I’ve been reading about rising gas prices, falling home values, and the rest of the sad story we’re currently in. (Note: virtually all of it could have been avoided with wise forethought and appropriate action on our part. But it seems to be human nature that regardless of level of civilization, we’re just not hardwired to think more than a few days into the future.)

I notice a relentless sense of optimism surrounding the discussions. “Wah, gas prices are bad, until supply recovers…”

But wait… Our American infrastructure, our roads, our houses, our markets, our food production and distribution systems, all physically embody the assumption of cheap oil forever. It’s not just buying a more fuel efficient car; it’s about living in a subdivision that’s 50 miles from work. Even a fuel efficient car will start to cost.

The reality is that if gas prices go up, so does everything. Everything is transported, manufactured, or made out of petroleum. So oil costs more, everything costs more. We’ve never before been in a situation where everything just got more expensive, fundamentally. It’s tough to imagine what that might look like.

Some more food for thought:

• What if there’s no way to bring back oil supply, much less cheap oil? What happens then?
• What if we can’t develop and deploy alternative energy soon enough to replace oil?
• What if global warming can’t be slowed or stopped (and there are already 40 years’ worth of greenhouse gasses still working their way to the upper atmosphere, so a total reversal of CO2 production today would take 40 years before it would have any slowing impact on global warming)?

My early training was as an engineer. We were trained to think up all possible contingencies, plan for the worst, and hope for the best.

As far as I can tell, human civilization is facing several potentially catastrophic trends, all at once. And not only are we not planning for the worst, we’re not even mentioning it.

So in the interest of stimulating discussion, here are some thought questions:

• Assume a falling global production capacity as oil rises in price. (And currently, no alternative source can replace all uses of oil for anywhere near as cheaply.) What would an economic system look like when we can’t assume more production each year? Would growth still be considered the basic measure of health? If not, what would?
• Assume oil at $8/gallon, with wages falling in buying power across the board as oil gets scarce and basic commodities cost more. What kind of physical infrastructure would we have to create to continue to survive?
• During the transition period, when we’re shifting from the cheap-oil infrastructure to the new-way-of-living infrastructure, all our money and energy will be going into a shift to new infrastructure that doesn’t directly create new goods and services. (Remember: wages are stagnant, so people can’t afford to pay for all this on their own.) How do we fund the transition?
• What if global warming causes sea levels to rise 20 feet? Would our rescue busses wait, as they did during Katrina, for someone to pay them to help people escape? If not, how would our economic system provide for such a massive dislocation? And if it couldn’t, how would the survivors dispose of several million decomposing bodies?

Just a few thoughts…

Posted by Stever as Community, Oil, Misc at 8:16 PM EDT

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The LA Times reports the Supreme Court will be hearing a case on whether the goverment should act to stop global warming.

They’ll be hearing the case in the fall. It will affect whether California’s rules take effect in 2009. Is anyone other than me scared about this?

Twiddling Our Beaurocratic Thumbs Could Kill Us

First of all, go watch In Inconvenient Truth. It’s pretty clear that global warming is an exponential growth process. That means that the longer you delay, the faster things build up. And unfortunately, human beings are atrociously bad at dealing with exponential growth. Our brains consistently underestimate how fast exponential growth happens.

Here’s an experiment: imagine a lily pond with one lily. It takes a day for the lily to reproduce, so tomorrow, there are two lilies. The pond is big enough so it will be totally full of lilies in 30 days. When is the pond half-empty? Answer: on the 29th day. For the first 28 days, the lilies look harmless. In fact, they don’t even cover half of the pond. Until finally on the 29th day, we say, “Gee, it looks like those lilies are sure growing. Maybe we should trim them back in a couple of days.” Too bad at that point, we don’t have a couple of days. We\’re toast.

The same thing may well be the case with global warming. By the time things get serious enough so we get off our butts, we may be on day 29. Things will only look half-serious, but we may be just a day or two away from no more lily pond.

That’s why the 2009 date is a bit troublesome. It could well be way too little, way too late.

No One Except the Government(s) Can Take Action

And Constitution or not, if it’s not the Government’s role to address global problems, who will? The market? How? While we like to pretend the Market is some all-knowing sentient being, the Market is nothing more than the daily decisions of lots and lots of people engaging in short-term financial transactions. Do we really expect that those people will start valuing low-CO2 technologies more highly than existing technologies soon enough to stimulate enough growth to change the entire world’s production and distribution systems? Not likely. Policy doesn’t move that fast. It took over a decade after the Ozone hole was discovered to ban CfCs. And that was a single chemical. With global warming, we’re talking about the entire way we think about producing and transporting goods. That makes CFCs look like child’s play.

Global warming is real. Call MIT’s Earth and Atmospheric Sciences department and ask. They’ll tell you about the real debate: whether warming will be 3 degrees or 15 degrees by 2100. If 3 degrees, we may be looking at “just” a 20-foot sea level rise. If 15 degrees, today’s adults may be the last human generation to die of old age. Human caused or not (scientific consensus: at least partially, if not wholly, human caused), we have to do something about this and something major.

Some think global warming is nothing but a fake story cooked up by scientists to get funding dollars. Get real. Scientists may be geeks, but they’re damned smart geeks. If they wanted to attract money, they’d make up stories about up-and-coming cancer cures, hair regrowth breakthroughs, immortality, and seven-hour erections that don’t require medical attention. Global warming isn’t going to be the ticket to riches.

So call your Government to action. We need leadership on this. Only Governments have the scope, resources, and ability to act without need for profit to tackle a problem like this. They did it with the Manhattan Project in World War 2, this just might be the time for another big push.

Posted by Stever as Oil, Misc at 1:10 AM EDT

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I grew up in the 70s, and my early memories are full of gas lines and oil shortages. The shortages were temporary, but for a brief, shining moment, we realized how vital oil was to our way of life. The green movement was born. We invented words like “sustainability” and “renewable energy.” Then supplies were restored, Reagan came to power, and many, many economists who knew nothing about resources, geology, or science, proclaimed that oil was essentially infinite.

We had a chance

You’d think the 70s oil shock would have taught us something. Nope. Culturally, for whatever reason, we stubbornly refuse to plan for the future. Then we act suprised when we get exactly what we planned for. By the mid-80s, we stopped trying to conserve or find substitutes even as we spent (and continue to spend) billions of dollars of government funds acquiring, defending, supporting, and encouraging the oil industry. So now we’re dependent almost solely on oil, and the science to fund a substitute is 30 years behind.

(Cheerful thought: even if there are scientific substitutes for all our current uses of oil, there’s nothing that says we’ll develop them in time to deploy them. It took ten years for 3M to build the initial factory to produce Post-It pads. Replacing a national infrastructure might take 50. And if we wait until we only have 30 years of oil left … Well, that’s a problem, isn’t it?)

Most people realize that if we use oil faster than we replace it, we’ll eventually run out. Maybe in a week, maybe in a century, and maybe in ten centuries. But we will, eventually, run out. The theory goes that “the market” will save us by raising prices. Those higher prices will make development of substitutes viable.

Ok… Well, that’s exactly what’s going on! Even if some price spikes are caused by one-time events, wars, and ethanol distribution snafus, demand has fundamentally grown. Oil isn’t dropping back to $30/barrel any time in the forseeable future. So guess what: prices are high, they’re going to get higher over time, and this is the market saying “Wake up, people, and start changing your behavior.”

So now, high prices may make it viable to start searching for substitutes. How comforting. The substitutes, mind you, will be more expensive than oil is today. Otherwise, we wouldn’t need the high oil prices to make the substitutes seem economical by comparison. So the squeeze is permanent.

Yet we’re crying for politicians to do something. Give us a little refund! Repeal the gasoline taxes! LOWER THE PRICE OF GAS! Because we believe in markets as long as they make us rich. But when markets give us signals we don’t like, we much prefer to ignore them. We’ll try to subsidize oil, we’ll go to war, we’ll do everything except save, conserve, and have a national effort aimed at creating a coherent energy policy and getting everyone to sacrifice now so we can have a secure future.

Expensive Oil is Exactly What We Asked For

So stop bitching about expensive oil. You love the capitalistic profit-maximizing free markets that gave you Beanie Babies? Then wallow in $3.50/gallon oil. Because all the oil companies are doing is maximizing their profits. You believe markets will save us? Well, that $3.50/gallon oil is the market telling you that one way or another, you’re going to start saving oil. Hello, Market.

Actually, let’s get real. Pundits use the word “market” in discussing oil, but the oil industry is not a competitive market. The major suppliers, OPEC nations, are a price-fixing cartel. Markets don’t set their prices, the suppliers set the prices. And since their only asset is their oil, they have tremendous incentive to send price signals that oil is plentiful because keeping us believing they’ll give us a supply of future oil is the key to their power.

On the distribution end, there are a small number of companies who use price signalling to move their prices largely as a block. They’re enjoying record profits, and they’re very well paid for it. And we care about capitalism (”must give profits to oil company shareholders”) more than national infrastructure (”must accept lower profits in interest of national good”), so don’t expect “market forces” to fix oil prices any time soon.

I’m not even sure it makes sense to keep oil as traditional profit-making private companies. We depend too heavily on oil and energy for our survival to trust it to a small group’s self-interest to manage. Yet I don’t know what the alternative is. Make them public utilities? Not exactly a recipe for excellence. Seize their profits (by eminent domain perhaps) and funnel them directly into other companies developing alternative energy? (If we can seize private property to give it to a developer in the interests of a community, why not seize corporate profits to give to other businesses in the interest of the nation?)

We Pay Oil Executives as If They Were Competitive Players

Oddly, we pay oil executives as if they were actual players in a competitive market, instead of beneficiaries of huge tax breaks, near-monopolistic pricing, and tremendous government involvement in protecting this critical national resource. My oil profit blog post shows that an oil company can generate record profits just through normal supplier price increases. Aren’t the oil company execs happy that their stock options reward them hugely for such non-actions?

We Give Oil Companies Public Funds through Tax Breaks That They Report as Profit

They’re certainly acting in their own short-term financial interest, despite us giving them national support. I was watching an interview with a Republican congressman last night. The interviewer asked why the oil companies continue to receive tax breaks while smowing record profits. He replied that the tax breaks were designed to encourage development of alternative energy, “but instead they just took them as profit.”

Er, excuse me? Last time I checked, if you give a tax break to encourage a behavior, you actually link it to the behavior. No alternative research, no tax break. This congressman is implying that they gave the oil companies general tax breaks, hoping that they’d use the money wisely. What a crock! Let’s just tell the truth, shall we? Oil companies are huge power players in a political system that has grown to serve the special interests more than the populace. They give politicians money and the politicians give them tax breaks. Let’s not indulge in “alternative energy” fantasies if the legislation isn’t written in a way that actually encourages alternative energy development.

Oil Companies Are the Wrong Players to be Thinking About Alternative Energy

And why, by the way, are we trying to give oil companies incentive to develop alternatives? They’re exactly the players with the vested interest in no alternatives. Furthermore, it’s not like the oil business–drilling, prospecting, and doing geology–is primed to develop energy that don’t involve digging and drilling. They have the wrong incentives and the wrong competencies. If we want our energy infrastructure to be privately developed, funnel the money to private enterprises that develop alternative energy and compete with oil.

Whew. Gotta go. Need to stop by the gas station while prices are still below $4/gallon.

(See my “Business Explained” blog for a discussion of why oil prices can rise and profits can rise at the same time.)

Posted by Stever as Oil at 10:43 AM EDT

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