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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?.

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Peak Economy

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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:

Energy growth becomes difficult and expensive (oil at $147 a barrel!)


Past recessions & oil spikes


The drivers of crisis:

Energy growth becomes difficult and expensive

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

AntimonyChinaThermoelectric/paraelectric materials

Barium China Thermoelectric/paraelectric materials

BismuthChina, Mexico Thermoelectric/paraelectric materials

CobaltKinshasa, AustraliaPhotovoltaics

GalliumChinaPhotovoltaics

GermaniumBelgium, CanadaPhotovoltaics

IndiumChina, CanadaPhotovoltaics, thermo/paraelectric mat’ls

ManganeseGabon, S. AfricaPhotovoltaics

NickelCanadaFuel cells

Platinum S. AfricaFuel cells, para/thermoelectric materials

Rare EarthsChinaFuel cells, para/thermoelectric materials

TelluriumBelgium, GermanySolar cells, semiconductors

TitaniumAustralia, S. AfricaSolar cells

ZincCanada, MexicoPhotovoltaics, fuel cells


World water use

km3/ year


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


W

The shape of the recovery


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)


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