Peak Economy

1. Peak Economy Richard Heinberg Post Carbon Institute September 2009

2. The economic crisis changes everything before crisis I after crisis

3. It is essential that we…. • Understand the crisis and its historical context, so that we can • Respond effectively

4. What is economic growth? • GDP: total amount of money changing hands

5. What is economic growth? • GDP: total amount of money changing hands • Money is a claim on goods and services

6. What is economic growth? • GDP: total amount of money changing hands • Money is a claim on goods and services • Provision of goods and services requires energy and material resources

7. Economic growth correlates with energy usage

8. Winning the energy lottery

9. During the fossil fuel era we developed an economy…

10. …based on the expectation that growth can go on forever

11. Tomorrow’s growth is collateral for today’s debt

12. Growth becomes institutionalized • With compound interest, fractional reserve banking, and debt leverage, growth became necessary to the monetary health of nations

13. Remember…growth requires more energy!

14. World oil discoveries

15. Global oil production falls when loss of output from countries declining exceeds gains from those expanding

16. 2007 oil production balance year on year change(thousand barrels/day

17. How did Peak Oil contribute to the financial crisis?

18. The drivers of crisis: Energy growth becomes difficult and expensive (oil at $147 a barrel!)

19. Past recessions & oil spikes

20. The drivers of crisis: Energy growth becomes difficult and expensive Growth-and-debt-based economy goes bust

21. Colliding recessions • Mortgage/finance crisis and oil price spike would each have caused a recession • Both happened at the same time • Result: simultaneous crises in auto, airline, banking, housing sectors • Once the house of cards started falling, debt de-leverage created a snowball effect

22. Cost of the Wall St. Bailout

23. “The value of global financial assets including stocks, bonds, and currencies fell by more than $50 Trillion in 2008, equivalent to a year of world GDP.” --Asian Development Bank

24. Why did oil prices drop? • Demand destruction • Hedge funds in, hedge funds out

25. July 2008: the all-time oil peak • Though demand is down, depletion of existing fields continues: capacity erosion

26. July 2008: the all-time oil peak • Though demand is down, depletion of existing fields continues: capacity erosion • Lack of investment (given low oil prices and credit crisis) means new oil projects are being cancelled. Not enough capacity is being replaced!

27. July 2008: the all-time oil peak • Raymond James Associates • Macquarie Investment Bank • Jeff Rubin (Formerly CIBC) • Energy Watch Group • Association for the Study of Peak Oil

28. The post-peak dilemma • Oil price needed to justify the development of new oil production capacity: $60-70 (and rising) • Minimum oil price likely to trigger economic recession: $80

29. The trap • If oil prices rise, economic recovery is nipped in the bud • If oil prices fall, not enough investment is made in future supply; this leads to high oil prices later (see above)

30. But it’s not just oil

31. Depleting materials Antimony China Thermoelectric/paraelectric materials Barium China Thermoelectric/paraelectric materials Bismuth China, Mexico Thermoelectric/paraelectric materials Cobalt Kinshasa, Australia Photovoltaics Gallium China Photovoltaics Germanium Belgium, Canada Photovoltaics Indium China, Canada Photovoltaics, thermo/paraelectric mat’ls Manganese Gabon, S. Africa Photovoltaics Nickel Canada Fuel cells Platinum S. Africa Fuel cells, para/thermoelectric materials Rare Earths China Fuel cells, para/thermoelectric materials Tellurium Belgium, Germany Solar cells, semiconductors Titanium Australia, S. Africa Solar cells Zinc Canada, Mexico Photovoltaics, fuel cells

32. World water use km3/ year

33. Marine fish catch

34. A giant science experiment

35. So, back to the economic crisis…

36. Unemployment nears 10%

37. “We’re in the midst of a once-in-a-lifetime set of economic conditions. The perspective I would bring is not one of recession. Rather, the economy is resetting to a lower level of business and consumer spending based largely on the reduced leverage in the economy.” Steven Ballmer Chairman, Microsoft Corp.

38. The shape of the recovery V

39. The shape of the recovery U

40. W The shape of the recovery

41. The shape of the recovery L

42. What to expect • Unemployment • Homelessness • Bank failures • Hunger • Crime • Political instability • International conflict

43. Will reduced energy per capita result in reduced carrying capacity? Not necessarily; there are other factors: • Equity • Efficiency

44. But the end of growth means we have entered a new era • If population increases, per-capita consumption will decline more rapidly • Resource conflicts likely

45. What are our levers? • Population • Equity • Development of renewables • Efficiency • (we also need a steady-state economy and global conflict resolution)