In Part 1 I gave a breakdown of the U.S. economy and how it fits into the global picture. I then used that to explain what I think USG geopolitical strategy has been for the last thirty or so years. But now we need to complete the picture by examining this more deeply, by examining the deeper fundamentals of economics; to wit, physics. Though it is not often recognized, physics underlies economics in a deep way that is neglected in the academic discourse primarily because it is a challenging cross-disciplinary subject. I will attempt to bridge those disciplines here to explain the remarkably clement and downright fortuitous coincidence of U.S. geopolitical shenanigans. But to state it more accurately, I should call it the shenanigans of the “western neo-liberal democracy” crowd, a euphemism I will use for reasons only the astute reader will likely perceive, and then only slowly.
The story begins with petroleum and its central place in modern history. All of us know petroleum is important to geopolitics and economics but few of us fully appreciate the magnitude of its importance. But what we need to point out initially is that to understand the material connection between economics and physics we need to focus on two key things:
1.) The ratio of energy (measured in joules and properly called “work done”), call it Ψ, required to capture energy, call it β, that can be traded in valuable consideration at market. This ratio is known in the petroleum industry as EROI, Energy Return on Investment.
2.) The relationship Ψ, β, β / Ψ and the Second Law of Thermodynamics has to other quantities typically captured under the rubric of “Economics”. This includes Anthropogenic Global Warming (AGW), Gross Domestic Product (GDP) and the technological sophistication – hence the efficiency – of per capita financial productivity (energy required per unit of financial productivity).
Peak Oil: Epic Misnomer
There is much debate in the world of energy policy today regarding the supply of petroleum. To understand its significance, when petroleum was first being exploited in quantity beginning about 100 years ago, β / Ψ = 200. This meant that one could expend one barrel of oil to extract and sell 200 barrels of oil at market. The one barrel of oil required was used for running the drill rig that recovered the 200 barrels, hauling the 200 barrels of oil in trucks or trains to refineries and to gas stations, etc. So, a certain amount of energy, one barrel of oil’s worth, was required to sell 200 barrels of oil worth of energy at market. Now, we need to put this in perspective. The reason why petroleum is so significant to modern human history is the magnitude of this value, β / Ψ, a huge number. For example, nuclear power plants have values of something like 10 (versus 200). It is this value that made modern civilization possible. Just to provide perspective into how much impact gasoline powered technology can have on society, a single gallon of gas has the work equivalent of about 600 hours of maximum human physical labor.
All the technological advancements we have seen in the last 200 or so years would have taken thousands of years without petroleum. This cannot be understated. It isn’t enough to just be smart and invent something. You have to have an infrastructure to base it on, to test and to gain experience in technology in a hierarchical fashion. It was nature’s “get out of jail free card” for humanity when we fortuitously discovered a super energy-dense fuel that could be exploited with relatively simple technology. We owe everything we have to petroleum. We were lucky as hell.
Estimates vary based on methodology and the technological sophistication of the particular instance of technology employed, but here are some reasonable figures to compare the various sources of energy (I’ve based these values on the technological sophistication of the technologies as they exist today or in the near term unless otherwise indicated):
- Oil and Gas (1930) 200:1
- Oil and Gas (1970) 30:1
- Oil and Gas (2005) 15:1
- Imported Oil and Gas (2007) 10:1
- Nuclear: 10:1
- Photovoltaics 5:1
- Thin Film Photovoltaics 30:1
- Hydropower 20:1
- Wind 60:1
- Geothermal (Liquid dominated) 4:1
- Geothermal (Hot Dry Rock) 10:1
- Shale Oil 5:1
- Coal 60:1
- Ethanol < 1
- Ethanol (corn-based) < 1
- Biodiesel < 1
- Hydrogen < 1
Energy quality, a phrase we shall shortly introduce, will impact these values mostly proportionately by a factor of about 3. So, we can see that of all the technologies, petroleum was remarkably well suited to a budding civilization; much more so than any other conceivable fuel (recalling that our ancestors in the late 1800’s would have no way to exploit enriched uranium, windmill technology, etc.).
The tremendous energy return of early oil partly explains why it was possible to rebuild Europe and Japan so quickly after World War II. It also explains why the global population has leapt from about 1.5 billion people when the first oil well was drilled in the United States in 1859, to 6.5 billion today. The high β / Ψ of petroleum has made it possible to grow enormous amounts of food, transport raw materials and goods all over the world, and create dense urban communities across the globe. Eerily, a glimpse of petroleum production patterns maps surprisingly close to economic activity: the world’s economies are absolutely dominated by petroleum.
So, what if this source, this petroleum, depletes over time? What if it is not “renewable” in the sense that it is finite? But worse yet, what if its value β / Ψ diminishes over time also? And now we can see that it isn’t really the amount of reserve, or the amount of the resource that exists, that matters, it is the value β / Ψ and how it changes over time that matters. Whether a resource is finite or infinite, if β / Ψ diminishes over time it is no different than if the resource were finite. As β / Ψ falls you are getting less and less net energy to exchange at market, until finally when it falls below 1 and you enter an unsustainable situation in which you are losing energy (and thus dying, quite literally). At that point, the “energy source” in question becomes useless and is no longer an energy source.
So, if we keep tapping a finite resource, unless β / Ψ increases over time sufficiently to compensate for the reduction in the total supply, we will eventually reach a point where the total petroleum found from new discoveries is not enough to meet demand. And there will thence be a point in time where the total supply of petroleum will plateau and diminish forever afterword. This theory is called “Peak Oil”. The science is mostly in on this and it has been profiled as below.
Another view of Peak Oil
Another view of the petroleum discovery decline
Petroleum supplies within the United States over time
A new debate of sorts is gathering steam in academia regarding the true origins of petroleum. It has long been believed that it was of fossil origins, that is, biological origins. The conventional theory is that decaying organic matter, over a sufficiently large time interval and under the right conditions, would transform into what we now know as petroleum. Research that began mostly in the USSR began to cast doubts on this assumption (indeed, it isn’t clear why this idea was accepted so readily in the first place). To make a long story short, some hypothesized that petroleum was a byproduct of unknown geological processes deep within Earth and is therefore abiotic in origin. This is a classic east/west incongruity in academia (many existed during the cold war) that served to keep most of this research unknown to western researchers and, to some extent, still does. It is believed in the abiotic camp that this petroleum is pushed under pressure upward and mixes with biotic material on its way up, which is why we find biological material in petroleum.
The real shocker came when drilling technology began to cross fundamental barriers never before achieved. In particular, not too long ago drilling rigs began to consistently drill to depths below what is considered the biotic layer of Earth; that is, to depths deeper than any bacteria or other known organic material can or does exist. This limit has been empirically verified. It is a barren, lifeless zone somewhere around twenty five to thirty thousand feet below the surface. It is a shocker because, at those depths the pressures are enormous and it is physically impossible for petroleum to “leak” downward. The gravitational forces acting on in situ petroleum are overwhelmed by pressures that exceed it by orders of magnitude. But this necessarily means that petroleum found at or below this limit cannot be biotic in origin. The presence of petroleum at and well below these depths (up to 10000 feet below) has been confirmed several times in the last few years. To this day I have found nothing to adequately explain this. I am not a geologist, so there may be an explanation, but I could not find it.
In academia errors of two kinds are common: over (and incorrectly) generalizing a principle to real world conditions and an inability to perform inductive tests of theories and hypotheses. The first one is the most common and it is understandable because academics work in a very abstracted context which, for what they are concerned with, is a powerful tool of insight. But this can blind one to a real world situation and cause you to apply something to a specific situation too generally. That is, the generality doesn’t fit the circumstance. The second error, the one I’m concerned with here, is when one underestimates or doesn’t understand the impact of quality of evidence on results. Academics well understand the impact of quantity of evidence on outcomes to the point of making it a mantra: it is the body of evidence, not any one study, that matters and that helps form a consensus. This is superficially obvious. But what they do not appreciate enough, in my opinion, is the role that quality of evidence also plays. If I have one thousand studies all reaching the same conclusion, but whose methodologies are all completely erroneous and confounded, but have one study whose methodology is rock solid and reaches the opposite conclusion, the rational person must side with the lone study until further information is available. And most people would be shocked to discover just how bad, even fraudulent, literally thousands of studies have been exposed to be.
Resolving uncertainties in the technical literature is not the straightforward and formulaic process most people would like to believe and which most people do in fact assume. I mention this because it has played a role in this abiotic petroleum debate. The quality of the evidence generated from what are now numerous well drillings is very, very high. It is logically incumbent on those making the positive claim of asserting to know the origins of petroleum to explain how such material is found 10000 feet below the biotic layer. This has never occurred. I don’t think it will.
But alas, this debate is a tangent, a left jab used to distract from the right cross. Regardless of the origins of petroleum and just how large the finite resource happens to be, the behavior of “Q” is all that matters: even if petroleum is abiotic, there are numerous factors affecting Q, and thus affecting β / Ψ. So, we need to frame “Q” as a function that operates on a set of independent variables, call it Q (φ). So, this is why I mention this. Even if you think petroleum is of abiotic origin, it does not solve the issue we are addressing here. The “Peak Oil” concern is legitimate because the technological hurdles required to access deep, so-called abiotic oil, are enormous and act to decrease Q (φ). And if we assume that abiotic oil is being constantly forced upward, thus replenishing petroleum lodes already exploited with a fresh “tank” of oil, this replenishment is not an open spigot. It takes time to refill. When oil rigs draw oil out of a well they cannot pump it at whatever rate they choose. The extraction rate is geologically bound because the petroleum saturates the rock and earth in which it sits. Like a sponge releasing water, it takes time for it all to “ooze” out. And the same would be true if a lode were being refilled by a natural process. This delay also decreases Q (φ). And that is why we are seeing the figures we are seeing. Looking at the figures we provided, note that for petroleum:
Q (φ1930) = 200
Q (φ1970) = 30
Q (φ2005) = 15
Q (φ2007i) = 10
Even if petroleum were abiotic, and if the total reserves were far, far greater than presently assumed, these numbers lead ineluctably to a massive energy pinch. If we restrict our data only to the United States, the peak condition occurred sometime around 1971. Globally, it occurred sometime on the interval [2004, 2010]. And this motivates our next important point.
And the other Peak Oil debate
In addition to the debate over the origins of petroleum, another pertinent debate deals with whether or not it is in fact occurring at this time or are these numbers just cooked. The reason why some are suspicious is that for many years the petroleum industry has been using an old trick to artificially inflate the price of their product: the fabrication of scarcity. By making petroleum seem scarce they can justify charging a higher unit price. And the industry has been caught red-handed at it for decades, so it is not a purely hypothetical proposition. In terms of peak oil, the idea would be to suggest that we are “just now” hitting the plateau (and “just now” will be continuously updated to match the current date). In this way, scarcity is strongly implied since the total supply of petroleum would be falling from today onward. Is this true? One of the most glaringly obvious (and hilarious since so few people seem to even notice it) problems with the peak oil claim today is that the core math doesn’t add up. Are they cooking the books? Of course they are. Is it enough to explain away the peak oil problem? No, not hardly. So, both are true. Let me explain.
Voodoo math is a cool thing. It immediately silences BS. If you claim that petroleum production is falling while consumption is increasing you’re either ignorant or a liar. But that is exactly what the industry is claiming. That isn’t possible. At least not until they start redefining “production”.
The production/consumption deficit is explained by redefining “production” to exclude some things that are easy to obscure, such as biofuels, oil made from coal and “other non-conventional sources”. That is BP’s take. Now, without attribution or explanation, the World Oil and Gas Review claims that it is due to “change in stocks”, “processing gains” and biofuels.
The only one both agree on is “biofuels”, so lets look at that one.
Ethanol and “Other” breakdown
Ethanol and Biodiesel breakdown
The deficit is about 5 million barrels of oil a day. But we see that biofuels only account for about 1.6 million barrels a day. Hmmm. So, could 3.4 million barrels of oil a day be “change in stocks”, “processing gains”, coal and “non-conventional” sources? Per day? I seriously doubt it. Yes, they are fabricating scarcity. However, about 1.6 million barrels of day is a real deficit. In years prior there were surpluses, not deficits.
One last ancillary debate to dispatch is the concern over energy “quality”. To make a long story short, this is what some claim is needed to get a full picture of what is going on; thus implying that EROI is not sufficient by itself to understand the energy balance. This is the result of an incomplete understanding of what energy “quality” actually implies and entails. To put it simply, energy quality is a measure of how well adapted the existing economy is to the use of a given energy source, such as petroleum, for example. In order to use petroleum and sell it as an energy source at market the technological infrastructure, and thus the economy as well, must be adapted to allow for it. Gas stations must be built, refineries must be built, trucks for carrying oil must be designed and built, etc. The better this system is, the better the energy quality of petroleum. But, once you fully understand what energy quality is, as I’ve just described it in its essence, you realize this is really just an artifact of how long the particular energy source has been in use and how popular it is. If popular and in place for a long time it will become a high quality energy source. An energy source can become high quality, but an energy source with a low EROI cannot necessarily become a source with a high EROI. So, no, you do not need to consider energy quality for our purposes.
The deeper connection between energy and economics
In Part 1 we discussed the meaning of wealth vis-à-vis currency. But now we need to examine more deeply what the term “wealth” really means. In Part 1 we alluded to the fact that we were considering wealth to be more than just tangible things.
It can be intellectual property or, better yet, it can be “congealed labor”, that Marxist term. In other words, financial productivity redounds to wealth when presented in valuable consideration at market. But it can also be real estate and natural resources. So, what do all these things have in common that is proportionate, up to a constant, to the values associated with wealth by currency? The answer is power. That is, one USD equals a relatively fixed amount of joules per second available for use to the bearer of that dollar. And by use of that dollar I command a product or service that constitutes x joules per second of power to present it for valuable consideration.
Aluminum ore? It takes a given amount of watts per ton to locate and extract it. A Mercedes Benz sedan? It takes a given amount of watts per car to obtain the materials, design it, build it and present it to market. Your house? It took a given amount of watts for your house to be designed, the materials to be brought together and the house to be constructed. And the key pattern here is that in each of these examples both dollars and watts are associated with each product or service in the same approximation of proportions. And similarly, the proportions across different instances of each example also come in proportions of both watts and dollars. Having said this, I noted that intellectual property is included in this. However, in reality, intellectual property may be the lone exception to this definition of wealth. This is because it is not possible to associate proportionate value between ideas … unless the ideas themselves involve a method or means of increasing financial productivity (say, the invention of the farm tractor). Does that mean that some forms of intellectual property (such as any form that has no use as a patent or invention) are not a valid form of wealth? I’ll let the reader ponder that.
You see, wealth is energy per unit time or, at least, is economically equivalent to it in all important respects. I can use 1000 USD to purchase any product or service valued at market for 1000 USD and I can likewise use 1000x watts of power to obtain any product or service valued at market for 1000 USD. But what about art? Value that is totally subjective in quantity is realized by its perspective in the context of objective measures of energy per unit time. If you doubt this, try any example and I assure you that you will find that any example of wealth can be represented solely and equivalently as a power metric. Wealth is fundamentally measured in watts. But the really curious part is how the “western neo-liberal democracy” cheerleading squad seems to act in a manner remarkably like someone who agrees with me totally. Let me explain.
One can now take full account of how deeply profound this quantity Q (φ) truly is. The greater its value the greater the wealth one can produce. If it drops, wealth drops. Q (φ) turns out to be one of the most important measurements in the history of humanity.
We alluded to the concept of energy quality previously and we now need to explain it more fully. Petroleum is an example of a fuel with a high energy quality, measured in units of “Ohta”, because of the ease with which it can be converted to useful work. We alluded to this earlier when we spoke of how “lucky” we were that an energy dense fuel was also easy to use and didn’t require an especially sophisticated technological infrastructure to support. This makes it high “quality”. One use of this quantity is to better understand how energy relates to things such as GDP. The efficiency of a given economies technological infrastructure, hence its technological sophistication overall, can be approximated as the ratio:
E = Q (φ)pc / GDPpc
Where GDPpc is the nation’s per capita Gross Domestic Product and Q (φ)pc is the nation’s per capita, averaged EROI by proportion of all fuels in use.
The selfish geopolitical aim of any nation is to maximize its E and minimize the E of all other nations. This could be said to be a fundamental geopolitical axiom that USG is curiously following remarkably closely. In Part 1 we looked at how wealth, whatever value it may be, can be transferred to one jurisdiction and out of all others to enhance the wealth of the receiving jurisdiction. In Part 2 we are looking at the fundamental processes behind initial wealth generation. And in Part 1 we looked at how the United States was achieving this transfer of weatlh via the Triffin Dilemma. Now we will examine how the United States has been and is generating wealth internally.
Chart showing how energy per unit of GDP has been increasing over the years, suggesting an increase in the sophistication of the U.S. technological infrastructure occurring at a rapid pace.
The selfish solution
Obviously, one way to address a decreasing Q (φ), regardless of the fuel in question, is to increase production. Of course, this only works if Q (φ) > 1. But with a finite resource this won’t work forever. Moreover, doing so might constitute a technological barrier that cannot be crossed for some time, which is, to some degree, the U.S. problem vis-à-vis petroleum. If abiotic or not, drilling deeply enough to dramatically increase supply would entail major technological advances, not to mention lowering Q (φ) yet more. So, increasing production of this resource is not a winning strategy. The best way for USG to maximize its own E and minimize all others is to promote alternative fuel sources in the U.S. whose Q (φ) is both high and temporally stable while relegating all other nations to petroleum, that is, a Q (φ) whose value is known to be monotonically decreasing over time. It should be noted that an additional feedback loop is involved here since increases in E can serve to increase Q (φ) as well since technological innovation can increase the amount of energy extracted for the same energy input (efficiency). Therefore, to increase E for the United States and decrease it for all other jurisdictions, a scheme of relegating other nations to petroleum is doubly effective.
Any scheme to do this would have to include a method of encouraging other nations to unwittingly retard further progress in E which would bind them to petroleum only (using fuels other than petroleum requires technological innovation, which in turn requires a surge in energy consumption through petroleum).
One way to do this is by public myth. By creating a myth regarding a correlate of energy consumption that is thence demonized, one can encourage other nations to unwittingly hobble their ability to increase E. CO2 emissions happen to be correlated with petroleum based energy consumption:
Energy consumption and CO2 emissions
Thus, Anthropogenic Global Warming, whether a legitimate object of the public good or not, could be adopted as a means of establishing well placed public myths that serve this purpose. This is because of the feedback loop alluded to supra.
Energy consumption and GDP
Energy consumption can be graphed against GDP because of the wealth metric duality between currency and watts.
Combining the data, we see that GDP is correlated with CO2 emissions, just as expected from our previous discussions regarding power and wealth.
What this does to economics growth. Who suffers most? Those countries with less financial productivity efficiency; e.g. non-industrialized western countries.
The Kuznets Curve. Limitations in Carbon Dioxide Emissions are particularly discriminatory against low and middle income economies, which was what we sought to show.
Whereas high-income countries reduce their CO2 intensity of GDP as they grow, low- and middle-income countries first have to increase CO2 intensity of GDP as their GDP rises, which we stated previously but now established with empirical data.
Finally, does wealth have anything to do with human well-being? Is this a purely materialistic exercise? No. Wealth as a materialistic exercise waxes material when we speak of wealth accretions within an economy. What we are discussing here is the wealth of nations, not of people. To show this connection and why it certainly does have a major bearing on human well-being, we introduce two more graphs:
Natural hazards in United States as a cause of death
Natural hazards globally as a cause of death
There is clearly a connection, at least between premature death and GDP. There are many more too involved to get into there, but you get the idea. Human well-being is a direct consequence of GDP.
Therefore, the advice to USG is to deliberately follow these patterns if not already doing so and maximize E. As E maximizes per capita power (in watts) increases while the rest of the globe is unable to increase E and stagnates in a dungeon of artificially constrained economic and technological development. Now you know why the East Anglia Institute “lost” its primary source data. The East Anglia Institute is a joint Langley – Porton Down affiliated venture. Don’t be a mark.
The Global Solution – A General Federation’s operation of the Public Trust
Of course, we are interested in what happens globally. As we’ve stated ad nausea on this site, one of the problems of a world without global rule of law is the Selfish Actor Principle. When nations act in their own selfish best interests the biggest bully on the block, if left to their devices, and they will be, ultimately enslaves the rest of the world, destroys it and rapes it of all wealth and value. This conclusion is inescapable and I submit to you, already in progress. These ingenious schemes are not my idea. And take no comfort in the idea that it is your country doing the pillaging: if you believe in Integrity it is just as repugnant if it is your country as if it was not.
Two technologies provide off the shelf values for Q (φ) that are stable and high enough to be a practical substitute for high petroleum values; wind and photovoltaic power generation. But these necessarily require major advances in battery technology whose energy per unit weight is far too low to make them a viable replacement for petroleum today. I would advise USG to pursue increased battery energy density, wind power generation and thin film photovoltaic power generation with all possible haste and on a war footing. These three technologies are the only viable replacement for petroleum and we must use our E advantage to building out a full replacement infrastructure. Time is short. Failure to do so will result in a painful and steep drop in global prosperity for many, many generations. That this is not being done now could be regarded by future observers as criminal negligence.
The just solution is to apply General Equity and promote E globally, which can be done with the same zeal that it was done with in the United States (and in other neo-liberal, western “democracries”). It just requires global rule of law under General Federalism. And it doesn’t require yet another layer of public myth. It is the high ground of Integrity, Transparency and Virtue and will forever so be.