Tuesday, January 31, 2012

Hungary & Romania, bad slave & good slave of global finance.

   In the past few months, there has been a vigorous barrage of negative media coverage about the Hungarian government and their reforms since 2010.  The country’s prime minister has been compared to Vladimir Putin, Hugo Chavez, Ceausescu and a host of other dictators past and present.  So is it indeed true, is Hungary a totalitarian state?


            I will return to the above mentioned question later, but first I want to focus our attention on one particular article that was part of this intense media campaign of criticism towards this small country of ten million, which produces less than .1% of the world’s GDP.  The article I am referring to is the one carried by Reuters on January 13, which made its way to other news outlets, suggesting that Hungary should be just as accommodating in dealing with the IMF, because it would be better for them, given how good it’s been for neighboring Romania.

It may irk Hungarians who have always regarded themselves as superior to their poorer neighbours to the east, but Romania may have lessons to teach Budapest as it seeks a rescue from the EU and IMF.
By sticking to the terms of a similar programme, Bucharest has managed to put its once troubled economy back on the path to growth.”

This approach to criticizing Hungary was not chosen by accident given the history of these neighbors, which created many ill feelings between the two people.

            There are many reasons why I wanted to bring this article up.  The most important reason to do so was the surprising way in which the news was received in Romania.  I speak Romanian as well as Hungarian fluently so I had the opportunity to observe the reaction of Romanians on forums in regards to Hungary’s standoff with the EU and the IMF.  Generally, whenever Hungarians or Hungary are mentioned on Romanian news outlets, the reaction of the public is generally heavily negative and extremely hostile.  This should come as no surprise, given that in Romanian schools, there is for decades now a practice of vilifying and ilegitimizing the presence of the ethnic Hungarian minority of 1.4 million people living in Transylvania for over a thousand years now.  They go as far as engaging in heavy distortions of the region’s history for this purpose.

            To my surprise, while in much of the rest of the western world, I found judging by the reactions of people on forums dealing with this subject, most people bought into the propaganda campaign that was unleashed, and now most who have been exposed to this propaganda, indeed believe that Hungary is now some sort of a fascist-totalitarian state, the reaction of people in Romania, where one would always expect public opinion to be heavily negative towards Hungarians, was about 90% positive.

            So how can this be?  The answer is simple.  Romania’s policy of bowing their head to the IMF and other global players did not do them much good.  It is not only that people are tired of the harsh austerity measures that the IMF has imposed on them, which in my view was actually not even entirely necessary, which led to this sudden outburst of appreciation of Romanians towards Hungarians and their courage to stand up and fight.  It is also the realization of what these measures are actually doing to their country’s long-term health and their frustration with their political elites who behaved in a manner that was too docile and servile.

            While the article that praised Romania’s servility argued that Romania is now on solid ground economically, the reality is very different.  One of the greatest dangers to Romania’s long term economic and social stability is its demographic situation.  The country lost about 25% of its potential workforce to immigration in the past two decades.  A great deal of blame for this can be allocated to 20 years of post communist leadership deficiencies.  The role of the IMF in the past years to continue this trend for the present and the future cannot be ignored however.  Romania needed an avenue for economic growth, in order to stem the tide of the worker exodus.  In order to save themselves they even need to find a way to start attracting their young people back.  At present, they no longer have to worry about the shrinking of their workforce as a result of immigration alone.  Their potential workforce started shrinking due to demographic imbalances, by more than 1% per year.  At this rate, if we add the possibility that the potential workforce will also shrink by 1% or more per year  due to migration, Romania will be facing serious consequences by as soon as 2025, and by 2040, it is hard to see how Romania will even be able to still exist as a state, unless they can change direction drastically, because between 2030 and 2040, the rate of loss of their potential workforce due to demographic realities will double from about 100,000 people per year currently to over 200,000 per year.  This problem if further compounded by the fact that when they are losing their potentially productive population to immigration, they are also loosing their potentially reproductive population as well.

            The quantity of potential workers is not the only problem that was created by Romania’s inability to produce better leadership, and now by some flawed, or what some may argue are ill willed policies pushed by the IMF.  Cuts made to education, means that Romania is on its way of falling behind in providing increasingly necessary skills to its current and future workforce.  Its workforce is also likely to become increasingly less healthy, because the IMF demands that the country which has the lowest per capita GDP, and also spends the least on health care as a percentage of GDP in the EU, cut even more.

            Aside from causing permanent damage to its workforce the policy of extreme austerity that the Romanian government was forced to accept, and is now praised for by the western media is also destroying its ability to catch up on infrastructure.  To attract serious investors, a country needs to provide solid physical human and legal infrastructure, as well an efficient governing system.  Romania sorely needed to provide solid improvements in all these categories, and in part due to IMF austerity pledges they were able to provide improvements in none of these categories, and their time to make it happen is limited because of the demographic problem I already mentioned.

            The IMF also demanded that this year Romania should privatize many of their state run companies (there are very few still left to be privatized).  Among the companies that the IMF wants to see privatized, energy and mining assets go to the top of their list.  Many of these companies are actually profitable, and they increase the government’s revenue stream.  There are also many that are far from being profitable, and they require subsidies to stay afloat, such as the country’s railway lines.  If privatized, the country’s railway system might once again become profitable.  The cost however will be that ticket prices, industrial transport prices will likely rise significantly, making it hard for people and goods to move around.  Privatization will also likely mean that many lines will be cut out of service, meaning that some parts of the country will inevitably become economical dead zones.  On balance, I believe that the subsidies are cheaper than the results of privatization.

            As the energy and mining companies will be completely privatized, and the energy market deregulated in Romania, people will have to cope with having to pay market prices for their heating in the winter, as well as for their electricity throughout the year.  That might sound like a reasonable idea to most, but most do not know that average wages in Romania are less than 1/3 the EU average.  Life will become even more unbearable, and more people will be compelled to immigrate.  When the IMF demands this of countries with high birth rates, it may not seem like such a big problem.  But Romania’s current birth rate is 1.3 per woman (2.1 is replacement rate).

            Romanians sense this, even if many cannot quantify it, and as a result they started taking to the streets to protest, ironically just a few days after Reuters decided to use them as an example that would be a humiliating blow to Hungary.  The protests in Romania are still ongoing despite the cold weather, and the government is already starting to backtrack on some of its policies of appeasing the IMF.

            So given that Hungary has now decided to bow to pressure and begin the negotiations between slave and master with the IMF and the EU, thanks to all the financial, political and propaganda pressure that has been exerted on this small country, perhaps it is true that they should take lessons from Romania.  Not necessarily the lessons that western media and their sponsors would like Hungarians to learn, but perhaps the lessons that they can learn by looking at the true consequences of allowing one self to fall in the hands of these institutions.  Looking at the side effects that IMF policies had in Romania, it is clear that Hungary can reach this level of economic “stability” without their help.  In other words, the consequences of turning one’s back on these predators are not much worse than bowing one’s head.  The difference is that by turning one’s back there is also an opportunity to make the slavers suffer.

            There are also many lessons that the rest of us westerners can learn from what has happened with the Hungary affair in the past few months.  The most obvious lesson is that any attempt to break the current hegemony of global finance over us will be met with vicious reprisals, as was the case with Hungary.  The Hungarian government did since 2010, what most occupy supporters could only dream their governments would dare to do.  They decided that as part of their economic restructuring, meant to deal with the new post 2008 economic realities, they will not ride the poor and the middle class exclusively.  They imposed a levy on the banking sector, and also demanded that they take some loss on the predatory FX loans they not only offered but effectively pushed people to take, with the consent of the previous Hungarian government.

            Given the stance of the Hungarian government on just how hard they will accept to ride the poor in order to exempt the banks, one would think that center and left leaning elites and media in the west would be supportive of this government.  Just as surprising as the positive response was on the part of ordinarily Hungarian despising Romanians, it is equally surprising where the most vicious attacks on Hungary came from.  Hillary Clinton, Paul Krugman, the EU’s socialists, and most center and left leaning media outlets were at the forefront of the effort to paint Hungary as a totalitarian state.  Unfortunately, from what I saw on the internet, most who were exposed to this barrage of distortions believed it, and even refuse it seems to take into consideration the feelings expressed by large segments of the Hungarian population, which thinks that these attacks on them are unfair (100,000 Hungarians took to the streets a week ago to support the government and denounce the IMF and EU).  They instead chose to focus on a few Hungarian eccentrics, who figured out easily that it is more hip and cool to be dissident eccentrics than just eccentrics, and therefore support wholeheartedly the campaign to drag Hungary through mud, in order to make them bow their head to global financial interests.  The lesson that needs to be learned for the average occupy protester and their supporters is that when push comes to shove, they have no allies within the ranks of the established elites.  Those who declared any support are mainly doing so knowing full well that the movement will not lead to change that they have to end up supporting as a result of new political realities as was the case in Hungary.

            The lesson that we need to learn from the treatment on behalf of our elites of the good slave versus the bad slave is that we all can consider ourselves to be slaves given that change will not be tolerated, regardless of where the political winds will blow.  Hungary is like I said, a relatively insignificant country, yet by trying to gain more control of their finances through recent reforms, the reaction was enormous.  If they cannot allow such a small country, on the periphery of western society, to stray into a different direction, can we really believe that change within western society on a broad front will ever be tolerated?

            Change is necessary at this point as I already pointed out in previous blogs, as well as in my book.  It is necessary not for idealistic reasons, but for logical pragmatic economic reasons, yet change is something we no longer tolerate, despite us becoming a far more tolerant society in many other ways, especially on social issues.  When change is no longer possible, it means that we have become brittle, and we will be smashed to dust in the face of our challenges.  Or perhaps I am wrong about all this, and the Hungarian state really has become totalitarian, and the Hungarian people are just not up to speed yet.    

  

Monday, January 23, 2012

Peak oil & environmental degradation deniers own the podium


EU plans to place sanctions on Iran oil; a reflection of state of global economy?

            When I first heard of EU plans to stop buying crude oil from Iran, I was baffled.  The IEA was projecting oil demand growth of 1.3 mb/d for 2012, and even with the expected Libyan oil coming back on line, it was difficult to see where this extra oil would come from.  EU sanctions, coupled with Japanese and South Korean initiatives could potentially remove another .7 million mb/d from the market, leaving us with a gap of up to 2 mb/d, that will have to be made up.  A weak EU economy, shaken by the current sovereign debt crisis, cannot afford more pressures on its economy, such as a price spike in oil prices would deliver, so I could not understand their reasoning behind their decision.

In comes the IEA & the World Bank to clarify things

            Now the picture is becoming clearer, given recent forecasts coming from the IEA, and the World Bank.  The IEA slashed its demand forecast by 200,000 b/d for 2012; furthermore they now believe that we could see a slump in demand, which might leave demand growth flat for 2012 from the previous year, in other words, they expect further downward revisions.  The World Bank also slashed its global economic growth outlook to 2.5% for 2012, and 3.1% for 2013.  That might not sound bad for those who do not follow economic issues, but it is.  A relatively healthy global economy is usually growing at 4% or more.  We have to remember that we are living in a converging world, and, while the developed world would be jumping with joy at the prospects of 2.5% growth, in China 5% growth will feel like a recession.  The World Bank also stated that the picture can worsen considerably if the situation in Europe will deteriorate.  When I first heard of the EU plans for sanctions on Iran, it left me confused, but now I understand that it is only a confirmation of the fear on the part of the World Bank and the IEA, that we likely won’t have to worry about meeting a growing demand for crude, because it is not likely to materialize.

Understanding the impact of Iran’s crude on the market.

            We now know the World Bank estimates global GDP growth to be 2.5% in 2012, and 3.1% in 2013.  In the past decade, there was an increase in petroleum demand of 1%, for every 2.5% global GDP growth.  That simple analysis would lead us to believe that we would need a net gain of about 900,000 mb/d to come online each year for the next two years.  This picture is not entirely accurate however.  I believe that at a price of $80-100, per barrel, which is where we are right now, we can achieve 2% global GDP growth, without the need of an increase in petroleum supply, because the higher price will be a dampener on demand.  Only once we breach the threshold of 2% growth, does the market demand an increase in supply, through a rise in prices. Unconventional sources of petroleum can supply the world with an annual increase of a few hundred thousand barrels per day, so as long as conventional supplies remain flat, we might be able to support global economic growth of 3%.  So the fact that Europeans believe they can feel comfortable risking the loss of about a quarter of Iran’s exports on the world market might signal that 3% global growth might actually be the best we can hope for in the next three to four years.  In other words, the developed world will grow at about 1-2%, while the developing world will grow at 4-5%.

One might be tempted to assume that the EU is making a mistake, because in current conditions, more Iranian crude would help lower the price, which will increase demand, but it will also boost the economy.  Reality is that prices can no longer go bellow $80 a barrel for a prolonged period, without causing supply to drop sharply as well.  The volume we would loose if we were to have crude oil prices bellow $80 a barrel for a prolonged period would exceed greatly the amount of oil we can potentially loose if Iran chooses not to sell its oil at a discount in response to the sanctions.  We have more and more expensive oil coming online, as the conventional fields are no longer keeping up with demand, and as they age, they also in effect become unconventional fields.  In effect, we are stuck in a situation where petroleum prices cannot drop bellow $80, and that is a dampener on global GDP growth.  Slightly more Iranian crude hitting the market cannot change that.  Only massive volumes of new cheap liquid fuels production, which would make our growing dependence on expensive petroleum liquids unnecessary would change this fact.

Effects of this reality:

            At average global growth rates of 3% or less, the ranks of the global poor will increase, not decrease, because that growth will not be shared equally by the citizens of the ‘global village”.  As a result, we can expect that 2011 will not be the only year of the protester, as Time Magazine decided to name it.

            In the developed world, this level of economic expansion will not suffice to allow us to keep up with growing debt, especially at government level.  More cuts in the basic social safety net, in education, R & D, and in infrastructure will be forthcoming.  The ranks of the middle class will continue to be eroded slowly.

            At 4-5% yearly growth in the developing world, some will benefit, but the vast majority, will se no hope of exiting their state of brutal poverty.  A society without hope cannot expect long term social cohesion and stability.

            In the absence of robust growth, the supporters of the peak oil theory will have to continue yielding the podium to the deniers, because our ability to provide continued growth in supplies will never be tested.  The deniers will continue to point to continued growth in the total liquid fuels supply as proof that we are not facing supply constraints.  People like Daniel Yergin will be able to convince us that our path is sustainable, and there is no need to change.  With 3% global GDP growth rates, it will continue to be a winning argument for a decade or so.  After that, conventional crude supplies will probably start declining, after spending about 15 years on a plateau, which is mainly maintained due to the current environment of much higher prices than we experienced before 2005, when this plateau was reached.  Once conventional crude starts declining, unconventional supplies, which is where we have been getting our comparatively meager increase from for the past five years now, will not be able to give us continued supply growth, because most of it will go to making up for lost production in conventional supplies, which currently make up 80% of total liquid fuel supply.

            The sluggish economy will never ever be blamed on the higher fuel costs, and price shocks, but it is in my view no coincidence that about two years after conventional crude production peaked, the global economy never regained its momentum we experienced before.  We seem to be settling into a pattern of average growth rate that is lower by about 1% per year, and there is no reason thus far to assume that this pattern will change anytime soon to the upside.  If anything, we can expect a further readjustment of our trajectory to the downside, mainly as a result of systemic risks, stemming from sovereign government debt growth, outpacing nominal GDP growth (nominal GDP = Real GDP + rate of inflation).  When we will reach the point where the current higher price of petroleum will no longer suffice to keep conventional petroleum supply on its current plateau, which will likely happen around 2020, the event will lead to a further downward adjustment of the economy’s trajectory as well.

Note:  As average growth of liquid fuels supply slowed starting from 2006, after the peak in conventional petroleum supply, from a rate of 1.7% yearly growth to just .4%, GDP growth rate also slowed from an average yearly growth rate of 4.2%, between 2001-2007, to a rate of 2.8% from 2008-2013, if World Bank projections are correct for the 2012-13 period.  Some may argue that it is the other way around, and liquid fuel supply is reacting to the slowing economy.  That is a false claim however, because in 2011, liquid fuel production was outpaced by consumption by a narrow margin, which negates the possibility that supply is simply lower due to demand being lower.

            Throughout all this, the peak oil deniers will continue to argue that we are not experiencing a supply problem, but a demand problem instead, due to the weak economy.  The weak economy will not be linked to the event when conventional crude peaked, which happened around 2005, at least until about 2025, or a few years after total liquid fuel supplies will follow the fate of conventional petroleum and peak as well.  In the meantime, the plan that is in place to deal with this is to do nothing.  We continue to hear claims that wonder technologies, made available to consumers courtesy of market forces will save the day.  In last week’s article, I pointed out that in the previous two decades, we also had technological evolution, as well as economic events that acted as dampeners on energy demand, yet we still increased global consumption by about 40% during that period.  In the absence of a global mechanism to encourage efficiency, I doubt the current path will lead to a betterment of our lives, and a sustainable path that will allow for basic geopolitical stability for our planet. 

As long as the peak oil and environmental degradation deniers continue to own the podium, there is little chance that support for a new way of doing things will ever materialize to cause change to happen.  Politicians of all political backgrounds will promise us change.  US president Barack Obama promised to pursue policies that will commit the US to reducing greenhouse gas emissions from the US economy by 80%, by 2050.  Committing to reduce greenhouse gas emissions by 5% during his presidency would have never been a promise he would have committed to, because that is a promise for the present, so he would actually have to do something to make it reality.  Such a promise he knows very well why he would never make.  So far, the only force that has proven effective in reversing the current trend of increased greenhouse gas emissions has been recession.  In the current global economic environment, doing something about environmental degradation on a local level, only leads to economic hardship, because it is clear now that other players who refuse to do the same, automatically gain an economic advantage.  That is why I proposed the sustainability trade tariff in my book ‘Sustainable Trade”, as a means to encourage sustainable economic growth.  Perhaps if we had a means in place to be able to adapt to the challenges we face, we would be less inclined as a society to yield the podium to the deniers.     

Monday, January 16, 2012

Global Energy to 2030: Market & public policy failure to help us meet our needs.

January/ 16/ 2012
Zoltan Ban
Sustainable Economics

A short review of our energy demand evolution from 1990 to 2008 (based on EIA data, publicly available.  2008 is the last year for complete information on energy.).

            In 1990, we had the collapse of communism in Eastern and Central Europe, which caused a drop in energy demand in the region of roughly one third within the first few years of transition. In 1997, we had the Asian financial crisis, which also dampened economic activity on a global scale.  The 2000-01 tech bubble burst is also worth mentioning as a dampener on economic activity.  Throughout this period, we also had the constant advance of technology, which achieved remarkable improvements in energy efficiency.  This should be expected, especially in the last decade or so as commodity prices rose to new highs. Given all the factors that acted as a dampener on energy use, why did we still increase our appetite for energy by 40%? 

The Answer is simple.  We also had some factors that worked towards increasing our demand for energy, which more than made up for the above-mentioned dampeners on energy demand.  The increase in the world’s population is one of the main factors, but it most certainly is not the only one.  The shift of manufacturing activities to lower cost places has encouraged the decline of product durability, along with the desire for a fast-paced change in technological innovation, which actually requires a less durable economy as an incentive to innovate.  There is, of course, also the rise of a still relatively minor middle class in the developing world, which is creating a huge swell of demand for energy. 

The effect of the low hanging fruit pattern of harnessing the planet’s natural resources is also a reason why we increased demand for energy, and we shall continue to do so going forward.  The history of petroleum production and its energy return on energy invested trends is the perfect example of this trend.  About six or seven decades ago, petroleum wells were yielding about 100 units of energy for every unit of energy imputed in the production process.  Today that ratio stands at roughly 20 to 1, and technology did not seem to help reverse that trend, nor should we expect it to in the future.  By 2030, the ratio of energy imputed to energy produced for petroleum will likely fall to below 10/1.      

Looking to the future

In the age of new sustainability consciousness in the developed world, we most certainly did get millions of people who consciously gave up many consumption privileges, such as a personal vehicle, or even eating meat, in the hope that they can alleviate the suffering of those around the world, who cannot even afford clean water, or in some cases a bowl of rice.  Their efforts were more than offset by the few hundred million new members of the global middle class, mainly form India, China and other developing nations, who now want to have a regular shower, electrical appliances and a personal motorized mode of transport.  Moreover, yes, most of them found a taste for meat. We still have billions more around the world, awaiting their chance at the good life, so the modest declines of energy use in the developed world will be more than offset by the masses around the world who are now looking to increase their per capita use of energy two or even three fold in the next few decades.

Given the 40% increase in energy we experienced, despite many factors and events which acted as dampeners on energy use, what should we expect to be the minimum level of energy consumption level going forward, which will allow for a continuation of the current global status quo for the next two decades?  The answer is at least 30%, and yes I do believe that we can increase production by that much, if we consider geological realities alone.


The chart bellow represents my view of what this 30% increase in energy production will look like, if we are to only consider geological factors, and include the facts we know about our energy sources.  It is also a scenario that I see as unachievable if we leave it to global free market forces, and current public policy trends to get us there.  One of the things that should stand out from this chart is the rise to prominence of coal as the dominant source of energy.  A chart of the EIA version of what the energy picture will look like in 2030 is posted on the right side as a comparison.

 

















The EIA projected in its 2010 report a very different scenario, which I disagree with in its assumptions.  They actually see a 40% increase in energy demand, and they continue to project that petroleum liquids will still be the largest energy source.  So in other words they predict that by 2030, petroleum production will rise to about 111 mb/d (million barrels per day), from the current level of about 87 mb/d.  Of the 24 mb/d increase, they project that 10 mb/d will come from unconventional sources, such as bio-fuels, Canadian oil sands, extra heavy crude, such as the kind found in Venezuela and other such previously underdeveloped sources.  On this projection, I am in agreement with the EIA.  The part that I strongly disagree with is their projection of conventional crude contributing 14 mb/d.  The International Energy Agency (IEA) also disagrees with them, because they also confirmed in their 2010 energy report that conventional crude has peaked in 2006, at a level of about 70 mb/d, out of a total liquid fuel supply of around 88 mb/d we have currently according to them.  Interestingly, the EIA also seems to be ignoring their own data, which shows that crude + condensates, which makes up over 80% of total oil supply also reached a plateau in 2005 as my graph below shows, which was constructed using their data. 


The following chart is my prediction of what energy production will look like for the next two decades, if we add the most likely policy and market direction to the geological realities that I envisioned as being able to provide us with that 30% rise in energy production.


As we can see, the total I envision when public policy and market trends are thrown in as factors we should take into consideration, is much lower by 2030, than what I suggested was feasible, strictly based on geological factors.  In fact the most likely outcome will be an increase of 15%, compared to current levels, and that is unfortunately not nearly enough to ensure global economic and geopolitical stability.

The market clearly favors petroleum liquids over other sources of energy, due to its consumer friendly qualities (the price difference between petroleum and gas is clear evidence of this).  I foresee therefore, that the current higher price for this resource will persist, in the absence of economic turbulence and that in turn will nudge conventional petroleum over its current plateau that it formed in the past years.  Unconventional petroleum will also ramp up fast.  The side effects of this however will be faster depletion rates for conventional fields, and even permanent damage to the fields, causing a steeper decline after its second peak, which will likely occur around 2020.  At this point, conventional crude declines will be greater than increases in non-conventional supplies.  By 2030, we will be back to where we started from in 2010.

Note:  In assessing the most likely production curve for conventional crude fields, I assumed a current global proven reserve base of 800 billion barrels, which is less than the official number of about 1100 billion barrels.  I did this mainly to account for the 300 billion barrels of political OPEC reserves that most likely exist only on paper.  I also assume that average field recovery rate around the world will improve from about 40% currently, to about 50% by 2030.  This will however mean a slowing rate of production to reserve ratio.  I also assume that about 7 billion barrels will be found on average every year, which is about what the average has been for conventional fields in the past decade.


Public policy favors natural gas, as a result, a faster ramp up, to a higher rate of production than I envisioned by 2030 will occur.  The faster ramp up, by about 35% till 2025, will also cause depletion to occur faster.  By 2030, the total increase from current levels will probably be less than the 30% I envisioned to be geologically possible.  The reason that public policy is so inclined to choose gas over coal is because it is an energy source that can provide the same amount of energy with only one third of the emissions as a by-product, compared to coal.  It is an easy way to claim victory in our efforts to reduce our carbon footprint in the short to medium term, without demanding of us to face up to some harsh realities, and without them having to roll up their sleeves and work towards a truly viable and meaningful solution, like the one I am advocating in my book, which I shall mention in a moment.   


Coal will rise rather modestly, until about 2025, and only then start ramping up, because we will likely not see any market price signals or public policy shifts for this to occur until 2020 at least, and response time should take about five years.  The end result will be that coal will fall far short of what we will need, in order to make up for shortfalls.  Coal production will likely rise about 30% from current levels, which is bad news for the environment on one hand because; it is way more than what is recommended, if we are to stand a chance to avoid ecological disaster.  On the other hand, it is also bad news, because the 50% increase that I envision as crucial for global economic and social stability will not materialize.


In the other sources of energy section, which comprises all non-hydrocarbon sources of energy, we have nuclear, which will grow less than is possible, due to uranium availability constraints as the only variable.  The reason for that is Fukushima.  Wind and solar will continue to be disadvantaged at least until 2025, as the price of gas will stay moderate as long as the ramp up of production will continue.  So we should expect less than 30% growth from this energy sector as well.

I cannot pretend of course that my view of future energy supply availability is likely to be completely accurate.  I based my model on the geological political and economic facts and trends we know currently to be true.  There may be factors, geological, political and economic, which I may have overlooked.  I do think, however, that it is likely to be more accurate than the EIA model which envisions a 40% increase, mainly based on the assumption that it is what the global economy needs for smooth sailing, rather than what is possible.  The fact that they are currently being rebuffed by their own data on recent production of conventional crude, casts serious doubt on their own model; therefore, I believe there is room to challenge their conclusions in regards to our energy supplies for the future.

We should be worried of the side effects, given their reputation as a serious organization, because their clearly flawed reports will actually be the ones that public officials, as well as private sector economists will base their assumptions on.  We cannot make good decisions, if the information we have available to us is flawed, or corrupted by political interests and social pressures. 

I experienced a similar situation that turned out very bad during my childhood, where public officials made decisions based on flawed information.  During Ceausescu’s brutal communist regime in Romania, local party officials had an interest to report higher agricultural harvest and industrial production, than what the true yearly results were.  As a result, the central government decided to export more than the maximum that would have still provided for the local population with the minimum requirements.  The result was something that I hope I will never go through again, but realistically fully expect to experience within my lifetime, in the absence of some serious changes.  Thinking back to those times, I remember that I did not understand why we lived the way we did, but I had an excuse, for I was only a child.  The reality is however that even most adults failed to understand this, and most who experienced those things as adults, before the system collapsed in 1989, still do not understand why things happened the way they did.  The reality was that the system was operating on faulty information, which occurred due to the very pressures of the system.  We are unfortunately experiencing a similar phenomenon in the western world right now, as exemplified by the very obviously flawed energy projections made by the EIA, which are also in part flawed, due to the pressures that exist within our current system.

Conclusion:

If my model for future energy supply is in fact closer to the most likely scenario rather than other more optimistic models, such as the one constructed by the EIA, then we have to face up to a very troubling fact.  We no longer have the capacity to adapt within the current global order, to the circumstances we face.  The market and public policy, both of which have a shorter view of the horizon than is necessary to produce the right results, given our circumstances, can actually inhibit our capacity to meet our needs.  The only alternative therefore is to come up with a way to change the way we define our needs, and improve the process of meeting them.

I do present a solution, in the form of a standardized global trade tariff, in my newly released book, entitled “Sustainable Trade”, meant to replace current multilateral and bi-lateral trade agreements.  This standardized tariff is tailored to encourage more efficiency, a stronger defense of basic human rights, and a smaller environmental footprint of our economic activities, while it still allows market forces to do their magic of providing incentives for innovation and meet consumer demands.

I think that voluntary goodwill such as the Kyoto fiasco or the new paradigm on the part of the political left, that “people power” can change the world locally and eventually globally, can safely be discounted as viable solutions to our problems, given the failures of these ideas, which we currently witness.  Same can be said about the proposed global race to the bottom that the business friendly political right advocates, when it comes to human and environmental protection.  We cannot turn to a socialist-communist, command economy utopia.  I can testify to its folly, since I lived it, growing up in “utopia” of Eastern Europe.  We cannot do nothing, as the near economic meltdown we witnessed recently, in conjunction with commodity price spikes, clearly shows us that sticking our heads in the sand and hope for the best, will not lead to a pleasant future.  I therefore see no other option than to fight for the re-shaping of global trade to provide the right incentives for a more efficient, more durable, and less destructive global economy.  I hope to convince others of this as well, because failure is definitely not a desired option.