Deflating the Fossil Bubble
- June 6, 2018
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An economic bubble is trade in an asset at a price or price range that strongly exceeds the asset’s intrinsic value.
Since the subject of this forum is energy, and the proposition herein advanced is we are operating in a fossil bubble, the intrinsic value of these fuels is fundamental to the assertion.
According to Wikipedia, the 2011 global expenditure on energy was over 6 trillion USD or about 10% of the world gross domestic product. As the following U.S. Energy Information Administration chart through 2017, however, shows the cost of oil since the middle of 2014 has been about half of that.
For 2014, the International Energy Agency estimated 31.4% of the world’s primary energy was derived from oil, which is not only the most ubiquitous fuel, it is the bench mark by which the others are measured in Million Tonnes of Oil Equivalent (Mtoe), as is the price of the other fuels.
The intrinsic value of something is said to be the value that that thing has “in itself,” or “for its own sake,” or “as such,” or “in its own right.”
It is difficult to argue that oil has intrinsic value when its value is 65% of what it was 7 years ago, and even less so when you consider the NYMEX West Texas Intermediate price since 1983 has mostly ranged between the 20 to 40 USD.
In his 2001 paper, Economics of Energy, James Sweeney of Stanford argued that purchased energy isn’t even essential. Its demand can be reduced to zero when it is priced high enough, which increasingly is the case, even in the developed world, for many of the less fortunate who have seen their utilities accounts frozen all to often of late.
And what of fossil fuel subsidies, which Coady et al. estimates were $4.9 trillion worldwide in 2013 and $5.3 trillion in 2015 or 6.5% of global GDP in both years? Undercharging for global warming accounts for 22% of the subsidy in 2013, air pollution 46%, broader vehicle externalities 13%, supply costs 11%, and general consumer taxes 8%.
These subsidies effectively decrease the intrinsic value of fossil fuels to zero or less considering fossil fuels represent only 81.7% of the 2011 global 6 trillion USD price of energy, and in 2015 their value was about half of that.
So, going back to the original premise, fossil fuels are trading at a price that strongly exceeds its intrinsic value, we are witnessing a speculative mania in fossil fuels. The phases of which Investopedia characterize as, displacement, boom, euphoria, profit taking and panic.
As the crude oil price history illustrates, we appear to be well along and likely into the latter stages of this continuum.
As opposed to “intrinsic value”, Khan Academy describes “instrumental value” as the value that something has because it helps us to get or achieve something else.
In his article, The Plethora of Better Alternatives to Wind/Solar Power and Electric Cars, Schalk Cloete describes, “life efficiency” as how much life (combination of life satisfaction and life expectancy) we can get out of a given quantity of energy, carbon emissions or economic output. He reviews eight alternative sustainable development solutions and suggests “technology neutrality” can activate more than 10x greater sustainable development potential than the current technology-forcing policies that feature wind/solar power and BEVs.
Richard Smalley’s Terawatt Challenge, by contrast, is to provide the technology for accomplishing our energy goals which in turn solves the next 9 greatest problems that confront mankind.
The real barrier to achieving our sustainability goals is policy that promotes the wrong technology and sources of energy.
The Natural Resources Defense Counsel itemizes the effects of global warming as; more frequent and severe weather, higher death rates, dirtier air, higher wildlife extinction rates, more acidic oceans and higher sea levels.
Frequent and severe weather is powered by the evaporation of seawater. As the following graph from the RealClimate article, Does global warming make tropical cyclones stronger? shows, since 1979, five of the strongest storms recorded have occurred in the past five years with the highest wind speed on record observed in Hurricane Patricia in 2015.
As the Yale Climate Connections points out ocean heat fuels hurricanes but more importantly, as has been pointed out in this forum, often, hurricane fuel can be converted to productive energy and/or can be sequestered in deep water.
Heat pipe OTEC is the only sustainable development technology that provides this benefit and as the graphic above demonstrates, these storms don’t form 5 degrees either side of the equator.
Higher death rates
The Lancet calls climate change “the biggest global health threat of the 21st century.” As the Yale Climate Connections shows and Fueling the Planet with Hurricanes shows the sea surface temperature is decreased by Hurricanes or by heat pipe OTEC, which again is the only sustainable technology that provides such a benefit.
Climate forcing is the difference between the solar energy absorbed by the Earth and the energy radiated back to space. It is measured in units of watts per square meter of the Earth’s surface.
As the following triptych of the Earth’s major oceans, however, demonstrates the impact of solar radiation isn’t uniform. It accumulates at the equator and is dissipated at the poles.
The following section of the Atlantic Ocean, migrating south to north, shows the massive heat sink into which this energy can be dissipated without impacting human health or producing the other harmful impacts of global warming.
Rising temperatures worsen air pollution by increasing ground-level ozone so again reducing the surface temperature mitigates this problem.
As a codicil to this and to the previous two sections is the matter of heat in the pipeline. The huge heat capacity of the oceans creates thermal inertia in the climate system that commits us to an additional .74oC of warming in the future and as NASA advises, the same inertia that could worsen future climate change also gives us time to mitigate the unwanted effects of climate change.
The .74oC figure presupposes atmospheric greenhouse gases at current levels, which is highly unlikely.
The Princeton paper The Earth’s Climate Sensitivity and Thermal Inertia estimates the thermal inertia time scale associated with global warming at ≈ 32 years so, with existing technology that is how long we have to get back to current atmospheric concentrations. And at that, we would still be looking at 2oC temperatures by 2050.
As above, heat pipe OTEC extends the thermal inertia time scale initially to 250 years, the length of the entire fossil fuel era, then recycles the remaining heat in the pipeline an additional 12 times, all the while providing half the 60 terawatts Smalley suggested would be necessary to give all 10 billion people on the planet the level of energy prosperity we in the developed world are currently used to.
Higher wildlife extinction rates
As with Higher death rates, sequestering surface heat lessens the problem.
NEOTEC: Negative-CO2-Emissions Marine Energy With Direct Mitigation of Global Warming, Sea-Level Rise and Ocean Acidification. An energy carrier such as hydrogen is required to transport energy extracted far offshore. Produced electrochemically hydrogen consumes CO2, converting it to ocean alkalinity that neutralizes ocean acidity.
Higher sea levels
Temperatures in the Arctic are rising twice as fast as elsewhere and the world’s ice sheets are melting with the result it is estimated the oceans will be .3 to 1.2 meters higher by the end of this century.
Surface heat sequestered in the deep can not melt ice sheets.
Per the following:
Heat relocated from the surface to 1000 meters in the ocean, undergoes half the thermal expansion and thus reduces sea level rise.
In his book Energy Efficiency: Building a Clean Secure Economy, James Sweeney shows how since 1973, the first oil embargo, energy-efficiency has contributed more to world’s overall energy situation than all of the increases in the production of oil, gas, coal, geothermal energy, nuclear power, solar power, wind power or biofuels combined.
It is reasoned here the world’s overall energy situation is best advanced by technology that forecloses the $7.3 trillion a year in environmental damage the UN, in 2013, estimated is being caused by the production sector.
So adding it all up, ~ $5 trillion for fossil fuel subsidies, ~ $7 trillion in environmental damage plus $3 to $6 trillion a year to the energy producers you have the true size of the fossil bubble, which is between $15 trillion to $18 trillion or 19 to 22 percent of the 2014 GDP of US$78.28 trillion.
Unfortunately, much of this mania is being underwritten by debt that cannot and will not be repaid and is fostering environmental sacrifice zones like Puerto Rico,
By contrast, the schedule below shows 125,000, 200-megawatt, heat pipe OTEC plants can produce 25 terawatts of energy (1.78 times the energy currently derived fossils fuels) and be built for an annual cost of $1.7 trillion a year or better, over 30 years, which is a tenth the true cost of fossil fuels.
This technology would greatly accelerate the journey to sustainability without hurting economic development, and would make all 17 of the World Banks’s alternative sustainable development goals achievable.
Thomas B. Edsall’s May 3, 2018, NYTimes article, Industrial Revolutions Are Political Wrecking Balls says, “Job losses in manufacturing due to automation create fertile territory for continued populist appeal.”
To counteract this, we need an industrial revolution that creates massive global job opportunities in manufacturing, which ocean thermal energy conversion, as its name implies, delivers.
The time for bursting the fossil bubble is past due.