Peak Oil News: Proponents of the peak oil theory crying wolf � again

Friday, February 03, 2006

Proponents of the peak oil theory crying wolf � again

The Register-Guard

By Bill Harbaugh

I've been following the reports about the enthusiastic reception that Richard Heinberg's Jan. 10 talk about peak oil and industrial collapse have received in Eugene. Here's a related problem that I give in class.

World oil reserves are 600 billion barrels, and we are using it at 20 billion barrels per year. How long until we run out? Please write down your answer before you read any more of this column.

My students do the math, and they tell me the oil will be gone in 30 years - maybe just 20, if we add growth in consumption and population. Good try, I tell them, but these numbers are from 1950. Hmm.

The idea of economic collapse from resource exhaustion used to be mainstream economics - a long time ago. In 1798, Thomas Malthus argued that population would soon outstrip food production, and that mass starvation would result.

During the potato famine, English politicians used his economics as an excuse not to waste money on relief for the starving Irish. Stanley Jevons, in 1865, argued that England's industrial revolution soon would come to a halt because the country was using up its supply of coal.

Actually, England still has plenty of coal, though not much use for it. As for the starving Irish, well, today 57 percent of them are now officially overweight or obese. Whoops.

While this embarrassing failure to explain reality sent economists back to the drawing board, apparently it has left the peak oil cult untroubled. Their forecasts of doom and gloom are just a recycled version of Malthus's logic, which treats humans as if we are mindless sheep, and which shows no understanding of markets or incentives.

The new model that economists came up with starts from sensible assumptions - business people aren't idiots, they want to make money, and consumers don't like to waste money. As more people use up an exhaustible resource such as oil, the owners see the scarcity coming and they start demanding higher prices.

That gives consumers an incentive to conserve, and oil companies incentives to find more oil. Companies that don't own oil start to develop alternative energy sources. Combine these effects and scarcity tends to go away. Add in a little technical progress and prices will fall, not rise.

Sure enough, measured by how many hours we have to work to pay for a barrel, the long trend of oil prices has been downward, except for a few short spikes during wars.

The list of alternatives to oil is very long. On the production side, there's solar energy, wind energy, nuclear-hydrogen energy, coal, tar sands, or just plain drilling more oil wells. On the consumption side, there's insulating your house, buying a small car, or riding your bike. (If you haven't ridden it since the last oil crisis, lube the brake cables first. I learned that the hard way.) We don't use these substitutes much, yet, because they are still a bit more expensive or inconvenient than oil is. But they are still out there, waiting for us.

Here's some evidence of how painless the transition to these alternatives will be. Since it peaked about 1970, U.S. energy use per dollar of economic output has been falling steadily. It is now half what it was.

You are probably surprised to hear this - unless you are in a business that uses a lot of energy. If you are, you've worked like a dog to make this happen, and you've increased your profits along the way. But for the average person, all this has been done without much trouble or even notice by you. This is why we call the market "the invisible hand."

I don't understand why people continue to give predictions of resource exhaustion and economic collapse so much attention. The history of these predictions is simple - they have always been wrong. The theory they are built on is also simple - and also obviously wrong. But then, I don't understand why people like reading Stephen King, either. Is it possible that a nice simple story about imaginary scary things is just a fun distraction for the evening?

What scares me is that with all the attention they are devoting to oil scarcity and the coming collapse of civilization, Eugene and its politicians are getting distracted from working on the many things that markets don't reliably deliver - such as health care access, affordable housing, transportation, good paying jobs and education - and which we rely on good government to help provide.

Bill Harbaugh is an associate professor of economics at the University of Oregon


At 1:50 AM, February 04, 2006, Anonymous Anonymous said...

The sweeping statements that may give some comfort don't bear analysis.

"That [higher oil prices ] gives consumers incentive to conserve, and oil companies incentives to find more oil"

Take two of the biggest users of oil; transportation and agriculture. These users are proven to have an inelastic demand for oil. In other words there is a certain amount of oil that must be consumed to keep the wheels of the economic engine turning and no amount of oil prices rises can chnage that. Buying smaller cars or hybrids might sound like a quick solution but remember it takes over decade. That also doesn't take into account the trucks and ships and airplanes that don't really have downsized or economized option. The same with agriculture. Hybrid tractors anybody?
As for finding more oil, oil doen't magically appear just because there is amrket demand for it. It is a finite resource that has largely been already discovered and there is enough evidence to suggest there isn't much left to find and that what there is left will be more expensive to recover.

The argument that is often trotted out by what I can only believe are very brainwashed economists is that the ratio of GDP to energy use has constantly risen and therefore the economy will not suffer from energy price spikes. Clearly from the recent run on oil prices economies around the world are already starting to strain. It is also a misappreciation of the role energy plays in the worldwide economy that leads this specious argument to be ridiculously repeated. One of the main reasons the U.S has a better ration of GDP to energy use is that it has discontinued most its manufacturing and now imports what it used to produce. If oil prices are to rise then imports will rise in price too, so the GDP will be eroded by inflationary pressures. Also energy use provides a basis from which all economic activity takes place.

Please take a minute to consider the not so long list of energy alternatives. Wind, solar and coal are not liquid fuels and will not supplant most of the demand for oil. Nulear-hydrogen is completely unproven, prohibitively expensive and decades away and as for tar sands, according to optimistic production forecasts will only replace 5 % of the State's demand for oil by 2015.

And the other tired old cliched skepic's argument, that worries about running out of coal didn't end civilsation really ignores what actually took place. in the case of demand for coal, it was replaced by a far mor energy intensive resource, coal long before it was depleted. The situation we are faced with now is that we face deplation very soon without a such an easy and effective replacement.

i hope by reading this you can take the time to analyse these econmist's assumptions for yourself. Like me you may find that, as i do, that they are complete bullshit.

At 11:16 AM, February 05, 2006, Anonymous Anonymous said...

Just so the earlier anonymous commmenter's words do not go un-addressed ...

I realize that not everyone who counts reads this blog or its contained comments, or cares. The previous commenter is probably, like me, not going to be read or heard anyway.

With that in mind, permit me to say that the undisputed, undisputable facts about oil supply prove well beyond a shadow of doubt that humans will never have a supply probelm.

We have instead a knowledge problem, an honesty problem and we really have a waste-pollution problem.

If we addressed these, everyone would know there is no shortage of oil. They would turn their honest intentions to solving related problems rather than the phantom of shortages which permits selfish vested interests to threaten our environment and wildlife. And then we would quickly devote resources necessary to quickly shift our demand onto energy sources and uses that don't screw up the environment.

There's no blankity-blank pending shortage but there is an f'n environmental holocaust on our horizon ... one we can readily and happily (no cost or discomfort) address if we act quickly.

At 3:53 PM, February 06, 2006, Anonymous Anonymous said...

"permit me to say that the undisputed, undisputable facts about oil supply prove well beyond a shadow of doubt that humans will never have a supply probelm"

Given the fact that they are disputed and that there are doubts about the facts does at least raise the question that we will have supply problems. There is certainly no certainty about oil supply, either way.

Moves to environmentally friendly energy sources will actually accelerate as supply shrinks and while some areas will suffer in the race to gather more fossil fuels the net effect will be a move away from them.

I'm not sure if anything you say has any f'n credence and if one takes a minute to analse your argument they'll realise it's full of holes

At 4:06 PM, February 08, 2006, Anonymous Anonymous said...

I am working on a book about human belief in predictions and the tendency of those who use predictions to falsely reason. I welcome suggestions from the commenters or authors. I've already gotten accounts on the New Orleans levees that were predicted to fail and predicted never to fail, on the invincible US military that was predicted to fail and never to fail (many occurrences), and on major banks and financial conglomerates that were predicted to fail (and also never to fail.) Please send any suggestions to paul (at)


Post a Comment

<< Home