The following is excerpted from the Introduction to Energy Transition and Economic Sufficiency: Food, Transportation and Education in a Post-Carbon Society (Post Carbon Institute, 2021), edited by Bart Hawkins Kreps and Clifford W. Cobb.
Until the spring of 2020, it was possible for many people to picture the global economy as a well-oiled machine. Some of its flaws were well known—physical scientists have warned for decades that reliance on fossil fuels threatens the survival of our species, and social scientists increasingly see income and wealth inequality as threats to political stability. Yet corporate and political leaders projected continuing economic growth as both necessary and highly desirable. This faith in “business as usual” was echoed in mainstream media. Progress in communications, bioengineering, and nanotechnology promised a future in which human ingenuity could finally overcome the last barriers imposed by natural limits.
Like the scratching sound of a needle on a phonograph record, the COVID-19 pandemic suddenly stopped the music. The fragility of a complex global supply chain was laid bare as never before. Economies around the world shrank dramatically, almost overnight, and formerly radical ideas were suddenly on the lips of national leaders and on the op-ed pages of prestigious newspapers. The tragedy that hundreds of thousands experienced in hospitals, and hundreds of millions faced as they struggled to pay rent or buy groceries, also called into question conventional wisdom about politics, economics, and ways of life. Regardless of what happens after the pandemic is over, it seems unlikely that we will return to the same world we left behind.
Work on this collection of articles began almost a year before the pandemic, guided by the belief that “business as usual” cannot and will not continue for decades into the future. Our belief that major changes are coming is founded in two realities. First, our climate is increasingly unstable and will present increasingly severe challenges to human life even if we immediately embark on a rapid and sustained reduction of carbon emissions. (This reduction is something that, prior to the pandemic, we had never achieved in spite of the chorus of warnings from climatologists. Even at the height of the pandemic, many business leaders were determined to reverse as soon as possible the temporary reduction in fuel use.) Second, the global economy relies increasingly on energy that is costly, in the very basic sense that it now takes greater investment to extract or produce a given amount of usable energy. As a result, there is less net energy surplus available to sustain economic growth. We believe that both these trends are becoming more pronounced as we move into the 21st century, and our preparations for the future must take these trends into account.
Urbanization or De-Urbanization?
The proportion of people living in the world’s non-rural areas has increased over the past century, and it is common to simply plot a trend line and draw conclusions such as “by 2050, 68 percent of the world’s population is projected to be urban” (UN-DESA 2019: xix). We see things differently. There are good reasons to believe that the challenges of climate instability and high energy costs will slow or even reverse the trend towards urbanization.
Cities arose in history because the surplus created by agriculture made it possible for some people to shift from primary production to the role of artisans, toolmakers, educators, and administrators. Food production was the first—and is still the most fundamental—energy sector. Over many centuries, the gradual improvements in food-production systems provided a greater net energy surplus, supporting more complex economies and allowing more people to live and work with no direct personal connection to food production.
That slow gain in net energy jumped by orders of magnitude when civilizations learned to use fossil fuels effectively. The massive increase in per capita energy availability supported a vast array of new industries, creating new products as well as services and supporting the construction of large cities around the globe. At the same time, fossil fuels transformed food-provisioning systems. Fossil-fueled engines drastically reduced the need for farm labor; artificial fertilizers derived from fossil gas allowed dramatic gains in harvests even as soil resources were being depleted; and fossil-fueled food-processing and transportation systems allowed food to be shipped rapidly around the world. Relatively few primary food producers were needed, therefore, to provide the food consumed by large numbers of urban citizens. Agricultural areas around the world have lost population, while cities have swelled.
In recent decades, however, the basis of urban expansion has been stifled. The production of net energy (net of energy used to produce it) is in decline, even though gross energy production continues to climb. It takes more work to get the same amount of usable energy than it used to. In the United States, fracking is temporarily masking the larger trend toward costlier energy because of implicit subsidies, but fracking yields little net energy and is thus unprofitable (see Chapter 3). Canada, likewise, celebrates an illusory energy boom in a massive program of extracting heavy bitumen from the Alberta tar sands. The sudden market price plunge of oil during the pandemic highlighted the poor economic viability of these unconventional resources. But it is equally important in the long run that easy-to-extract conventional fossil fuels[1] are steadily depleting. It has been decades since new conventional oil discoveries have matched current consumption.
Since aggregate economic output is directly related to the availability of net energy, rising energy costs will force the entire economy to shrink. Labor will become relatively less expensive as energy becomes more expensive. One result will be that more people will be employed in primary food production, reversing a trend of the past 200 years, while rising costs of transportation mean economic activity will have to be located closer to sources of supply to reduce transmission losses. As discussed later in this chapter, and in detail in Chapter 5, we expect this will result in the gradual decline of urban life and the growth of rural activity.
Climate change will be another important cause of large-scale population shifts. Models of how climate change will affect different regions are imprecise, but we can predict with some confidence that rainfall is going to be excessive at some times and places, even as drought conditions arise in others. Cities that experience repeated hurricanes, floods, or droughts are likely to lose population over time, particularly as those events accelerate in frequency and severity. Miami, New York, Mumbai, Shanghai, and even London could become partially uninhabitable because of rising sea levels combined with higher storm crests. Urban water crises (such as affected Cape Town, South Africa in 2019) are likely to become more common on every continent. Over time, climate variability will make many cities less hospitable places to live.
These sources of social and economic disruption come on the heels of other damage from humanity’s interactions with nature, especially over the last few decades. First, the loss of humus-rich soils has begun to exacerbate the problems of food production at the same time that fossil-fuel-based fertilizers have become more expensive. Second, overfishing and climate change are beginning to cause the decline of the oceans as a source of food. Third, depletion of ancient aquifers is making human populations more dependent on variable rainfall and thus more vulnerable to drought. Fourth, rapid extinction reduces species diversity, making every ecosystem vulnerable to external disturbance. Fifth, mass human migrations, set in motion by drought, energy decline, and other factors, are already testing the capacity of societies to respond humanely.
What is not speculative is the lesson that the COVID-19 pandemic demonstrated: sudden, unexpected discontinuities can occur beyond human control. System change is nonlinear, and the pandemic is only one example of the kind of system change the world is likely to experience. After decades of integrating everyone on earth into a global economic system, we have learned the fragility of tightly coupled systems that lack redundancy.
The Energy Descent and Flawed Economic Optimism
The articles assembled here help us think through just a few of the challenges that modern societies face during the transition to a low-energy future. As explored in several of this book’s chapters, we expect an energy descent – a rise in energy costs and the concomitant decline of the economy. A “low-energy future,” we are aware, is a concept that is scarcely even whispered in mainstream media. Optimism about the future of energy production and conservation still holds sway, not only among fossil fuel die-hards, but also among many who believe that we will transition to all-renewable energy sources within just a few decades.
Various cheerful scenarios have been presented about how electric vehicles, solar electricity, wind turbines, and carbon-capture schemes can save the planet without demanding any significant behavioral changes by the public. There is widespread hope that economic disruption caused by the decline of fossil fuels can be avoided with a relatively smooth transition to renewable energy. If that optimism turns out to be unwarranted, we will be left with an economy crippled by various energy bottlenecks and a planetary trajectory of excessive warming. Thus, it is of utmost importance to gain clarity about whether it is reasonable to expect renewable energy to provide a solution to dual crises of economic and environmental health.
We return to a question that has periodically haunted modern societies since the 19th century: What are we going to do when the energy supply runs short? Economists have long viewed that question as naïve. They have argued that a reduced supply of any valuable commodity will cause the price to rise, which will lead to conservation, technical changes, and substitution of alternatives. For that reason, they say, resources are never depleted. It is true that there will always be some oil in the ground; but there is nothing in economic theory that prevents the price from rising to levels that restrict other economic activity. Nevertheless, economists tend to be technological optimists, believing that a deus ex machina will always prevent economic collapse, just as they blame “exogenous forces” for periodic economic contractions. This amounts to an admission that economic theory is useless in analyzing a disequilibrium system.
The optimism inherent in modern economic arguments is thus naïve. It hinges on technological change coming to the rescue. But all of the technical fixes to our energy descent conundrum that have been proposed in the past several decades 1) become competitive only when oil prices reach a minimum threshold, 2) still require hidden energy subsidies from fossil fuels, and 3) often produce negative net energy when the full supply chain and life-cycle of the production process is considered. Even when new technologies operate at a financial loss, they are still deemed viable. For example, nuclear power – electricity generated via nuclear fission reactors – has operated in the United States only because of implicit subsidies. Perhaps the largest subsidy is a legal cap imposed by the U.S. Congress on potential liabilities. Without that cap, the cost of liability insurance would be prohibitive, and nuclear power would have failed the test of market viability.
We believe it is no less naïve to imagine that renewable-energy sources can simply replace the fossil-fuel system while providing equally high net-energy returns. It cannot, as explored at length in Chapter 4. The transition to a renewable-energy system is critically important in the short term as we try to limit the catastrophic consequences of climate change. The transition is inevitable in the long term, since the remaining high-energy-return fossil resources are rapidly depleting and even unconventional fossil resources, which provide marginal amounts of net energy, are finite. But if we want that transition to provide reasonable and equitable prosperity for all, we must understand that the economy of the future will run on lower per capita energy.
Fixing Nordhaus’s error
The policy community will take seriously the problem of energy descent only when one bit of accounting is cleared up. It is the same accounting error that leads senior economist William Nordhaus (2007) to imagine that the future costs of climate change are a tiny portion of global GDP because the loss of agricultural output represents only a small part of current economic output.[2] Farming is currently a small part of gross world output because of positive natural conditions. The reduced availability of irrigation water in dry regions as a result of climate change will make some land barren. Reduced fuel supplies for farm equipment will also reduce the geographic scale of food production. If the productivity of high-value arable land declines by 20 percent due to those factors, food costs will not rise by a mere 20 percent; they might rise by 200 or 400 percent or more. The effects are not linear or incremental. There would be bottlenecks in many parts of the economy as resources shifted among alternative uses.
In 2007 and 2008, the world already witnessed riots when prices tripled or quadrupled in a tight grain market, in part due to price increases in fossil-fuel feedstocks for fertilizers (Barbet-Gros and Cuesta 2015; Headey and Fan 2010). The reduced stability of weather conditions over the next 50 to 80 years will have the same effect.
Nordhaus engaged in an error typical of economists of using stable current prices as a guide to unstable future events. He recognizes that demand elasticities of both food and fuel are quite low, which means that small quantity changes can have disruptive price effects. But he fails to account for the disruptive effects of low elasticities by assuming equilibrium conditions and ignoring the effects of cumulative “shocks” from climate change that will repeatedly ripple through the world economy. These disequilibrium conditions need to be incorporated in accounting for future consequences of present behavior.[3]
The importance of an economic sector cannot be assessed simply by its relative size in the economy. We cannot argue, as Nordhaus has done, that changes in a small sector of the economy will have small effects in the future, if the changes themselves cause a large imbalance among sectors. In a recursive system with large discontinuities, it is meaningless to draw conclusions from current experience.
We already got a taste of those discontinuities in the 1970s. When the price of petroleum rose sharply, households not only reduced driving and lowered thermostats; they also bought new energy-saving equipment. Older cars—the “gas guzzlers” with low fuel efficiency—lost value overnight. Even though, as machinery, they had many years of useful life, economically they were too expensive to operate. In this way, a small change in the supply of energy caused a large increase in the rate of capital depreciation and shortened the time-frame of household and corporate investment in equipment. In a similar fashion, when the artificial glut of oil and fossil gas from fracking runs its course, energy prices will rise again and that will have a devastating effect on capital goods, such as vehicles and machinery, bought when fuel was cheap.
Lower labor productivity, energy bottlenecks, and lost capital value will probably result in a prolonged economic depression. Unlike previous depressions, which were caused by a misalignment of credit with real production potential, the future depression will be caused by a decline in real productivity caused by the reduced amount of useful work provided by each unit of primary energy available.
Everyone born before 1980 grew to adulthood in a world of rising expectations. Economists promised that whatever problems existed could be solved eventually by an increase in the scale of economic activity. As long as a small energy input could leverage a large energy output, the additional energy could be put to work satisfying private whims and public purposes. In short, it seemed that growth of GDP was a natural process that would continue forever. That optimism, which still prevails in the economics profession, consistently ignored the many civilizations in the last 6,000 years that grew beyond the limits of their resource base and then crashed.
For a little over a century, fossil fuels created the illusion that humans were no longer earth-bound creatures—that we could deplete the resources of this planet and then escape to other planets. But the illusion is gradually becoming apparent as the United States pours increasing subsidies into energy production in a failing attempt to close the gap between rising consumption and the declining energy value of new discoveries. Rather than working to find a soft landing for the inevitable energy descent, our society is devoting the last vestiges of our energy endowment to keeping the illusion alive for another decade.
A Better Way
Do the views in this volume add up to “gloom and doom?” We forecast a future of lower energy availability, less high-speed and long-distance mobility, economic contraction, and a renewed emphasis on local industries, including food production. These developments might sound dismal to some readers. In our view, these changes need not be disastrous, though they very well may be disastrous if our societies are unprepared. We need to work out new ways of living—on individual, local, regional, national, and international scales—to prosper without economic growth and to develop our human potential without robbing the opportunities of future generations.
The assembled authors here have analyzed some of the problems we face and pointed in the direction of some possible solutions. We hope these articles can contribute to the sense of urgency needed to begin reorienting society and the economy in ways that address the twin crises of energy and climate.
Authors Leading Us Out of the Labyrinth Ahead
Collaboration on this project began with a conversation between the two editors. The selection of authors and initial work with them was conducted entirely by the primary editor, Bart Hawkins Kreps. In the process of gathering the articles assembled here, not every potential author who was contacted was able to make a contribution in the time-frame of publication. Thus, the collection offers a less comprehensive scope than our original hope. In particular, we deal primarily with changes in the economies of wealthy industrialized nations, and we are aware that perspectives and needed solutions will look much different from the Global South. Nevertheless, we have assembled a diverse array of thinkers who are considering creative responses to the restrictions imposed by nature.
Not surprisingly, no two authors envision the world ahead in the same terms or on the same scale. But as fossil fuels are phased out in the coming decades, most choices will need to be made by local jurisdictions. The emphasis of the authors is on institutional responses by cities, suburban enclaves, cooperative associations, solar commons, universities, shipping companies, and farmers. There is probably universal agreement among the authors that it would be a giant mistake to await the leadership of central governments. Everywhere in the world, central governments are following initiatives by citizens rather than taking the lead in devising innovations.
Read the entire Introduction or buy the book at postcarbon.org.
ENDNOTES
[1] “Conventional” oil and gas resources are those found in relatively easy-to-access geological formations, and which flow up through the well mostly or entirely due to the pressure found within these formations. Due to relative ease of access, conventional oil resources were exploited first and have been the primary sources of petroleum since the late 1800s. Discoveries of conventional petroleum resources have fallen off drastically in recent decades. “Unconventional” resources do not flow readily, requiring more complicated extraction methods such as fracking – in which oil- and gas-bearing shale rock is fractured through injection of high-pressure fluids – or tar sands mining – in which oil-soaked sands are heated in order to retrieve heavy bitumen which can then be further refined.
[2] Nordhaus, like most economists, is accustomed to models that examine large-scale changes by breaking the consequences into a series of isolated effects, each of which can currently be managed at low cost by importing resources from elsewhere, as needed. But what if “elsewhere” is on fire or under water? The underlying bias of these models is the assumption of equilibrium conditions. Even Nordhaus (2007: 14–15) recognizes that some disequilibrium will result from climate change:
Five-year droughts in one region may not be catastrophic as long as other areas of the world are in healthy condition, but not if they are also faced with floods, insect infestations (such as locusts in India and East Africa in 2020), pandemic, or other natural disasters. What the models ignore in their sanguine predictions is the rising likelihood that simultaneous crises will set in motion cumulative causation and interactive effects that create disequilibrium conditions for prolonged periods. Recovery of “normal” conditions will not be assured.
[3] An equilibrium system in economics means one that will return to normal prices and supply levels within a short period of time after a disruptive event. An economy in equilibrium is one in which businesses can make contracts that they can reliably fulfill based on other reliable contracts. Disequilibrium refers to a condition that lacks normal prices and quantities because disruptive changes become the new norm. Events are not statistically distributed around a “bell curve.” The economic models and straight-line predictions that work under equilibrium conditions are no longer valid. Prices may rise suddenly without explanation. Supply-chain disruptions become standard. Every aspect of life becomes haphazard.
