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A review of BEYOND OIL: The Threat to Food and Fuel in the Coming Decades.

The following review was excerpted from Population and Environment: a Journal of Interdisciplinary Studies, Spring 1990, pp 216-229, by Jan C. Lundberg. Mr. Lundberg was associated with the oil industry newsletter, Lundberg Letter, from 1972-1986. Currently he is President of Fossil Fuels Policy Action Institute and founder of the Alliance for a Paving Moratorium.


"Party's over! That's enough folks!" But how come the guests keep on reveling? BEYOND OIL told them three years ago, but sometimes the lights have to go out before the people pay attention... Maybe if we turn up the heat unbearably?

THE AGE OF OIL DRAWS TO A CLOSE

With a rigorous, methodological approach, BEYOND OIL finds that the US is now running out of inexpensive, easy-to-produce petroleum, thence, the beginning of the end of our Age of Oil. The book offers the reader glimpses of the final oil shortage and the economic and food repercussions that will soon be upon us.

When BEYOND OIL appeared in early 1986, it made some impact by quantifying US economic and agricultural performance based on precarious oil and natural gas dependence. The study got the attention of some in the environmental, renewable energy and population control communities, but not of those who steer the ship—the government and the oil industry. With a respectable 11,000 copies sold, many environmentalists have still not read nor heard of it. But as energy and environment are more and more at the top of people's concerns, BEYOND OIL will be a landmark work.

OIL IS UNSUSTAINABLE

The reader comes to realize that several difficult adjustments to lifestyle and employment will have to be made that today sound unacceptable politically. There may be some silver linings in the dark, painted sky of BEYOND OIL, thanks to its suggestions and illuminations. This reviewer's prediction: BEYOND OIL will increasingly contribute to understanding energy in our economy, and to formulating policy on various levels to enable a sustainable society.

The book's purpose is to inform the reader of our precarious energy economy. Heeding its warning lies in following its recommendations of decentralizing and democratizing the workplace, adopting organic farming, conserving resources of energy and soil, plus moving toward solar-based alternative energy as we phase out highly entropic fossil fuels.

THE BEYOND OIL MODEL

Instead of simply sounding the alarm over diminishing oil reserves and speculating on oil shortages and their dangers, the authors have broken new ground in calculating via computer model the economic impacts of tightening supplies of costlier (harder-to-find-and-extract) oil. The model was developed at the University of New Hampshire's Complex Systems Research Center. Oil reserve estimates are based on the Hubbert Curve, a traditional oil industry tool which predicts falling off production and which the authors find is basically on schedule, adjusting for the factors of federal regulation and oil price.

ENERGY PROFIT RATIO REVEALS ECONOMIC DECLINE

A major contribution the book makes towards understanding energy production in economic terms is the authors' calculation and discussion of the Energy Profit Ratio, "...the energy of the fuel divided by the energy used to produce it." This represents the true cost of any form of energy in terms of the energy required to produce and distribute that energy (environmental costs, the authors note, are not included). Their analysis shows that soon more energy will be required to extract and produce oil than the amount of usable energy made available in the end. Between the years 1995 and 2005 the US will reach the point of being unable to search for domestic oil economically, although we may still persist in doing so for the agricultural sector, making it even more heavily subsidized than it is now. This type of "uneconomic" oil production by richly endowed, low-cost foreign producers and exporters is expected to begin around 2040. As a result, the US GNP per capita is predicted to slide starting in the 1990s, coinciding with the passing of the era of inexpensive oil.

DISRUPTION WILL GO FAR BEYOND GAS LINES

BEYOND OIL forecasts that a major consequence of our oil vulnerability is that between 2007 and 2025 the US will cease to be a food exporter, due primarily to rising domestic demand, topsoil loss, food production inefficiencies, and shortages of costly petroleum used in agriculture—to say nothing of feared climate change problems. Less food for export will be a great fiscal problem for the US, which relies heavily on agricultural exports, but it will spell catastrophe for many other hungry people in other parts of the world.

ECONOMISTS DON'T LIKE IT - IT CAN'T BE ALL BAD!

The BEYOND OIL model breaks new ground by exploring the stark geophysical limits which counter the neoclassical economists' assumption that there will be increased resource supply or resource substitution in response to higher prices. Neoclassical economists have trouble with BEYOND OIL due to its unrelenting focus on the real limits of energy resources and the pure logic of the "Energy Profit Ratio" and all of its implications.

RUNNING FASTER TO STAND STILL

Is the future already upon us? Oil people do not worry out loud about our increasing difficulty in producing oil. BEYOND OIL makes the observation that a 280% increase in drilling in 1985 compared to 1973 produced less oil than in 1973.

The seriousness of our domestic oil supply situation as analyzed in BEYOND OIL can be appreciated by using a concrete example. Let's take the besieged Arctic National Wildlife Refuge, not underestimating the amount of oil there, which is perhaps the greatest hope for a huge untapped US field. Based on the US Geological Survey's most optimistic estimate of reserves, 9.2 billion barrels, your reviewer's calculation is that this potential production would provide less than two years of gasoline use in this country. [However, the average estimate of those reserves used by the Interior Department is 3.2 billion barrels, according to the NY Times & Rocky Mountain Institute on 9/5/90.]

ALTERNATIVES ARE NO PANACEA

The book also deals thoroughly with the question of alternatives to an increasingly expensive, diminishing resource. "Alternatives" are dealt with in accordance with the authors' setting off the word in quotation marks. The main criterion of alternatives feasibility is their energy profit ratio, which is poor for all alternatives compared to cheap oil. Long before any alternatives can be put in place, the US will have become totally at the mercy of OPEC. "None (of the alternative fuels) currently has an energy profit ratio comparable to those of domestic oil and gas or imported oil during the 1950s and '60s, when, not by accident the US economy grew at its fastest rate ever" (p. 69).

DIMINISHING OIL = DIMINISHING WEALTH?

"We may already be seeing the effect of more expensive fuel on the economy" (p. 241). Co-author Kaufman points the reviewer to proof of that effect, such as today's generation being poorer than our parents', with mostly two or more workers per family instead of one-{worker households; real family income increased from 1940 and peaked in 1973. GNP per capita could now be stagnant, but notes Kaufman, this is rarely if ever understood as a function of resources.

REFORMS SUGGESTED

Since conservation and efficiency were downplayed, the Afterward by Carrying Capacity (not affiliated with Carrying Capacity Network) listed steps to improve where we can, with policy solutions to alleviate fossil fuel dependence. Those reforms were in the areas of population control, raising fuel taxes, pushing cogeneration and energy conservation/efficiency, promoting sustainable agriculture, and investing in renewable energy.

OIL-BASED AGRICULTURE DESTROYING OUR SOIL RESOURCE

BEYOND OIL does not see a technological fix to our energy challenge. The Age of Oil will come to an end, inevitably, but clinging to our addiction up to the end may result in tragic dislocation and starvation, considering the population explosion and agriculture's current dependence on fossil fuels. The prime entropic process brought on by petroleum-intensive agriculture is the waste and loss of nature's storehouse of energy: the topsoil.

Fossil fuels also power every component of production, packaging, distribution, and consumption of our food supply. Whether we cope with these inefficiencies will determine if we can export food in the future.

SOLUTIONS BY ECOSTROIKA

The chief answer that BEYOND OIL offers to our energy-resource dilemma and looming economic crisis is greater "distributional equity" within our society (p. 242). The book's specific alternative to the business practice of maximizing profits by the accelerated depreciation allowance), which produces high per-worker productivity for more unemployment, is a A system of lower productivity per worker but less unemployment. A greater degree of worker involvement and even direct worker ownership is also proposed as a means to increase industrial efficiency.

TIME FOR POLICY CHANGE AND ACTION

BEYOND OIL is well done and is more timely now than when it was written, prior to the crash of oil prices of 1986. It warns us that in order to feed ourselves, more and more resources and society's dollars will, under present policies, have to be diverted from such priorities as funding alternative energy, providing a more sustainable infrastructure, or retooling for continued economic activity. The book foresees desperate attempts to applying a greater share of shrinking petroleum supplies to boost food production in the short term, thereby sacrificing valuable topsoil. This would suck resources from other sectors of the economy in a futile attempt to keep up with mushrooming populations. Eighty-six million hungry people are added to the planet each year, and the US has the highest growth rate of the developed countries—a disaster in the making from the standpoint of per capita energy consumption.

CONGRESS AGAIN MISGUIDED

The environmental consciousness, protections and progress painfully built in the last two decades could be a casualty of a medium-to-terrible energy crisis or energy-related economic recession or food shortages. [A current example: the present Gulf Crisis has prompted congressional support for the placement of drilling rigs on our protected and environmentally sensitive coasts and wildlife preserves. The Administration supports these advances. NY Times 8/30/90. ]

LOOKING AHEAD

The conclusive message BEYOND OIL offers is that we are not on a sustainable path, and there is no time to put off changing radically our social course. Beyond the scope of their model, the authors prophesy little, but in their last sentence they allow that "a new age—the Photovoltaic Age, perhaps—will dawn" to succeed the Age of Oil.

BEYOND OIL is available from Univ. Press Colorado. Phone: 303-530-5337 ISBN 0-87081-242-4


BEYOND OIL: The Threat to Food and Fuel in the Coming Decades.
Third Edition (1991) ISBN 0-87081-242-4
John Gever, Robert Kaufman, David Skole, Charles Vorosmarty.

BEYOND OIL is available from Univ. Press Colorado. Phone: 303-530-5337

PROLOGUE TO THE THIRD EDITION

Nearly ten years have passed since the last observations were made on which the conceptual and quantitative models in Beyond Oil are based. Much has happened during this period. Oil prices collapsed in 1986 and have fluctuated between $10 and $30 per barrel since. A telethon was held to rescue the most productive farmers in the world. The U.S. economy had the longest continuous economic expansion since the end of World War II. Nevertheless, for all of the changes that are implied by these events, we are proud to republish Beyond Oil in the same form as it first appeared in January 1986. We feel comfortable doing so because the basic premises on which the conceptual and theoretical models are based remain intact.

Beyond Oil concludes that the U.S. cannot increase its per capita material standard of living and its population ad infinitum. The belief that it can do so is a myth that arose from a century of economic success. Yes, the United States has increased its material wealth tremendously. But this wealth was created by the United States depleting its high-quality deposits of nonrenewable resources and degrading high-quality renewable resources. Yes, the technologies by which humans convert natural resources to economic wealth have changed at an amazing rate. But the strategy by which these technologies increased output remained the same: by using energy to increase the work that could be done by muscle power alone. Furthermore, our economic success has allowed us to ignore an underlying truth. The relation among resources, energy use, and economic activity is stronger than economists or politicians are willing to admit. Taken together, dependence on a depleting resource base implies that either the population or per capita-material standard of living must stabilize, or both.

The fragility of our economic success comes as a surprise to most people. After all, there were no news stories regarding resource depletion or a strong relation among resources, energy use, and economic activity. Just like the frog that doesn't jump out of the cup as the water in which it sits is brought slowly to a boil, the average U.S. citizen cannot notice the resource depletion that is associated with each dollar of GNP generated. Every day, U.S. oil supplies dwindle with each rise and fall of the horsehead (the moving part of an oil well), and soil resources erode with each tractor pass. This slow, steady, and quiet depletion of natural resources is one of the main foci of our analysis.

There was no need to modify the text of Beyond Oil greatly because the depletion of natural resources has continued unabated since the book was first published. The behavior of the U.S. oil industry illustrates this ongoing depletion: the depletion of domestic oil resources appears in all stages of exploration and production. In Chapter 2 we describe research that indicates that the amount of oil discovered or added to proved reserves declined steadily between 1946 and 1978 (Figure 2-14). This conclusion now is strengthened by ten years of additional data and research. An analysis by Cleveland and Kaufmann (1991) indicates that the amount of oil discovered per foot of well drilled has declined exponentially from 1925 through 1988 without interruption (Figure P-1a). Oil prices and rates of drilling hide this decline at times, but these factors cannot alter the geological fact that the United States has discovered most of the fields from which it will produce economically significant quantities of oil. Similarly, an analysis by Cleveland and Pendleton (in press) finds that additions to proved reserves, which include revisions and extensions in addition to discoveries, declined exponentially from 1946 through 1988 (Figure P-1b). Again, drilling rates and other factors may hide this exponential decline at times, but these factors cannot alter the geological fact that the United States has drilled up most of its domestic oil supply.

The exponential decline in the rate at which the U.S. oil industry discovers oil and adds it to proved reserves sets the stage for the decline in U.S. oil production, which is described in Chapters 2 and 4. In these chapters we use Hubbert curves to explain the historical changes and to forecast rates of production for oil and natural gas, both domestically and worldwide (Figures 2-12; 2-13; 2-17). We use this technique because M.K. Hubbert was able to forecast the peak and general pattern for U.S. production more accurately than other analysts. The success of these curves is remarkable because a quick review of history indicates that movements in U.S. oil prices and production defy standard economic theory. Real oil prices declined slightly between 1947 and 1970, but production of oil nearly doubled. Real oil prices doubled between 1970 and 1986, but production declined 20 percent.

Further research explains the ability of the Hubbert curves to account for the contradictory movements between prices and production. Kaufmann (1991) extends the method used by Hubbert to include the effect of prices and political decisions by the Texas Railroad Commission. His analysis finds that changes in resource quality are responsible for the general pattern of production (Figure P-2). The oil industry was able to double production between 1947 and 1970 because the costs of production declined faster than the real price of oil. On the other hand, production declined between 1970 and 1985 because the cost of production rose faster than the real price of oil. Since 1986 production has declined sharply, but prices alone do not explain this drop. Production dropped sharply because the decline in price reinforced the negative effect of resource depletion. If prices do not recover soon—and there is little reason to expect that they will—the United States may import between two-thirds and three-quarters of its oil use by 2010 (Kaufmann 1988).

Oil is not the only resource that the United States is depleting. In Chapters 5 and 6 we describe how domestic agricultural practices degrade the agricultural resource base on which the United States depends for food and foreign exchange. In Chapter 6 we hypothesize that U.S. agriculture was ending a period of intensification, in which output grew in conjunction with inputs, and was entering a period of saturation, in which output grew less rapidly than inputs. The end of one era and the beginning of another was based on a comparison of energy use and gross farm product per acre between 1940 and 1979. Ten more years of data and research reinforce our claim that the United States has entered a period of saturation. Cleveland (in press) extends the data in Figure 5-7 to include yearly observations from 1910 through 1988. The extension of the data shows that saturation slows the rate at which increased use of energy is able to increase output (Figure P-3). These results indicate that the agricultural strategies that increased U.S. food supplies in the past cannot continue forever.

The declining quality of oil, agriculture, and other resources would pose little threat to the U .S. way of life if the relation between energy use and economic activity were weak, as claimed by most economists and politicians. But the relation between energy use and economic activity is stronger than most believe, and quantifying the strength of this relation is another foci of Beyond Oil. In Chapter 3 we describe three factors that determine the amount of output produced per unit of energy: the types of fuels used; the amount of energy consumed in the household sector; and the real price of energy. Quantitative analysis of these factors indicates that they account for 97 percent of the total variation in the amount of output produced per unit of energy in the United States between 1929 and 1983 (Figures P-3 to P-8).

The quantitative analysis of the amount of output produced per unit of energy is one of the most controversial aspects of Beyond Oil . When the book was first published, many analysts claimed that we underestimated the importance of energy conservation and technical change. Moreover, some claimed that the statistical results were spurious because the United States had access to an inexpensive supply of energy during much of the 1929-1983 period. They argued that the large increase in energy prices would loosen the relation between economic activity and energy use. Given sufficient time and incentive to adjust to higher prices, the pattern of U.S. energy use would resemble that of Europe and Japan.

Anticipating these charges, we explain clearly and strongly how assumptions built into the neoclassical economic model systematically underestimated the strength of the relation between economic activity and energy use. Furthermore, ten years of more data and research confirm our original claims. An analysis by Kaufmann (in review) finds that the same factors determine the amount of output produced per unit of energy in the other "big five" nations: France, Germany, Japan, and the United Kingdom. He finds that the amount of output produced per unit of energy in these nations can be accounted for by the same factors described in Chapter 3 (Figure P-4). The similarity of results is strong evidence that there are limits on the degree to which economic activity can grow without a corresponding increase in energy use.

The combination of resource depletion and a strong link between economic activity and energy use leads to the final conclusions of Beyond Oil, that the United States cannot continue to expand its per capita standard of living and its population. These limits are illustrated by a model of the U.S. economy in Chapter 4 and a model of U.S. agriculture in Chapter 6. The model of the U.S. economy forecasted that per capita GNP would rise through 2005, albeit at a rate slower than the postwar expansion, and decline slowly thereafter (Figure 4-7). Similarly, the model of U.S. agriculture forecasted that total crop production would rise through 2025, albeit at a rate slower than the USDA target (Figure 6-20). Although none of the models forecasted apocalyptic collapse, many claimed that the forecasts were too pessimistic because growth was slower than conventional wisdom. Data from the last ten years, however, indicate that the forecasts were not too pessimistic. Per capita GNP rose steadily during the last ten years but at a rate slower than the rapid postwar expansion (Figure P-5).

But even this economic growth probably overstates the increase in per capita standard of living. As described in Chapter 4, per capita GNP is a poor measure of the material standard of living.

Other indicators show that the U.S. material standard of living has stagnated or declined during the last ten years. The decline is most obvious when we examine the amount of output produced by each worker. The real GDP per worker has risen only slightly in the last fifteen years (Figure P6a). Similarly, the real hourly wage has declined steadily through the 1980s (Figure P6b). The danger decline in output per worker is described in Chapter 7. In a section titled High Productivity Versus Full Employment, we describe how the United States would face a trade-off between employing a small number of workers in highly productive, high-paying jobs, or employing a large number of workers in relatively low-productivity, low-paying jobs. Data from the last decade indicate that the United States has chosen the latter path.

The combination of resource depletion and a tight link between economic activity and energy use already has ended a century of rising per capita standards of living, population, and leisure time. The pinch is real, and many of the social changes that have swept through the United States over the past fifteen years are associated with the new "limits to growth." The slow growth in labor productivity and wages have "convinced" husbands that it is socially acceptable for women to abandon their traditional role as housewives and to return en masse to the workplace. Similarly, the new limits on growth strained the willingness of taxpayers to foot the bill for the government services. Not willing to pay for them or do without them, voters elected Ronald Reagan and George Bush to maintain services, cut taxes, and balance the budget. Because such promises are impossible under the new limits to growth, the real U.S. government debt has skyrocketed (Figure P-7). Yet, even these social changes have failed to alleviate the new limits to growth. After rising steadily in the 1950s and 1960s, real family income stagnated in the late 1970s and 1980s (Figure P-8). In summary, the stagnation and eventual decline in the U.S. standard of living that is described in Beyond Oil is not pessimism, it is here.

Robert Kaufmann June 1991

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Sources:

Cleveland, C.J. In press. Natural resource scarcity and economic growth revisited: Economic and biophysical perspectives. In Ecological Economics: The Science and Management of Sustainability. Robert Costanza, Ed. Columbia University Press, New York.

Cleveland, C.J. and R.K. Kaufmann. 1991. Forecasting ultimate oil recovery and its rate of production: Incorporating economic forces into the models of M. King Hubbert. The Energy Journal 12:17-46.

Cleveland, C.J. and Pendleton, V. In press. Are oil reserve additions declining? Yield per effort for oil exploration and development in the lower 48 US and Gulf of Mexico, 1946-1988. Am. Assoc. Pet. Geol. Bull.

Kaufmann, R.K. 1988. Higher oil prices: Can OPEC raise prices by cutting production? Ph.D. Dissertation. University of Pennsylvania.

Kaufmann, R.K. 1991. Oil production in the lower 48 states: Reconciling curve fitting and econometric models. Resources and Energy 13:111-127.

Kaufmann, R.K. In review. A biophysical analysis of the energy/real GDP ratio: Implications for substitution and technical change. Ecological Economics.