Actually, you’ve probably bought the last of a lot of things, but I remember being struck when I first heard James Howard Kunstler say, “Most Americans have bought their last car.” So I’m going to use the example of cars to demonstrate why that is and why we won’t get off of fossil fuel in time.

The Magic Price Incentive Band

In my public talks, I often hear people say that my predictions for the future are wrong because when the price of oil goes up we will move to something else. The high price will provide a greater incentive to move to alternatives. That’s true — but it’s not the whole story. The price of oil must meet all of these conditions:

  • it must be high enough to encourage the move to alternatives
  • it must be sustained, that is, not volatile, and
  • it must not get too high.

If the price is too low, obviously there isn’t much incentive to move to an alternative except for those who understand the damage our use of oil is causing or who understand it’s not going to be abundant much longer.

If there is too much price volatility, people will be unsure it is wise to spend money on alternatives. They keep the equipment they have and wait for more certainty. That’s why SUV sales have gone back up now that gas is (temporarily) lower. 

If the price goes too high too quickly, like it did in 2008, economic damage occurs. Businesses shrink, lay off people and struggle to survive. Now they don’t have the money to purchase the equipment that would get them off of oil. In many cases they aren’t in business at all any more.

The price must stay within the Magic Price Incentive Band:

Magic Price Incentive Band

 

We don’t know what the Magic Price Incentive Band for getting off oil is. But we’re pretty sure $147 per barrel is way too high. 

A sustained price of $50 for a few years, then $60 for a few more, etc. would probably have been enough of a market signal for people to clamor for alternatives like electric vehicles. 

Although sustained, stable prices are required, the market place cannot guarantee that — and there was no will by the population to pay more for gasoline. Legislation to increase the price of gas often would never even get to a vote. (In some areas, we humans are just lousy at preparing for the future.)

Recessions Follow Oil Price Increases

A recession has followed every significant oil price increase. (Consider my blog entry Estimating the Economic Impacts of Peak Oil.)

Although our current economic malaise is blamed on the credit crisis, people forget what happened to the price of oil.

In 2008 the average price of oil was $99 per barrel (per the Energy Information Administration). The year before it was $72 per barrel. 

Year Oil Price (WTI) Total Spent on Oil 
2007 $72 $2.160 trillion
2008 $99 $2.970 trillion

In just one year, that price difference sucked an additional $810 billion from the world economy.

The same level of increase happened from 2006 to 2007. Simply put, we were going to have a global recession even if the credit crisis hadn’t occurred. See the paper by Hamilton “Causes and Consequences of the Oil Shock of 2007-8” for more detail (http://tr.im/jHan).

By the way, did you notice that the price increase is roughly the same as the current stimulus package? Do you think any future stimulus package will have any effect when oil goes back up in price?

High Oil Prices Undermine the Move to Alternatives

We can see this mechanism most easily with the auto industry. Annual car sales went from a high of 16 million in 2007 to just over half that now, 8.8 million, on an annualized basis (April 2009) and the fleet turnover rate went from 15 years to 27 years. At this turnover rate, every vehicle in every showroom could be electric right now and we still wouldn’t get them out into the populace in time. As it is, there isn’t even a production quantity electric vehicle available for purchase as I write this (the Tesla Roadster doesn’t count).

When you consider that long-haul trucking, mining operations and construction machinery all use oil, too, you can start to see why we started too late.

 

peak oil, fleet turnover

 

The End of the Car Age

In other words, the recent high price of oil has destroyed much of the capacity for us to move off of oil. When you pull together these items:

  • the date of peak oil (most likely 2008 since so many oil projects are being canceled)
  • the still-increasing fleet turnover rate
  • a collapsing economy

you can see why Kunstler (and now me too) tell people that most Americans have bought their last car. I don’t mean their last “gasoline powered” car, I mean any car.

Unfortunately, the same mechanism is playing out in the renewable energy sector. Investment is down by almost half. 

Enlightened government could have put a floor under oil prices for the previous three decades, thus moving us completely off oil while we had the economy to do it. Now it’s too late.

Period of Receding Horizons

We have entered the Period of Receding Horizons. This is when our goal of moving off fossil fuels is getting further away every moment instead of closer. Our economy has actually lost the capacity to move off of fossil fuel without massive contraction first to a fraction of its former size. This will not be a pleasant contraction at all. The millions of people now being laid off will never find jobs at the same wage again. You could call it the Death Spiral and the name, I think, is apt.

Alternatives to the Car

As we get poorer (which is happening very quickly), we are going to become a nation of bicycle and scooter riders. There are several good electric scooters and electric motorcycles on the market, which are the products to buy if you want to avoid lining up for your gas ration.

Of course, a few of us will be driving electric cars by 2012 and by all means buy one if you can get your hands on one. However, there won’t be more than a few hundred thousand highway-capable electric cars on the road before we are too poor to buy them. If we’re really lucky then it might be a few million.

But a whole electric fleet? Never going to happen. We are entering Energy Descent largely with the fleet we have.

As well as cofounding Post Peak Living, André Angelantoni is a co-founder of Post Carbon Marin, an initiative in Marin county to prepare it for peak oil. Trained as a civil engineer at the University of Toronto and founder of Inspiring Green Leadership, Mr. Angelantoni has supported over 35 businesses in the Bay Area of California to obtain the Green Business Certification.