We Peaked

It has only been a few weeks since I first learned about Peak Oil, and in a short time I’ve read nearly a hundred articles, watched a couple movies and spoken to dozens of people about what this means for the future of mankind.

I’ve found reactions range from “that’ll never happen” to “hydrogen is the new oil” to “this will mean the end of suburbia” to “WE’RE ALL GOING TO DIE!!” and every shade of optimism and pessimism in-between. I’m not sure which is worse, those cripplingly in denial, or the obsessed doomsayers who insist the worst-case scenario is the most likely.

The fact is, nobody really knows how this is going to play out. There are so many factors involved, including the behaviour and reactions of the entire human population, and the biggest of world market forces involving food and energy in which nearly all humans are involved.

Here’s a quick breakdown of what I understand will definitely happen, what might happen, and what probably won’t:

What will definitely happen sooner or later

• The cost of food and energy will go up
• The cost of all things which use energy (transportation, manufactured goods, etc.) will go up
• Businesses (and people) relying on cheap energy will suffer if they don’t adapt
• These higher prices will cause everyone to choose cheaper solutions when available
• There will be shortages of food and fuel in some parts of the world for some amount of time
• Millions or billions of the poorest people on earth will not be able to afford food and will starve to death

What might happen

• The economies of the world may fall into a crippling depression
• Countries may start wars over dwindling oil resources
• Air travel may no longer be affordable to the middle class
• The “civilized” world might stop being built around the car

What probably won’t happen

• Democracies fall to be replaced by totalitarian dictatorships
• All technology is abandoned and we return to life as it was in the middle ages
• Economic “theory” will be proven to be one big fallacy
• The sky falls, destroying all life on earth
• Jesus makes an appearance with a handful of horsemen

We know things will change drastically on earth, we just don’t know when. We also don’t know what pains will emerge as people are forced to adapt faster than possible.

And we must not forget that this will be a worldwide event. Not being able to afford to drive is one thing, watching your entire community or country starve to death is another. Most of the real victims will be in third-world countries like Bangladesh. Those in the first-world will probably complain the loudest about the cost of filling up their SUVs, but the varying levels of suffering will be incomparable.

The doomsayers, having realised that the world needs to change and adapt, believe that it is their sole responsibility to run around scaring everyone into changing immediately. At the same time, they dismiss economists suggesting that economics could never understand or explain the market forces at work. Of course this is completely ironic, because economic forces are the only explanation for what is happening and how and why the world will change.

Long before the message of the doomsayers reach the consciousness of the entire world, people will start making big changes in their lives in order to save money and/or earn more money. Money is the reason people change, not bestselling books or youtube videos.

The rules of supply and demand are deceptively simple but more powerful than we can imagine. Take a simple scenario that we’ll be facing on a regular basis: on some random day in 2008, the world produces 85 million barrels of oil, and the world wants to use 86 million barrels. What happens? The price will go up until enough people feel oil is too expensive and decide not to buy a million of those barrels. They may use a different energy source instead, or might decide they didn’t need to use the oil so badly after all. Ideally, these million barrels will be the oil that is used most wastefully. Unfortunately, it will also include those that were depending on it to live, but still can’t afford it.

So how easy will it be to reduce demand by (ie. change peoples’ minds about) 1 million barrels per day? or 2? or 10? or 86? Nobody knows, and the future reality will depend on the answer to this question.

Here are just a few more examples of how higher prices will encourage people to change their minds and decrease their demand for oil:

• People will stop wasting energy and food when it becomes too expensive to do so
• People will buy more things made locally by hand when transportation becomes expensive and manual labour becomes cheaper than machines and robotics
• People will buy (and grow) locally grown, organic food when it is cheaper than mass-produced
• People will choose public transportation when it is much cheaper than driving
• People will choose to work at home when possible, or else choose to move closer to work, or else choose to find a job closer to home
• People will buy renewable energy when it is cheaper than non-renewable energy
• People will pay extra for energy-efficient appliances if they save enough in energy costs

It’s very important to remember the element of choice in all of this. People will choose to adapt because the alternative will be unattractive, expensive, or just plain stupid. It’s not like you won’t be able to choose to drive a car, you just won’t make that choice as often. Ask someone in middle class USA in a few years if they feel they were forced into changing their lives by the power of the world market forces and they will simply say “no, I chose to do _____ because I could save $_____.”

In fact, world market forces have “forced” people into choosing all sorts of things. If you were to go back to 1900 and tell someone that over the next century the entire world would be reshaped, people would leave the farm to enter the cities, buy cars, live in the yet-to-be-built suburbs, and develop massive technology which would shift work away from manual labour and towards information technology, they would freak out and start running through town insisting everyone start bracing for change and probably that they should leave the farm immediately, buy a car, and brace for the impacts of globalization. But of course, that wouldn’t have made a difference.

So what is one to do, armed with the knowledge that the world will be facing some big changes? First, don’t panic. Realise these changes will come at a gradual enough pace that you will be able to survive. You may want to prepare yourself for the possibility of blackouts and shortages of food and gas, but don’t go crazy. A well-stocked pantry and a supply of candles may help you to relax. You can also start making bigger changes like installing a wood stove or moving somewhere that doesn’t require a car. It takes time to make changes, so the sooner you start the more comfortable the transition will be.

And if you’re really clever, you’ll realise that there are infinite new business opportunities being created by this change. Start a company to help start and maintain backyard gardens, or sell and install wood stoves and solar panels, or help companies transition to telecommuting, or develop or sell electric cars.

We do need to change, but there’s no need for pessimism. There are lots of ways to help people change that don’t involve shocking them with doomsday scenarios. Warn them of the coming apocalypse and you’ll be dismissed as a chicken little. Offer to help them save money instead, and you’ll be welcomed with open arms.

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A few years ago, I went to the University of Waterloo in Ontario, Canada, and had a few economics classes with an excellent professor and economist, Larry Smith. I recently asked Larry the following: “Is it possible that economic growth could be over? forever?”

This was his answer:

There are several aspects to your question.  First, economic growth is not over, and certainly not forever.

While conventional oil [that is cheap] reserves many be nearing their limit, there are many untapped unconventional sources [that is expensive] that await their full exploitation.  For example, oil sands, shale and coal itself.  And nuclear power sources can, in due time, supply ALL our needs if necessary. And it will be safe if we tolerate the expense of safety features.

What we are seeing is the end of cheap energy. And this will [is] disruptive of our life styles and industries and economies. But we will adapt, as we always have, with pain and much complaining. But why would this slow or stop growth? Expensive energy production afer all adds to GDP.

Growth is about the generation of value, NOT physical goods. And already most of our production [about 70%] is services.

As well, high oil prices will spur the reduction of greenhouse gases and the increase of conservation measures. We have ALREADY reduced BTUs per dollar of GDP.  This will continue.

The personal challenge to you is to adapt yourself as a producer and consumer to the new realities.  And prosper as a result.

I wish you success.

It’s worth noting that Larry is mainly talking about the Canadian economy. Certainly some countries will be much worse off, but the lesson here is the same. High prices have the magic effect of making people finally change, as non-oil products and energy sources become comparatively cheaper, on a scale that government intervention or environmental campaigning could never achieve.

These high prices will be the kick in the ass we need to make major changes, changes which will improve our environment, require huge effort (ie. create many jobs), and potentially make our countries and our world a much better place to live.

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