The January/February 2006 issue of the World Watch Magazine features an article by Dr Vaclav Smil, a Distinguished Professor at the University of Manitoba at Winnipeg, who is also an award-winning researcher and the acclaimed author of a number of books on the subjects of energy, the biosphere and the civilization.
The article is titled Peak Oil: A Catastrophist Cult and Complex Realities and can be viewed in PDF form here at the U. of Manitoba site.1
In the words of the author, the purpose of the article is to “dismantle the foundations of the new catastrophist cult” — the conclusions by “peak oil advocates”2 (Colin Campbell, Kenneth Deffeys, et al.) These conclusions, in Dr Smil’s view “are based on interpretations that lack any nuanced understanding of the human quest for energy, disregard the role of prices, ignore any historical perspectives, and presuppose the end of human inventiveness and adaptability.” The author slams the “peak-oil groupies” with the accusation of spreading “the culture of doom”, and raises the following key points to rebut their arguments, on which (the points) he then elaborates in the article:
“First, these preachings are just the latest installments in a long history of failed peak forecasts.
Second, the peak-oil advocates argue that this time the circumstances are really different and that their forecasts will not fail—but in order to believe that, one has to ignore a multitude of facts and possibilities that readily counteract their claims.
Third, and most importantly, there is no reason why even an early peak of global oil production should trigger any catastrophic events.”
Among his elaborations on the point number three, Dr Smil presents this argument:
“[A]s already noted, price feedbacks are inexplicably missing from all accounts of coming oil depletion and its supposedly catastrophic consequences. Instead, there is a risible assumption of demand immune to any external factors. In reality, rising prices do trigger powerful adjustments. Between 1973 and 1985 the U.S. Corporate Average Fuel Economy standard was doubled to 27.5 miles per gallon, but further improvements were not pursued largely because of falling oil prices: a mere resumption of that rate of improvement technically easy to do) would have us averaging 40 mpg by 2015. A more aggressive adoption of hybrids could bring the rate to 50 mpg, more than halving the current U.S. need for automotive fuel and sending oil prices into a tailspin.”
I believe that, considering the credentials of the author, this is inexcusably hapless, misleading and misguided analysis. After all, isn’t it true that the energy consumption, and oil consumption in particular, has been steadily increasing, despite well-publicized improvements in energy efficiency of individual cars and trucks, as (a) more and more people (notably, in the emerging economies such as China and India) participate in daily driving, and (b) people drive longer and longer distances (notably, with the continuing suburbanization and “exurbanization” in North America)?
Other issues aside, how can one analyze the trends in U.S. energy consumption without taking into account the overall trend for exurbanization of the U.S.?
Generally, it is not my view at all that questions like these can be answered with statistics, however, what statistics can be good for is to clearly highlight a trend the context for which has already been sufficiently established. Take a look, for example, at this U.S. Census Bureau statistics of “New Privately-Owned Housing Units Authorized in Permit-Issuing Places”. If we consider one-family units alone, about 1.7 million of them is being created in the U.S. per month, of which about one-half (867,000) are in the fast-growing South (as of this writing, the latest month for which the data is available is November, 2005). And the trend is accelerating. The fastest growing South shows 16.8% (!) increase in one-family units year-to-year, while the U.S. overall is “only” 7.7%. Where do you think the bulk of these units go?
In this year-old article in The New York Times [free registration required] NYT columnist David Brooks quotes an observation that “America’s population is decentralizing faster than any other society in history”, and continues:
The New York Times — November 9, 2004
Take a Ride to Exurbia
By DAVID BROOKS, Orlando, Fla.
“People in established suburbs are moving out to vast sprawling exurbs that have broken free of the gravitational pull of the cities and now exist in their own world far beyond. Ninety percent of the office space built in America in the 1990’s was built in suburbia, usually in low office parks along the interstates. Now you have a tribe of people who not only don’t work in cities, they don’t commute to cities or go to the movies in cities or have any contact with urban life. You have these huge, sprawling communities with no center. Mesa, Ariz., for example, has more people than St. Louis or Minneapolis.”
However, this is just, so to speak, a social observation, a note on living conditions. In a very recent article The New York Times makes a step further and connects the two realities:
The New York Times — December 18, 2005
Far and Away: In Exurbs, Life Framed by Hours Spent in the Car
By RICK LYMAN, FRISCO, Tex.
“Frisco is an exurb caught in an adolescent age of gawkiness, where every major artery is under construction, or soon will be, and a drive across town can be a maddening crawl between orange cones and roaring bulldozers.
America is growing at its fastest in places like this, at the margins of some of its biggest cities, in the domain of the automobile and the master-plan subdivision, far from the urban centers that spawned them.
They begin as embryonic subdivisions of a few hundred homes at the far edge of beyond, surrounded by scrub. Then, they grow – first gradually, but soon with explosive force – attracting stores, creating jobs and struggling to keep pace with the need for more schools, more roads, more everything.
And eventually, when no more land is available and home prices have skyrocketed, the whole cycle starts again, another 15 minutes down the turnpike.
But in the meantime, life here is framed by hours spent in the car.
It is a defining force, a frustrating, physical manifestation of the community’s stage of development, shaping how people structure their days, engage in civic activities, interact with their families and inhabit their neighborhoods.”
One can only wish that the great newspaper demonstrated the insight and/or courage to mention the degree of sensitivity of this way of life to the oil markets’ dynamics in the context of described realities — let alone to comment on possible changes in the daily routine, populace’s sentiment, and politics that might affect these currently fast-growing communities in a not-too-farfetched case of “decreased affordability” of oil and energy as a whole.
It wouldn’t take a whole lot of imagination to visualize the type of liability that these communities would present to themselves and to the society as a whole in case of “oil markets becoming disorderly”. It is unconscionable, however, for a society of responsible grown-ups not to even entertain the consequences of such a lifestyle, practiced by tens of millions of people (with millions more joining every year), in the epoch that we are entering. I would like to consider this — purely hypothetical, but more probable than some people would be willing to let on — scenario.
From geopolitical standpoint, such lifestyle represents a phenomenal strategic disadvantage (imagine the logistics of policing, providing aid to, and preventing their life from becoming desperate in a crisis for tens of millions of people in disbursed communities, when military personnel, equipment and supplies will be probably needed elsewhere). From the financial standpoint, it presents a risk of a colossal default and the consequent write-off on tens of millions of mortgages, which, without a doubt, would collapse the world’s (not just U.S.) financial system. Just to put things in perspective: the Long Term Capital Management collapse in 1998 would have had an impact on the economy that was estimated at 100 billion dollars. Well, if you consider the average mortgage size to be (to pick a number) $200,000, it would take a write-off of “only” half a million mortgages to make the same kind of a financial impact. Half a million one-family homes are being constructed in only a matter of a few weeks in the South alone.
Do you think that any adjustments to the short-term interest rate the the Federal Reserve could make would be able to have any noticeable impact at all under such conditions? By the way, it is not difficult to imagine the impact that such an event would have on the dollar as the world’s reserve currency, the dollar-denominated debt all over the world, and on the oil markets, which would be prevented from stabilizing ever again. I am sure that I would be counted among the “catastrophists, spreading the culture of doom” by Dr Smil and the like-minded people, but it is my firm view that people grossly underestimate the risk of a scenario under which the living arrangement and the infrastructure of exurbia would present a clear and present danger to the national security of this country. If members of Al Qaeda have infiltrated the urban planning circles of the U.S., the best they can do from their perspective is to simply let the current trend continue.
Also, note that the collapse of LTCM had been largely prevented from impacting the economy at large by the Fed’s “persuading” the largest banks and financial firms to buy out LTCM derivatives positions. Because LTCM was highly leveraged, the firms had to invest only roughly $4.6 bln to buy out the entire LTCM portfolio. I cannot imagine any scenario under which even a dime of capital would come from elsewhere to cover millions of nonperforming mortgage positions, underwritten for properties in communities that stopped being viable. If you believe that some of the money would come from the insurance industry, well, this doesn’t change the overall impact on the economy as a whole. This only means that the insurance industry will become just as crippled as the banks. The economic and financial landscape of the U.S. and of the world will never be the same after such an event. In fact, the only sensible strategy under such circumstances would be triage, and any attempts to financially sustain mortgages and properties that have no future at that point would be the climax of lunacy (which certainly doesn’t mean that such efforts will not be made).
It is also very obvious that, in the case of suddenly skyrocketing energy prices, people will use everything in their power to mitigate the crisis short term in such a way that will necessarily execerbate it longer term — for example, by going deeper into debt — before radically changing their lifestyle under such conditions. This is because people typically even consider emergency relocations from their homes and their communities only as a matter of the last resort, in periods of strife and turmoil. (Actually, it is not so clear what is the cause and what is the effect here, because periods of strife and turmoil happen when people are forced to leave their communities — and by the way, I hope you don’t think that cities and near suburbs will suddenly become more affordable and offer attractive alternatives to millions of ex-exurb residents who came to an unexpected realization that the far reaches may had not been such a great idea to begin with, as their affordability turned out to be more illusory than reality-based)
My personal view is that, in our society as currently observed, high oil prices play a very valuable role (and they thus should really be much, much higher), as they serve as a sort of a painful feedback signal for a child who burns himself by touching the hot iron before grabbing it, instead of listening to his Mom who admonishes him to stay away from it. Pain is the child’s only incentive, as he still lacks the full understanding of the consequences of his actions, and has yet to learn to think ahead. The somewhat high energy prices are currently the only limiting factor for exurbanization. If one imagines that the dynamics of the oil markets would suddenly turn around, and the oil prices temporarily drop to mid-1990s levels, this would only present a powerful additional boost for continued ex-urbanization, as people who have been priced out of the suburbs would continue to move farther and farther into the outer reaches of what Jim Kunstler calls the “asteroid belts” of the society.
Also, note that, if one “talks the talk” that the market forces will offer solutions that will mitigate our energy problems, one really should “walk the walk” and give the markets a chance to do this work. This means that one really shouldn’t attempt to control the market prices by political or anti-market means, such as by releasing the oil from strategic petroleum reserves, much less by cajoling Europeans to release oil from their strategic reserves for our consumption. How can we expect to know what kinds of solutions the markets are capable of finding if we are too weak to let them, as our politicians succumb to the slightest political pressure and are afraid to take any heat at all?
For example, as soon as the gasoline prices go above a certain level, you see Senators here and there push for temporary lifting of the gas tax, and thus score points with their constituents. Excuse me, but is it not the raison detre of higher prices in the market system, which should, by definition, to limit consumption of the scarce commodity? How can you expect any help from the markets forces under such circumstances? To use oil from strategic reserves in order to sustain the exurban development and not allow hummer dealers to avoid bankruptcy, i.e. use oil from strategic reserves in order to create infrastructure that is designed to increase our future non-negotiable oil demands — can anything be more shortsighted and misguided?
In the society as infantile and as non-attentive to reality as ours, the ex-urbanization is taken as a welcome trend by almost everybody:
– by would-be home owners who see this as an opportunity to get “affordable” living in the “nice” environment (and energy worries be damned!);
– by the politicians who advertise the view of non-negotiable way of life (which must be good because people want it);
– by the economists who know that home construction, furnishing and financing have become the primary engine of the US economy (that also cannot be outsourced! a major plus), and who are concerned only with the year-to-year growth, not with longer-term consequences;
– by Wall Street, which is mostly concerned with the same;
– by the real estate industry;
– by the mortgage financing industry;
– by the homebuilders;
– by the municipalities;
– by Wal-Mart and its immitators;
– by the automakers;
– by the land owners;
– and, last but not least, by oil companies…
These are all very powerful forces. And who tries to counter them — James Howard Kunstler? Well, who listens to him?
Thus, in such a society hypothetically cheap energy prices (should they ever return) would act like a Mom who gives her child painkillers and leaves him to play with a hot iron. Both she and the child will worry about the consequences later.
So, how can a Distinguished Professor and an energy author ignore these realities as he attempts to analyse trends in the US oil consumption?
Here, for example, is a worthy reply to Vaclav Smith from an interview with one energy expert, taken shortly after the infamous blackout of August 2003. I apologize for the extended quotation, but it is necessary to make an important point:
“The recent blackout is a great example of the lack of any systemic thinking in our culture. Part of the reason for the blackout is because energy is so cheap. If we in North America lived more like Europeans, who consume no more than half or 2/3 of what we consume, we would greatly lower the need to move large blocks of electricity around and hence reduce the risks of transmission failures. But people are not willing to change. As if SUVs, some weighing 4.5 tons were not enough, people are now buying Hum-Vs, military assault vehicles just to go to the local supermarket. If this is not energy insanity, what is?
Q: What do you see as possible solutions to our energy problems?
Both energy and goods are so cheap. If energy prices and the capital cost of big consumer items increased, people would be forced to deal with these problems. But in the US prices would have to increase a great deal before people change their ways: as economists would say, it is all very inelastic here. People are living so far away from where they work, that we’ve gone beyond suburban housing—we’re now seeing ex-urban housing, with people commuting 80 miles to work in some cases. Even if gasoline prices double or triple, these people are not going to give up their houses because they have to pay higher gas prices. They’ll just pay more. That is what I call infrastructural inefficiency.
And even efficient systems are predicated on energy use. My house is energy super-efficient. It’s so well insulated that I have an air-to-air heat exchanger so that carbon dioxide doesn’t build up inside. So even in my efficient house I must have a device that is running 24 hours a day.
If our housing system was designed with higher residential density we would be more efficient because we’d require fewer infrastructures and hence less energy to build and to maintain them. But so much of new housing in US and Canada is now located on ever larger lots, this requires much more infrastructure—from copper wiring to snow cleaning machinery to maintain the streets. We’re spending more energy just to keep it all running.
Q: Do you think that people’s habits can change? Can mentalities change?
You can’t get people to shrink their current usage rapidly. It can happen, perhaps, but very, very slowly. If the recent blackout had lasted three months, then people would do something. We act only when prices increase dramatically or when the hardship is not just fleeting. It would require a real constant commitment. […]
I heard an interesting statistic recently: over 70% of people who don’t have SUVs would love to have them but don’t because they can’t afford them. And, in the same study, 20% of people would love to buy a Hum-V, but they can’t afford it. We could consume so much less—but the choices seem to be running in the opposite direction.”
As you can see, this interview demonstrates a sophisticated understanding of the link between energy consumption and the living conditions, and very fairly describes the oil prices as inelastic (or, to use Dick Cheney’s term, non-negotiable) In the expert’s analysis, people are very slow to change their living conditions and to make life-style adjustments, and so it takes truly monumental price changes to achieve this affect — and cause equally monumental disruptions in people’s lives (the kind of developments that fall under Kunstlerian circumstances are propelling us category).
Well, you may be interested to know that the expert who is quoted in the interview is the same expert who wrote the article in World Watch — Dr Vaclav Smil, the Distinguished Professor in the U. of Manitoba at Winnipeg, the acclaimed author and researcher. The interview itself can be viewed here. The irony here is that Dr Smil attacks Drs Campbell, Deffeys and others for worrying about exactly the type of factors that his older interview showed him himself very much aware of (and these worries proved absolutely correct by the course of the events of the past 2+ years), but which his current analysis conveniently fails to mention at all, as they would instantly disqualify his attack and make him look very biased and ridiculous.
Thus, it is not clear to me exactly what kind of “nuanced understanding” the members of the supposed “catastrophist apocalyptic cult” lack and in what way they “disregard the role of prices” and “ignore any historical perspectives”. What is clear, however, is that the Distinguished Professor here is engaged in a “peevish exercise in intellectual dishonesty”, a term originally used to describe another energy expert and author.
