006-07. Michael Lewis captures it brilliantly in The Big Short:
These people (on Wall Street) believed that the collapse of the subprime mortgage market was unlikely precisely because it would be such a catastrophe. Nothing so terrible could ever actually happen.
Same with BP. Their contigency plans never took into account the failure of the blowout preventer – a failure that would be so catastrophic, it couldn’t be contemplated. So no plans were made for such an exigency.
Now we see the same conditions with respect to oil, the basic commodity required for almost all our transportation, indeed our civilization. Can our future even be discussed without considering a sudden change in availability, volatility or geopolitical stability with regard to oil?
At the moment, in this long summer, we do not want to seriously discuss such exigencies because a sudden change in our access to cheap oil would be too catastrophic to seriously consider.
It is admittedly tough to read but I would also recommend checking out Robert Hirsch’s interview with the Allianz Group, one the world’s largest financial services providers (http://knowledge.allianz.com/en/globalissues/safety_security/energy_security/hirsch_peak_oil_production.html). Hirsch co-wrote a landmark report on peak oil for the US Department of Energy in 2005. I believe the City of Burnaby based their own report on the Hirsch report.
What I can’t get my head around though is if we are quickly approaching such a cataclysmic event why are governments not making efforts to prepare their populations. Mr. Price writes:
“we do not want to seriously discuss such exigencies because a sudden change in our access to cheap oil would be too catastrophic to seriously consider.”
Similarly, Hirsch in the linked interview says:
“In most places, the problem is still unthinkable and not politically correct. Most of the rest of the world is not in very good shape to deal with the problem.”
I agree it is disturbing to think about (like climate change) but the sooner we come to terms with it the sooner elected officials will have the political support to initiate the infrastructure and policy changes needed to make this transition and still have a prosperous and livable region.
In some ways we are ahead of other regions. We have hydroelectric power, a secure supply of clean water, the ALR for local food production, a growing urban and regional bike network, town centres connected by rapid transit and a mostly effective bus system in much of the region. Those pieces will help to blunt some of our exposure to rising costs but as 2008-2009 demonstrated we are very much part of the world economy and are bound to be impacted as well. Am I wrong in thinking that governments should be preparing us citizens to deal with this problem?
Great post, Gordon.
The Lloyd’s report is satisfyingly blunt and obviously correct:
“companies which are able to take advantage of this new energy reality will increase both their resilience and competitiveness. Failure to do so could lead to expensive and potentially catastrophic consequences.”
A corporation that isn’t yet fully aware of the imminent “energy reality” of peak oil is probably not going to survive the transition. There will likely be a high turnover in the ranks of every country’s largest companies. In the past, corporations have risen and fallen with changes in technology, and that will certainly be the case in the decade we’ve just embarked on. But the technological change we’re going to experience by midcentury will also be different than what older generations have experienced, when technological change simply meant older inventions passed out of favor or were replaced.
Our big change will be the practical obsolescence of some of the most “advanced” technology due to impractical energy requirements. The McMansion and Super Wal-Mart come to mind. In the fossil fuels era, technological wonders appeared on cue, every few years or so. We’ve become accustomed to having brilliant scientists and a hyperdrive economy deliver us one sparkling new consumer product after another. It’s been a nice ride, but I fear my generation has hopped on during the tail end. There’s not going to be a technological magic bullet that can save the American Way of Life. A life we Canadians are all living too, whether we like to admit it or not (and as a McDonald’s cheeseburger digests in my stomach, I guiltily admit it).
There is no cold fusion miracle behind the Showcase Showdown curtain. Even with all the talk from US Energy Secretary Steven Chu and the nuclear industry about nuclear fission being a vital bridge from fossil fuels to sustainable energy, we’re not exactly seeing new plants getting built. Common sense tells us there’s more risk and expense involved in the newest nuclear technology than its boosters insist. Even if the new plants are as safe and wonderful as advertised, building enough of them to keep the economy growing at the rate it has during the fossil fuel era is not as quick and as easy as building, say the Interstate highway system or the Tennessee Valley Authority. Those superprojects and others like them were, of course, subsidized by cheap oil. So, too, was the Manhattan project and the entire civilian nuclear energy program. That subsidy from the world’s finite hydrocarbon reserve is disappearing. It is easy to see how important cheap oil is to the construction of a behemoth nuclear complex, but it is just as crucial to the manufacture of wind turbines and photo-voltaic solar panels. So as we come down to the hard cap of the planet’s ambient energy level (determined by the sun), it will be become more expensive to build tools to extract that ambient energy for productive use.
Although we can guess at what sorts of challenges are ahead, we don’t really know how things are going to work out. The fact we know what should be done doesn’t bring us any closer to seeing the future. Still, I have a disquieting feeling that I know where some smart money is right now: big energy; private military contracting; and the exploitation of climate change and the coming shortage of water and arable land.
Look at Goldman Sachs, for example. After robbing us all blind by blowing up the last big bubble and cashing out as it popped, its already moved on from the imaginary world it helped propagate and which most self-deluded North Americans still mentally inhabit. It’s certainly not betting on a never-ending rise in U.S. home property values, a concept that seems ludicrous now to anyone who realizes a huge proportion of the United States’ housing stock is just not as valuable as it was made out to be. Sure, the houses are palatial. But they are so dependent on Motordom, and cheap energy for heating and AC, that they are going to be embarrassing anachronisms before long (if they’re not already). That goes, too, for the entire clownish panoply of strip malls and highway interchanges that covers much of America like the Emperor’s New Clothes. But I digress – as an article in July’s Harper’s showed, Goldman is speculating on food, one of those boring little necessities that we conveniently forget isn’t cheap for everyone.
Like every food shortage that I’ve ever read about, the worldwide shortage of a couple years back was the product of market forces, not an actual lack of food. And Goldman made a killing on it. This is but one example of the kind of play that successful businesses will make in the new energy reality. Why invest in luxuries when the most basic necessities like heat, food and water are a guaranteed bet? London traders hoarding cocoa, the Saudi sovereign wealth funds buying farmland in the Sudan: these actors have different motivations, but neither is in a “phony war” state of mind about what’s going on.
James Howard Kunstler points out that while the discussion is about growth, as it always is, what the United States needs to be doing right now is managing contraction. In my opinion this doesn’t mean they, or we in Canada, shouldn’t be stimulating the economy with government investment and aggregate demand creation (9% unemployment is apparently now acceptable to American elites, so I’m not holding my breath for any more). Managing contraction means we should be jettisoning the crumbling infrastructure of the old economy, not propping it up with “shovel-ready” stimulus money. The contraction is in progress whether we like it or not, so it’s long past time we start spending every last drop of cheap oil we have building a smaller, slower, better economy that is sustainable. The local example of the Gateway Project, built as it is on the presupposition of increasing (!) container traffic from Asia in a future of skyrocketing energy costs, demonstrates how myopic we are. We’re trying to jumpstart the engine on a sleek new car that’s already out of date. The thought that the global, oil-fueled hypergrowth might never come back is too horrible to contemplate.