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Energy and the health sciences: A strategic management perspective

Rising energy prices present an unprecedented threat to the health sciences requiring a strategic management response.

Systems theory, [1] human ecology, [2] and economics [3] illuminate why energy is the basis of human activity. At present fossil fuels, finite in terms of human history, provide approximately 85% of the world’s energy. [4] The health sciences depend on them for electricity, heating, cooling, shipping and transportation; additionally, oil provides an array [5] of medical supplies and sundry other products, including pharmaceuticals. Oil is integral to commercial food [6] production and distribution, and many consumer goods associated with healthcare. [7], [8]

The oil price shocks of the seventies spurred Jimmy Carter to urge the USA to undertake a long-term conversion away from oil. His message went unheeded and in December 1998 his reasoning appeared ludicrous when oil sunk to $9.00 a barrel, prompting The Economist [9] to speculate that it could fall to $5.00 and cause economic turmoil. The price has climbed to over $140.00 in July 2008, something mainstream energy experts did not foresee, [10], [11] yet it is consistent with the literature predicting a geological peak in oil production. [12], [13], [14], [15] Now The Economist observes: "[T]here is growing concern that the supply of oil may soon peak..." [16]

According to economist James Hamilton, [17] writing when the price passed $120.00 a barrel, “We've reached the point where American businesses and consumers simply can no longer afford to ignore the price of fuel, and we're getting clear indications of real changes in behavior.” Amid rumors of a possible bankruptcy [18] and recognizing that consumers are driving less [19] General Motors is marketing an electric car, [20] selling its Hummer line and is closing four plants [21] that make SUVs and trucks; and two Continental Airline executives, in announcing 3,000 layoffs and vowing to forego the remainder of their salaries for 2008, told their employees, “[The industry’s] business model doesn’t work with the current price of fuel...” [22] Also, the president of Toyota has remarked, "Our view is that oil production will peak in the near future. We need to … move beyond petroleum.” [23] These actions acknowledge that oil is becoming a “limiting factor” [24] on economic activity.

In terms of strategy, these executives are –belatedly- attempting to survive by both reconfiguring and protecting their core technologies, [25], [26] the unique skills and expertise upon which they rest their respective claims to sell their products and services. They see high energy prices [27], [28], [29] as enduring and forcing them to realign with a turbulent external environment. [30]

Although it is not yet palpable or palatable, it is logical and an empirical fact [31],[32] that rising energy prices equally threaten the health sciences. The vast majority of health professionals with whom this author has spoken classify high energy costs as troublesome but temporary, as well as outside the boundary of the health professions. [33], [34] A review of the literature shows virtually no research has been conducted on energy strategy and the health sciences –or the role of petroleum-based products- for three decades. [35],[36] This vacuum has fostered disciplinary indifference to the risks created by climbing energy prices.

However, there is an incipient contemporary literature on energy as indicated by two journal articles which appeared in 2007, as well as by articles recently published [31], [32],[37] or known to be underway. In the first article, Wilkinson et al [38] conclude:

[G]lobally, major energy resources seem to be more than adequate to meet even the highest projected demands. Fossil fuels could sustain continued use as a major part of the global economy far beyond this century.27: 968

Given the soaring price of oil in late 2007 and into 2008, along with parallel increases in the price of natural gas [39] and coal,[40] it is noteworthy that Wilkinson et al do not review literature which explains these rapid and fundamental changes occurring in world energy markets.

A second study, by Frumkin et al,[41] reviews this energy literature, which points to a worldwide geological peak in oil extraction pushing prices upward. Implicitly following the Precautionary Principle [42] in their analysis, they discuss public health threats this zenith in production is likely to pose.

As a vital aside, it is noted that the peak of worldwide oil extraction cannot be empirically verified until several years after the fact; yet there is evidence suggesting that it is either here or near.[43] Moreover, a widening gap between supply and demand is the primary cause of recent precipitous price increases whose main function is to implicitly ration oil or, as economists put it, destroy demand.[44] Indeed, in this context the question of whether or not the world is at geological peak oil is not of principal strategic importance.

To be clear, world peak oil refers to geologically constrained “volumetric flow rates,” [45] or how much oil can be extracted from the earth in a given period of time. The maximum production of a given oil well typically occurs concurrently when 50% of recoverable oil has been extracted. The standard unit of measurement to call a peak –in a well, a nation or the entire world- is a year as opposed to month to month or week to week.

Wilkinson et al’s analysis defaults to a strategy of benign neglect of the ongoing oil shock [46] and it is worthwhile to explore their text to pinpoint this critical conceptual error. They omitted consideration of the peak oil concept developed by petroleum geologist M. King Hubbert.[47],[48] He utilized the normal curve-like function for the extraction of any finite geological resource [49] to develop a “logistic model” [50] with which, in 1956, he accurately estimated oil production peaking in the lower 48 states between 1965 and 1970.[51] He also estimated that world production would peak around the end of the 20th century36 as did Admiral Hyman Rickover in a speech to a medical doctors convention in 1957.[52]

Moreover, two primary sources cited by Wilkinson et al to reach their optimistic forecast have revised their respective views on oil supplies. Vaclav Smil, who in 2006 characterized peak oil geology as a cult,[53] recently struck a somber tone regarding world oil supplies: “The situation is dire. We need to do relative sacrifices. But people don’t realize how dire the situation is.” [54] Similarly, Fatih Birol,[55] spokesperson of the IEA (International Energy Agency), who consistently has maintained that petroleum supplies will meet demand for many decades into the 21st century, now says: "...we see a sharp decline in production from the existing oil fields.....Even if all those projects which are already funded will be implemented, the overall capacity they can bring for new oil production is too little.” [56] Further, several critical studies [57],[58] were overlooked by Wilkinson et al, including “The Hirsch Report,”12 released by the US Department of Energy in February 2005, which warns:

As peaking is approached, liquid fuel prices and price volatility will increase dramatically, and, without timely mitigation, the economic, social, and political costs will be unprecedented.12:4

This is an apt depiction of the 2007-2008 world energy market. Hirsch commented in June of 2008:

If the world started (to implement solutions) 20 years before the peak oil problem, we would have stood a very good chance of … avoid[ing] significant negative consequences for our economy... [59]

To respond properly to peak oil, health sciences leaders must overcome what the strategy and risk management literature describes as the inherent tendency to avoid poorly understood and novel threats. They behave so because acting on them can lead to errors of commission, something leaders typically avoid. [60]

The health sciences must prioritize their core technologies in reference to two contradictory dynamics: declining energy –and products made from petroleum- and surging demand for public health and medical care. Unlike the airline and automobile industries, these potentially wrenching decisions must be guided by medical ethics, a subject merely mentioned here. [61]

Under any scenario of energy decline some steps are clear. In tandem with an internal reorganization to conserve energy and resources, a proactive move to educate[62] the public about the connections between energy, climate change and other environmental pressures is in order. The health sciences can play a major role in guiding the world into the era of ecological sustainability –which is still possible. This will not be easy and requires substantial political, economic, and cultural accommodations –and possible hardships- in all nations.

What the health sciences cannot do is stand pat.

References

[1] Bertalanffy, Ludwig von. 1969. General system theory: foundation, developments, applications. New York: G. Braziller.

[2] Catton, William Jr. 1980. Overshoot: the ecological basis of revolutionary change. Champaign-Urbana: University of Illinois Press.

[3] Georgescu-Roegen, Nicholas. 1971. The entropy law and the economic process. Cambridge, MA: Harvard University Press.

[4] Official Energy Statistics from the U.S. Government. 2007. “Annual energy review, 2006.” June. Energy Information Administration. http://www.eia.doe.gov/emeu/aer/diagram1.html.

[5] Bednarz, Dan. 2007. “Medicine after Oil.” Orion Magazine, July/August. http://www.orionmagazine.org/index.php/articles/article/314/.

[6] Manning, Richard. 2004. “The oil we eat: following the food chain back to Iraq.” Harper’s Magazine, February. http://harpers.org/archive/2004/02/0079915.

[7] Scherer, Ron. 2008. “Beyond gasoline: prices surge for oil-based goods.” Yahoo News, June 5. “[B]usinesses such as Kimberly-Clark, Procter & Gamble, and Colgate-Palmolive are raising prices on their products to recoup energy costs.”

[8] Reuters, The Associated Press. 2008. “Dow Chemical to raise prices 20% to combat high energy costs.” The International Herald Tribune, May 28.

[9] Editorial. 1999. “Drowning in oil.” The Economist, March 4: 6-7.

[10] Hamilton, James D. 2007. “Post-mortem on the Cambridge Energy Research Associates forecasts.” Econobrowser, June 6. http://www.econbrowser.com/archives/2007/06/post_mortem_on.html.

[11] Lynch, Michael. 2008. “Peak oil, uncommon ground.” ASPO-USA, March 17. http://netoilexports.blogspot.com/2008/03/michael-lynch-on-peak-oil.html. Mr. Lynch forecasted $28.00 a barrel oil in 2007. He writes, “Although I have certainly not predicted oil price behavior correctly in the past few years --to put it mildly--I would argue that this is not relevant to the issue of supply forecasting...”

[12] Deffeyes, Kenneth S. 2003. Hubbert’s Peak: the impending world oil shortage. Princeton, NJ: Princeton University Press.

[13] Hirsch, Robert L, et al. 2005. Peaking of world oil production: impacts, mitigation and risks. February. Pittsburgh: US Department of Energy., National Energy Technology Laboratory. http://www.hilltoplancers.org/stories/hirsch0502.pdf.

[14] Bakhtiari, A.M. Samsam. 2006. “After ‘Peak Oil,’ ‘Peak Gas’ too.” SamsamBakhtiari Blog. March. http://www.sfu.ca/~asamsamb/homedown.htm#.

[15] King, Byron. 2006. “Dr. Ali Morteza Samsam Bakhtiari and the four phases of transition.” The Daily Reckoning, UK Edition. September 6. King writes: “Dr Bakhtiari predicts oil will cost in the range of $100-150 per barrel in the not-too-distant future.” http://www.dailyreckoning.co.uk/economic-forecasts/dr-ali-morteza-samsam....
[16] Special Reports. 2008. “The power and the glory.” The Economist, June 19. http://www.economist.com/specialreports/PrinterFriendly.cfm?story_id=115....

[17] Hamilton, James D. 2008. “The oil shock of 2008.” Econobrowser, June 5. http://www.econbrowser.com/archives/2008/06/the_oil_shock_o.html.

[18] Automotive Rankings and Reviews. 2008. “GM stocks hit 30 year low, bankruptcy rumors swirl.” US New & World Report. June 30. http://usnews.rankingsandreviews.com/cars-trucks/daily-news/080630-GM-St....

[19] Office of Public Affairs. 2008. “Press release: Americans drove 1.4 billion fewer highway miles in April of 2008 than in April of 2007.” US Department of Energy. June 18. http://www.dot.gov/affairs/dot8408.htm.

[20] Kim, Soyoung and Kevin Krolicki. 2008. “GM readies Volt unveiling to shift focus from crisis.” Reuters UK. July 7. http://uk.reuters.com/article/companyNewsMolt/idUKN0741637620080707.

[21] Brand, Madeline. 2008. “GM Announces SUV Plant Closing.” National Public Radio, June 3. http://www.npr.org/templates/story/story.php?storyId=91106481&ft=1&f=100....

[22] Maynard, Micheline. 2008. “Continental Cuts 3,000 jobs as It Grounds Planes.” The New York Times, June 6. http://www.nytimes.com/2008/06/06/business/06air.html?_r=1&oref=slogin.

[23] Squatriglia, Chuck. 2008. “Plug-in hybrid leads Toyota’s drive beyond oil.” Wired Magazine, June 11. http://blog.wired.com/cars/2008/06/plug-in-hybrid.html.

[24] Editors. 2008. “Limiting Factor.” Biology Online. http://www.biologyonline.org/dictionary/Limiting_factor.

[25] Lynn, Monty L. 2005. “Organizational buffering: managing boundaries and core.” Organizational Studies V 26, N 1: 37-61.

[26] Pfeffer, Jeffrey, and Gerald R. Salancik. 1978. The external control of organizations: a resource dependence perspective. New York: Harper & Row.

[27] Barnard, Chester I. 1938. The functions of the executive. Cambridge, Ma: Harvard University Press.

[28] Bourgeois, L. J. III. 1980. “Strategy and environment: a conceptual integration.” Academy of Management Review V 5, N 1: 25-39.

[29] Thompson, James D. 1967. Organizations in action: social science bases of administrative theory. New York: McGraw-Hill.

[30] Emery, Frederick E. and Trist, Eric. L. 1965. “The causal texture of organizational environments.” Human Relations V 18: 21-32.

[31] Robeznieks, Andis. 2008. “Power struggle.” Modern Healthcare, January 28: 30-33.

[32] Carpenter, Dave. 2007. “2006 Energy Survey: In search of efficiency.” Hospitalconnect.com. http://www.hfmmagazine.com/hfmmagazine_app/jsp/articledisplay.jsp?dcrpat....

[33] Cerulo, Karen. 2006. Never saw it coming: cultural challenges to envisioning the worst. Chicago: University of Chicago Press.

[34] The author has had numerous discussions with public health and medical professionals who claim that the current precipitous rise in energy prices is of no long-term significance to their fields.

[35] Wald, Matthew. 1981. “Hospitals struggling to contain soaring fuel costs.” The New York Times, March 4. Online @: http://query.nytimes.com/gst/fullpage.html?sec=health&res=9F06E3D71439F9....

[36] Neyman, Jerzy. 1975. “Assessing the chain: energy crisis, pollution, and health.” International Statistical Review, V 43, N 3, December: 253-257.

[37] Hanlon, Phil and Gerry McCartney. 2008. “Peak oil: will it be public health's greatest challenge?” Public Health, July, V 122 N 7: 647-52.

[38] Wilkinson, Paul, Kirk R. Smith, Michael Jaffe, and Andrew Haines. 2007. “Energy and Health 1. A global perspective on energy: health effects and injustice.” The Lancet, V 370. September 17: 965-78.

[39] Hagenbaugh, Barbara. 2007. “Natural gas rises as temps plunge.” USA Today, January 23. http://www.usatoday.com/money/industries/energy/2007-01-22-natgas-usat_x....

[40] Ryan, Margaret. 2008. “Insight: Coal markets squeeze producers.” Platts Energy Information. ND. http://www.platts.com/Magazines/Insight/2005/december/200nq5o11151bbH4P3....

[41] Frumkin, Howard, Jeremy Hess, and Stephen Vindigni. 2007. “Peak petroleum and public health.” Journal of the American Medical Association, V 298, N 14, October 10: 1688-1690.

[42] Policy Statement Database. 2000. “The Precautionary Principle and children’s health.” Policy #: 200011. January 1. Washington, DC: American Public Health Association. http://www.apha.org/advocacy/policy/policysearch/default.htm?id=216.

[43] World production has been on a bumpy plateau since May 2005.

[44] Mears, Euan. 2008. “Why oil costs over $120.00 a barrel.” The Oil Drum: Europe. May 30. http://europe.theoildrum.com/node/4007.

[45] Cohen, Dave. 2008. “Our Phony Economy.” ASPO/USA, May 21. http://www.aspo-usa.com/index.php?option=com_content&task=view&id=375&It....

[46] Clayton, Mark. 2008. “Oil shock 2?” The Christian Science Monitor. May 12. http://www.csmonitor.com/2008/0512/p13s01-wmgn.html.

[47] Hubbert, M. King. 1956. “Nuclear energy and the fossil fuels.” Paper presented to the American Petroleum Institute Spring meeting of the Southern District. San Antonio. March 7-9. http://www.energybulletin.net/node/13630.

[48] Wikipedia. ND. “M. King Hubbert.” Wikipedia. http://en.wikipedia.org/wiki/M._King_Hubbert.

[49] Cook, Earl. 1976. “Limits to exploitation of non-renewable resources.” Science, V 191: 676-82. http://www.eoearth.org/article/Limits_to_Exploitation_of_Nonrenewable_Resources_(historical).

[50] Smith, Arthur L. and Brian J. and Lidsky. 1993. “King Hubbert’s analysis revisited: update of the lower 48 oil & gas resource base.” The Leading Edge V 12, N 11: 1082-86. http://tle.geoscienceworld.org/cgi/content/abstract/12/11/1082.

[51] Campbell, Colin. 2001. “Peak oil: a turning point for mankind.” M. King Hubbert Center for Petroleum Studies. Golden Co: Colorado School of Mines. http://hubbert.mines.edu/news/Campbell_01-2.pdf.

[52] Rickover, Hyman G. 1957. “Energy resources and our future.” Delivered at the Annual Scientific Assembly of the Minnesota State Medical Association St. Paul, Minnesota. May 14. http://bartlett.house.gov/UploadedFiles/DoDRickover1957SpeechAcknowledge....

[53] Smil, Vaclav. 2006. “Peak oil: a catastrophic cult and complex realities.” World Watch, January/February: 22-24. http://home.cc.umanitoba.ca/~vsmil/pdf_pubs/WorldWatch.pdf.

[54] Mouawad, Jad. 2008. “Barreling along: the big thirst.” New York Times, April 20. http://www.nytimes.com/2008/04/20/weekinreview/20mouawad.html?ref=weekin....

[55] Birol Fatih. 2007. World Energy Outlook 2006. Paris: International Energy Agency.

[56] Birol, Fatih. 2008. “Interview: Die Siren schrillen” (Alarm bells are ringing). Originally published in International Politik, April 2008.

[57] United States Government Accountability Office. 2007. Report to Congressional requesters. Crude oil: uncertainty about future oil supply makes it important to develop a strategy for addressing a peak and decline in oil production. February. Washington, DC: United States Government. http://www.gao.gov/new.items/d07283.pdf.

[58] Fournier, Daniel and Eileen T. Westerveldt. 2005. Energy trends and their implications for U.S. army installations. Washington, DC: U.S. Army Corps of Engineers. http://stinet.dtic.mil/cgi-bin/GetTRDoc?AD=A440265&Location=U2&doc=GetTR....

[59] Kunzemann, Thilo. 2008. “Energy future: a significant period of discomfort. An interview with Robert Hirsch.” Allianz. June 20. http://knowledge.allianz.com/en/globalissues/safety_security/energy_secu....

[60] Zeckhauser, Richard J. and W. Kip Vicusi. 1996. “The Risk Management Dilemma.” Annals of the American Academy of Political and Social Science, Vol. 545, May: 144-155.
[61] Jameton, Andrew and Jessica Pierce. 2001. “Environment and health 8. Sustainable health care and emerging ethical responsibilities.” Canadian Medical Association Journal, V 164, N 3, February. http://www.cmaj.ca/cgi/content/full/164/3/365.

[62] The largest “mitigation wedge” available is conservation practices that do not threaten the public’s health but radically reduce energy consumption. This must occur simultaneously at the individual and institutional levels to be successful.

Editorial Notes: Several journals have turned this article as not appropriate subject matter for the medical community. We think, on the contrary, that peak oil represents a major public health problem. Consequently we are publishing the article here at Energy Bulletin. - BA Author Dan Bednarz writes: From the increasing number of contacts I’m getting from frustrated health professionals out there I know more and more health people are making the peak oil connection and worrying that they are sitting on time bombs.

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