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A zero sum game

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As a young child I remember being gripped by the unfolding drama of the ill-fated Apollo 13 mission.  Coming in the wake of two successful moon landings, the Apollo 13 mission appeared routine.  It was all too easy to forget just how dangerous space flight was – and still is.  But some 56 hours into its mission, Apollo 13 suffered a near fatal explosion in one of its oxygen tanks; ending any chance of a moon landing and jeopardising the lives of the three crew members.

Already much closer to the moon than to Earth, mission controllers decided that the only way of getting the crew home was to slingshot around the dark side of the moon to accelerate the craft back toward Earth.  Meanwhile, with the main Command Module of the ship compromised, the three crew members would have to decamp into the two-man lunar lander to survive the journey.

In the course of this procedure, two zero sum crises arose.  The first – dramatized for effect in the 1995  movie – resulted from a dangerous rise in carbon dioxide levels in the lander.  Filters designed to process the exhaled breath of two astronauts for just a few hours, could not cope with three astronauts over several days.  And so the filters had to be replaced using only materials on board.  The second zero sum crisis is less well known, as Paul Ceruzzi from The Smithsonian National Air and Space Museum explains:

“As Mission Control realized the seriousness of the explosion that rendered the service module inoperative, they directed the crew to shut down nearly all systems in the command module and move to the lunar module, using it as a lifeboat. The reason behind that directive was that the limited battery power on the CM had to be held in reserve for guiding the module during the brief time of reentry and return to Earth. Among the systems shut down was the command module’s Inertial Measurement Unit (IMU), a critical device needed for the mission’s guidance, navigation, and control. An IMU is based around a set of sensitive gyroscopes and accelerometers, whose accuracy depends on low-friction bearings and keeping the unit at a constant temperature. But no one was certain that the Apollo IMU, soaking in the cold after several days of inactivity, could be restarted. Engineers at the MIT Instrumentation Laboratory, where the IMU was designed, took a spare unit from their Lab and tried testing it under cold conditions. Their results were encouraging but by no means enough to assure a successful restart.”

The limited energy required that restarting the Command Module had to follow a tightly designed sequence to prevent the loss of any energy.  Only in this way could the life support and guidance systems be restarted.  As we now know, the attempts were successful.  But it was a close run thing.

Why am I writing about a space mission that occurred fifty-one years ago?

Because the entirely self-contained material and energetic world of the Apollo 13 craft provides us with a dramatic metaphor for how the energy economy really works.  There is no outside.  Life and death depends solely upon the energy and resources on board.  And there is no margin of error.  The crew cannot slip out to Home Depot to purchase new carbon dioxide scrubbers; nor can they pop into Maplins for a new battery pack.

Spaceship Earth operates to the same rules – albeit on a much larger scale.  But this is far from obvious to economists, politicians and journalists brought up on a diet of financial economics, in which resources are infinite and currency can be used to borrow from the future.  In that financialised view of the economy, we only have to dream of something and it can be made real.  Rockets to the moon, commercial supersonic flight, maglev trains, fibre optic broadband, 5G mobile telephony, electric cars… you dream it, and they’ll make it happen.

One reason why this illusion persists is to do with the sheer quantity of energy available to us – and the rate at which it has grown.  In 1965 the global economy used some 43,283 terawatt hours of energy from all sources.  By 2019, this had risen to a staggering 162,189 terawatt hours:

Note that more than 85 percent of this energy is still derived from the three fossil fuels – coal, gas and oil – while non-renewable renewable energy-harvesting technologies account for less than five percent.  Observe also that the large scale utilisation of renewable energy has not replaced a single watt of energy – it has merely been added to the consumption of an energy-rapacious global economy.  Indeed, economic planners around the world continue to foresee huge growth in global energy use out to 2050.  As Priyanka Shrestha at Energy Live News wrote last year:

“The worldwide consumption of energy is projected to increase by nearly 50% between 2018 and 2050, led by growth in Asia.

“That’s according to the US Energy Information Administration (EIA), which suggests most of this growth will come from countries that are not in the Organisation for Economic Co-operation and Development (OECD) but will be focused in regions where strong economic growth is driving demand, particularly in Asian nations.

“The industrial sector, which includes refining, mining, manufacturing, agriculture and construction, accounts for the largest share of energy consumption of any end-use sector – more than half of energy-use energy consumption throughout the projection period.

“Energy use in the global industrial sector is forecast to grow by more than 30% between 2018 and 2050 as consumption of goods increases and by 2050, it is expected to reach around 315 quadrillion British thermal units (Btu).”

This though, is the economics of the insane asylum.  It harks back to a bygone age – the immediate decades after World War Two – when there were just 2.5 billion humans, 20 or so industrialised economies, and a planet bristling with cheap, untapped resources.  Today we have nearly 8 billion people in an almost entirely industrialised global economy, on a planet whose resource extraction is peaking fast.  Even before SARS-CoV-2 arrived, oil extraction had peaked; and the shutting down of production in response to the 2020-21 closing of economies means that extraction will never again rise to 2018 levels.  Coal and gas reserves are projected to last longer.  But those projections are themselves based on sufficient oil being available to power the heavy machinery and transport essential to production.

Conventional economics is built around the notion of infinite substitutability.  The idea is that as the price of a resource increases, previously undeveloped alternatives will become attractive.  As investment is made in the alternative, a combination of mass use and efficiency savings will bring the price down to an affordable level.  For example, as the cost of steel rose in the late twentieth century, carbon fibre began to be used more widely as an alternative.  In a similar way, when conventional US oil production peaked in 1970, the western economies became more reliant upon more expensive Middle East and North African supplies.  But this price increase – together with the politically inspired 1973 oil shock – paved the way for new deposits in Alaska, the North Sea and the Gulf of Mexico to be developed.  Thus it appears that shortages and cost need never be an issue.

This is the vision of non-renewable renewable energy-harvesting technologies that we are currently being sold.  Mass use, they assure us, will bring prices down to an affordable level.  And over time, efficiencies will massively increase the amount of energy they generate.  For this reason – we are told – we need not be concerned that these technologies struggle to provide twenty times more energy over their lifetime than is required to manufacture, deploy and maintain them.  Nor – they say – should we worry about the enormous cost so far invested to generate such a paltry proportion of the global economy’s energy.  Not too long from now, they say, when the price is right, all will be well:

In the industrialised global economy, we may – for all practical purposes – be exposed to an infinite supply of energy in the form of the ongoing nuclear fusion reaction 93 million miles away.  Indeed, if it were somehow possible to recreate even a fraction of that reaction on Earth or, indeed, to figure out how to do anything more than heating hi-tech pressure cookers with nuclear fission, we might create technological miracles as magical to us as our technologies would appear to a caveman.  But we cannot.  The best means we have ever found for utilising solar energy has been to burn it in the form of millions of years’ worth of fossilised plants.  That is, in the form of coal, gas and oil.

That’s the real issue.  We have those 162,189 terawatt hours per year to run everything in the global economy.  And with the majority of oil fields around the world already depleting prior to the pandemic, and with coal and gas expected to be in decline in the course of the next couple of decades, that total is going to go down relentlessly irrespective of how many wind turbines and solar panels we deploy, or how much theoretical hydrogen or nuclear fusion energy we might be able to tap into, if we only knew how.

We are now moving into an age in which we must use the limited energy available to us with care if we are not to crash and burn.  For the first time in three centuries, we face a natural depletion of our total energy.  Somehow – and with some urgency – we need to reconfigure our economy so that we live within our energetic means.  But to our cost, economists and politicians continue to believe that we can simply create currency to grow our way out of the unfolding crisis.  But currency will not power a factory, fuel a truck or propel a ship across an ocean; only energy can do that… and there’s no longer enough to go around.

Importantly, within the total global economy are two broad sectors:  a large energy-consuming sector and a smaller energy-producing sector.  These approximate to the difference between discretionary and non-discretionary consumption in the economy.  An individual, household or business will have to make a series of non-discretionary purchases just to exist.  For an individual this will include food, water, clothing, a place to live and some access to light and temperature control.  For a business, it might include electricity for lighting and to power machinery, gas for heating, petrol and diesel to fuel vehicles and machinery, and the various raw materials and sub-components needed to maintain production.  Beyond these essentials though, may be a raft of discretionary purchases which make life more bearable – or often more frustrating – than might otherwise be the case.  Individuals don’t need fashion accessories, televisions, microwave ovens, fast cars, holidays abroad, magazine subscriptions, etc..  Businesses do not need such things as water coolers, coffee machines, away days and bonding weekends, etc..  Nevertheless, relations within the workplace may be a little less arduous as a result of the various perks provided.

In addition to these private discretionary and non-discretionary purchases is a huge energy transfer overseen by the government – via taxation and public spending – and the central bank – via currency creation.  Taxes fall within the non-discretionary spending – or perhaps pre-spending – of households and businesses, but may be used for either discretionary or non-discretionary purposes.  For example, a government may use taxes to invest in future energy production or maintaining current energy systems – non-discretionary – or it may provide – discretionary – corporate welfare to a party donor in exchange for, say, largely useless pandemic services.  Central banks use a less visible trick to transfer wealth to the already wealthy, by channelling new currency into their hands before its value is inflated away.  That is, every time a bank issues new currency it steals a fraction of the value of all of the other currency in circulation.  And while we ordinary folk enjoy this privilege on a small scale when we borrow to buy a new household appliance, a car, or to take out a mortgage on a house; our collective borrowing is a tiny fraction of that enjoyed by the mega-wealthy.

In any case, this is how the global economy is operated; with each unit of currency acting as a claim on a fraction of the 162,189 terawatt hours per year available to the global economy.  In other words, ultimately, spending currency is the means by which our finite supply of energy is allocated.  Except that a proportion of that allocation of energy must be devoted to providing an adequate supply of energy.  Indeed, because of our debt-based currency system in which every new unit of currency comes with interest attached, it is essential that the total useable energy produced must always be growing.

In this respect, the energy return on energy invested – EROI – of any particular energy source is less important than the energy provided by the entire energy sector at any time.  Low-EROI energy – such as that from tar sands, biofuels, fracking, solar panels and wind turbines – may be added to the mix provided that it remains tiny in comparison to the high-EROI energy produced.  And since – until fairly recently – that is all we had been doing, it had only a modest impact on the wider economy.

Problems began to emerge in the late 1990s as many of the larger – and easier to access, i.e., high-EROI – oil deposits began to deplete.  In response, so-called “enhanced oil recovery” techniques – such as pumping detergent, water and compressed carbon dioxide into the wells – were used to bolster production.  But this significantly raised the energy cost of that energy.  Moreover, when global conventional oil production peaked in 2005, the spike in prices – which triggered the 2008 financial crash – allowed unconventional – i.e., expensive and difficult, low-EROI – oil resources to be brought online.  This prevented a major economic collapse; but only at the expense of a decade of stagnation and a debt overhang that cannot possibly be repaid.

Beyond that, it was Asia – and particularly China – which kept the global economy going for one last round of economic growth before oil production peaked for the last time and the pandemic began.  Although not immediately obvious in the chart above, look closely at coal consumption and you will observe that it had been trending downward as the western economies switched their electricity generation from coal to gas.  But something happened around the turn of the century which resulted in coal consumption jumping from 29,000 TWh in 2002 to 40,800 TWh in 2008.  What caused the sudden upswing?  China was admitted to the World Trade organisation on 11 December 2001:

By using massive quantities of often unwanted coal, China was both able to escape the USA’s control over most of the world’s oil trade, while building its massive manufacturing base at an energy cost far lower than would have been possible in the west.  But while China – and to some extent India – have been the primary consumers of additional coal – at a time when OECD consumption has trended downward – in reality, the end consumers are the western economies which outsourced a large part of their manufacturing to Asia.  That is, Chinese coal – and the concurrent pollution – is embodied in all of the Chinese manufactures that the countries of Europe and North America import.

Crucially, China was able to grow its economy at a far higher energy cost of energy than would have been possible in the western economies without first drastically lowering western standards of living, and accepting far worse environmental standards.  But even this growth is illusory in the longer-term because without western consumption, a large part of Chinese production is redundant.  Lower western living standards – inevitable because of the rising energy cost of energy – translate into lower demand for Chinese goods; plunging China into a classic “crisis of overproduction.”

The growing problem that we must now face is that almost all of the high-EROI inputs to the global energy mix are depleting.  All we have left are those with far lower EROI.  And the issue it raises is this: what proportion of the total 162,189 terawatt hours we were consuming immediately prior to the pandemic can we afford to divert into energy production without so shrinking the non-energy sector that a major depression and financial collapse becomes inevitable?

We know that a crisis will arise sooner or later in the same way that we understand that if a human goes without sufficient calories for any length of time, that human will starve to death.  What we don’t know for certain is how many terawatt hours per year the non-energy sectors of the global economy need to maintain economic growth or to avoid economic collapse.  Perhaps the best estimate currently available for the energy cost of energy is Tim Morgan’s Surplus Energy Economics Database, which puts the current energy cost of energy at a little over eight percent:

This may not look like a problem, as the surplus energy is far greater than the energy that has to be used to produce energy.  But looks are deceptive.  As Tim Morgan explains:

“In Western advanced economies, SEEDS analysis shows that prosperity per capita turned down at ECoEs of between 3.5% and 5.0%. In the less complex, less ECoE-sensitive EM countries, the corresponding threshold lies between ECoEs of 8% and 10%.

“These relationships, identified by SEEDS, are wholly consistent with what we would expect from a situation in which energy costs are linked directly to the maintenance costs of complex systems.

“Illustratively, prosperity per capita in the United States turned down back in 2000, at an ECoE of 4.5%. Chinese prosperity growth appears to have gone into reverse in 2019, at an ECoE of 8.2%, though, had it not been for the coronavirus crisis, the inflection point for China might not have occurred until the point – within the next two or so years – at which the country’s trend ECoE rises to between 8.7% (2021) and 9.1% (2023).

“Globally, average prosperity per person has been flat-lining since the early 2000s, but has now turned down in a way that means that the ‘long plateau’ in world material prosperity has ended.”

Why the global economy should have faltered in response to a relatively small decrease in the surplus energy available is to do with the massive levels of complexity that surplus energy has been used to build and support.  This is not immediately obvious to conventional economists, journalists and political decision-makers; who tend to regard energy as just another cheap input to production.  Indeed, even at the current $60 or so per barrel, oil appears so cheap as to be inconsequential – of less value – in currency terms – than a bottle of coke.

It is what a barrel of oil – or ton of coal, BTU of gas or KWh of electricity – can do for you which is dangerously overlooked in the mainstream.  As I explained in my latest book, Why Don’t Lions Chase Mice?:

“Prior to the 2020 SARS-CoV-2 pandemic, a barrel of oil was trading on world markets for around £48 ($60) per barrel. Yet that barrel of oil provided the equivalent energy output to eleven years of human work. Even at the Minimum Wage, that eleven years of work (eight hours a day, five days a week, 48 weeks per year) would cost £184,166. At the average wage it would cost £334,620…

“As a result of the massive difference between the price of extracting and refining fossil fuels and the value which they generate, only a tiny change in the price is required to produce a major change in profitability. At the 2019 price of £48… for every pound spent on energy, we can generate up to £6,980 in return. If – in ordinary conditions – the price were to fall to, say, £20 per barrel – roughly the price in the boom years 1953-1973 – each pound spent on oil could generate £16,750; one reason why the post-war economy boomed while today’s economy struggles to grow at all. In the event that the price increased to £80 per barrel or more – as happened in 2008 – then each pound spent on oil returns £4,187.50 or less – just a quarter of the returns made during the post-war boom.”

That is, tiny fluctuations in the price of energy – a reflection of its energy cost – have a dramatic impact on the amount of value we derive from it.  And it is for this reason that exchanging low-density, low-EROI energy sources – wind, solar, tidal, etc. – for high-density fossil fuels cannot save us.  Their energy cost is too high and the surplus energy – and thus economic value – they provide is far too low.

The Apollo 13 crew ultimately survived because the mission controllers were able to ruthlessly dispense with all non-essential calls on finite energy.  In addition, they were able to cannibalise what remained of the spacecraft to maintain minimal life support.  In other words, they started with the resources available to them, and then worked out what amount of life support these would allow.  There was no room in that calculation for dreams about yet-to-be-invented technologies riding to the rescue.  It was a zero sum game.

Although they do not realise it, today’s economists, politicians and corporate CEOs face a similar – although bigger and far more complex – problem.  While the Apollo 13 crew needed to power up the stricken command and re-entry modules, we need to power down the globalised economy of spaceship Earth.  Our planetary life support systems too, are being undermined by our collective waste and our fast-depleting surplus energy requires a dramatic reduction in discretionary consumption and – in the developed states at least – some reassessment of what is and what is not truly essential.

Sadly, in practice those hard decisions will never be taken simply because they are too unpopular at a time when we have unconscionable levels of inequality and appear to have a growing economy.  Instead, we find ourselves increasingly engaged in a blame game in which the supporters of the blue political team blame everything on the red team and vice versa.  If we – and our craven political class – had been in charge of the Apollo 13 mission, I fear we would have considered the problem too arduous to solve.  Instead, most likely we would have divided our time between dreaming about the arrival of impossible new energy sources, and casting the blame for our predicament onto someone else.  Meanwhile, our three ill-fated astronauts would have quietly expired as they drifted off into infinite space… paving the way for where all of humanity will surely follow.

———

* A note about terms used here:  I have stuck to the colloquial use of the word “energy” where the technical – but rarely used in common parlance – term “exergy” – meaning energy available for useful work – would be more appropriate.  The laws of thermodynamics are that energy is not produced or destroyed; its form is merely changed.  In this sense, “energy production” refers to the conversion of energy to a useable form; e.g., converting a lump of coal into electricity.  And, of course, the curse of thermodynamics is that every time energy is converted from one form to another, we lose a sizable proportion as waste heat.

As you made it to the end…

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