To summarise what this blog has been saying, Peak Oil will be an economic event to Western society first and then perhaps a survival event. That is why our newsletter is called New Era Investor instead of New Era Survivor. Peak Oil will first and foremost visit our prosperous nations to cut the fat and trim our waistlines. And, believe me, there is a lot of consumerist fat that needs to be burnt off, especially in the USA.
That doesn’t mean the potential for a second phase of Peak Oil won’t be discussed but the emphasis is on wealth preservation and appreciation rather than the best way to start a fire whilst on the run from hungry hordes. In fact, my own mother this week demonstrated how a Peak Oil situation cuts the fat and preserves wealth. Being an old aged pensioner, she has to watch the pennies and the increasing size of her electricity and gas bills provoked action. Was this to be a microcosm of the population responding to the early stages of the downslope of Hubbert’s oil peak?
She noted that her electricity meter was consuming 7 units a day (I can’t recall what exactly one “unit” measured). That translated to an unexpectedly high quarterly bill. The hunt began in earnest to find the offending electricity carnivores! First the fridge came into the crosshairs. She had often heard the brute springing into life during the night and now she realised it had a faulty thermostat. Out went the fridge and in came a new one.
Now I know some of you may be wondering whether more energy was put into manufacturing and transporting that new fridge than what would have been wasted in the old one. The answer is probably yes, and that is a moot point. People will base their energy saving strategy on how much money they save as opposed to how much energy they save. That is basically the price difference between a new fridge and how much electricity is wasted for the next 10 to 20 years by the old one. You can buy a new fridge for $100-$200 these days, you have a payback if the old fridge wastes more that $5 in electricity a quarter for 10 years. I would also point out that the thermostat could have been replaced, but in this current cheap consumables era, that is not always economical. It will be in a post-consumerist society.
Next came the freezer and with it a basic question. Why freeze what you can just buy daily and fresh from the local shops? Now the answer to that depends somewhat on your culture and local situation. In Europe, shops may be closer to hand. In America, you may have to drive. My nearest local shop is a 10 minute walk. The same goes for my mother, so she turned off the freezer but kept it for occasions where she may have to stockpile for guests. I would note that she walks to the shops instead of jumping into the car.
Finally, turning down the gas central heating, including turning it off as a machine at night time and switching off the television or any other gadget previously left in standby mode. A visit to the meter showed that the reading was now averaging 4 units instead of 7 units – a saving of 42%. Hunting expedition over!
Now as far as I can tell, the economic impact of that is decreased profits for the gas and electricity providers and increased profits for fridge manufacturers. How does this reflect when millions of households do the same trick in a post-peak oil world?
Firstly, oil is not used much in the generation of electricity. But it is a certainty that demand will increase on gas, coal and nuclear fuel to make up the increasing shortfall in oil-based fuels (people shift from cars to electric trains, hydrogen-based solutions kick in, etc). This will increase electricity and gas prices and hence initiate cost-cutting measures in proportion to how much one is close to the margin of no disposable income.
Secondly, people will just seek to cut costs anyway as the economy begins a prolonged economic contraction. That will include luxuries, but not necessarily in a primary sense. People value their little luxuries more than a fridge. It gives a certain psychological boost. So don’t necesarily expect luxuries to go before basics in a linear sense. Rather expect overuse of basics to be targetted alongside measured use of luxuries (i.e. discretionary spending).
A 42% reduction in gas, coal and nuclear demand is not necessarily what will be achieved on a national scale, but even half of that just goes to show how much waste is in the system and also reflects on how much oil usage is also trivial and easily dispensed with if some effort is made.
The final question is how much would a 20% reduction in energy usage impact the economy? That is hard to say. A similar drop in energy use prevailed in the USA in response to the oil shocks of the early 1970s. Those GDP figures suggest a drop of a few percent in economic activity as resources are reallocated to hopefully more efficient goals.
However, we know that this time the energy shortage will be geological and not political. It will be sustained and not transient. Unfortunately, therein lies the seeds for the second phase of the effects of Peak Oil on prosperous Western society. How government, business and individuals react to that will go a long way to deciding how bad things will really get years further down the post-peak downslope.