The slaveholder in the antebellum American South knew only too well how much his livelihood depended on his slaves. Slaves were the visible and essential workforce of the southern plantation system. They worked and lived side-by-side with the master and his family. It was the energy of slaves which tended the fields, shod the horses, cooked the meals and delivered the produce to nearby wharves. It was an uneasy symbiosis punctuated by occasional revolts and flights to freedom.
We have long since abolished slavery as an absolute moral evil. And, we have long since replaced the energy it supplied with a dependency on concentrated forms of energy mined from the ground, namely coal, oil, and natural gas. Those fuels, supplemented with some nuclear, hydroelectric and renewable energy, provide Americans with the equivalent of 147 "energy slaves." That means it would take the equivalent of 147 people working continuously 24 hours a day, 7 days a week to supply the energy currently used by each American. (Some people estimate the number is closer to 100 energy slaves; still, the point remains the same.)
But all those energy slaves are largely invisible. We flip a switch and the light goes on. We twist a key and the car starts. We turn on the stove and the flame lights. We adjust the thermostat and the heat comes on. We get what we want from our energy slaves, it seems, without having to deal with real people in any way remotely approaching the intimate way those living with or without slavery in the pre-fossil fuel age had to. Our main task is to pay the bill.
It is an illusion of autonomy. It is a libertarian fantasy seemingly come true. Cooperation and community appear optional; we can get everything we need so long as we have a little money.
Of course, in reality, the modern, energy-intensive world is a marvel of human cooperation mediated by financial and information flows of gargantuan proportion. But, that's not how it feels. The deserted, anonymous suburban streets; the impersonal big box stores; the self-service gas stations; the lonely commute; the untold hours in front of a computer--all can give us a false sense of being isolated and autonomous. At the same time these things give us unrivaled luxury in our living quarters, unparalleled selection in our consumer goods, unprecedented mobility, and unhindered access to information about nearly everything we might want to buy or wish to learn. We feel omnipotent and self-contained.
How then will we come together for the great task ahead, a transformation that must move us away from this powerful, seemingly autonomous, but ultimately unsustainable existence? Will we accept the true context in which we live, that is, a world with limits? Will we rediscover our neighbors? Will we realize our dependence on one another? Will we find the will to cooperate rather than fight?
Will we be able to give up the illusion of autonomy which the fossil fuel age has engendered in nearly every one of us? And, most important of all, will we be able to do it in time?
Sunday, April 23, 2006
Sunday, April 16, 2006
The Shape of Things To Come
If you knew you were going to lose your job within the next five years, you might just go looking for another one today, not waiting to see exactly when you would be let go. But, if your job were very lucrative, and all you knew was that after five years your pay could be reduced each year, you might want to weigh that against the uncertain prospects of getting a new job that may or may not match your old one.
The second situation is roughly analogous to what we face with the coming peak in world oil production. We know the peak will occur--some say it already has--but we don't know exactly when. We know that supplies will plateau or decline, but we can't know how long the plateau will last (if there is one), nor how steep any decline might be. Alternative fuels are now being developed and competing for a future share of the energy market, but no particular fuel has emerged as the answer to oil decline and, perhaps just as important, to global warming concerns.
With respect to oil peak, each combination of dates and decline curves suggests a different response. An imminent peak followed by a sharp decline--the worst possible combination--would demand immediate emergency conservation measures and massive investment in renewable energy research and deployment. A late peak followed by a long plateau suggests that we have more time to think through our response and gradually work toward solutions. Something in-between may call for a rapid implementation of conservation programs and a quick decision to back certain oil replacements based on the best available knowledge, but without the benefit of a long trial period in the marketplace.
All three scenarios are on offer in the peak oil literature. Energy consultant Robert Hirsch's study of decline curves from oil-producing countries around the world suggests sharply declining oil supplies after the peak. Combine that with predictions of an imminent peak, and you get the first scenario above. Daniel Yergin, the ever-optimistic president of Cambridge Energy Research Associates, predicts not a peak but an "undulating plateau" for several decades beginning sometime after 2030 or 2040.
Douglas Reynolds, a resource economist at the University of Alaska-Fairbanks, believes a peak will occur sometime before 2015, but that it will take the form of a long, gradual curve--more like the bottom of a saucer than the peak of a mountain. Reynolds believes political factors as much as geological limits will cause this type of peak.
The permutations of these scenarios are many, and the available evidence doesn't tell us definitively which one to expect. Henry Groppe, an oil forecaster with a remarkable record, believes we are at peak, but will face at least a decade-long plateau in the production of liquid hydrocarbons as growing volumes of natural gas liquids and condensates make up for declining oil production. This scenario offers some hope that an immediate peak does not spell the end of civilization as we know it, though it certainly portends much hardship, especially for the poor. On the other hand, a peak which comes 25 years hence may not seem that threatening today. But, if it is followed by a steep decline in oil supplies, it means we had better start making and implementing plans now to get ready. For why this is so, read Robert Hirsch's report on mitigating the effects of peak oil prepared for the U. S. Department of Energy. Hirsch says that in order to avoid huge economic dislocations, the world would need to begin a crash problem to identify and deploy alternative liquid fuels at least 20 years in advance of any peak.
As for Groppe, he has 90 percent of his equity assets in energy; he puts his money where his mouth is. But, such investment stances can also create reinforcing loops in the minds of those who are committed to a particular view. Naturally, investment managers invest based on their research findings. But afterwards they may look for evidence to reinforce those decisions and downplay evidence that contradicts their initial research.
Groppe may be immune to this. But, we should be careful to parse the thinking behind various ideas about the date of the peak and the shape of the decline curve. Do the predictions we cling to come from our deepest fears, our greatest hopes, our ideological predilections or possibly even our investment portfolios? Or, are we trying to see the world as it is, adjusting our thinking and actions to unfolding events rather than preconceived notions?
All of us like to see our predictions vindicated. But we should let neither a hatred of the current globalized, corporate-dominated economic system nor an unthinking devotion to the free-market creed that is its handmaiden guide us in evaluating remaining oil and other finite energy supplies. When the stakes are this high--namely, the future of human civilization--we ought to focus on careful observations, flexible thinking and, most of all, humility.
That doesn't mean we shouldn't prepare for the future based on what we know and believe. When facing great uncertainty and large possible consequences, thorough preparation is the wise course. In fact, being ready early ought to be considered a virtue rather than a failure to predict the future correctly. Under the circumstances the last thing we need is a swaggering certainty in our pronouncements. That's the one thing of which I would have thought the world had enough.
(For my recent discussions of uncertainty, risk and probability, see Can a Wall Street Maverick Tell Us Something About Our Ecological Future? and What if Daniel Yergin is Wrong?)
The second situation is roughly analogous to what we face with the coming peak in world oil production. We know the peak will occur--some say it already has--but we don't know exactly when. We know that supplies will plateau or decline, but we can't know how long the plateau will last (if there is one), nor how steep any decline might be. Alternative fuels are now being developed and competing for a future share of the energy market, but no particular fuel has emerged as the answer to oil decline and, perhaps just as important, to global warming concerns.
With respect to oil peak, each combination of dates and decline curves suggests a different response. An imminent peak followed by a sharp decline--the worst possible combination--would demand immediate emergency conservation measures and massive investment in renewable energy research and deployment. A late peak followed by a long plateau suggests that we have more time to think through our response and gradually work toward solutions. Something in-between may call for a rapid implementation of conservation programs and a quick decision to back certain oil replacements based on the best available knowledge, but without the benefit of a long trial period in the marketplace.
All three scenarios are on offer in the peak oil literature. Energy consultant Robert Hirsch's study of decline curves from oil-producing countries around the world suggests sharply declining oil supplies after the peak. Combine that with predictions of an imminent peak, and you get the first scenario above. Daniel Yergin, the ever-optimistic president of Cambridge Energy Research Associates, predicts not a peak but an "undulating plateau" for several decades beginning sometime after 2030 or 2040.
Douglas Reynolds, a resource economist at the University of Alaska-Fairbanks, believes a peak will occur sometime before 2015, but that it will take the form of a long, gradual curve--more like the bottom of a saucer than the peak of a mountain. Reynolds believes political factors as much as geological limits will cause this type of peak.
The permutations of these scenarios are many, and the available evidence doesn't tell us definitively which one to expect. Henry Groppe, an oil forecaster with a remarkable record, believes we are at peak, but will face at least a decade-long plateau in the production of liquid hydrocarbons as growing volumes of natural gas liquids and condensates make up for declining oil production. This scenario offers some hope that an immediate peak does not spell the end of civilization as we know it, though it certainly portends much hardship, especially for the poor. On the other hand, a peak which comes 25 years hence may not seem that threatening today. But, if it is followed by a steep decline in oil supplies, it means we had better start making and implementing plans now to get ready. For why this is so, read Robert Hirsch's report on mitigating the effects of peak oil prepared for the U. S. Department of Energy. Hirsch says that in order to avoid huge economic dislocations, the world would need to begin a crash problem to identify and deploy alternative liquid fuels at least 20 years in advance of any peak.
As for Groppe, he has 90 percent of his equity assets in energy; he puts his money where his mouth is. But, such investment stances can also create reinforcing loops in the minds of those who are committed to a particular view. Naturally, investment managers invest based on their research findings. But afterwards they may look for evidence to reinforce those decisions and downplay evidence that contradicts their initial research.
Groppe may be immune to this. But, we should be careful to parse the thinking behind various ideas about the date of the peak and the shape of the decline curve. Do the predictions we cling to come from our deepest fears, our greatest hopes, our ideological predilections or possibly even our investment portfolios? Or, are we trying to see the world as it is, adjusting our thinking and actions to unfolding events rather than preconceived notions?
All of us like to see our predictions vindicated. But we should let neither a hatred of the current globalized, corporate-dominated economic system nor an unthinking devotion to the free-market creed that is its handmaiden guide us in evaluating remaining oil and other finite energy supplies. When the stakes are this high--namely, the future of human civilization--we ought to focus on careful observations, flexible thinking and, most of all, humility.
That doesn't mean we shouldn't prepare for the future based on what we know and believe. When facing great uncertainty and large possible consequences, thorough preparation is the wise course. In fact, being ready early ought to be considered a virtue rather than a failure to predict the future correctly. Under the circumstances the last thing we need is a swaggering certainty in our pronouncements. That's the one thing of which I would have thought the world had enough.
(For my recent discussions of uncertainty, risk and probability, see Can a Wall Street Maverick Tell Us Something About Our Ecological Future? and What if Daniel Yergin is Wrong?)
Sunday, April 09, 2006
Should we use net energy to measure global energy reserves?
Net energy is a simple concept really. Once you understand that it takes energy to get energy, the basic math is clear. To calculate the net energy available from an energy resource, you add up the energy used to find, extract, process and deliver that resource and then subtract that amount from the amount of energy the resource contains. But global reserves for finite energy resources such as coal, oil, natural gas and uranium are estimated using measures such as tons, barrels, cubic feet and pounds. These measures tell us little about the ultimate usable energy content of each type of resource.
Nor is it of much use to compare the relative gross energy values of these resources, though such comparisons are readily available. To see some examples, check out this one showing the oil equivalence of nuclear fuel, this one for oil and natural gas, and this table containing a variety of equivalences including two comparing coal and oil. Even conversions into British Thermal Units, or BTUs, don't really help us.
As the world moves ever closer to the time when vital, finite energy resources begin to decline, we need to know not how much oil, natural gas, coal or uranium is left; rather, we need to know how much usable energy is left in these resources. A recent illustration of the problem we face in understanding usable energy supplies came in the form of a 60 Minutes story on the Canadian oil sands. The program reported that "the reserves are so vast in the province of Alberta that they will help solve America’s energy needs for the next century."
Nowhere does the reporter explain how much energy it takes to mine and refine the bitumen--it's not actually oil. In fact, it takes two barrels of oil equivalent to obtain three barrels of usable oil from the oil sands. (This is a far lower return than we get from conventional oil which can provide 20 times the energy consumed for older oil discoveries and eight times the energy consumed for newer oil discoveries.) By this standard we should reduce the generally accepted 180 billion barrels of reserves in the Canadian oil sands by 40 percent. Now, not all of the energy used to mine and process the oil sands comes from petroleum. Of course, the huge mining trucks and other equipment run on diesel fuel. But, the processing plants are heavy users of natural gas, both to heat water for the separation process and to provide a source of hydrogen to transform the bitumen into a flowing, light oil.
But, this shows why we need to know about the total universe of finite fuels since each one increasingly interacts with the others during processing, and one fuel may be called upon to substitute for the another as each resource peaks and then declines in availability. Some say that peak oil production is already upon us. The rate of production for conventional natural gas, which many experts tout as a substitute for declining oil supplies, may peak by mid-century. And, while there are claims that the world has enough coal for 300 years, it is important to note that such figures are always followed by the phrase "at current rates of consumption." Naturally, if we had to rely more and more on coal, not only for electricity, but also for heat and liquid fuels, its rate of consumption would rise dramatically. Even more worrisome, the net energy of coal is declining. Richard Heinberg reports in his book The Party's Over that on the current trajectory the net energy from coal could go negative by mid-century as coal grades continue to decline. As for uranium, information on its future supply is sketchy at best.
Oil is facing its own foreshortened depletion trajectory with peak production predictions ranging from last year all the way to 2037 (a date which seems far too optimistic). Increasingly large amounts of energy are needed to find new oil. This is only logical since 1) the easiest oil to find, extract and process has been used first, 2) the new finds tend to be in more remote places such as the Arctic and 3) the new finds tend to be in smaller reservoirs. In addition, new oil is also often more energy intensive to refine because it tends to be of a lower quality. The oil sands are a prime example.
To get the total picture of our finite energy reserves, we need to know at least four important things beyond the raw amounts left: 1) the net energy available from each resource given today's technology and given projected improvements in that technology over time, 2) the rate at which each resource is likely to be extracted over time, again adjusting for improvements in technology--even a very dense energy resource is of little use if it can only be extracted at a trickle--3) the current and projected interchangibility of finite fuels and their renewable replacements and 4) the time it would take to move toward a new energy infrastructure to accommodate such substitutions. For instance, if coal liquids are going to be substituted for declining supplies of refined oil products, the equation for our energy resources will change dramatically. And, the time it would take to ramp up such production will be an important consideration in its feasibility. (This example does not attempt to address the implications for global warming which need somehow to be considered.)
Modeling these four new pieces of information together with estimates of raw reserves may seem daunting. But, it is actually considerably less daunting than the problems already tackled by those who sought to model future economic constraints in Limits to Growth, the excellent study of resource and pollution constraints on industrial expansion.
Given the gravity of the energy challenges we face, can we afford not to try?
Nor is it of much use to compare the relative gross energy values of these resources, though such comparisons are readily available. To see some examples, check out this one showing the oil equivalence of nuclear fuel, this one for oil and natural gas, and this table containing a variety of equivalences including two comparing coal and oil. Even conversions into British Thermal Units, or BTUs, don't really help us.
As the world moves ever closer to the time when vital, finite energy resources begin to decline, we need to know not how much oil, natural gas, coal or uranium is left; rather, we need to know how much usable energy is left in these resources. A recent illustration of the problem we face in understanding usable energy supplies came in the form of a 60 Minutes story on the Canadian oil sands. The program reported that "the reserves are so vast in the province of Alberta that they will help solve America’s energy needs for the next century."
Nowhere does the reporter explain how much energy it takes to mine and refine the bitumen--it's not actually oil. In fact, it takes two barrels of oil equivalent to obtain three barrels of usable oil from the oil sands. (This is a far lower return than we get from conventional oil which can provide 20 times the energy consumed for older oil discoveries and eight times the energy consumed for newer oil discoveries.) By this standard we should reduce the generally accepted 180 billion barrels of reserves in the Canadian oil sands by 40 percent. Now, not all of the energy used to mine and process the oil sands comes from petroleum. Of course, the huge mining trucks and other equipment run on diesel fuel. But, the processing plants are heavy users of natural gas, both to heat water for the separation process and to provide a source of hydrogen to transform the bitumen into a flowing, light oil.
But, this shows why we need to know about the total universe of finite fuels since each one increasingly interacts with the others during processing, and one fuel may be called upon to substitute for the another as each resource peaks and then declines in availability. Some say that peak oil production is already upon us. The rate of production for conventional natural gas, which many experts tout as a substitute for declining oil supplies, may peak by mid-century. And, while there are claims that the world has enough coal for 300 years, it is important to note that such figures are always followed by the phrase "at current rates of consumption." Naturally, if we had to rely more and more on coal, not only for electricity, but also for heat and liquid fuels, its rate of consumption would rise dramatically. Even more worrisome, the net energy of coal is declining. Richard Heinberg reports in his book The Party's Over that on the current trajectory the net energy from coal could go negative by mid-century as coal grades continue to decline. As for uranium, information on its future supply is sketchy at best.
Oil is facing its own foreshortened depletion trajectory with peak production predictions ranging from last year all the way to 2037 (a date which seems far too optimistic). Increasingly large amounts of energy are needed to find new oil. This is only logical since 1) the easiest oil to find, extract and process has been used first, 2) the new finds tend to be in more remote places such as the Arctic and 3) the new finds tend to be in smaller reservoirs. In addition, new oil is also often more energy intensive to refine because it tends to be of a lower quality. The oil sands are a prime example.
To get the total picture of our finite energy reserves, we need to know at least four important things beyond the raw amounts left: 1) the net energy available from each resource given today's technology and given projected improvements in that technology over time, 2) the rate at which each resource is likely to be extracted over time, again adjusting for improvements in technology--even a very dense energy resource is of little use if it can only be extracted at a trickle--3) the current and projected interchangibility of finite fuels and their renewable replacements and 4) the time it would take to move toward a new energy infrastructure to accommodate such substitutions. For instance, if coal liquids are going to be substituted for declining supplies of refined oil products, the equation for our energy resources will change dramatically. And, the time it would take to ramp up such production will be an important consideration in its feasibility. (This example does not attempt to address the implications for global warming which need somehow to be considered.)
Modeling these four new pieces of information together with estimates of raw reserves may seem daunting. But, it is actually considerably less daunting than the problems already tackled by those who sought to model future economic constraints in Limits to Growth, the excellent study of resource and pollution constraints on industrial expansion.
Given the gravity of the energy challenges we face, can we afford not to try?
Monday, April 03, 2006
James Woolsey, Hemp Advocate
Industrial hemp has an unlikely new champion: former CIA director James Woolsey. Woolsey sees a link between the need to end America's oil addiction and hemp's potential as a source of renewable energy. He said so when he visited my hometown of Kalamazoo, Michigan last weekend as part the 2006 Powershift National Tour. According to its website the tour is "a public education effort designed to engage decision-makers, youth, farmers, media and the general public on energy security."
During a question and answer session one audience member broached the subject of hemp. Embarrassed conference organizers tried to move on to another question, but Woolsey insisted on responding. To their surprise he offered a lengthy disquisition on the merits of cellulosic ethanol as an alternative fuel, the myths about industrial hemp and the potential advantages to American farmers. And, he announced that he is a board member of the North American Industrial Hemp Council.
"If you wanted to hide marijuana in a field of industrial hemp, you'd have to be very high," Woolsey said. He explained that industrial hemp has a very low THC level compared to marijuana for recreational and medical use. (THC is the psychoactive component of marijuana.) So low is that level that placing the two plants together causes the recreational marijuana to lose its potency because of cross-pollination with the industrial version.
"There is no bigger enemy of marijuana than industrial hemp," he added. "But, the United States in its wisdom has banned all hemp--I suppose to enhance the production of marijuana," he joked.
(For some basic information on the uses of industrial hemp, try this article which states that "trying to get high from industrial grade hemp would be like trying to get drunk off vinegar.")
Woolsey's credentials on energy issues stem from his work on the National Commission on Energy Policy, an independent commission formed by several foundations and designed to break the policy logjam on energy issues. Woolsey has become an advocate for quick changes that involve "inexpensive processes and relatively little change to the infrastructure."
Hence, he is a fervent advocate of biofuels of all kinds which can be dispensed at existing filling stations. He's also an advocate for hybrid-electric vehicles and is particularly keen on the development of plug-in hybrids since they can "fill up" on cheap electricity at night.
Because of his focus, he sees hydrogen as impractical. "Under current technology you'd have to completely replace the energy infrastructure of the country," Woolsey said during his keynote luncheon speech. "Well, who goes first? The energy infrastructure or Detroit." The country could end up with cars without fuel or fuel without cars, he explained. Neither the oil industry nor the car industry wants to risk such a situation.
His main focus these days is supply disruption, the consequences of which he helped demonstrate during a slickly produced simulation called "Oil Shockwave." The simulation shows how severe even a modest disruption could be and how little the United States could do to mitigate the effects of such a disruption. (The results of a simulation done last year with a group of high-ranking former government officials in Washington, D. C. are available here in PDF form.)
"A cutoff of oil, even a relatively brief one, sends huge shocks through our economy," he said during his speech. "Very substantial changes in price occur with small changes in supply."
At the root of the problem is dependence on oil from the Middle East. Referring to the Bush administration's so-called "War on Terror," Woolsey said, "This is the first war in which we are paying for both sides." He explained that a portion of the money paid to Middle Eastern countries for America's imported oil ends up in the hands of terrorists and others who preach hatred of the United States. "This is not a good plan," he said.
Concerning the idea that oil supplies worldwide may soon peak and then decline, Woolsey said, "I think there are good arguments for peak oil." In the question and answer session, he said he had no clear understanding of the possible timing for such an event, but added that he is currently reading energy investment banker Matthew Simmons' book Twilight in the Desert which makes a case for a near-term peak for Saudi Arabia and by implication for the world.
During a question and answer session one audience member broached the subject of hemp. Embarrassed conference organizers tried to move on to another question, but Woolsey insisted on responding. To their surprise he offered a lengthy disquisition on the merits of cellulosic ethanol as an alternative fuel, the myths about industrial hemp and the potential advantages to American farmers. And, he announced that he is a board member of the North American Industrial Hemp Council.
"If you wanted to hide marijuana in a field of industrial hemp, you'd have to be very high," Woolsey said. He explained that industrial hemp has a very low THC level compared to marijuana for recreational and medical use. (THC is the psychoactive component of marijuana.) So low is that level that placing the two plants together causes the recreational marijuana to lose its potency because of cross-pollination with the industrial version.
"There is no bigger enemy of marijuana than industrial hemp," he added. "But, the United States in its wisdom has banned all hemp--I suppose to enhance the production of marijuana," he joked.
(For some basic information on the uses of industrial hemp, try this article which states that "trying to get high from industrial grade hemp would be like trying to get drunk off vinegar.")
Woolsey's credentials on energy issues stem from his work on the National Commission on Energy Policy, an independent commission formed by several foundations and designed to break the policy logjam on energy issues. Woolsey has become an advocate for quick changes that involve "inexpensive processes and relatively little change to the infrastructure."
Hence, he is a fervent advocate of biofuels of all kinds which can be dispensed at existing filling stations. He's also an advocate for hybrid-electric vehicles and is particularly keen on the development of plug-in hybrids since they can "fill up" on cheap electricity at night.
Because of his focus, he sees hydrogen as impractical. "Under current technology you'd have to completely replace the energy infrastructure of the country," Woolsey said during his keynote luncheon speech. "Well, who goes first? The energy infrastructure or Detroit." The country could end up with cars without fuel or fuel without cars, he explained. Neither the oil industry nor the car industry wants to risk such a situation.
His main focus these days is supply disruption, the consequences of which he helped demonstrate during a slickly produced simulation called "Oil Shockwave." The simulation shows how severe even a modest disruption could be and how little the United States could do to mitigate the effects of such a disruption. (The results of a simulation done last year with a group of high-ranking former government officials in Washington, D. C. are available here in PDF form.)
"A cutoff of oil, even a relatively brief one, sends huge shocks through our economy," he said during his speech. "Very substantial changes in price occur with small changes in supply."
At the root of the problem is dependence on oil from the Middle East. Referring to the Bush administration's so-called "War on Terror," Woolsey said, "This is the first war in which we are paying for both sides." He explained that a portion of the money paid to Middle Eastern countries for America's imported oil ends up in the hands of terrorists and others who preach hatred of the United States. "This is not a good plan," he said.
Concerning the idea that oil supplies worldwide may soon peak and then decline, Woolsey said, "I think there are good arguments for peak oil." In the question and answer session, he said he had no clear understanding of the possible timing for such an event, but added that he is currently reading energy investment banker Matthew Simmons' book Twilight in the Desert which makes a case for a near-term peak for Saudi Arabia and by implication for the world.
Sunday, March 19, 2006
Can Peak Oil Make You Rich? Does it Matter?
There is no shortage of financial newsletters, blogs, and websites that will tell you quite confidently that we are closing in on world peak oil production and that you can make a lot of money with the right investments. (For a sampling, try this promo for a newsletter called Outstanding Investments, blogs such as The Real Deal and New Era Investor, and websites such as Resource Investor and 321energy.) What this tells me is that these investment-oriented commentators don't quite grasp the issue. The question isn't whether you can make money on peak oil. Somebody will. The question is whether doing so will matter.
No doubt a few market participants will make great fortunes in the ongoing energy bull market. That this particular bull market may or may not be the result of an imminent peak in world oil production doesn't really matter to an investor. Other factors may be sufficient to spawn new speculative fortunes in energy including previous low investment resulting in infrastructure and personnel limitations; war and the threat of war in the Middle East; skyrocketing demand, especially in Asia; and regional natural gas shortages.
Investment advice on peak oil, however, is lost on most of the people in the world because they simply do not have the savings to invest or lack the skills to do so even if they do have the money. For the remaining few, the answer to whether such investing actually matters depends on the time frame. In the short term the answer is probably yes. In the long term, the answer is more than likely to be, "Not as much as many people think."
In the short term climbing energy prices will undermine the standard of living for all the world's energy consumers. A small group who work for energy producing companies and countries will prosper, and shareholders in energy companies are likely to prosper as well. So, from this perspective it may make sense to hedge one's bets by investing some money in the energy markets.
But, peak oil is probably not going to be a one-way street to financial heaven. One of the effects of high energy prices is to depress economic activity. If high prices bring on a recession or even worse, an economic depression, energy prices will fall along with all other prices--maybe not as far, but far enough to put a big dent in any investing profits. The other thing to remember is that investing is a social phenomenon. If everybody who invests "knows" that energy is the place to be, the market is probably topping. The point is that by definition not everyone will reap big profits in the emerging energy bull market. It takes latecomers to make such investing pan out for those who got in early.
Oddly, sites promoting peak oil money-making ideas seem to be assuming that we will somehow return to a business-as-usual world in which lucky investors can spend their new fortunes. But, in the long term, peak oil means we will never go back to business as usual.
Perhaps the world will move on to a miraculous new energy source making any investments in the fossil fuel industry ultimately a big loser. Perhaps the world will be faced with ever decreasing supplies of energy which will result in a chaotic and highly destructive descent into a low-energy society that gives new meaning to the word "post-industrial." Perhaps money and credit as we know it will cease to exist, and life will become intensely local. In such a world the financial riches of a networked, global economy won't have any meaning. Beyond this is the question of timing. Either the optimistic or the pessimistic scenario might unfold quickly or take decades to reach a conclusion.
Given the uncertainties, perhaps the most important investments that any of us can make are in helping to prepare our families, friends and communities for the energy challenges ahead. This might mean spending some of our own treasure for the public good. In this way, at least in the short-term, peak oil investing can provide a benefit, not just to the individuals who do it, but also to the communities in which they live.
If those who profit from rising energy prices come truly to understand our energy predicament, they can help communicate it to others and assist in preparing our communities. But the peak oil investor who succeeds at making money, while failing to grasp the gravity of our situation, may find that his or her new fortune means nothing to a community that has been forced by circumstances to move quickly beyond a world governed by Wall Street wizards and international finance. In such a world, even if you manage to hold on to your investment winnings, from that point onward what you can do will be far more important than what you are worth.
No doubt a few market participants will make great fortunes in the ongoing energy bull market. That this particular bull market may or may not be the result of an imminent peak in world oil production doesn't really matter to an investor. Other factors may be sufficient to spawn new speculative fortunes in energy including previous low investment resulting in infrastructure and personnel limitations; war and the threat of war in the Middle East; skyrocketing demand, especially in Asia; and regional natural gas shortages.
Investment advice on peak oil, however, is lost on most of the people in the world because they simply do not have the savings to invest or lack the skills to do so even if they do have the money. For the remaining few, the answer to whether such investing actually matters depends on the time frame. In the short term the answer is probably yes. In the long term, the answer is more than likely to be, "Not as much as many people think."
In the short term climbing energy prices will undermine the standard of living for all the world's energy consumers. A small group who work for energy producing companies and countries will prosper, and shareholders in energy companies are likely to prosper as well. So, from this perspective it may make sense to hedge one's bets by investing some money in the energy markets.
But, peak oil is probably not going to be a one-way street to financial heaven. One of the effects of high energy prices is to depress economic activity. If high prices bring on a recession or even worse, an economic depression, energy prices will fall along with all other prices--maybe not as far, but far enough to put a big dent in any investing profits. The other thing to remember is that investing is a social phenomenon. If everybody who invests "knows" that energy is the place to be, the market is probably topping. The point is that by definition not everyone will reap big profits in the emerging energy bull market. It takes latecomers to make such investing pan out for those who got in early.
Oddly, sites promoting peak oil money-making ideas seem to be assuming that we will somehow return to a business-as-usual world in which lucky investors can spend their new fortunes. But, in the long term, peak oil means we will never go back to business as usual.
Perhaps the world will move on to a miraculous new energy source making any investments in the fossil fuel industry ultimately a big loser. Perhaps the world will be faced with ever decreasing supplies of energy which will result in a chaotic and highly destructive descent into a low-energy society that gives new meaning to the word "post-industrial." Perhaps money and credit as we know it will cease to exist, and life will become intensely local. In such a world the financial riches of a networked, global economy won't have any meaning. Beyond this is the question of timing. Either the optimistic or the pessimistic scenario might unfold quickly or take decades to reach a conclusion.
Given the uncertainties, perhaps the most important investments that any of us can make are in helping to prepare our families, friends and communities for the energy challenges ahead. This might mean spending some of our own treasure for the public good. In this way, at least in the short-term, peak oil investing can provide a benefit, not just to the individuals who do it, but also to the communities in which they live.
If those who profit from rising energy prices come truly to understand our energy predicament, they can help communicate it to others and assist in preparing our communities. But the peak oil investor who succeeds at making money, while failing to grasp the gravity of our situation, may find that his or her new fortune means nothing to a community that has been forced by circumstances to move quickly beyond a world governed by Wall Street wizards and international finance. In such a world, even if you manage to hold on to your investment winnings, from that point onward what you can do will be far more important than what you are worth.
Friday, March 10, 2006
What if Daniel Yergin is wrong?
Daniel Yergin is the oil optimist that peak oil believers love to hate. He is president of Cambridge Energy Research Associates (CERA), perhaps the most well-respected energy consulting firm in the world. He is the Pulitzer Prize-winning author of the best-selling history of oil, The Prize, which was also made into a PBS series. And, he is friendly, upbeat, calmly reassuring, and above all, quotable. Yergin's smiling face stands in stark contrast to the dour visages of the peak oil crowd as they warn of an imminent peak and subsequent collapse in oil production, an event that will shake our civilization to its very foundations.
Not so fast, Yergin says. We have plenty of oil--enough to meet the needs of growing Asian giants such as China and India and the rest of us as well for the next 30 to 40 years. After that oil supplies will reach an "undulating plateau." (The word "peak" seems so downbeat and distasteful that he refuses to utter it.) But, Daniel Yergin knows no more than anyone else about the future, especially the future 30 to 40 years hence. (In the past, much shorter time periods have proven problematic for Yergin and his firm. CERA predicted in 2001 that natural gas supplies in North America would be plentiful for the foreseeable future. That turned out to be woefully off the mark. In itself, it doesn't mean he's wrong about oil--only that he and his firm can make mistakes like the rest of us.)
To repeat: Neither Yergin nor anyone else knows anything for certain about oil supplies 30 to 40 years hence. Yergin is merely assigning a high probability to a peak then. But, implicit in his forecast is this: Since oil is a finite resource which is being continuously depleted and since no one--not even Daniel Yergin--knows exactly how much new oil will be found over the next three to four decades, it follows that the probability of an oil peak grows with each passing year. It is this reality and not the cheerful certainty which Yergin exudes that ought to command our attention.
The obvious question then is this: What if Daniel Yergin is wrong? What if the very low probability he assigns to a nearby peak doesn't stay neatly tucked beneath the tail of the bell curve of probabilities? What if peak oil--however disrespectful and unmannerly it may be--is about to arrive (or has already snuck in the back door and is waiting in the broom closet to surprise us)?
In Daniel Yergin's world, the marketplace will take care of all necessary adjustments. But, no reporter to date has bothered to press him on how this would work if a peak were to occur, say, next year. If he were pressed on this point, I am certain he would say that a peak will not occur next year or the year after that or the one after that. Naturally, he could produce evidence for this belief; but, ultimately he could not by definition prove it--just as none of us can prove anything about the future.
But, implicit in Yergin's insistence on a distant peak is that the marketplace would deal very badly with a nearby one. And, here we should note that Yergin is the author of another famous book called Commanding Heights, a paean to free market ideology. To admit the possibility of a nearby peak would be to admit that the free market has already failed to detect and fix a critically important problem, one that could challenge the very continuity of modern civilization. It would be like saying one's god had failed, the god in this case being the "marketplace." There would be "demand destruction" on a major scale, the kind that destroys a lot of people. There would be no ready oil substitutes and no ready infrastructure if we had them. There would be parlous consequences economically, socially, politically, and probably militarily. There would be serious questions about whether we could produce enough food and whether we could distribute it even if we did.
Let us stop and think for a moment about what would happen if, on the other hand, we began to implement on an emergency basis the recommendations of the dour peak oil crowd. If such a speeded up program succeeded, people everywhere would end up with the following: 1) Splendid public transport including excellent intercity rail; 2) a great increase in the amount of energy produced by nonpolluting, renewable energy sources; 3) increasing amounts of locally grown, organic food--some of it grown in one's own garden; 4) the quick and widespread dissemination of green technology everywhere; and 5) greater participation in the governance of our local communities as they become more sustainable and self-sufficient. Such a response would coincidentally help us make great strides in addressing global warming since global warming results from our use of carbon-based fuels.
But, what if, after all of this, it turned out that the dour peak oil crowd was wrong? The worst that would happen is that we would have prepared ourselves for a peak that would then pass almost unnoticed in the distant future. We would have transformed society from one that is unsustainable into one that is sustainable. The only real criticism that Yergin could make is that this transformation took place earlier than it absolutely had to. Or he might be one of those who would think that such a world--one no longer run by giant multinational corporations and huge centralized bureaucracies--isn't worth living in.
Peak oil pessimists are not very much worried about being wrong on the exact date of a peak. They are trying to provide guidance for policymakers and the public. To that end they regularly update their projections, seemingly without embarrassment, when new information arrives. What worries the pessimists much more than being wrong is that the world will arrive at peak oil unprepared. Can Daniel Yergin say the same?
Not so fast, Yergin says. We have plenty of oil--enough to meet the needs of growing Asian giants such as China and India and the rest of us as well for the next 30 to 40 years. After that oil supplies will reach an "undulating plateau." (The word "peak" seems so downbeat and distasteful that he refuses to utter it.) But, Daniel Yergin knows no more than anyone else about the future, especially the future 30 to 40 years hence. (In the past, much shorter time periods have proven problematic for Yergin and his firm. CERA predicted in 2001 that natural gas supplies in North America would be plentiful for the foreseeable future. That turned out to be woefully off the mark. In itself, it doesn't mean he's wrong about oil--only that he and his firm can make mistakes like the rest of us.)
To repeat: Neither Yergin nor anyone else knows anything for certain about oil supplies 30 to 40 years hence. Yergin is merely assigning a high probability to a peak then. But, implicit in his forecast is this: Since oil is a finite resource which is being continuously depleted and since no one--not even Daniel Yergin--knows exactly how much new oil will be found over the next three to four decades, it follows that the probability of an oil peak grows with each passing year. It is this reality and not the cheerful certainty which Yergin exudes that ought to command our attention.
The obvious question then is this: What if Daniel Yergin is wrong? What if the very low probability he assigns to a nearby peak doesn't stay neatly tucked beneath the tail of the bell curve of probabilities? What if peak oil--however disrespectful and unmannerly it may be--is about to arrive (or has already snuck in the back door and is waiting in the broom closet to surprise us)?
In Daniel Yergin's world, the marketplace will take care of all necessary adjustments. But, no reporter to date has bothered to press him on how this would work if a peak were to occur, say, next year. If he were pressed on this point, I am certain he would say that a peak will not occur next year or the year after that or the one after that. Naturally, he could produce evidence for this belief; but, ultimately he could not by definition prove it--just as none of us can prove anything about the future.
But, implicit in Yergin's insistence on a distant peak is that the marketplace would deal very badly with a nearby one. And, here we should note that Yergin is the author of another famous book called Commanding Heights, a paean to free market ideology. To admit the possibility of a nearby peak would be to admit that the free market has already failed to detect and fix a critically important problem, one that could challenge the very continuity of modern civilization. It would be like saying one's god had failed, the god in this case being the "marketplace." There would be "demand destruction" on a major scale, the kind that destroys a lot of people. There would be no ready oil substitutes and no ready infrastructure if we had them. There would be parlous consequences economically, socially, politically, and probably militarily. There would be serious questions about whether we could produce enough food and whether we could distribute it even if we did.
Let us stop and think for a moment about what would happen if, on the other hand, we began to implement on an emergency basis the recommendations of the dour peak oil crowd. If such a speeded up program succeeded, people everywhere would end up with the following: 1) Splendid public transport including excellent intercity rail; 2) a great increase in the amount of energy produced by nonpolluting, renewable energy sources; 3) increasing amounts of locally grown, organic food--some of it grown in one's own garden; 4) the quick and widespread dissemination of green technology everywhere; and 5) greater participation in the governance of our local communities as they become more sustainable and self-sufficient. Such a response would coincidentally help us make great strides in addressing global warming since global warming results from our use of carbon-based fuels.
But, what if, after all of this, it turned out that the dour peak oil crowd was wrong? The worst that would happen is that we would have prepared ourselves for a peak that would then pass almost unnoticed in the distant future. We would have transformed society from one that is unsustainable into one that is sustainable. The only real criticism that Yergin could make is that this transformation took place earlier than it absolutely had to. Or he might be one of those who would think that such a world--one no longer run by giant multinational corporations and huge centralized bureaucracies--isn't worth living in.
Peak oil pessimists are not very much worried about being wrong on the exact date of a peak. They are trying to provide guidance for policymakers and the public. To that end they regularly update their projections, seemingly without embarrassment, when new information arrives. What worries the pessimists much more than being wrong is that the world will arrive at peak oil unprepared. Can Daniel Yergin say the same?
Sunday, February 26, 2006
Behind the Curve: How We've Consistently Underestimated Global Warming
In 1896 Svante Arrhenius, a Swedish chemist, theorized that increasing or reducing the amount of carbon dioxide in the atmosphere might trigger a change in climate worldwide. Cutting the amount in half, he surmised, could lower average temperatures by 5 degrees C and might bring on an ice age. But, was such a big change possible?
A colleague, Arvid Hogbom, had studied the carbon cycle extensively, calculating the amounts of carbon from various sources including those from industrial emissions. Using Hogbom's numbers Arrhenius calculated that a doubling of carbon dioxide would increase global temperature by 5 degrees C, surprisingly close to modern estimates even though he was working under severe handicaps including relatively low calculating power--he used paper and pencil--and limited data.
He also estimated that it would take 2,000 years to get there. (The latest estimates place this event in the middle of the current century.) Of course, Arrhenius shouldn't be blamed for this underestimate given the impossibility of knowing what lay ahead for population growth and industrialization. But, his was the first in what has turned out to be a consistent string of underestimates concerning the pace and severity of global warming.
In 1938 Guy Stewart Callendar, a British engineer and amateur meteorologist, presented data to the Royal Meteorological Society demonstrating the arrival of global warming. He estimated that temperatures would rise by 1 degree C by 2200. Callendar wasn't very concerned about global warming for two reasons. The pace seemed so slow and he believed that increased levels of carbon dioxide would be good for agriculture.
Neither Arrhenius nor Callendar were well received. Climate theory and experimental evidence at the time seemed to demonstrate conclusively that what they were claiming could not happen.
Starting in 1940 the Earth embarked on a long cooling spell that lasted until 1970. This temporary hiatus in global warming led to a debate in the scientific community in the early 1970s about whether the Earth might be headed into a new ice age and not toward any continued warming. (It turned out later that the cooling trend may have been in part due to the huge amount of air pollution produced by the wartime and then postwar industrial boom, pollution which tended to reflect sunlight back into outer space.)
In 1979 the National Academy of Sciences offered an estimate that doubling of carbon dioxide levels in the atmosphere might lead to warming between 1.5 degrees C and 4.5 degrees C. In 2001 the Intergovernmental Panel on Climate Change (IPCC) estimated that the Earth could warm by between 1.4 degrees C and 5.8 degrees C by 2100. But, these estimates now seem too conservative. What we know today about the masking effects of particulate air pollution, our subsequent successful efforts to reduce them, and the rapid melting of polar ice indicates that the top end of the IPCC estimates will likely have to be raised, perhaps to somewhere between 7 degrees C to 11 degrees C.
Scientists are by nature inclined to claim only what their data and their models allow them to claim. When they get more data, they simply modify their models and plug in their new data. What the history of global warming modelling tells us so far is that we should be prepared for more surprises--on the upside.
(Some of the above information was taken from a delightful and lively history of global warming entitled, "The Discovery of Global Warming." Supplemental material regarding the book is available online in searchable form here.)
A colleague, Arvid Hogbom, had studied the carbon cycle extensively, calculating the amounts of carbon from various sources including those from industrial emissions. Using Hogbom's numbers Arrhenius calculated that a doubling of carbon dioxide would increase global temperature by 5 degrees C, surprisingly close to modern estimates even though he was working under severe handicaps including relatively low calculating power--he used paper and pencil--and limited data.
He also estimated that it would take 2,000 years to get there. (The latest estimates place this event in the middle of the current century.) Of course, Arrhenius shouldn't be blamed for this underestimate given the impossibility of knowing what lay ahead for population growth and industrialization. But, his was the first in what has turned out to be a consistent string of underestimates concerning the pace and severity of global warming.
In 1938 Guy Stewart Callendar, a British engineer and amateur meteorologist, presented data to the Royal Meteorological Society demonstrating the arrival of global warming. He estimated that temperatures would rise by 1 degree C by 2200. Callendar wasn't very concerned about global warming for two reasons. The pace seemed so slow and he believed that increased levels of carbon dioxide would be good for agriculture.
Neither Arrhenius nor Callendar were well received. Climate theory and experimental evidence at the time seemed to demonstrate conclusively that what they were claiming could not happen.
Starting in 1940 the Earth embarked on a long cooling spell that lasted until 1970. This temporary hiatus in global warming led to a debate in the scientific community in the early 1970s about whether the Earth might be headed into a new ice age and not toward any continued warming. (It turned out later that the cooling trend may have been in part due to the huge amount of air pollution produced by the wartime and then postwar industrial boom, pollution which tended to reflect sunlight back into outer space.)
In 1979 the National Academy of Sciences offered an estimate that doubling of carbon dioxide levels in the atmosphere might lead to warming between 1.5 degrees C and 4.5 degrees C. In 2001 the Intergovernmental Panel on Climate Change (IPCC) estimated that the Earth could warm by between 1.4 degrees C and 5.8 degrees C by 2100. But, these estimates now seem too conservative. What we know today about the masking effects of particulate air pollution, our subsequent successful efforts to reduce them, and the rapid melting of polar ice indicates that the top end of the IPCC estimates will likely have to be raised, perhaps to somewhere between 7 degrees C to 11 degrees C.
Scientists are by nature inclined to claim only what their data and their models allow them to claim. When they get more data, they simply modify their models and plug in their new data. What the history of global warming modelling tells us so far is that we should be prepared for more surprises--on the upside.
(Some of the above information was taken from a delightful and lively history of global warming entitled, "The Discovery of Global Warming." Supplemental material regarding the book is available online in searchable form here.)
Monday, February 20, 2006
Can a Wall Street Maverick Tell Us Something About Our Ecological Future?
Models that predict climate change or energy supplies far into the future are routinely trotted out to explain either that we need to act urgently or that there is nothing to worry about. Why should this be so? Aren't models supposed to tell us the odds of a particular outcome and aren't those odds calculable by any objective observer? The answer is that it depends on what you model and how complete your information is.
Wall Street maverick Nassim Nicholas Taleb tackles this problem in the rather arcanely entitled piece "On the Very Unfortunate Problem of Not Observing Probability Distributions." Taleb distinguishes decisions made under risk from decisions made under uncertainty.
For example, the range of results from the roll of a single die is known in advance, i.e., integers one through six inclusive. The result can never be seven or 20 or 0. With this kind of simple system, where all the possible results are known in advance, any guess about any set of rolls of the die are essentially decisions made under risk. But, with almost all real world systems, we cannot know all the possible results in advance. When we run a climate model or a model concerning energy supplies, we are modeling aspects of the world for which many of the variables are unknown (especially those relating to the future) and for which many of the exact relationships of the known variables are not completely understood. If we make policy decisions based on such models, we are making decisions under uncertainty. In short, we do not know anything like the precise odds of our models being "right." They are more scenarios than "results."
It is what we don't know that can hurt us according the Taleb. Taleb is a hedge fund manager and author of an excellent layman's guide to risk entitled "Fooled by Randomness." He skewers Wall Street pitchmen and analysts for their statistical sloppiness and their pretense that risk in the markets can be easily quantified. He points out that because all possible outcomes of any market or investment cannot be known, all investments are made under uncertainty. Wall Street, however, has long considered markets to be rational and well-behaved and therefore amenable to standard bell curve analysis.
Taleb begs to differ. He believes hidden dangers lie in wait that cannot be anticipated or guarded against in the usual ways. He refers to one type of danger as the "black swan." The idea, borrowed from philosopher David Hume, is that no number of observations of white swans can prove that all swans are white. In other words, no number of observations of the past can prove what the future will be like. (In philosophy, this is known as the problem of induction.) In financial markets, Taleb says, financial models act as if "black swan events," that is, completely unexpected, major market moving events, are very, very rare. They are not so rare as Wall Street assumes, he claims, and they make investing much more risky than it appears.
How does this apply to climate models or models of future energy supplies? These models are very much like the incomplete financial models. In fact, both types of models must take into account economic information. Like their counterparts, these energy and climate models assume that patterns discovered in the past can be projected into the future confidently. In practice, few climate scientists will claim that their models provide accurate predictions, only possible scenarios. Unfortunately, many energy analysts, both those who are worried about a nearby peak in world oil production and those who say we have plenty of oil, often portray their models as accurate predictors. When the predicted date of a peak passes without incident, the model is somehow "discredited." But such models are only good for making decisions under uncertainty. There is no clearly known range of possibilities to plug in. Much of the data about future conditions is just conjecture.
Does that mean such models are useless? Not at all. But we must interpret them carefully. Because they are replicas, they do not encompass every possibility. Some possibilities that are unknown may arrive unannounced and result in both positive or negative surprises. The cornucopians are particularly fond of citing how the marketplace and technology have always provided whatever we need in terms of energy and other resources to overcome any presumed environmental limit. In "Fooled by Randomness" Taleb observes, "it does not matter how frequently something succeeds if failure is too costly to bear." The failure to have alternatives to oil in the wake of a nearby oil peak may indeed be "too costly to bear." Cornucopian prognosticators are essentially admitting this by always citing a date far into the future when oil production will peak. The implied message: "We have plenty of time to prepare...but, if I'm wrong, we're screwed."
While those who fear we are headed for major energy shortages or a climate catastrophe in the near future may be premature, they actually offer the kind of advice that Taleb might: "Since the consequences could be so extreme, let's prepare now."
Since no models for climate or energy can possibly be expected to make precise predictions, we should use them to inform us in general terms about what we might face. Taleb says, "In other words, one need not actually compute the alternative histories [or futures] so much as assess their attributes." (Italics are mine.)
And, if one of those alternative futures is the collapse of civilization as we know it, perhaps we should not concern ourselves so much with discovering the precise day it will happen. Perhaps we should take out some insurance now--just in case.
Wall Street maverick Nassim Nicholas Taleb tackles this problem in the rather arcanely entitled piece "On the Very Unfortunate Problem of Not Observing Probability Distributions." Taleb distinguishes decisions made under risk from decisions made under uncertainty.
For example, the range of results from the roll of a single die is known in advance, i.e., integers one through six inclusive. The result can never be seven or 20 or 0. With this kind of simple system, where all the possible results are known in advance, any guess about any set of rolls of the die are essentially decisions made under risk. But, with almost all real world systems, we cannot know all the possible results in advance. When we run a climate model or a model concerning energy supplies, we are modeling aspects of the world for which many of the variables are unknown (especially those relating to the future) and for which many of the exact relationships of the known variables are not completely understood. If we make policy decisions based on such models, we are making decisions under uncertainty. In short, we do not know anything like the precise odds of our models being "right." They are more scenarios than "results."
It is what we don't know that can hurt us according the Taleb. Taleb is a hedge fund manager and author of an excellent layman's guide to risk entitled "Fooled by Randomness." He skewers Wall Street pitchmen and analysts for their statistical sloppiness and their pretense that risk in the markets can be easily quantified. He points out that because all possible outcomes of any market or investment cannot be known, all investments are made under uncertainty. Wall Street, however, has long considered markets to be rational and well-behaved and therefore amenable to standard bell curve analysis.
Taleb begs to differ. He believes hidden dangers lie in wait that cannot be anticipated or guarded against in the usual ways. He refers to one type of danger as the "black swan." The idea, borrowed from philosopher David Hume, is that no number of observations of white swans can prove that all swans are white. In other words, no number of observations of the past can prove what the future will be like. (In philosophy, this is known as the problem of induction.) In financial markets, Taleb says, financial models act as if "black swan events," that is, completely unexpected, major market moving events, are very, very rare. They are not so rare as Wall Street assumes, he claims, and they make investing much more risky than it appears.
How does this apply to climate models or models of future energy supplies? These models are very much like the incomplete financial models. In fact, both types of models must take into account economic information. Like their counterparts, these energy and climate models assume that patterns discovered in the past can be projected into the future confidently. In practice, few climate scientists will claim that their models provide accurate predictions, only possible scenarios. Unfortunately, many energy analysts, both those who are worried about a nearby peak in world oil production and those who say we have plenty of oil, often portray their models as accurate predictors. When the predicted date of a peak passes without incident, the model is somehow "discredited." But such models are only good for making decisions under uncertainty. There is no clearly known range of possibilities to plug in. Much of the data about future conditions is just conjecture.
Does that mean such models are useless? Not at all. But we must interpret them carefully. Because they are replicas, they do not encompass every possibility. Some possibilities that are unknown may arrive unannounced and result in both positive or negative surprises. The cornucopians are particularly fond of citing how the marketplace and technology have always provided whatever we need in terms of energy and other resources to overcome any presumed environmental limit. In "Fooled by Randomness" Taleb observes, "it does not matter how frequently something succeeds if failure is too costly to bear." The failure to have alternatives to oil in the wake of a nearby oil peak may indeed be "too costly to bear." Cornucopian prognosticators are essentially admitting this by always citing a date far into the future when oil production will peak. The implied message: "We have plenty of time to prepare...but, if I'm wrong, we're screwed."
While those who fear we are headed for major energy shortages or a climate catastrophe in the near future may be premature, they actually offer the kind of advice that Taleb might: "Since the consequences could be so extreme, let's prepare now."
Since no models for climate or energy can possibly be expected to make precise predictions, we should use them to inform us in general terms about what we might face. Taleb says, "In other words, one need not actually compute the alternative histories [or futures] so much as assess their attributes." (Italics are mine.)
And, if one of those alternative futures is the collapse of civilization as we know it, perhaps we should not concern ourselves so much with discovering the precise day it will happen. Perhaps we should take out some insurance now--just in case.
Sunday, February 12, 2006
Will Global Warming Create Any Winners?
A thoughtful reader of my previous post, Lobster Boil: The Curious Response to Global Warming's Arrival, emailed a minor objection that some places such as Minnesota (which I mentioned in the piece) are likely to benefit from global warming. He claimed the state will have milder weather and by extension a longer, warmer growing season. Farmers might have to plant different crops, but maybe not.
For Minnesota, alas, not all modellers predict this benign outcome. One model suggests that Minnesota and indeed most of the continental United States will experience increasingly frequent and prolonged droughts. The modelling was the work of David Rind of the Goddard Institute for Space Studies. Rind concluded that climate change models underestimate the intensification of drought because they do not have detailed enough models of land surfaces. His rather troubling conclusions were discussed recently in The New Yorker magazine's "Climate of Man" series.
While global warming is now an accepted fact and human activities, particularly the burning of fossil fuels, are almost certainly the most prominent driver, the future course of that warming remains highly uncertain. Global warming models are exquisitely sensitive to assumptions about future emissions of greenhouse gasses which are, in turn, linked to population growth, economic activity, the use of renewable energy sources, and advances in technology that might mitigate such emissions.
Even more uncertain than the general course of global warming are effects on specific areas. Minnesota may seem more like Missouri and Arkansas by the end of this century, or it may seem more like the Mohave Desert. The issue of water is especially critical in assessing whether there will be any "winners" from global warming. Some places may get more rainfall, but at the wrong time. For instance, snowmelt runoff will decrease in many places significantly as snowfall increasingly turns to rain in winter. That means more runoff in winter and less in the spring and summer when it is more likely to be needed for irrigation and other purposes.
Rind also points to the the problem of adaptation. This is because global warming is a moving target. Minnesota will not suddenly warm to the balmy temperature of St. Louis and stop. Instead, the state will get there in steps with warming every decade that will bring new challenges for adaptation every few years. And, Minnesota and other places won't stop warming at the end of the century. On current projections, the world will keep getting warmer for a long time after that. Here is what Rind told The New Yorker:
For Minnesota, alas, not all modellers predict this benign outcome. One model suggests that Minnesota and indeed most of the continental United States will experience increasingly frequent and prolonged droughts. The modelling was the work of David Rind of the Goddard Institute for Space Studies. Rind concluded that climate change models underestimate the intensification of drought because they do not have detailed enough models of land surfaces. His rather troubling conclusions were discussed recently in The New Yorker magazine's "Climate of Man" series.
While global warming is now an accepted fact and human activities, particularly the burning of fossil fuels, are almost certainly the most prominent driver, the future course of that warming remains highly uncertain. Global warming models are exquisitely sensitive to assumptions about future emissions of greenhouse gasses which are, in turn, linked to population growth, economic activity, the use of renewable energy sources, and advances in technology that might mitigate such emissions.
Even more uncertain than the general course of global warming are effects on specific areas. Minnesota may seem more like Missouri and Arkansas by the end of this century, or it may seem more like the Mohave Desert. The issue of water is especially critical in assessing whether there will be any "winners" from global warming. Some places may get more rainfall, but at the wrong time. For instance, snowmelt runoff will decrease in many places significantly as snowfall increasingly turns to rain in winter. That means more runoff in winter and less in the spring and summer when it is more likely to be needed for irrigation and other purposes.
Rind also points to the the problem of adaptation. This is because global warming is a moving target. Minnesota will not suddenly warm to the balmy temperature of St. Louis and stop. Instead, the state will get there in steps with warming every decade that will bring new challenges for adaptation every few years. And, Minnesota and other places won't stop warming at the end of the century. On current projections, the world will keep getting warmer for a long time after that. Here is what Rind told The New Yorker:
“I gave a talk based on these drought indices out in California to water-resource managers,” Rind told me. “And they said, ‘Well, if that happens, forget it.’ There’s just no way they could deal with that.”
He went on, “Obviously, if you get drought indices like these, there’s no adaptation that’s possible. But let’s say it’s not that severe. What adaptation are we talking about? Adaptation in 2020? Adaptation in 2040? Adaptation in 2060? Because the way the models project this, as global warming gets going, once you’ve adapted to one decade you’re going to have to change everything the next decade.
“We may say that we’re more technologically able than earlier societies. But one thing about climate change is it’s potentially geopolitically destabilizing. And we’re not only more technologically able; we’re more technologically able destructively as well. I think it’s impossible to predict what will happen. I guess - though I won’t be around to see it - I wouldn’t be shocked to find out that by 2100 most things were destroyed.” He paused. “That’s sort of an extreme view.”
Rind admits, of course, that his models are not reality, just projections. But, precisely because of the uncertainty in modeling that far into the future, we should be cautious about accepting the notion that we can define future "winners" and "losers" as a result of global warming. Indeed, those who turn out to be "winners" may find themselves inundated by migrants from areas that end up "losers" because of the rise in sea-level (or disasters associated with that rise), droughts and floods, and agricultural devastation.
To further complicate the discussion of "winners" and "losers," James Lovelock, author of the Gaia theory--the theory that states that the Earth acts as if it were a living, self-regulating organism--recently wrote that he now believes that we've passed the point of no return. Global warming has become self-reinforcing and will be so severe that it will destroy human civilization--though not all human beings--by the end of this century. It would be difficult by any standard to label the people remaining on earth at that point as "winners."
Without having to accept Lovelock's fatal diagnosis, one can at least acknowledge that he is reminding us that we are all in this together. To imagine that global warming is a game with "winners" and "losers" may be the surest way to make losers of us all.
Sunday, February 05, 2006
Lobster Boil: The Curious Response to Global Warming's Arrival
In southeastern Minnesota where I recently gave a couple of talks, ice fishing shacks normally dot the many lakes this time of year. Cross-country skiing and ice-skating are everyday activities in winter. And, those not inclined to winter sports are normally forced to participate in the universal winter recreation of snow shoveling.
But, this is not a normal winter in Minnesota, nor indeed in the whole upper Midwest. On a lake near where I was staying, only one lone ice fishing shack could be seen just off the shore. My host said the ice was simply too thin for anyone to venture beyond that point.
How curious then that the response of many Minnesotans to the warmest winter in decades was to say how lovely the weather is. There are those like my friend, of course, who are disappointed that all their usual winter activities are curtailed. But even an ice-skating instructor whom I met at a coffee shop complained on the one day it got below freezing that it was too bad the weather had suddenly gotten so cold! This from a Minnesotan for whom 20 degrees can seem like a heat wave in the dead of winter.
The proximate cause of this warm weather has been the failure of the jet stream to dip down from Canada into the United States. But the longer-term cause can no longer be ignored as we have just concluded the warmest year on record. Global warming has arrived in Minnesota, and the consensus opinion is in: It's great!
It is here where the troubling tale of delayed feedbacks enters the story. The global warming we are experiencing today is the result of greenhouse gasses spewed into the atmosphere as of 30 years ago. And, since the rate of release for such gasses has only increased since that time, we can expect some rather nasty results 30 years hence. Perhaps Minnesotans believe that three decades from now they will be celebrating their state's new status as a tropical paradise. More likely, they will wonder about the grain harvest which is so critical to the Minnesota economy, a harvest increasingly likely to be devastated by droughts. They will wonder whether the mild winters are worth the exceedingly hot summers that will regularly take the lives of many who are frail but cannot afford the mandatory air-conditioning. They will wonder whether they should have looked so idly upon the myriad coal trains that passed through the state every day en route to the Midwest's many coal-fired power plants.
We are like the proverbial lobster sitting in cold water in a pot on the stove; the warmth that comes from the flame underneath at first seems welcome. As the temperature rises, the poor lobster moves aimlessly in the pot enjoying the new climate. Finally, gradually, without any announcement, the temperature exceeds the lobster's tolerable range and he or she becomes dinner. Of course, to save the lobster one would only have to turn the burner off before the water reaches the critical temperature. While turning a burner off only takes a second, turning off global warming will not be so easy; it could take a generation or two, and then only if we are very serious about it.
It is we who are now in the pot as the temperature slowly rises across the globe. But our bodies are giving us a deceptive signal. The warm winter weather seems like a gift, rather than a curse, from nature--even to those who accept global warming as real and potentially very dangerous.
It is a gargantuan effort for the mind to contradict the body and tell us that something which seems so pleasant now will be our undoing. But, human beings are uniquely capable of this, and, in truth, that capability is our only hope.
But, this is not a normal winter in Minnesota, nor indeed in the whole upper Midwest. On a lake near where I was staying, only one lone ice fishing shack could be seen just off the shore. My host said the ice was simply too thin for anyone to venture beyond that point.
How curious then that the response of many Minnesotans to the warmest winter in decades was to say how lovely the weather is. There are those like my friend, of course, who are disappointed that all their usual winter activities are curtailed. But even an ice-skating instructor whom I met at a coffee shop complained on the one day it got below freezing that it was too bad the weather had suddenly gotten so cold! This from a Minnesotan for whom 20 degrees can seem like a heat wave in the dead of winter.
The proximate cause of this warm weather has been the failure of the jet stream to dip down from Canada into the United States. But the longer-term cause can no longer be ignored as we have just concluded the warmest year on record. Global warming has arrived in Minnesota, and the consensus opinion is in: It's great!
It is here where the troubling tale of delayed feedbacks enters the story. The global warming we are experiencing today is the result of greenhouse gasses spewed into the atmosphere as of 30 years ago. And, since the rate of release for such gasses has only increased since that time, we can expect some rather nasty results 30 years hence. Perhaps Minnesotans believe that three decades from now they will be celebrating their state's new status as a tropical paradise. More likely, they will wonder about the grain harvest which is so critical to the Minnesota economy, a harvest increasingly likely to be devastated by droughts. They will wonder whether the mild winters are worth the exceedingly hot summers that will regularly take the lives of many who are frail but cannot afford the mandatory air-conditioning. They will wonder whether they should have looked so idly upon the myriad coal trains that passed through the state every day en route to the Midwest's many coal-fired power plants.
We are like the proverbial lobster sitting in cold water in a pot on the stove; the warmth that comes from the flame underneath at first seems welcome. As the temperature rises, the poor lobster moves aimlessly in the pot enjoying the new climate. Finally, gradually, without any announcement, the temperature exceeds the lobster's tolerable range and he or she becomes dinner. Of course, to save the lobster one would only have to turn the burner off before the water reaches the critical temperature. While turning a burner off only takes a second, turning off global warming will not be so easy; it could take a generation or two, and then only if we are very serious about it.
It is we who are now in the pot as the temperature slowly rises across the globe. But our bodies are giving us a deceptive signal. The warm winter weather seems like a gift, rather than a curse, from nature--even to those who accept global warming as real and potentially very dangerous.
It is a gargantuan effort for the mind to contradict the body and tell us that something which seems so pleasant now will be our undoing. But, human beings are uniquely capable of this, and, in truth, that capability is our only hope.
Subscribe to:
Posts (Atom)