Is the austerity wave related to Peak Oil and a lower return on energy?

The classic and mainstream left position is: the current austerity wave is a direct result of the financial crisis and the need to bailout financial capital, and working people have to pay for this. Steady-state economists have a different explanation: the failure to extract cheap and abundant energy after Peak Oil, is the fundamental cause. This explanation means that even without a financial crisis and bailout, we would still face lower living standards. My own take is that both processes are occurring at the same time, and that one of the underlying causes of the current crisis is indeed Peak Oil. However, given stronger social power, one could adapt society’s spending in ways that would not only be socially just, but would lead to socially and culturally richer societies; and of course this cannot be done by spending a reduced pool in priority to the richest strata of society, which is the hyper-neoliberal program now being carried out in Western countries.

This excerpt by Eric Zencey makes the case of the steady-state economists:

“Though not a single politician or mainstream economic analyst has ever made the connection, the new worldwide austerity in public spending traces to a physical cause, as measured by change in EROI — energy return on energy invested. This is the ratio between the energy that comes into the global economy and the energy it takes to produce that energy. Worldwide, the average EROI of oil is down to 20:1 from its original value of 100:1 eighty years ago. This means that our oil-fueled economy simply has less capacity to generate wealth than it did back then, because an increasing share of the energy that used to be dedicated to producing goods and services is being plowed back into securing energy.

Even more troubling than oil’s 20:1 global average is the figure for new oil, just 5 to 1. It takes a lot of energy to drill five miles under the ocean and pump crude back to a refinery, or to cook tar sands to extract a usable fuel. The energy wellspring at the heart of our economy no longer gushes a torrent of wealth; it’s a smaller, much-diminished stream.

Wind and other renewable energy sources offer returns in the seventeen-to-one range — still a nice income flow, but nothing like the flood we once got from oil. Everything our economy accomplishes, including health care, government, schools, roads, defense, repairing our aging infrastructure and re-engineering our built environment to handle the changed weather that oil use has given us, is going to have to be financed from a much-diminished EROI. And private largess, such as the oil-fueled philanthropy of Andrew Carnegie that built libraries and established foundations and grants for worthy public causes, will fare no better. (The conservative notion that private philanthropy will increase if government takes a smaller bite of the total economy is mostly wishful thinking; the rising overhead costs of energy — the increasing energy cost of energy — will shrink the economic pie as a whole, no matter where we make our slice between the public and private sectors).

Protestors of austerity measures in Athens

Conservatives in Washington and elsewhere insist that we can no longer afford the level of governmental services we’ve become accustomed to. Their call for austerity in public spending is partially right, but for reasons that are wholly wrong: they think that by busting public unions, by reneging on pension agreements for teachers and public employees, by privatizing the production of public goods (streets, schools, even national defense), by cutting regulations and in general shrinking the government, they’ll release the pent-up entrepreneurial energies of business, which will put things back the way they were a few decades ago, when oil was returning a respectable 40:1. That’s simply not going to happen.

Beyond the wrangling between the deficit reducers and the Keynesians, like Paul Krugman, who warn (correctly) that deficit reduction during a recession will only make the recession worse, there lies another deficit, one that no one is talking about: the deficit we’re currently running in our country’s environmental account. We’re drawing down natural capital to cash it out as wealth, which means we’re spending a capital stock — healthy ecosystems — as if it were income. Worse, we borrow money against the prospect of being able to do this forever. That, too, simply isn’t going to happen.

We’ve begun to recognize that we can’t borrow infinitely against our financial future. At some point we have to recognize that we can’t borrow infinitely against our environmental future, either. We’ve got to learn to budget ourselves to the level of economic activity that can be supported and maintained by current solar income instead of running that account in the red. We’ve got to stop counting on continued drawdown of finite stocks of fossil fuel and stop counting on paying our current expenses by borrowing against the continual expansion of our economy’s ecological footprint.

The partisans of Infinite Planet Theory who are managing our (supposedly) infinite growth economy don’t recognize this. They don’t see the shape of the emergent reality: the energy overhead of our economy is increasing at precisely the moment we need even greater investment to build a sustainable, renewable energy society and re-engineer our civil infrastructures to handle the world as we have made it. It’s a very difficult squeeze: needed expenses are rising as income flow declines.

There is some room for hope. It is possible to have a decent civilization founded on the rates of return that renewable energy offers — and unlike the EROI of oil, those rates can be expected to increase with time and technological development. Solving the EROI squeeze means committing ourselves to building the infrastructure we need to capture current solar income and run our economy on renewable, non-carbon-based energy. Every unit of fossil energy we use to do anything else commits the United States and the planet as a whole to a lower, more straitened standard of living in the future. If we want to see an America of crumbling concrete and weed-filled vacant lots, an America too poor to repair its buildings and bridges, too poor to educate its young to the highest standards, an America that has become a fallen, impoverished power, we need only continue as we are: burning fossil fuel, ignoring climate change, and refusing to invest in the renewable energy infrastructure we need for a sane, rational, steady state economy.”

2 Comments Is the austerity wave related to Peak Oil and a lower return on energy?

  1. Avatardavid

    Dear Michael There is a company in jolly England that can bring a non-pollution,non-hydrocarbon synthetic fuel for all combustion motors.In Arizona a 750 mil sun powered non polluting energy turbine will electrify 150,000+ homes.Here in San Luis Obispo county a solar farm is being constructed and this will energize another 155,000 homes.So with the 20:1 ratio affected by these technologies how will this change the dynamics to help the poor and less fortunate?This could put a financial squeeze on the steady state economy.I’ve just listed three,there are a lot more on the list.And as a aside, on the list of uses of petroleum drugs and plastics are # 1 and 2 gasoline is # 17.Thanks for you insight. david perry

  2. AvatarMichel Bauwens

    Dear David, there are really two very different positions in this debate. The scientists around climate change recently released a report that a full transformation to renewable could be done by 2050, provided our society would change its policies and investments (but that is NOT happening); and then the Peak Oil researchers say the opposite. I think best is to work with scenarios. Unfortunately, I don’t think we have ‘in-house’ distributed energy experts, though my hunch is that those with an interest in these matters, with whom we are in touch with, are more in the optimistic camp.

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