Is Business-As-Usual Likely In A Peak Oil Scenario?

But the guessers, in fact, know no more than the common people and sometimes less, even when, or especially when, they gave us the illusion that we were in control of our destinies.

Persuasive guessing has been at the core of leadership for so long, for all of human experience so far, that it is wholly unsurprising that most of the leaders of this planet, in spite of the information that is suddenly ours, want the guessing to go on. It is now their turn to guess and guess and be listened to.

Some of the loudest, most proudly ignorant guessing in the world is going on in Washington today. Our leaders are sick of the all the solid information that has been dumped on humanity by research and scholarship and investigative reporting. They think the whole country is sick of it, and they could be right. It isn't the gold standard that they want to put us back on. They want something even more basic. They want to put us back on the snake oil standard.
   —Kurt Vonnegut, A Man Without A Country

In The Radical Hypothesis, I explored the plausibility of whether economic growth can continue in the 21st century under conditions where CO₂ emissions—a proxy for fossil fuel consumption—are falling (Figure 1). The world experienced phenomenal economic growth in the 20th century, but history suggests that the concomitant historical rise in emissions was a necessary condition of that growth. The rule is expressed in (1) & (2).

(1) If the global economy grows, then CO₂ emissions grow

It follows that—

(2) if CO₂ emissions are not growing, the global economy is in recession ^{see footnote 1}

See Carbon Dioxide Emissions Declined by 2.8% in 2008; Transportation-Related Emissions Down 5.2% (Green Car Congress, May 20, 2009) and The Radical Hypothesis, Figure 2. Emissions were not growing in 2008, so it follows (logically, empirically) that we must have been in recession (which we were).

Figure 1 — A conceptual depiction of the Radical Hypothesis. Economic growth (dotted line) has always been accompanied by growth in CO₂ emissions (black line). Emissions are a proxy for fossil fuels consumption. Now, at the Turning Point, the consensus view sees economic growth diverging from emissions growth, which contradicts our historical experience as stated in rules (1) & (2) above. Thus the Radical Hypothesis rejects the idea that emissions have been a necessary condition for economic growth. A third alternative, a reduction in the carbon intensity of economic growth, is also shown (dashed line). Carbon intensity is a measure of how much carbon equivalents (CO₂e) are emitted per capita of GDP. In this case, economic and emissions growth are still tightly linked (only the rate of emissions growth has changed).

Emissions are seen as falling in the 21st century for one or both the following reasons:

• Depletion of fossil fuels leading to permanently declining production rates for oil (starting in the medium term) and for natural gas & coal (starting some number of decades hence)
• Voluntary efforts to cut emissions to mitigate climate change by switching from fossil fuels to renewable "clean" energy (wind, solar, biomass-to-liquids conversions, etc.)

If voluntary efforts are not made or fail, regardless of the depletion outcome, the consensus view—typified by Joe Romm of the influential Center For American Progress or the President's science adviser Dr. John Holdren—sees business-as-usual (BAU) as continuing in the 21st century (Figure 2).

Figure 2 — A modified version of the business-as-usual (BAU) scenario depicted in The Radical Hypothesis. Economies (dotted line) and CO₂ emissions (black line) grow unchecked in the 21st century. In a BAU scenario with peak oil, emissions are still presumed to increase steadily, not decrease (dashed line), as technology readily fills the gap (e.g. coal-to-liquids replaces lost oil production). See below for a more thorough discussion.

Today I explore assumptions about BAU scenarios under the assumption that we have now reached the peak of oil production rates or will shortly. This is the "peak oil" hypothesis. If oil production peaks in 2020 or later, then current concerns about peak oil are unfounded. Time will tell, but the peak oil hypothesis is now gaining wide acceptance. Today I assume the peak oil hypothesis is correct for the sake of analysis.

BAU In A Peak Oil World

Those concerned about anthropogenic climate change routinely refer to future CO₂ levels in the atmosphere of 550 ppm (parts-per-million) or greater (Figure 3). Business-as-usual, in which economic and emissions growth are not constrained, is assumed in all these cases.

Figure 3 — An assumption of very high levels of CO₂ in the atmosphere (up to 750 ppm) taken from the congressional testimony of climate scientist Ken Caldeira (February, 25, 2009). Caldeira was testifying about the effects of ocean warming on coral reefs: "Coral reefs are unlikely to survive in regions colored yellow, orange, or red. In the absence of strong policy, atmospheric CO2 will reach 550 ppm in several decades. Our analysis show that before the industrial revolution when atmospheric CO2 level was about 280 ppm, 98.4% of coral reefs were found near open ocean waters with an aragonite saturation state above 3.5. With a CO2 stabilization of 450 ppm only 8% of coral reefs would be surrounded by open ocean waters with aragonite saturation state above 3.5, and with a stabilization level of 550 ppm no existing coral reefs would be near such waters."

There is every reason to believe that a doubling (or more) of CO₂ in the atmosphere over pre-industrial levels (~275-280 ppm) would be catastrophic for the world's coral reefs. The relevant question here is whether anthropogenic emissions could ever get this high in world in which oil production has peaked, and in the absence of significant carbon-cycle feedbacks (e.g. large methane releases from hydrates or Arctic permafrost—atmospheric chemistry converts most methane to CO₂). This feedbacks caveat can't be taken for granted, of course.

The peak of world oil production, defined simply here as a permanent, growing gap between an insufficient supply and potential demand, will presumably cause large crude oil price spikes in the future. Such spikes are called "oil shocks" by economists. Historical experience strongly suggests that oil shocks precede and (in part) cause recessions (Figure 4).

Figure 4 — Nominal and inflation-adjusted crude oil prices 1970-2009, taken from Steven Kopits' Oil: What Price Can America Afford? Oil shocks precede and are a major cause of recessions. The latest example is the price shock of 2007-2008 in which both the oil price rose sharply in 2007 just before the Great Recession began in December, 2007. The literature on the connection between oil shocks and recessions is large, and the results connecting such shocks with recessions are robust. Economist James Hamilton of the University of California (San Diego), who recently testified before Congress, is an expert on the link between oil prices and recessions. Read Hamilton's Causes and Consequences of the Oil Shock of 2007-08 (2009) and Oil and the Macroeconomy (2005).

Thus, in a peak oil future—

1. business-as-usual (BAU) assumes economies & emissions grow without limit, BUT
2. an insufficient oil supply creates oil price spikes
3. such oil shocks reduce fossil fuel demand across the board, thus reducing CO₂ emissions
4. the permanent peak & decline of oil production itself, aside from the direct effects of oil price shocks, will reduce emissions over time (the dashed line in Figure 2) if fossil-fuel based substitutes are not immediately available
5. if CO₂ emissions are not growing, the economy is in recession

Rising emissions, a proxy for fossil fuel consumption, appear to be a necessary condition (#5) supporting past or future economic growth. Thus, given the well-supported assumptions #2 through #4 above, we are not entitled to conclude that—

• Business-as-usual (BAU) will continue if the peak oil hypothesis is correct

The consensus takes the view that business-as-usual can continue, even in a peak oil scenario. To support this assumption, the consensus invokes assumption (3) as stated in The Radical Hypothesis.

(3) Technological progress marches on and improvements are always sufficient to meet our needs (including our need for energy)

To support the assumption of business-as-usual, even after peak oil has occurred, technologies such as coal-to-liquids conversions are assumed to provide seamless, just-in-time substitutes for oil production shortfalls. Thus "technology fills the gap" as shown in Figure 2.

A few examples will make the consensus position clearer. Here is a report on Ken Caldeira's remarks at last year's American Geophysical Union meeting (Scientific American, December 18, 2008).

Caldeira reported on recent forecasts of how the climate would respond if the world completely stopped using oil today. In the one case, it is replaced with coal-based liquid fuels and in the other with renewable resources, such as wind, solar, or nuclear power.

The results are clear, Caldeira said. If liquefied coal powered the world's vehicles ... the Earth would warm 2º Celsius (3.6º Fahrenheit) by 2042, three years sooner than if society continued to use oil. If, however, society replaces oil with renewable energy, that 2º C rise would occur in 2056, 11 years later than with oil.

The reality, Caldeira said, is that we will never run out of oil. As it becomes scarcer and more expensive to extract, industry will switch to other fuels for economic reasons. The danger is that coal will likely appear to be the cheapest alternative.

So rather than view peak oil as a climate savior, he said, those scientists, engineers and economists should see the end of oil as a "new challenge" to efforts to cut carbon dioxide emissions.

[My note: As reported in Nature, "Caldeira and colleagues used a climate and carbon cycle model to look at how running out of oil could affect future climate scenarios." Here's the abstract: "A coupled climate and carbon (CO₂) cycle model is used to investigate the global climate and carbon cycle changes out to the year 2300 that would occur if CO2 emissions from all the currently estimated fossil fuel resources were released to the atmosphere. By the year 2300, the global climate warms by about 8 [°C] and atmospheric CO2 reaches 1423 ppmv (parts-per-million-by volume)."]

At issue here are Caldeira's working assumption that 1) it is possible to quickly (instantaneously) replace oil with liquefied coal and 2) his implicit assumption that economic growth will continue unabated even if we are "running out of oil." Another issue, which I will not pursue here, is how little bang for the buck we get by replacing oil entirely with renewable sources such as biofuels or wind-driven electric transport instead of liquefied coal—locking in a 2°C temperature rise above pre-industrial levels is delayed only by 11 years! Even the oil to liquefied coal conversion makes only a tiny difference.

Using a coupled climate and carbon cycle model is appropriate if you want to want to estimate future anthropogenic emissions from presumably vast fossil fuel resources, but such a model does not capture what might actually happen "on the ground" in the real world. A prompt transition from oil to coal-based liquids is clearly impossible, as I'm sure—I'm hopeful— Caldeira would admit (Figure 5).

Figure 5 — Making the transition from oil to liquefied coal, from Volume II of the report of the Task Force on Strategic Fossil Fuels (2007). In the "high oil price" case, which is very likely in a peak oil scenario, it will takes more than 20 years for the U.S. to achieve 2 million barrels-per-day of from coal-to-liquids conversions if the required investments are made over time. I also note that very efficient coal-to-liquids conversion is not yet an off-the-shelf technology, although the Fischer-Tropsch process itself is many decades old. The Rand study Producing Liquid Fuels From Coal states that "liquid yield from direct liquefaction is very process dependent, but, in general, yields are projected to be considerably higher than those of Fischer Tropsch CTL plants designed with current commercial technology. Based on conceptual designs of two-stage and catalytic multistage direct-liquefaction CTL plants, prospective yields are reported to be between 2.7 and 3.0 barrels per ton of as-received coal" (page 27).

Caldeira's model, like every other model used to predict climate outcomes, does not take real-world economic conditions into consideration. Such modeling presupposes—the assumption is unstated and unexamined—continuing economic growth, even in a business-as-usual scenario where peak oil occurs. 

The recent work of Pushker Kharecha and James Hansen, Implications of "peak oil" for atmospheric C02 and climate, provides a second, more complete, case where economic growth is likely overstated (Figure 6).

Figure 6 — In the BAU scenario (top, left) oil peaks before 2025 (blue line) but coal emissions (orange line) still grow without limit out to 2100. The Less Oil Reserves ("peak oil") scenario (bottom, left) assumes the coal phase-out case (top, middle), so coal emissions are limited by policy, not economics and technology.

Kharecha and Hansen met a lot of hostility in the climate community for even raising the question of what peak oil's effects on emissions would be. They should be commended for sticking to their guns and publishing anyway. However, their standard BAU assumption does not jibe with the probable economic consequences of peak oil. I have taken the liberty of modifying their BAU graph in Figure 7.

Figure 7 — A modified business-as-usual scenario. Kharecha and Hansen's future coal emission curve (solid orange line) has been replaced with a more realistic scenario (dashed orange line) which takes future recessions and the timing of technological fixes into account. Coal emissions still grow, but not nearly at the pace envisioned in most BAU climate scenarios. One could make a similar change to projected coal emissions in the Less Oil Reserves scenario as well.

Current calculations of business-as-usual in a peak oil scenario are, practically speaking, almost useless. Allow me to repeat my summary, suitably modified, from The Radical Hypothesis.

1. Mitigating climate change or overcoming limits on available fossil energy will require or force massive decreases in CO₂ emissions over the 21st century.
2. Economists assume future generations will be richer than the current one The belief that economic growth is a necessity and will continue in the 21st century is not debatable.
3. The idea that 2.9% annual economic growth in the 20th century depended on a steady rise in CO₂ emissions is rejected.
4. The assumption that economic growth in the 21st century growth will take place without an accompanying rise in emissions is justified by the stipulation that technological progress solves all problems as stated in (3) above.

Even in the peak oil case, our ability to carry on business-as-usual is not questioned. The assumption of continued economic growth (#2, #3) remains unassailable. The assumption of just-in-time technological fixes (#4), which is contradicted by Figure 5, is also not debatable. In all BAU scenarios, it is presumed that energy technology (coal-to-liquids, biofuels, electric cars, any or all of these) will seamlessly step up to replace oil as the need arises. This assumption is not yet proven, and it appears to be tragically unrealistic.

History suggests that a continuation of business-as-usual in a peak oil scenario is implausible. But granting that I could be wrong, I urge climate scientists and policy-makers to at least examine the assumption of future economic growth made possible by our presumably limitless technological prowess.

2010-2020 — The Decisive Decade

If the peak oil hypothesis is correct, world oil production will be (at best) flat or in decline by 2020. During this same period, the United States may (or may not) implement a cap & trade system to rein in CO2 emissions. The proposed legislation aims to cut emissions 17% below 2005 levels by 2020. Emissions declined in 2008 following on the oil shock of 2007. The financial meltdown in 2008:Q3 guarantees a similar emissions decline in 2009.

As I described in The Reign of Error, Europe already has a cap & trade system in place. Europe's carbon market, created under the Kyoto Protocol, has not actually resulted in reduced emissions in the Eurozone. This sleight-of-hand is due to allowable offsets whereby a putative reduction outside of Europe (e.g. in Asia, or Africa) is counted as a reduction within Europe. At best, Europe has reduced the carbon intensity of any economic growth that took place since the formation of the carbon market. The proposed cap & trade system in the United States contains the same loophole.

Assuming that peak oil occurs in the next decade, and the currently envisioned cap & trade system, which goes into effect in 2012, is actually implemented, we can expect an overall decline in carbon emissions in the United States during the period 2010-2020. If growing emissions are a necessary condition for economic growth, as I have argued here and in The Radical Hypothesis, it follows that the American economy will shrink, not grow, in the coming decade.

If world oil production peaks, I predict most people will forget about terrifying business-as-usual climate scenarios. Instead, they get down to the hard business of replacing oil by any means possible. If the economy is shrinking, any means necessary will be used to jump start growth.

Thus, the years 2010-2020 will likely be the decisive decade of the 21st century. We should know by 2020 whether economies can grow as emissions decline. The result will define our response to anthropogenic climate change in all the decades to follow. We will know whether the consensus view espoused by Al Gore and many others is, as I have believed all along, a politically expedient "green jobs" fantasy.

Contact the author at dave.aspo@gmail.com

Notes

1. In the propositional calculus, which is a subset of 1st order logic, (1) implies (2) by a rule of inference called modus tollens:

(1) if P, then Q

(2) if NOT(Q), then NOT(P)

Q is said to be a necessary condition for P, and P is a sufficient condition for Q.

This has the same form as (1) & (2) in the text. I could simply have said, more intuitively, that "Recessions cause reduced emissions," which is roughly equivalent to (3)—

(3) If the economy is not growing, then CO₂ emissions are not growing

In all cases relating to the economy and anthropogenic emissions, proposition (3) appears to be true. The problem with proposition (3) is that it is not true in all cases, i.e. it is false. It implies the false statement (4), which again is derived by modus tollens—

(4) if CO₂ emissions are growing, then the economy is growing

Proposition (4) is false because emissions could be rising (e.g. due to carbon-cycle feedbacks, volcanic eruptions) for reasons other than economic growth. This is the same as saying that rising emissions are not a sufficient condition for growing economies. In fact, business-as-usual scenarios say that rising emissions (of all sorts) will have disastrous consequences for economies (contradicting propositions (3) & (4)).

Of course I am arguing that rising emissions in the 20th century have been a necessary condition for economic growth. Sorry to put you through this. I used to be theoretical linguist and logician a long, long time ago in a galaxy far, far away.