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Prior Knowledge

Monday, October 17, 2005

consequences of the depletion of oil

Richard, in a comment on Alex's post "comments on society", writes "So yes, I am still unconcerned about resource depletion. (I remain very concerned about externalities, however; there is no "mere" about it.) Oil prices are going up (no matter the taxes) which will prevent overconsumption and provide an incentive to develop alternatives.That doesn't mean we should just ignore it, of course. I strongly support the Greens' plans to improve public transport, etc. My point is just that we don't need to worry about people using scarce resources irresponsibly. The simple fact is that in a functioning market, people can't afford to overconsume scarce resources. They can make more money through conservation."

The point I want to make is perhaps not relevant to Richard's comment (since I'm not sure that his 'unconcern' about the depletion of oil would extend to this context) and so is not a criticism of his comment, but rather a tangent that builds upon it. I want to address the "...we don't need to worry..." part. I want to talk in particular about the depletion of oil and about possible worrying consequences that are not generally held to be externalities in the sense in which pollution is an externalities. There is great (and increasing) international reliance on oil for transport of everything, including food. There is also great (and increasing) reliance on forms of agriculture that, while arguably more cost efficient than more traditional forms, are also much more reliant on pesticides (of which a key ingredient is oil). Oil is still a major source of electrical power. My general point is that, as we know, the market is not egalitarian in its geographic and socioeconomic distribution of costs and benefits. Those who are likely to lose from the projected huge increases in the price of oil will primarily be people in third world countries and the poor in general.

The most immediate peak-oil problem is that we face a steady increase in its price as the world demand (in barrels per day) outstrips world supply (barrels that can be extracted and refined per day). The supply, in this sense, is partly a matter of the technology of extraction and refining but, more importantly, is a matter of resource depletion. We should not expect the market to come up with and implement an alternative very quickly. The necessary research and development probably will not be carried out until times are dire enough that it becomes profitable to invest in the uncertain gains of research over the increasingly lucrative market for oil.
Further, even after the development of alternatives, I see no reason to think that the alternatives would be distributed in the amounts necessary to the poor. Rather, they would simply go to those who can afford to buy the technology, or, more optimistically, would be provided as a public good by governments of rich nations to their domestic populations. Meanwhile, in the time that it takes to bring the alternative technology to the poor, they are not likely to be able to afford what remains of the oil either, as both the extraction and refining of oil will be much more expensive. While we may optimistically suppose that governments of first world nations will undertake the requisite investment, we cannot expect the governments of the majority of the world's nations to make similar investments in their own countries.

There are also likely to be food shortages until the forms of agriculture can be returned to those that do not rely as heavily on pesticide and forms of economy that do not rely as heavily on international trade. From what I remember, there are constraints on the speed at which the forms of agriculture can be changed. For one, the seeds for strands of crops that rely less on pesticides are becoming less common in an international switch towards homogeneous use of high-yield, pesticide-heavy, strands. Second, the soil used to support the latter kind of crop, or to support the form of agriculture that sees repetitive planting of the same crop may take a few years to return to being the kind of soil that can support traditional farming methods.

Add to these problems their likely accompaniments of an increase in resource wars (both among nations and among local militias) in order to procure both oil and food and the general increase in social disarray and violence expected in times of economic crisis and we have a pretty dismal picture of what we can expect even if there is an eventual introduction of alternative energy. In particular, while the first world and the rich more generally may come off relatively unscathed (facing only a drastic, but survivable, change in their patterns of consumption), the poor face the possibility of vast food shortages, even less access to electricity and intra-national or even inter-national war. I also suppose that given the international wars for oil, the mightiest nations will maintain access to oil for the longest period. Coupled with the likely dire consequences for the third world, this privileged access will probably mean that the gap in wealth and in social conditions between the mighty nations and the third world will increase.

I suggest that we cannot let the market deal with the depletion of oil. We need fairly urgent action by governments around the world (especially those of the rich nations) to invest, both nationally and in the third world, in discovering alternatives and laying down the requisite infrastucture and especially to promote economies that can function well at least in the intermediate stage between the rise in oil prices and the global introduction of alternatives. Of course, if such changes in the policies of nations are to be possible, they would probably have to be coupled with wider concerns of domestic governance in the rich nations, the terms of operation of international financial institutions, media reform in various first world countries and so on.

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  • here here! *raises glass* Wait thats not really a comment.

    10/17/2005 11:56:00 PM  

  • This is not so much a comment on Sagar's post, which I must say is beautiful piece of philosophy, but a response to Richards comment on my earlier post. And its just a quick one. Richard claims that "we have nothing to worry about" because of the market will take care of us. He describes companies with vested interests stockpiling oil and claims that "investors will protect against absolute depletion". My response is "so what?". Can the investors create more oil? No. Whether every drop gets used or whether investors duke is out over the last barrels and charge exhorbitant amounts that only the wealthiest can afford, our life style is going to have to change. The latter option does seem more likely, but as Sagar has said here, it sounds bloody dreadful. And like Sagar has said we can't count on the market to make viable aternatives, quick enough, good enough, or distributed fairly enough. This is not a time for us to sit around a wait to be taken care of!

    10/18/2005 12:43:00 PM  

  • As an unusual American I agree that the religiousity of the Free-market Economy and its deity the Invisable Hand, is entirely inadequate to deal with the problems that await us.
    Look at the population movements in the United States. People are migrating to the Southwest, where resources are scarace, such as water. It is an absolute anomoly according to classical economics.
    People in America feel that government intervention is a source of inefficiency. They even fear the prospects of universal health care. As a counter-argument I consistently point out that the fire departments are socialized, what is the analytical differentiation?
    We need non-economic-department academic planning; not the rigid paradigm of classical economics that consumes the cognitions of leader in business and economics.
    Russell Cole

    10/18/2005 04:39:00 PM  

  • I think the dependance on oil is a problem and that your point about how oil price rises hurt the poor disproportionatly is another important point often ignored by people.
    The problem however is what meausres should we take and will those measures do more harm than good?
    I think proper conservation of oil requires an almost perfect market as well as fairly careful allocation of externalities. I suggest the former is likely to be morally repugnant and the latter is likely to be extremely difficult and take a long time to set up. I.e. there are certain situations where it is unlikely the market will properly deal with the resources.

    10/18/2005 06:37:00 PM  

  • One of the issus is that while the problem is mostly a problem for the poor most of the solutions also hurt the poor in similar proportions.

    10/18/2005 06:39:00 PM  

  • Genius, conservation of oil is not the only problem, as we also face the fact that the lifestyles of much of humankind and the livelihoods of many in the third world are not really possible without the heavy reliance on oil. If we simply try to conserve oil - say, through higher taxes on oil and more regulations on its use - we take no steps to create an alternate economy and livelihood.

    This is not to say that efforts at conservation are not necessary or that the market mechanisms are useless. Rather, we must take the market oriented attempt at conservation as needing to be supplemented. In this connection, let's not forget that another possible way to address the problem is through social change of the sort discussed under Alex's "comments on society" post.

    10/18/2005 06:55:00 PM  

  • Yes there is a contradiction between the two goals. I hope that we can propose some strong realistic goals and methods regarding both.

    I am concerned that we will fail entirely in one area as a result of making only a half baked effort in regard to the other.

    Of course I am prone to suggesting that centralization will help !

    10/18/2005 07:31:00 PM  

  • er actually a half baked effort in both areas. for example I think kyoto is insufficent to achieve its aims partly due to the fear of hurting the third world in regard to oil and yet there isn't even a significant strategy regarding reducing the third world's dependance on oil which would actually be important for reducing long term oil usage anyway....

    10/18/2005 07:35:00 PM  

  • Genius: yes, the effort at controlling our consumption of energy in general and oil in particular is half baked at best. Though, I think Kyoto was always intended as a baby-step or a confidence building measure that acted as a signal of changes to come. Unfortunately, major energy consumers (including the US) failed even to take that step.
    The differential treatment of third world countries has some justification: first, the first world consumes vastly more energy per capita than the third world (from memory, the US per capita consumption of energy is something like 5 or 6 times that of the average for poor countries and its aggregate consumption is the highest of any nation), so it makes sense to require larger sacrifices in lifestyle from those in affluent nations. Second, given the importance of oil (and widespread availability of cheap energy in general) to economic development, we have some reason to allow poor countries continued and wide access to energy so that their economies can develop to the extent that they can support standards of living that we in the first world achieved decades ago and now take for granted.

    10/26/2005 12:25:00 PM  

  • I propose we have a problem even with current proposed solutions.

    The problem (I expect you may find many Americans pointing it out in this regard due to self serving bias - but there is some truth to it) is that your desire to achieve the second aim of encouraging the thirds world to be able to develop to the levels of the first world via copious energy consumption cripples the ability to achieve the first goal (and even promotes a culture counter to what you want).

    I am concerned about this mixing of goals within a single proposal - and think that both could be achieved with a different approach (although I see why it is politically easier to build such things into every proposal in an American "pork" sort of a way).

    Clearly I think this is not a reason to just reject a baby step in the right direction BUT one still has to address the contradiction.

    For example if third world countries per capita usage were to go to an arbitrary amount like half of the USA's total usage would rise by a bit more than 10 times (ignoring effect like population changes that would make it larger) and reducing the US consumption to zero would have an insignificant impact in such an environment obviously we don’t want that from an environmental perspective even if from a equality perspective it might be fantastic.

    But there is another effect that makes this worse. You can see for example the per $ usage of oil (i.e. the effective value of the stuff that is being produced by each set amount of oil) where countries like Japan have very low oil usage (and USA is moderate) and countries like china (etc) have very high usage. I.e. when a third world country uses some extra fuel to raise its standard of living it costs a lot more in fuel than it does in Japan(or maybe the usa) Kyoto actualy makes this problem worse since it increases the distance between productive production and consumption (for example if africa lets say was a place of cheep production due to cheep energy and that displaced domestic suppliers in canada).

    So there is a question whether a system that restricts the use of carbon fuels in the first world but not the third world will encourage the movement of wastage from first to third world without providing much benefit to the third world actually encouraging them to waste large amounts of it. And the earth as a whole may get less for more cost (environmentally speaking) with the movement of dirty production activities to third world countries.

    In addition it creates the problem that a third world country may be made highly dependant on the abuse of fossil fuels and slam into the Kyoto barrier at a terrific rate. I.e. there is no incentive to not pollute and then all of a sudden there is a massive one - this will test their commitment.

    Now this is just an explanation of the problem as opposed to defeatist talk - I suggest that there is a question whether exemptions are not just an inferior method of passing two laws

    1) A restriction on carbon fuels (e.g. a tax on any attempt to mine or extract or export oil) or a tax on carbon usage.


    2) an aid package designed to encourage the third world to develop in a sustainable manner (or even to just make certain types of portable environmentally friendly energy production almost free, imagine if you had an arrangement to build a wind generator anywhere it was viable in the world - minimal use to rich countries but fantastic for poor ones)

    Or one could decide that environment was the priority and needed to be solved now at whatever cost or that poverty is the problem and that ets say 4 degrees of temperatue rise worldwide is a acceptable cost.

    Either might be is a reasonable position.

    10/26/2005 07:54:00 PM  

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