For the world economy to be considered sustainable; that is, to reach and maintain a decent level of living for the entire global population for a century or two, the use of renewable resources should not exceed sustainable yields; pollution levels should not surpass the environment’s absorbing/regenerating capacity; the drawdown of nonrenewable resources should decline in proportion with the depletion of stocks; and environmental goals and technical progress helping to achieve them ought to gain universal application.

Even minimum acquaintance with data and trends is sufficient to recognize that the world is running away from any feasible configuration of sustainable balance among the critical variables of population levels, environmental impact, and resource demand.

Projections — a mishmash of the good, the bad, and the impossible

Waxing GDP to the max remains the international community’s central economic objective. Pedal to the metal — there is no speed limit on the turnpike to Canaan!

At the 3.0 – 4.0 percent annual clip, widely used in official forecasts, the world should see an expansion in its output anywhere from 86 percent to more than double its current level by 2030. This dazzling prospect of making everybody richer and reducing, if not eliminating, abject poverty and hunger is often juxtaposed with the good news that global population growth is on track to decelerate, from a 29 percent during 1990-2010, to 20 percent during 2010-2030.

The appearance of more than one billion people by 2030 is being largely attributed to a “youth-bulge-driven momentum,” the rise of reproduction age cohorts relative to the total population. As replacement-level fertility stabilizes the human biomass, a shift of mind toward reproduction, labeled “demographic transition,” is expected to take place in the lower registers of the income scale. The poor are poor alright but, thanks to economic growth, less and less so, and once a certain level of material well-being is reached, they will want to improve the quality of their progenies’ life through care and education rather than just increasing their number. “Demographic transition” has indeed been observed in the rich countries.

But prospects are much less rosy when we look at absolute numbers. Planetary occupancy could easily reach 10 billion by mid-century, roughly three billion more than now — as increase as big as the entire world population at the time JFK took office in 1960.

Several first-rate academic investigations show that generalizing developed country living standards (enjoyed by one-fifth of the world population) even for the current ca. 6.8 billion people is impossible without provoking severe resource shortages and ruining the environment beyond repair. Making the same calculations with ten billions yields a tragic incongruity — the name MALTHUS keeps flashing on the computer screen.

Arguments that “demographic transition” will be accompanied by “economic transition” toward services and a nonresource-intensive knowledge economy are flatly wrong.

They are based on the limited experience of the most developed countries where “economic transition” has been made possible by importing resource-intensive and polluting manufactures from the rest of the world.

Reaching the enormous fixed cost that comes with successful industrialization presupposes major increases in the throughput of material resources. Real estate services, web page design, marriage counseling, and consultancy on interior decoration are no substitutes for metals, minerals, timber, and energy carriers needed to build and equip developed-country-standard homes for billions of slum dwellers. And once the fixed cost associated with high development is in place, it requires maintenance; a continued throughput with polluting side effects.

Given that physical and economic considerations properly order units of natural wealth according to ease of access and cost of extraction, the throughput will be increasingly expensive. One way or another, this process will check the combined thrust of demographic and economic expansion.

In our era, the world behaves like a young tree, fully confident that it will continue to grow forever. How could its miraculous system of accelerated cell accumulation ever fail to widen the trunk, thicken the branches, and push the twigs to divide and multiply? In the same way that nature does not allow trees to become skyscrapers, it also has its own foolproof ways of breaking the momentum towards turning the planet into an ever larger shopping mall, with ample parking for billions and billions of old and new, increasingly affluent customers.

Inconsistencies in long-term energy projections

The hybrid of encouragement and discouragement found in overall growth forecasts is reproduced when looking at energy.

Remaining heavily dependent on fossil fuels is the only way to realize the envisaged growth. A disturbing consequence is that carbon dioxide emissions during the forecast period (2010-2030) are expected to match the increase during the previous two decades. This is a clear disaster in terms of climate change, biodiversity, and water supply. It conjures up the chilling specter of losing the last opportunity to bring environmental degradation under voluntary control.

Oil consumption is supposed to increase from ca. 86 million barrels per day (mb/d) in 2008 to 105 mb/d in 2030. (Source: International Energy Agency, IEA, World Energy Outlook. Assessments made by the U.S. Energy Information Administration, EIA, match these figures.)

Independent oil industry experts have serious doubts that this need-based prospect will ever be fulfilled. And if push comes to shove in substituting the less polluting and more abundant natural gas for oil, its reservoir would undergo exponential diminution, putting the problem of an overbuilt, economically unviable delivery infrastructure on the back of the next generation.

Ignoring the overall picture portends colossal consequences.

Energy intensity (global energy demand per aggregate global output), which declined during the 20th century as well as during the past decade, is projected to stay on a diminishing path. The growth factor of world output at constant prices will exceed that of aggregate energy use. Unecological economics sees reason to celebrate. “Efficiency” is its magic word, pronounced as if it should be accompanied by the sound of sacred clarions. Taken by its narrow definition, it is far from being an unqualified blessing in the present context.

While the productivity of energy carriers is supposed to increase (reducing their relative costs), total energy demand is on the uptick. Based on the latest EIA projections (reference case) and historical data, increase in per capita worldwide energy consumption should accelerate to 18 percent during 2010-2030, from an estimated less than 10 percent during the previous 20 year period (1989-2009).

Our civilization is predominantly nonrenewable resource-based and there is no responsibly anticipatable technology to change that. No matter how one nonrenewable is substituted for another, global economic expansion has been made possible and will remain contingent on increasing the scale of returns on the planet’s fixed supply of once-in-a-geological epoch reservoir of energy carriers and other substances, accelerating its depletion.

Where exponential positive growth (i.e., in world GDP) nourished by exponential negative growth in the planet’s exhaustible resources leads should be obvious.

If we suspend our Zeitgeist-hardened faith in the free-floating myths of unlimited technological perfectibility and the aptness of private profit-driven, decentralized decision-making to solve any and all resource and environmental problems rationally and just in time, the judgment seat of reality hands out a stark verdict. The world will either grow as scheduled and poison itself in the process or it will lose its growth crusade while breathing only moderately harmful air.

The intellectual and moral task of our generation is to recognize this.

Convincing transition to renewable energy in our lifetime! Myth or reality?

The jury is still out.

Caution when examining anything heretofore unseen, and respect for those who work with enthusiasm to accomplish the transition demand that this be said.

Yes, but not much longer.

While forecasts show significant expansion in practically all subsectors of renewable energy (solar, wind, hydro-, bio- and geothermal sources) their combined ratio barely budges. Overall growth in the worldwide demand for joules is to blame. EIA data indicate that renewable energy’s share in global electricity generation (the primary use of renewables) is expected to reach 21 percent by 2030, too close to the recorded 19 percent in 2006 to consider it a major advance toward laying the foundations of sustainability.

The hope is that several national programs that go beyond average worldwide forecasts will make a difference.

For example, the current U.S. Administration has set the goal of increasing renewable sources in electricity generation from their actual ca. 10 percent to 25 percent in 15 years. This would indeed be a vital step toward ecological sustainability in the United States, but it is a tall order: Private investment in the development of nonhydropower sources, which are counted on to accomplish the bulk of the structural shift, remains sluggish and unpredictable.

Independent of economic conjuncture, irrationality arches over the whole idea of wanting to implement a drastic resource transition under the banner of sustainability while trying to maximize output. Preference for growth through “full employment now” policies prevails and so does the inertia of remaining dependent on fossil fuels.

To the extent and the manner in which the “25 percent by 2025” objective is or is not fulfilled, American society will learn a great deal about the viability of government and business relations in the mixed economy. At the slightest falter, questions about the distribution of responsibilities will surface.

It all boils down to the basic question: “How do we recognize that growth is being constrained?”

There is no easy answer. Without irrefutable proof, the theoretical impossibility of everlasting exponential economic expansion in our thermodynamically closed sphere cannot be fully comprehended.

Evidently, only a general economic reversal or some environmental calamity would qualify. Analytical work citing tables and charts do not rise to the same level because they can always be effectively opposed by other tables, charts, and expert opinion. But this feature of the collective learning process should not prevent us from continuing to argue that “business as usual” economic growth has come to an end.

The oil constraint showed up in a definitive way during the same decade when the danger of ecological degradation became acute and world finances reached a critical point. Unfortunately, a synthesis-disabling pecking order among the three symptoms prevents their unification into a single, influential observation.

In most analyses dealing with “limits to economic growth,” natural resource problems (“peak oil” in the lead) take precedence over the environment. The financial dimension is considered wholly unrelated. Since the sheer possibility that a specific matter may constrain growth is a black hole in the firmament of contemporary economic understanding, the nexus will remain undiscovered for some time.

Yet it can hardly be mere happenstance that arrangements and routines in the world’s dollar-based monetary order, which had survived recessions, politically-motivated oil shortages (“1973” and “1979”), financial crises, privately-engineered speculative tricks and covertly pursued, system-harming national strategies for over half a century, would fall into disorder during the decade when growth in the demand for the world’s pivotal material resource (conventional oil) went unanswered by increased supplies.

The price of the globally narrow resource constraint rising to a level where it endangered the profitability of production in general was the slip that caused the surreal pile of over-extended and over-specialized payment obligations to start tumbling. The emphasis is on “start.”

“You Ain’t Seen Nothing Yet!” (Indeed)

Oil is the dominant underlying natural substance in any valid structural representation of the world economy.

Coupling this certainty with the proposition that we have unwittingly passed the peak (or “a” peak, at least) in its planet-wide production with demonstrated inability to substitute away from it while preserving growth, one may begin suspect a gross misunderstanding.

While the ensemble of oil producers is regarded as capable of moving along an upward sloping long-run supply curve (i.e., by bringing more costly conventional and non-conventional reserves into use), output and investment data combined with available information about reserves suggest otherwise. None of the producers will ever deliver more at the same price. That is, the supply curve of this patently increasing-cost industry cannot shift in the expected direction. Elementary microeconomics helps visualize the logical bond between an upward sloping long-run supply curve and interim shifts in shorter-run marginal cost schedules.

“Here’s looking at you . . . abundant energy at noncrippling prices.”

The gap between expectations and reality appears to have created an unsavory servo-mechanical feedback circuit.

WFEP, worldwide factor elasticity of production (output response to a unit increase in all the resources combined), which is crucially dependent on abundant oil supplies, is stuck between zero and some relatively low positive number. At zero (disrupted growth reduced prohibitive oil prices to affordable levels), a process would turn the global economy toward that positive number, which, when approached, would lead to an increase in oil prices, sending WFEP back toward zero.

Unpredictable as this self-perpetuating periodicity may be, there is reason to suspect that it will intensify in the future. At present, China and India, the two giants that outgrow the rest of the world at an astonishing rate, together consume about half the amount of oil the United States does. As long as U.S. economic conditions stagnate — and an industrialized democracy has a great capacity to endure in the twilight zone between growth and no-growth — the global oil market appears to be safe from overheating. But as the emergent economies’ demand increases (driven to a great extent by the expansion of automobile ownership), the moderation in U.S. (and other developed country) demand will lose its price-tranquilizing effects.

The presence of loops or periodicities is an essential feature of chaos, along with sensitive dependence on initial conditions. Some seemingly minor and innocuous (hence utterly unpredictable) event could quickly escalate into a historic singularity.

Where are we now? Where are we going?

The contradiction between sustainability and vigorous growth is shrouded by the myth that Mammon-worshiping, Pareto optimal pugilism in unregulated markets is the sole path to the betterment of mankind.

The approach that has proved to be successful in developing and mass producing consumer goods and shuffling around resources of lesser importance is turning into a catastrophe-maker. Failure of the long-run rise in the marginal cost of oil to cause market-induced conservation (reduced demand and decisive substitution) signals a new age just as convincingly as passing the Pillars of Hercules heralded another world for ancient mariners. Increasingly nasty encounters between the human overflow and hard physical obstacles are likely to lead to a macrohistoric mutation.

Mutation — a biological concept that has been transplanted into social theory — implies a discontinuous transformation of institutions, behavioral patterns, ethical values, expectations, and intentionality in the socioeconomic realm. But whereas in biology mutation is a “saltation-like” genetic alteration (i.e., some change along the nucleic acid sequence), in social evolution it may require long decades.

An extended period of historic turbulence is revealed in retrospect as mutation or chaotic transition.

The last such period was “1914-1945,” when classical capitalism (unchecked laissez faire/metal money/no multilateralism) mutated into modern capitalism (mixed economy/fiat money/weak multilateralism).

Alternative blueprints for global self-organization (restoration of ante-1914 conditions, communism, brutish military conquest of weaker nations, and American-style New Deal) vied and clashed, with known results.

“1914-1945” may be seen as a single episode of mutation when we consider the fundamental changes that those fateful, slaughterous times brought in the legal-institutional framework, patterns of behavior, ethics, expectations, and intentionality associated with the combined processes of producing, exchanging, and distributing the fruits of material progress. A significant and irreversible gap had come to separate social- safety-net-demanding and supporting, democracy-nurtured, politically enabled post-World War II individuals from the types that inhabited the thought worlds of Karl Marx’s and Max Weber.

Hopefully, the impending change will lead from our current global system to institutions and attitudes harmonious with long-run sustainability.

The actual scenario, intensity, and duration of the new chaotic transition are unpredictable; and, since it engulfs the entire world, it can be examined only if one adopts the vantage point of a distant century, looking back (as it were) at the present with a strong critical sense, dispelling the myth that history does not change “economics” and that adversity is incompatible with reason.

Peter Pogany
Economist and author of “Rethinking the World”