Entries in efficiency (1)

Thursday
Feb042010

The Oil Ceiling

The expression “glass ceiling” is probably familiar to most of my readers. It refers to that invisible barrier of unwritten rules that prevents women and minorities from being promoted past a certain level. Being an energy wonk, I am interested in an analogous concept I’ll call the oil ceiling.

I recently read an interview on a site called Energy Bulletin with Steve Kopits. Kopits is an energy analyst with a well-respected international consulting firm. He came to the study of peak oil almost accidentally while preparing documents for an investor prospectus. The interview is well worth a few minutes, but here is a major point for me:

Question: Could you tell us about your views on the US oil price threshold for recessions?

Kopits: The US has experienced six recessions since 1972. At least five of these were associated with oil prices. In every case, when oil consumption in the US reached 4% percent of GDP, the US went into recession. Right now, 4% of GDP is $80 oil. So that’s my current view: If the oil price exceeds $80, then expect the US to fall back into recession.


Right now the price of oil is bumping along in the mid 70 dollar range, with occasional excursions into the red zone. As the economies of China and India continue to expand, expect their oil demand to increase proportionally, even as world oil production stagnates. $80 per barrel oil plus some speculative overshoot is predictable.

It seems that our economy is hitting the oil ceiling. The U.S. being such a profligate consumer of oil, sucking up 25% of the world supply, we can’t get around this barrier. The situation seems set up for an endless cycle of recession, partial recovery, a resulting run up in oil prices, and recession again.

I looked around for numbers on the Vermont economy and found that our State GDP is around 25 billion dollars. Our energy expenditures are just over a billion, much of that being oil products, and 90% of that going out of state almost instantly. That puts Vermont right at the 4% limit. Could we be bumping our heads on the oil ceiling as well?

What this tells me is that in order to avoid a perpetual sawtooth graph of economic performance we need to gear up for energy efficiency. In chemistry and economics a process is limited by the scarcest necessary element. That element will be energy. The economic winners of the future will be localities with the lowest energy inputs per unit of productivity. The most prosperous populations will be those with the lowest energy use per capita. Parallel to this, the economic winners will be the places that make the fastest and most coordinated switch to renewable energy sources.

Part of this process will be the simple, usual efficiency practices such as weatherization and industrial efficiency programs. The promotion of public transportation will be important. All this is commonplace.
 
The real differentiator, however, will be the rethinking of mobility and community itself. Some of this is in the realm of municipal, regional, and state land-use planning. People will need to work, shop, and entertain themselves near to where they live. For many people this is presently impossible. In the future it will be a necessity. This requires the rezoning of towns and cities and a coordinated long-term plan for localized economic development. It would help to strengthen our communication network so that people can telecommute – it may become the default for information workers. We will have to reverse the long-term trend of emphasis on increasing mobility in favor of a focus on access. We’ll have to stop thinking in terms of how to move ourselves to something or move that something to us. We’ll need to have what we need on a day-to-day basis close at hand.

Vermont is already one of the least energy intensive states, but we’ll need to do more. The less oil we need per capita and per dollar of GDP, the higher the price of oil (and coal and natural gas) can go before it starts to drag down our economy. If we manage this well enough, oil price at which Vermont suffers can be higher than the price at which other economies go into recession and bring the price of oil back down. I suppose it is selfish, but my thought is that an energy efficient Vermont economy could be prospering while the rest of the world bangs its head on the oil ceiling.