Our Finite World | Exploring how oil limits affect the economy

Time 2021-09-18 17:22:38

Web Name: Our Finite World | Exploring how oil limits affect the economy

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There is a saying, Everything happens for a reason. The fiasco in Afghanistan is no exception to this rule. Even though it is not obvious, the United States is up against energy limits. It needed to pull back from Afghanistan to try to have enough energy to continue in its other roles, such as providing benefits for its growing army of retirees, and building infrastructure to mitigate the COVID-19 downturn. The way energy limits play out is not at all intuitive. Most people assume that we will run out of oil, leading to a spike in oil prices. We will then transition to renewables. As I see it, this understanding is completely wrong. Limited energy supply first leads to a need for simplification: Stepping back from Afghanistan would be one such type of simplification. It would save energy supplies and reduce the need for greater tax revenue or added debt.Everyone knows that the way a country can succeed in the world market is by providing needed goods or services to other economies at low cost. Afghanistan is a landlocked country. It also doesn t have any big rivers it can use to transport goods out of the country. It isn t a member of a trade alliance such as the EU to allow smooth transport of goods out of the country. The difficulty of transit into and out of the country adds a layer of costs that tends to make the country uncompetitive in the world market. No matter how much investment any country makes in Afghanistan, this handicap will still persist.Also, Afghanistan has too high a population relative to its resources. We know that most wars are resource wars. The fact that Afghanistan has been involved in wars for many years hints at this problem. According to UN 2019 estimates, Afghanistan s population was 7.8 million in 1950, 21.6 million in 2001, and 38.9 million in 2020, which is about five times the 1950 population. Water needs, in particular, tend to escalate as population rises.The weapons developed by the US are too complex to be used in a guerrilla war. They tend to break down and require replacement parts. Needless to say, these parts are not available in Afghanistan. Even if Afghan soldiers are trained to use these weapons, they may not be available or suitable when needed.George W. Bush should have known from the outcome of the 20-year Vietnam conflict (1955-1975) that any guerrilla war was likely to have a bad ending. In Afghanistan, the plan was to train Afghan soldiers, thus keeping US citizens out of the battlefield. This strategy kept the Afghan conflict off the front page of US newspapers, but the overall result seems to be similar.[3] When George W. Bush took office in 2001, he seems to have had access to more funds than he knew what to do with. Starting a war in Afghanistan probably seemed like a good use for these funds. He could perhaps build military bases, and perhaps raise the standard of living of the people there.Even more importantly, with a fairly young population, the Social Security system had been collecting funds in advance of when they were needed, with the plan of building up the plan s Trust Fund for use when a bulge in retirements was expected, starting about 2010. Figure 2 shows one chart that roughly illustrates the overfunding and planned use for the funds. Unfortunately, Figure 2 doesn t treat investment income in the way it is actually collected; it leaves out past investment income and uses discounted cash flow assumptions for the future, so a person cannot readily estimate net contributions to the Trust Fund balance by year from this chart.Figure 2 indicates that there was considerable overfunding starting in the late 1980s. The thing that actuaries (and others) didn t consider is the fact that there is a real difference between debt and the physical resources that will be needed when these older people retire. Retirees will need food, water and energy to heat their homes. They will need medicine and long term care institutions. They should also be able to provide their share of the upkeep of roads and electricity transmission networks. Debt is a promise of future funds to purchase goods and services, but it doesn t make the resources required to create these goods and services materialize out of thin air. To keep these promises, oil needs to be extracted, refined, and delivered to farmers. There needs to be enough fresh water available to irrigate adequate farmland to produce the required food. There need to be supply lines that are working to deliver the required food. There need to be enough young people who are willing to work on farms and in care centers for the aged. The wages for these young workers need to be high enough so that they too can have food, shelter and other things that we consider necessities.When the extra Social Security funds were collected, the officials who collected them figured out that as a practical matter, there was little that they could do with them besides spend them at the time they were collected. They couldn t set up warehouses with food, clothing, building materials and energy resources to keep on hand for 30 or 40 years. If they invested the money in the stock market, the money would simply cause a bubble in stock prices. If they built new factories or nursing homes, they would be unfairly competing with existing businesses. I am not sure that there is any good record of how these extra funds were spent. My understanding is that they provided a very large slush fund that allowed expanded military activities among other things. From an accounting point of view, non-marketable government debt was substituted for the funds that were spent. Thus, when an actuary looks at the Trust Fund, it is fully funded. It is just that it is funded with more US government debt.The catch is that the non-marketable US government debt doesn t actually correspond to any resources. Any food used in 2022 (or 2050) will need to be grown in that year, using resources available in that year. Most clothing used in a given year will need to be produced with resources available at that time. Putting together a model that assumes business as usual forever tends to give a rosy picture because it leaves out this detail.The 2020 OSDAI Trustees Report provides actual income, outgo, and interest income through 2019. From this report, it can be concluded that the extra Social Security slush fund is rapidly disappearing. In fact, it seems to be turning to a hidden source of required year-by-year funding starting as soon as 2020 or 2021.In some sense, the real economy operates on a cash basis, rather than an accrual basis. This has not been recognized in our accounting or our models. Ignoring the way the system really works likely leads to a hidden crunch, starting about 2021. We know that retirements were high in 2020, adding to the potential problem. I am certain that President Biden and his advisors are aware of this issue, even though it is never reported on the front pages of newspapers. [4] There is really a two-sided energy price problem. Consumers can afford only low energy prices but, as the result of depletion and population growth in oil exporting countries, producers need high oil prices. Figure 3 is a chart I prepared a few years ago. In it, there is a pattern of rapidly rising wages when oil prices were very low. Workers became more productive with new factory equipment and vehicles, produced with oil, and operated using oil products. As a result, their wages rose. Figure 3. Average wages in 2017$ compared to Brent oil price, also in 2017$. Oil prices in 2017$ are fromBP Statistical Review of World Energy 2018. Average wages are total wages based on BEA data adjusted by the GDP price deflator, divided by total population. Thus, they reflect changes in the proportion of the population employed as well as changes in wage levels.On the other hand, when oil prices spiked, the prices of many goods, including food, airline tickets, and the fuel used for commuting to work, rose. People cut back on discretionary income, such as eating in restaurants and vacation travel. Businesses with fewer customers laid off workers. The workers who could find jobs often found lower-paid or part time jobs. The result was a dip in average wages, both in the 1970s and at the time of the Great Recession of 2007-2009.We now live in a world with depleted resources. The oil and other types of energy that are available are high in cost, but the prices tend to stay too low for producers when all costs are included. Oil resources from the Middle East and Venezuela, especially, need a higher oil price because the governments of these countries need very high taxes on oil revenue to support their large populations. Even shale oil from the United States needs a higher price than is available today. If we want OPEC to supply the rest of the world with more oil, the price will need to rise much higher than today s Brent oil price of about $73. It likely will need to rise to at least $100 per barrel and show that it can stay at this high level. Otherwise, the supposed reserves of OPEC will mostly stay in the ground. Even the US needs a higher oil price. Its oil, gas and coal production fell during the pandemic in 2020. Through May 2021 (and even later using weekly data, not shown), oil and natural gas production has not rebounded to the 2019 level. Note that oil and gas production also dipped in 2016. Figure 3 shows that oil prices were also low then. If prices are too low, would-be producers leave them in the ground. Adding in nuclear and renewables (hydroelectric, ethanol, wood, wind, solar and geothermal) still leaves a large dip in recent production. President Biden is no doubt aware of the fact that the US s production of energy products, especially crude oil, is now low. In fact, earlier in August he asked OPEC and its allies to increase their oil production to try to keep prices from rising too much. Why would OPEC want to increase its production, if the US can t increase its own production at the current price level? All of the producers need a higher price level; it is consumers who cannot afford the higher price level.[5] The world seems to have already begun shifting to a falling energy consumption per capita situation.The amount of energy required tends to rise with population because all of the people require food, housing and transportation. Energy, especially oil and coal, are needed for these.Many countries, including the United States, have been able to hold down their internal energy consumption per capita by moving much of their industry to China and India. Figure 7 shows that US industrial production reached its peak in 1973, which was shortly after US oil production started to turn down in 1971. This partly reflects auto manufacturing moving to Japan and Europe, where smaller, more fuel-efficient cars were already being sold. Home heating and electricity generation also shifted away from oil to other fuels. The issue now is that Ex. Industrial consumption has been falling since the Great Recession. In some sense, the economy has been losing strength since 2008 and continues to lose strength. Fewer and fewer people can feel like they are really getting ahead. They are saddled with low wage jobs and too much debt. Figure 8 shows similar patterns for the European Union and Japan. Energy consumption per capita was rising until a few years before the Great Recession, and then it plateaued. It has been declining since.The pattern shown on Figure 8 suggests that energy prices are still too high for consumers, even though they are, at the same time, too low for producers. Travel restrictions imposed by governments may also be contributing to this pattern. GDP data indications are prepared on an accrual basis. In other words, they reflect the impact of added debt. If missing energy can be replaced with a promise of debt to pay for more goods and services in the future, made with future energy, then perhaps all will be well. The quantity of debt that is required, relative to the GDP impact, keeps rising, suggesting this substitution is not working very well.With the addition of growing amounts of debt, GDP increases are reported to be much larger than expected growth, based only on the growth in energy consumption.[6] We now seem to be reaching the end of the line with respect to what can be done with added debt to make the economy seem like it is performing adequately well.Interest rates show a very distinct pattern. They rise until about 1981, and then they decline. When the US economy was growing rapidly, it could withstand high and rising interest rates. Since 1981, the general pattern has been one of falling interest rates, making a larger quantity of debt affordable. Indirectly, these falling interest rates also helped prop up asset prices, such as those of homes and shares of stock. In recent years, interest rates have fallen about as far as they can go. To some extent, these lower rates were made possible by Quantitative Easing (QE). But at some point, QE needs to be stopped. Today, interest rates are approximately at the level they were during the Great Depression of the 1930s. This makes sense; interest rates to some extent reflect the return an investor can expect to make. Right now, without a lot of government support programs, Main Street businesses around the world are struggling. This indicates that the economy is doing very poorly. There are too many people who cannot afford even basic goods and services. Indirectly, this feeds back to commodity prices that are not high enough for producers of energy products.Recently, governments of many countries have tried a different approach. Instead of loans, they are providing something closer to giveaways. Renters are allowed to stay rent-free in their apartments. Or, checks are given to all citizens earning below some specified amount. What we seem to be finding is that these giveaways produce inflation in the price of goods that poor people buy most frequently, such as food and used cars. The giveaways don t actually produce more of the required goods and services, however. Instead, would-be workers decide that they really don t want to take a low-paid job if the giveaways provide nearly as much income. The loss of workers then acts to reduce production. With lower production of goods and services, a smaller quantity of oil is required, so the oil price tends to fall. The price certainly does not rise to the level needed by oil producers. [7] In a finite world, longer-term models need to take into account the fact that resources deplete and the population keeps rising. Any modeler who tries to take into account the fact that resources deplete and the overall population keeps rising will quickly come to the conclusion that, at some point, every economy will have to collapse. This has been known for a very long time. Back in 1957, Admiral Hyman Rickover of the US Navy said,Surplus energy provides the material foundation for civilized living – a comfortable and tasteful home instead of a bare shelter; attractive clothing instead of mere covering to keep warm; appetizing food instead of anything that suffices to appease hunger.. .For it is an unpleasant fact that according to our best estimates, total fossil fuel reserves recoverable at not over twice today’s unit cost, are likely to run out at some time between the years 2000 and 2050, if present standards of living and population growth rates are taken into account.Now, in 2021, it looks as if this problem is starting to hit us. But no one (since Jimmy Carter, who was not re-elected) has dared tell the general public. Instead, accrual accounting with more and more debt is used in financial statements, including GDP statements. Actuaries put together Social Security funding estimates as if the resources to provide the promised benefits will really be there. Climate change models are prepared as if business as usual can go on for the next hundred years. Everything published by the mainstream media is based on the underlying assumption that we will have no problems other than climate change for the next 100 years. [8] About all that can be done now is to start cutting back on the less necessary parts of the economy.President Biden s abrupt pullout from Afghanistan reflects a reality that increasingly has to take place in the world. The US needs to start pulling back because there are too many people and not enough inexpensive to extract resources to fulfill all of the commitments that the US has made. As mentioned earlier, there are a number of obstacles to success in Afghanistan. Thus, it is a good place to start.With the need to pull back, there is a much higher level of conflict, both within and between countries. The big issue becomes who, or what, is going to be voted off the island next. Is it the elderly or the poor; the military or the oversized US medical establishment; university education for a large share of students or classroom teaching for young children?We don t seem to have a good way out of our current predicament. This seems to be what is behind all of the recent internet censorship. Renewables and nuclear require fossil fuel energy for their production and maintenance. The powers that be don t want anyone to know that nearly all of the happily ever after using renewables stories we hear are based on wishful thinking.Last week, the CDC announced a surprising finding: Delta infection resulted in similarly high SARS-CoV-2 viral loads in vaccinated and unvaccinated people. Public officials had known from the early days of vaccine development that vaccinated people could catch COVID-19, but the assumption had been made that they were not going to be spreaders of COVID-19. It turns out that the delta variant is sufficiently different from the original Wuhan version of the virus that the vaccines work much less well. The CDC performed an analysis of COVID-19 cases arising from one public gathering in Massachusetts. They found that the gathering led to 469 COVID-19 Delta cases among Massachusetts residents, with 74% of these cases in fully vaccinated attendees. Massachusetts is a highly vaccinated state, with approximately 64% of the population fully vaccinated.There are other issues coming up as well. How long does the vaccine really last? Is the vaccine itself part of the reason that the virus is mutating as rapidly as it is? Are we making problems for ourselves by creating an army of people with very light cases of COVID-19 who can spread the virus to both the vaccinated and the unvaccinated without realizing that they have more than a cold? Aren t we inadvertently killing off the least able of the virus mutations and allowing the most virulent to multiply?My training is as an actuary, so I am familiar with modeling. I am also a systems thinker. I know that it is important to look at longer term impacts as well as short-term impacts. If a person works in the healthcare field, it is easy to consider only the obvious short-term benefits. It takes some analysis to figure out that today s vaccines may lead to stronger variants (such as Delta) and more overall spread of COVID-19. [1] Today s vaccines provide only a fraction of the true level of protection required. Their actions are in many ways similar to applying weed killer at half the strength needed to kill the weeds or providing antibiotics at half the dose required to stop the spread of bacteria.All of our lives, we have been told, Be sure to complete the full course of the antibiotics. It is necessary to kill all of the bacteria. Otherwise, it will be easier for a few of the stronger bacteria not to be affected. If you stop too early, the bacteria that are least affected by the antibiotic will survive and reproduce, while the others will die. Stopping the drug too soon is a great way to achieve antibiotic resistance, quickly. Unfortunately, COVID-19 vaccine makers seem to have overlooked this issue. The respected BMJ published an editorial entitled, Will covid-19 vaccines save lives? Current trials aren t designed to tell us. It makes the point:Peter Hotez, dean of the National School of Tropical Medicine at Baylor College of Medicine in Houston, said, “Ideally, you want an antiviral vaccine to do two things . . . first, reduce the likelihood you will get severely ill and go to the hospital, and two, prevent infection and therefore interrupt disease transmission.”Yet the current phase III trials are not actually set up to prove either. We were told that the new COVID-19 vaccines are 95% effective in preventing symptomatic disease, but it turns out that this is far less adequate than what most people would assume. The vaccine is leaky. A big issue is that the virus mutates, and the vaccine works much less well against the mutations. The world can never reach herd immunity if immunized people keep catching new variants of COVID-19 and keep passing them on, as the evidence now suggests. [2] In a way, getting sick from a virus is helpful. It tells us to stay at home, away from others. It is the fact that humans experience symptoms from viruses that tends to limit their spread. If a virus has severe symptoms, those infected with the virus will not feel well enough to continue their usual activities. They will tend to stay at home.If the symptoms are mild, as is the case with the common cold, people will likely go about their activities as usual. This is especially the case if people need to work to feed their families. Thus, viruses with mild symptoms often spread easily. But, if citizens feel that they are protected by a vaccine, they will likely continue to go about their activities as usual. Most of them will not realize that they might be spreaders of Delta, and perhaps other new COVID-19 variants. Symptoms are likely to be mild or non-existent.[3] It is becoming clear that people immunized with today s vaccines can both catch the delta variant and spread it to others. As I mentioned above, the CDC concluded from looking at its analysis of 469 delta cases that the infection resulted in similarly high SARS-CoV-2 viral loads in vaccinated and unvaccinated individuals. We have independent corroboration of the ability of vaccinated individuals to spread delta COVID-19 in a new analysis from Singapore. This article reports, PCR cycle threshold (Ct) values were similar between both vaccinated and unvaccinated groups at diagnosis. This is precisely the information that the CDC was relying on in Massachusetts when they reported that there were similarly high SARS-CoV-2 viral loads in vaccinated and unvaccinated people. While this analysis has not yet been peer reviewed, it reaches precisely the same conclusion with respect to early viral load as the Massachusetts analysis.The data from this same Singapore study indicates that there are about 3 times as many asymptomatic cases in the vaccinated (28.2%) as the unvaccinated (9.2%). The median number of symptoms reported by the vaccinated was 1, compared to 2 in the unvaccinated. Among the vaccinated, the most frequent symptoms were fever (40.9%), runny nose (38%) and cough (38%). One of these symptoms, especially if it occurred only briefly, could easily be overlooked as a sign of COVID-19.[4] With nearly all of the current vaccines, the immune system is trained to look for the spike protein from the original Wuhan virus. This narrow focus makes it relatively easy for the virus to mutate in ways that outsmart the vaccine.A History of Vaccines website indicates that there are several ways vaccines are being made, including weakened ( attenuated ) viruses, killed viruses, and segments of the pathogen. In the new COVID-19 vaccines, a particularly limited part of the virus is used, the spike protein. In fact, in the newer vaccines, only an mRNA code is injected, and the body is instructed to make the spike protein itself. Using a very narrow target has made it easier for viruses to evade the effects of the vaccine. Delta is one variant of the original virus from Wuhan that is evading vaccines through its mutations. Another such variant is Lambda, which caused serious problems in Chile in the spring of 2021, despite vaccine usage as high as 60%. The virus underlying all of these variants is called SARS-CoV-2, reflecting the fact that this virus is closely related to the virus which caused the 2003 SARS epidemic.Since vaccination began about December 15, 2020, we have so far encountered two variants that are poorly controlled by vaccines. This is not a promising sign for the long-term success of COVID-19 vaccines. As more time goes on, we can expect more such variants. These variants do not necessarily stay around for more than a few months, making it difficult to create and distribute new specially targeted vaccines. [5] Given the likelihood of mutations away from the narrow target, it seems strange that the governments have set very high expectations for the new vaccines. It seems to me that Pfizer and Moderna should have said, We are producing new vaccines that will somewhat lessen symptoms. In a way, they will be like the annual influenza vaccines that various companies make each year. We will need to update the vaccines regularly, but we will likely miss. Hopefully, our guess regarding what will work will be close enough, so the vaccine will provide some partial benefit for the upcoming variations. Such a statement would have provided a more realistic set of expectations, compared to what many people have been assuming. No one would expect that herd immunity would ever be reached. The vaccines would be perceived as fairly weak tools that need to be used alongside medications, if they are to be used at all.[6] Leaky vaccines, if widely used, can encourage the virus to mutate toward more virulent (severe) forms. Ultimately, the problem becomes viruses that mutate to more virulent forms faster than the vaccine system can keep up.If, as we are seeing today, vaccinated people can catch the variant and pass it on to both vaccinated and unvaccinated people, this extra boost can help the variant tremendously in its ability to spread. This extra boost is especially helpful for the variants that are very virulent, since in the normal situation, people who catch a virulent variant would recognize that they are sick and stay at home. There would normally be a limit on how much the variant could spread based on its impact on the unvaccinated. This limit goes away if both the vaccinated and unvaccinated can catch and spread the illness. Without a vaccine, the variants might be either more or less virulent, with the more virulent tending to die out because the people who get them either die or stay at home because they are very ill. I would expect that this is the reason why quite a few viruses tend to become less severe (virulent) over time, when leaky vaccines are not available to artificially boost their virulence. The article, Vaccines are Pushing Pathogens to Evolve, gives the example of how the vaccines for Marek s disease in chickens have been failing, as the disease gradually evolves to become more virulent under pressure from the vaccines being used to keep this illness away. The first vaccine was introduced in 1970. A decade later, outbreaks of Marek s disease began to be found in vaccinated flocks. A second vaccine was licensed in 1983, but it too began to fail. When the article was written in 2018 the industry was on its third vaccine, but it too was beginning to fail, as the disease became more deadly. But there was no new vaccine yet available. A 2015 article in PLOS Biology is entitled, Imperfect Vaccination Can Enhance the Transmission of Highly Virulent Pathogens. A person would think everyone involved in vaccine technology would be very much aware of this issue. The chase after new vaccines is precisely the problem we can expect to have with the vaccines for COVID-19. Only, our problem with the vaccine not really working correctly is coming after a few months, not 10 years. Trying to keep up with new vaccines for a virus that evolves away from us, this quickly, is likely to be an impossible task. It is not just the unvaccinated who have a problem; it is everyone, as the vaccines quickly lose their effectiveness.ADE is a rather strange condition in which the antibodies against one variant gained from a first infection (or immunization) act to make some later infections by a different variant worse, rather than better. Dengue Fever is an example of an illness for which this is an issue.The large number of immunized patients in the hospital with COVID-19 in Israel (which has mostly Delta cases) is also given as possible evidence:The illness SARS is closely related to COVID-19. There is evidence that vaccinations against SARS tend to produce ADE. In fact, the National Institute of Health provided funding for a 2020 academic paper that reaches the following conclusion: The specific and significant COVID-19 risk of ADE should have been and should be prominently and independently disclosed to research subjects currently in vaccine trials, as well as those being recruited for trials and future patients after vaccine approval, in order to meet the medical ethics standards for informed consent. [8] Another problem with the current vaccines against COVID-19 is that immunity may not last very long.The virus that causes COVID-19 is a coronavirus. The common cold is another illness caused by a coronavirus. We know the immunity of the common cold doesn t last very long, perhaps a year. While we don t have long-term experience with COVID-19 vaccine immunity, we shouldn t be surprised if its immunity begins to wane within a few months, or in a year or two. Israel, after analyzing its recent COVID-19 experience (almost all with the Delta variant), is now offering anyone over 60 who was vaccinated more than 5 months ago a booster shot. Third doses are also being given to those with weakened immune systems.It should be noted that if immunity doesn t last very long, any strategy of flattening the curve by stretching out COVID-19 cases becomes counterproductive because it runs the risk of moving the timeframe of the next cycle beyond the time when natural (and vaccine-induced) immunity is still operative. [9] The public has been led to believe that vaccines are the only solution to COVID-19 when, in fact, they are at best a very poor and temporary band-aid.Vaccines are a tempting solution because the benefits have been oversold and no one has explained how poorly today s leaky vaccines really work. We are already past the period when these vaccines were well matched with the viruses they were aimed at. Now we are in a situation in which the viruses are constantly mutating, and the vaccines need to be updated. The catch is that the variants stick around for such a short time period that by the time the vaccine is updated, there is likely to be yet another new variant that the new vaccine does not really match up with well.Requirements that employees be vaccinated against COVID-19 cannot be expected to provide much benefit to employers because workers will still be out sick with COVID-19. This happens because they are likely to catch a variant such as Delta, which does not line up with the original vaccine. Perhaps they will be out for a shorter period, and their hospital bills will be lower. These types of benefits are what people have expected of influenza vaccines. There is no reason for them to expect more of the new COVID-19 vaccines. Even with 100% vaccination herd immunity can never be reached because the vaccine encourages the virus to mutate into more virulent forms. Each new variant stays around for only a few months, making it hard for vaccine makers to keep up with the changing nature of the problem. Vaccine makers can expect to face a constant battle in having to run to stay even. Someone will have to convince citizens that each new vaccine makes sense, even though injuries reported to the US Vaccine Adverse Event Reporting System seem to be much more frequent than those reported for vaccines for other diseases.An erroneous, one-sided story is being told to the general public, in part because the pharmaceutical lobby is incredibly powerful. It has the support of influential people, such as Anthony Fauci and Bill Gates. The pharmaceutical industry can make billions of dollars in income from the sale of vaccines, with little in the way of sales expenses. The industry has managed to convince people that it is OK to sell these vaccines, even though injury rates are very high compared to those for vaccines in general. Vaccines are being pushed in large part because the pharmaceutical industry needs a money maker. It also wants to be seen as having cutting-edge technology, so young people will be attracted to the field. It cannot admit to anyone that technologies from decades ago would perhaps work better to solve the COVID-19 problem.[10] The pharmaceutical industry has been telling the world that inexpensive drugs can t fix our problem. However, there are several low-cost drugs that appear helpful. One drug that is being overlooked is ivermectin, which was discovered in the late 1970s. It was originally introduced as a veterinary drug to cure parasitic infections in animals. In the U. S., ivermectin has been used since 1987 for eliminating parasites such as ringworm in humans. Ivermectin seems to cure COVID-19 in humans, but it needs a higher dosage than has been previously approved. Also, it would not be a money maker for the pharmaceutical industry. The possible use of ivermectin to cure COVID-19 seems to have been intentionally hidden. At approximately 32:45 in this linked video, Dr. David Martin explains how Moderna announced ivermectin s utility in treating SARS (which is closely related to SARS-CoV-2) in its 2016-2018 patent modification related to the SARS virus. It sounds as though Moderna (and others) have participated both in developing harmful viruses and in developing vaccines to cure very closely related viruses. They then work to prevent the sale of cheap drugs that might reduce their sales of vaccines. This seems unconscionable. Vitamin D, in high enough doses, taken well before exposure to the virus that causes COVID-19, seems to lead to reduced severity of the disease, and may eliminate some cases completely. Various steroid drugs are often used in the later stages of COVID-19, when conditions warrant it. The medical community seems to have no difficulty with these. Monoclonal antibodies are also used in the treatment of COVID-19, but they are much more expensive. [11] Conclusion. Governments, businesses, and citizens need to understand that today s vaccines are not really solutions to our COVID-19 problem. At the same time, they need better solutions.Current vaccines have been badly oversold. They can be expected to make the mutation problem worse, and they don t stop the spread of variants. Instead, we need to start quickly to make ivermectin and other inexpensive drugs available through healthcare systems. People do need some sort of solution to the problem of COVID-19 illnesses; it just turns out that the current vaccines work so poorly that they probably should not be part of the solution.The whole idea of vaccine passports is absurd. Even with the vaccine, people will catch the new COVID-19 variants, and they will pass them on to others. Perhaps they may get lighter symptoms, so that they will be off work for a shorter length of time, but there still will be disruption. If those who catch COVID-19 can instead take ivermectin at a high enough dose at the first sign of illness, many (or most) of them can get well in a few days and avoid hospitalization completely. Other medications may be helpful as well.I am skeptical that masks can do any good with the high level of transmission of Delta. But at least masks aren t very harmful. We probably need to go along with what is requested by officials.It is becoming clear that today s pharmaceutical industry is far too powerful. Investigations need to be made into the large number of allegations against it and its leaders. Why did members of the pharmaceutical industry find it necessary to patent viruses, and then later sell vaccines for a virus closely related to the viruses it had patented?What allows any type of energy to be sustainable? I would argue that one of the requirements for sustainability is adequate production of taxable revenue. Company managements depend upon taxable revenue for many purposes, including funding new investments and paying dividends to shareholders. Governments depend upon taxable income to collect enough taxes to provide infrastructure and programs for their growing populations. Taxable income is a major way that net energy is transferred to future investment and to the rest of the economy. If this form of net energy is too low, governments will collapse from lack of funding. Energy production will fall from lack of reinvestment. This profitability needs to come from the characteristics of the energy products, allowing more goods and services to be produced efficiently. This profitability cannot be created simply by the creation of more government debt; the rise in the price of energy is tied to the affordability of goods, particularly the goods required by low-income people, such as food. This affordability issue tends to put a cap on prices that can be charged for energy products. It seems to me that Green Energy sources are held to far too low a standard. Their financial results are published after subsidies are reflected, making them look profitable when, in reality, they are not. This is one of the things that makes many people from the financial community believe that Green Energy is the solution for the future.In this post, I will discuss these ideas further. A related issue is, Which type of oil production fell most in the 2018-2021 period? Many people had expected that perhaps high-cost energy production would fall. Strangely enough, the production that fell most was that of OPEC oil exporters. These oil exporters often have a very low cost of energy production. The production of US oil from shale also fell. If the ratio of Energy Return on Energy Investment (EROEI) is to be used as a measure of which type of energy best meets our needs, perhaps the list of items to be included in EROEI calculations needs to be broadened. Alternatively, more attention needs to be paid to unsubsidized taxable income as an indicator of net energy production.[1] According to EIA data, world crude oil production hit a peak of 84.5 million barrels per day (bpd) in the fourth quarter of 2018. Production fell as low as 72.3 million bpd in the third quarter of 2020. Production rebounded to 75.4 million barrels of oil a day, still 9.1 million bpd below peak production in the 4th quarter of 2018.This drop in oil production was unprecedented. It far exceeded the drop in oil production at the time of the Great Recession of 2008-2009. As of the first quarter of 2021, crude oil production was roughly at its level in 2011. It still has not rebounded very far.[2] The biggest drop in crude oil production during this period was that of the cartel led by OPEC and Russia. United States oil production also fell during this period. Production of the Rest of the World, in total, was fairly flat.The big concern of OPEC and Russia was that crude oil prices were too low to provide adequate tax revenue for the governments of these countries. This is especially an issue for countries with few other industries besides oil. These oil exporting countries tend to have large populations, with little employment besides government-sponsored projects. Nearly all food needs to be imported, so subsidies for food need to be provided if the many people earning low wages are to be able to afford this food. If oil prices are high, say $150 per barrel or higher in today s dollars, it is generally fairly easy for governments to collect enough oil-related taxes. The actual cost of extraction is often very low for oil exporters, perhaps as little as $20 per barrel. The need for tax revenue greatly exceeds the direct expenses of extracting the oil. Companies can be asked to pay as much as 90% of operating income (in this example, equal to $130 = $150 $20 per barrel, probably only relating to exported oil) as taxes. The percentage varies greatly by country, with countries that have higher costs of production generally paying less in taxes. When oil companies are asked about their required price to break even, a wide range of answers is possible. Do they just quote the expense of pulling the oil from the ground? If so, a very low answer is possible. If shareholders are involved in the discussions, this is the answer that they would like to hear. Or do they give realistic estimates, including the taxes that their governments need? Furthermore, if the cost of extraction is rising, there needs to be enough profit that can be set aside to allow for the drilling of new wells in higher-cost areas, if production is to be maintained. Because of the need for tax revenue, OPEC countries often publish Fiscal Breakeven Oil Prices, indicating how high the prices need to be to obtain adequate tax revenue for the exporting countries. For example, Figure 4 shows a set of Fiscal Breakeven Oil Prices for 2013 2014.If a country tries to maintain the same standard of living for its population as in the past, I would expect that the fiscal breakeven price would rise year after year. This would occur partly because the population of OPEC countries keeps rising and thus more subsidy is needed. The fiscal breakeven price would also tend to rise because the easiest-to-extract oil tends to be depleted first. As a result, new oil-related investments can be expected to have higher costs than the depleted investments they are replacing.In fact, if a person looks at more recently published fiscal breakeven prices, they tend to be lower than the 2013-2014 breakevens. I believe that this happens because oil exporters don t want to look desperate. They know that attaining such high prices is unlikely today. They hope that by using more debt and reducing the standard of living of their citizens, they can somehow get along with a lower fiscal breakeven price. This is not a long term solution, however. Unhappy citizens are likely to overturn their governments. Such a result could completely cut off oil supply from these countries.[3] A cutback in oil production is not surprising for the OPEC + Russia group, nor for the United States, given the chronically low oil prices. The profitability was too low for all of these producers.Oil prices fell in late 2014. Fiscal breakeven prices calculated before that date likely gave a somewhat reasonable estimate of the needed prices for oil exporters to make an adequate profit, at that time. By early 2019, when the first decreases in oil production began, these countries were beginning to become fed up with chronically low oil prices. It is interesting to note that Qatar, the country with the lowest breakeven price on Figure 4, decided to withdraw from OPEC effective January 1, 2019, rather than reduce its oil production. For Qatar, oil prices in late 2018 and early 2019 were close to adequate. Qatar mostly produces natural gas, rather than oil. The decrease in US shale oil production reflects somewhat the same low profitability issue as OPEC + Russia exports, with an additional factor added. Besides low prices, there seems to be a well-spacing issue. There are reports that the spacing of shale wells gradually got closer and closer, until the closer spacing became counter-productive. The more closely spaced wells cannibalized the output from nearby wells. The extra drilling may also have released needed pressurization, reducing oil availability. Such a problem would have been a difficult issue to pick up from EROEI analyses because there are not enough of these EROEI studies to see sudden changes. Figure 6 shows the timing of the drop in US oil production, relative to the drop in oil prices:Figure 6 omits oil from the Gulf of Mexico, because its quantity tends to bounce around, especially when a hurricane hits. Because of this exclusion, the oil shown in Figure 6 reflects a combination of declining oil production from conventional oil wells plus (after about 2011) rising production from shale wells.Figure 6 shows that production of oil from shale was developed during the 2011 to 2013 period, when oil prices were high. When oil prices suddenly fell in late 2014, shale producers suddenly found production very unprofitable. They cut back on production starting in April 2015. Shale production started rising again in 2017 after prices moved away from their extreme lows. Growth in oil production began to slow in late 2018, when oil prices again began to fall. The big shutdown in world oil demand associated with the COVID-19 epidemic began in the second quarter of 2020. Shale production fell in response to low oil prices in March through November of 2020. As of April 2021, production does not seem to have rebounded significantly. We have seen reports that workers were laid off, making it difficult to add new production. If, indeed, well-spacing had become too close, this may have played a role in the decision not to ramp up production again. It is quite possible that many drilled but uncompleted wells will permanently remain uncompleted because they are too close to other wells to be useful. Based on this analysis, it seems likely that US oil production for 2021 will be lower than that for 202o. Ultimately, the lack of adequate profitability can be expected to bring US oil production down. [4] There are some high-cost oil producers who continue to produce increasing amounts of oil. Large up front investments to make this production possible with little new investmentGovernments that are not very needy in terms of revenue from oil taxesEven with these considerations, having an unprofitable or barely profitable oil industry weakens a country. Neither Brazil nor Canada is doing very well economically in 2021. These countries will likely reduce new oil investment in the next year or two, if inflation-adjusted oil prices do not rise significantly. [5] Somehow, Green Energy has been allowed to compete in the energy field with huge subsidies. If Green Energy is actually to be successful long-term, it needs to be profitable in the same way that fossil fuel energy needs to be profitable. If wind and solar are truly useful, they need to be very profitable, even without subsidies, so that they can support their governments with taxes. There tends to be little recognition of the extent of subsidies for renewable energy. For example, allowing the electricity from wind turbines and solar panels to be put on the grid whenever it is generated is a huge subsidy. Such generation mostly substitutes for the coal or natural gas used by electricity-producing plants, rather than the electricity generated by these plants. The many reports we see that compare the cost of intermittent electricity generated by wind turbines and solar panels with the cost of dispatchable electricity generated by fossil fuels are simply misleading. Furthermore, electricity generated by wind turbines and solar panels doesn t need to be sufficiently profitable to pay for the much larger grid they require. The larger grid requirement occurs partly because the devices tend to be more distant from users, and partly because the transmission lines need to be sized for the maximum transmission required, which tends to be high for the variable production of renewables. The lack of adequate profitability of wind and solar on an unsubsidized basis strongly suggests that they are not really producing net energy, regardless of what EROEI calculations seem to indicate.It might be noted that in past years, oil exporters have been accused of giving large energy subsidies to their oil producing companies. What these oil exporters have been doing is charging their own citizens lower prices for oil products than the high (international) price charged to foreign buyers. Thus, high taxes were collected only on oil exports, not from local citizens. With the fall in oil prices in late 2014 (shown in Figures 5 and 6 below), this practice of differential pricing has largely disappeared. Oil subsidies in the US consist of financial assistance to low income people in the US Northeast who continue to heat their homes with oil. These subsidies, too, have mostly disappeared, with lower oil prices and the availability of less expensive forms of home heating.The total quantity of energy must be rising, at least as rapidly as population.The types of energy available must match the needs of current energy-consuming devices, or there needs to be some type of transition plan to facilitate this transition.There must be enough net energy left over, both (a) to fund governments with taxes and (b) to fund any transition to different energy-consuming devices, if such a transition is required. Thus, in order for a transition to Green Energy to really work, it must be extremely profitable on a pretax, unsubsidized basis, so that it can pay high taxes. The greater the need for a transition to different energy consuming devices, such as heat pumps for buildings and electric vehicles of many types, the greater the need for more net energy generated by Green Energy sources to help facilitate this transition. High profitability for energy products is normally associated with a very low cost of energy production. Furthermore, the type of Green Energy available needs to be in a very useful form. In a sense, there are really two different energy transitions required: The output of intermittent electricity devices must be brought up to grid standards, using a combination such as many long distance transmission, very substantial battery backup, and the use of many devices to provide the electricity with the precise characteristics it needs.As mentioned above, if greater use of electricity is to be made, a transition to electric devices is required.Both of these transitions will require a significant quantity of energy (really net energy not used elsewhere in the system) to accomplish. If fossil fuel energy is being phased out, an increasing share of this net energy will need to come from the Green Energy sector by way of the tax system. Such a system will only work if the Green Energy sector is very profitable on a pre-tax basis. [7] Figure 8 suggests that the world has a problem with low energy consumption per capita right now. There is a strong correlation between growth in total energy consumption per capita and how well the economy is doing. The slight downward slide in energy consumption per capita in 2019 indicates that the economy was already doing poorly in 2019. The huge downward shift in 2020 dwarfs the downward slide in 2009, when the world was in the midst of the Great Recession. My earlier research, looking back 200 years, indicates that low growth in energy consumption per capita is likely to lead to conflict among nations and collapses of governments. Epidemics are also more likely to spread in such periods, because greater wage and wealth disparity tends to occur when energy supplies are constrained.Any shift away from fossil fuel energy to Green Energy will almost certainly mean a huge drop in world energy consumption per capita because the world doesn t produce very much Green Energy. Such a drop in energy consumption per capita will be a huge problem, in itself. If the Green Energy sector doesn t generate much taxable income without subsidies, this adds an additional difficulty.[8] Conclusion: Examination of the EROEIs for various fuels, using calculations the way that they are performed today, gives inadequate information regarding whether a transition to another set of fuels is feasible. Researchers need to be looking more at (a) the total quantity of energy produced and (b) the profitability of producing this energy. An economy is only possible because of profitable businesses, including energy businesses. A person cannot assume that energy prices will rise from today s level because of scarcity. Today s huge debt bubble is producing very high copper and steel prices, but it is not producing correspondingly high oil prices. Heavily subsidized energy products look like they might be helpful, but there is little reason to believe this to be the case. If Green Energy products are truly producing net energy, we should expect this fact to be reflected in the unsubsidized profits that these products generate. In fact, if Green Energy products are truly producing large amounts of net energy, they should be so profitable that businesses will be rapidly ramping up their production, even without subsidies or mandates.I have written many posts relating to the fact that we live in a finite world. At some point, our ability to extract resources becomes constrained. At the same time, population keeps increasing. The usual outcome when population is too high for resources is overshoot and collapse. But this is not a topic that the politicians or central bankers or oligarchs who attend the World Economic Forum dare to talk about.Instead, world leaders find a different problem, namely climate change, to emphasize above other problems. Conveniently, climate change seems to have some of the same solutions as running out of fossil fuels. So, a person might think that an energy transition designed to try to fix climate change would work equally well to try to fix running out of fossil fuels. Unfortunately, this isn t really the way it works. [1] There are many different constraints that new energy sources need to conform to.Should be inexpensive to produceShould work with the current portfolio of existing devicesShould be available in the quantities required, in the timeframe neededShould not pollute the environment, either when created or at the end of their lifetimesShould not add CO2 to the atmosphereShould not distort ecosystemsShould be easily stored, or should be easily ramped up and down to precisely match energy timing needsCannot overuse fresh water or scarce mineralsCannot require a new infrastructure of its own, unless the huge cost in terms of delayed timing and greater materials use is considered. If an energy type is simply a small add-on to the existing system, perhaps a little deviation from the above list can be tolerated, but if there is any intent of scaling up the new energy type, all of these requirements must be met. It is really the overall cost of the system that is important. Historically, the use of coal has helped keep the overall cost of the system down. Substitutes need to be developed considering the overall needs and cost of the system. The reason why the overall cost of the system is important is because countries with high-cost energy systems will have a difficult time competing in a world market since energy costs are an important part of the cost of producing goods and services. For example, the cost of operating a cruise ship depends, to a significant extent, on the cost of the fuel it uses.In theory, energy types that work with different devices (say, electric cars and trucks instead of those operated by internal combustion engines) can be used, but a long delay can be expected before a material shift in overall energy usage occurs. Furthermore, a huge ramp up in the total use of materials for production may be required. The system cannot work if the total cost is too high, or if the materials are not really available, or if the timing is too slow. [2] The major thing that makes an economy grow is an ever increasing supply of inexpensive-to-produce energy products. Food is an energy product. Let s think of what happens when agriculture is mechanized, typically using devices that are made and operated using coal and oil. The cost of producing food drops substantially. Instead of spending, for example, 50% of a person s wages on food, the percentage can gradually drop down to 20% of wages, and then to 10% of wages for food, and eventually even, say, to 2% of wages for food. As spending on food falls, opportunity for other spending arises, even with wages remaining relatively level. With lower food expenditures, a person can spend more on books (made with energy products), or personal transportation (such as a vehicle), or entertainment (also made possible by energy products). Strangely enough, in order for an economy to grow, essential items need to become an ever decreasing share of everyone s budget, so that citizens have sufficient left-over income available for more optional items.It is the use of tools, made and operated with inexpensive energy products of the right types, that leverages human labor so that workers can produce more food in a given period of time. This same approach also makes many other goods and services available. In general, the less expensive an energy product is, the more helpful it will be to an economy. A country operating with an inexpensive mix of energy products will tend to be more competitive in the world market than one with a high-cost mix of energy products. Oil tends to be expensive; coal tends to be inexpensive. This is a major reason why, in recent years, countries using a lot of coal in their energy mix (such as China and India) have been able to grow their economies much more rapidly than those countries relying heavily on oil in their energy mixes. [3] If energy products are becoming more expensive to produce, or their production is not growing very rapidly, there are temporary workarounds that can hide this problem for quite a number of years. Back in the 1950s and 1960s, world coal and oil consumption were growing rapidly. Natural gas, hydroelectric and (a little) nuclear were added, as well. Cost of production remained low. For example, the price of oil, converted to today s dollar value, was less than $20 per barrel.Once the idyllic 1950s and 1960s passed, it was necessary to hide the problems associated with the rising cost of production using several approaches:Increasing use of debt – really a promise of future goods and services made with energyLower interest rates – permits increasing debt to be less of a financial burdenIncreasing use of technology – to improve efficiency in energy usageGrowing use of globalization – to make use of other countries cheaper energy mix and lower cost of labor After 50+ years, we seem to be reaching limits with respect to all of these techniques:Debt levels are excessiveInterest rates are very low, even below zeroIncreasing use of technology as well as globalization have led to greater and greater wage disparity; many low level jobs have been eliminated completelyGlobalization has reached its limits; China has reached a situation in which its coal supply is no longer growing[4] The issue that most people fail to grasp is the fact that with depletion, the cost of producing energy products tends to rise, but the selling prices of these energy products do not rise enough to keep up with the rising cost of depletion. As a result, production of energy products tends to fall because production becomes unprofitable. As we get further and further away from the ideal situation (oil less than $20 per barrel and rising in quantity each year), an increasing number of problems crop up:Both oil/gas companies and coal companies become less profitable.With lower energy company profits, governments can collect less taxes from these companies.As old wells and mines deplete, the cost of reinvestment becomes more of a burden. Eventually, new investment is cut back to the point that production begins to fall. With less growth in energy consumption, productivity growth tends to lag. This happens because energy is required to mechanize or computerize processes.Wage disparity tends to grow; workers become increasingly unhappy with their governments. [5] Authorities with an incorrect understanding of why and how energy supplies fall have assumed that far more fossil fuels would be available than is actually the case. They have also assumed that relatively high prices for alternatives would be acceptable. In 2012, Jorgen Randers prepared a forecast for the next 40 years for The Club of Rome, in the form of a book, 2052, with associated data. Looking at the data, we see that Randers forecast that world coal consumption would grow by 28% between 2010 and 2020. In fact, world coal consumption grew by 0% in that period. (This latter forecast is based on BP coal consumption estimates for 2010 and 2019 from BP s Statistical Review of World Energy 2020, adjusted for the 2019 to 2020 period change using IEA s estimate from its Global Energy Review 2021.) It is very easy to assume that high estimates of coal resources in the ground will lead to high quantities of actual coal extracted and burned. The world s experience between 2010 and 2020 shows that it doesn t necessarily work out that way in practice. In order for coal consumption to grow, the delivered price of coal needs to stay low enough for customers to be able to afford its use in the end products it provides. Much of the supposed coal that is available is far from population centers. Some of it is even under the North Sea. The extraction and delivery costs become far too high, but this is not taken into account in resource estimates.Forecasts of future natural gas availability suffer from the same tendency towards over-estimation. Randers estimated that world gas consumption would grow by 40% between 2010 and 2020, when the actual increase was 22%. Other authorities make similar overestimates of future fuel use, assuming that of course, prices will stay high enough to enable extraction. Most energy consumption is well-buried in goods and services we buy, such as the cost of a vehicle or the cost of heating a home. If we cannot afford the vehicle, we don t buy it; if the cost of heating a family s home rises too high, thrifty families will turn down the thermostat. Oil prices, even with the recent run-up in prices, are under $75 per barrel. I have estimated that for profitable oil production (including adequate funds for high-cost reinvestment and sufficient taxes for governments), oil prices need to be over $120 per barrel. It is the lack of profitability that has caused the recent drop in production. These profitability problems can be expected to lead to more production declines in the future.With this low-price problem, fossil fuel estimates used in climate model scenarios are almost certainly overstated. This bias would be expected to lead to overstated estimates of future climate change.The misbelief that energy prices will always rise to cover higher costs of production also leads to the belief that relatively high-cost alternatives to fossil fuels would be acceptable. [6] Our need for additional energy supplies of the right kinds is extremely high right now. We cannot wait for a long transition. Even 30 years is too long.We saw in section [3] that the workarounds for a lack of growing energy supply, such as higher debt and lower interest rates, are reaching limits. Furthermore, prices have been unacceptably low for oil producers for several years. Not too surprisingly, oil production has started to decline:What is really needed is sufficient energy of the right types for the world s growing population. Thus, it is important to look at energy consumption on a per capita basis. Figure 2 shows energy production per capita for three groupings:Tier 1: Oil and CoalTier 2: Natural Gas, Nuclear, and HydroelectricTier 3: Other Renewables, including Intermittent Wind and Solar Figure 2 shows that the biggest drop is in Tier 1: Coal and Oil. In many ways, coal and oil are foundational types of energy for the economy because they are relatively easy to transport and store. Oil is important because it is used in operating agricultural machinery, road repair machinery, and vehicles of all types, including ships and airplanes. Coal is important partly because of its low cost, helping paychecks to stretch further for finished goods and services. Coal is used in many ways, including electricity production and making steel and concrete. We use coal and oil to keep electricity transmission lines repaired. Figure 2 shows that Tier 2 energy consumption per capita was growing rapidly in the 1965 to 1990 period, but its growth has slowed in recent years. The Green Energy sources in Tier 3 have been growing rapidly from a low base, but their output is still tiny compared to the overall output that would be required if they were to substitute for energy from both Tier 1 and Tier 2 sources. They clearly cannot by themselves power today s economy. It is very difficult to imagine any of the Tier 2 and Tier 3 energy sources being able to grow without substantial assistance from coal and oil. All of today s Tier 2 and Tier 3 energy sources depend on coal and oil at many points in the chain of their production, distribution, operation, and eventual recycling. If we ever get to Tier 4 energy sources (such as fusion or space solar), I would expect that they too will need oil and/or coal in their production, transport and distribution, unless there is an incredibly long transition, and a huge change in energy infrastructure. [a] We need to be looking at the extremely low energy cost structure of the 1950s and 1960s as a model, not some far higher cost structure. We have been hiding the world s energy problems for years behind rising debt and falling interest rates. With very high debt levels and very low interest rates, it is becoming less feasible to stimulate the economy using these approaches. We really need very inexpensive energy products. These energy products need to provide a full range of services required by the economy, not simply intermittent electricity. Back in the 1950s and 1960s, the ratio of Energy Earned to Energy Investment was likely in the 50:1 range for many energy products. Energy products were very profitable; they could be highly taxed. The alternative energy products we develop today need to have similar characteristics if they truly are to play an important role in the economy.[b] A recent study says that greenhouse gas emissions related to the food system account for one-third of the anthropogenic global warming gas total. A way to grow sufficient food is clearly needed.We clearly cannot grow food using intermittent electricity. Farming is not an easily electrified endeavor. If we do not have an alternative, the coal and oil that we are using now in agriculture really needs to continue, even if it requires subsidies.[c] Hydroelectric electricity looks like a good energy source, but in practice it has many deficiencies. Some of the hydroelectric dams now in place are over 100 years old. This is nearing the lifetime of the concrete in the dams. Considerable maintenance and repair (indirectly using coal and oil) are likely to be needed if these dams are to continue to be used.The water available to provide hydroelectric power tends to vary greatly over time. Figure 3 shows California s hydro electricity generation by month.Thus, as a practical matter, hydroelectric energy needs to be balanced with fossil fuels to provide energy which can be used to power a factory or heat a home in winter. Battery storage would never be sufficient. There are too many gaps, lasting months at a time. If hydroelectric energy is used in a tropical area with dry and wet seasons, the result would be even more extreme. A poor country with a new hydroelectric power plant may find the output of the plant difficult to use. The electricity can only be used for very optional activities, such as bitcoin mining, or charging up small batteries for lights and phones. Any new hydroelectric dam runs the risk of taking away the water someone else was depending upon for irrigation or for their own electricity generation. A war could result.[d] Current approaches for preventing deforestation mostly seem to be shifting deforestation from high income countries to low income countries. In total, deforestation is getting worse rather than better.Figure 4 shows that deforestation is getting rapidly worse in Low Income countries with today s policies. There is also a less pronounced trend toward deforestation in Middle Income countries. It is only in High Income countries that land areas are becoming more forested. In total (not shown), the forested area for the world as a whole falls, year after year. Also, even when replanting is done, the new forests do not have the same characteristics as those made by natural ecosystems. They cannot house as many different species as natural ecosystems. They are likely to be less resistant to problems like insect infestations and forest fires. They are not true substitutes for the forest ecosystems that nature creates.[e] The way intermittent wind and solar have been added to the electric grid vastly overpays these providers, relative to the value they add to the system. Furthermore, the subsidies for intermittent renewables tend to drive out more stable producers, degrading the overall condition of the grid. If wind and solar are to be used, payments for the electricity they provide need to be scaled back to reflect the true value that they add to the overall system. In general, this corresponds to the savings in fossil fuel purchases that electricity providers need to make. This will be a small amount, perhaps 2 cents per kilowatt hour. Even this small amount, in theory, might be reduced to reflect the greater electricity transmission costs associated with these intermittent sources. We note that China is making a major step in the direction of reducing subsidies for wind and solar. It has already dramatically cut its subsidies for wind energy; new subsidy cuts for solar energy will become effective August 1, 2021. A major concern is the distorting impact that current pricing approaches for wind and solar have on the overall electrical system. Often, these approaches produce very low, or negative, wholesale prices for other providers. Nuclear providers are especially harmed by such practices. Nuclear is, of course, a low CO2 electricity provider.It seems to me that in each part of the world, some utility-type provider needs to be analyzing what the overall funding of the electrical system needs to be. Bills to individuals and businesses need to reflect these actual expected costs. This approach might avoid the artificially low rates that the current pricing system often generates. If adequate funding can be achieved, perhaps some of the corner cutting that leads to electrical outages, such as recently encountered in California and Texas, might be avoided.[8] When I look at the requirements for a successful energy transition and the obstacles we are up against, it is hard for me to see that any of the current approaches can be successful.Most people seem to think that the world economy is going through a temporary disruption, caused by a novel coronavirus. As soon as COVID-19 goes away, they expect the economy will be back to normal. I think that this assessment is overly optimistic. The way I see the situation, the world economy was already having severe growth problems, caused indirectly by resource problems, even before COVID-19 hit. In a growing world economy, a person might expect that workers would be getting richer, so that they could afford an increasing quantity of goods and services. What we really see is something very different. The number of new automobiles sold was falling in many major countries long before COVID-19 hit, even as population was generally rising. Clearly, something was seriously wrong. As I see the situation, the world has a resource problem. Resources of many kinds, including fresh water, energy products, and minerals of many kinds were becoming more difficult (and expensive) to extract, even before 2020. Substitution might have worked if the problem were only one or two resources, but not with several major resources. Cutting back was the only answer. Thus, the shutdowns for COVID-19 came at a convenient time, allowing economies that were already doing poorly to shut down. Needless to say, there was no world leader who was willing to explain this hidden issue to the world population. Instead, world leaders used standardized code words such as we need to move to renewables or we need to reduce carbon use by 2050 to prevent climate change. Unfortunately, the ability to move to alternatives in this time frame is simply an illusion, allowing world leaders to avoid mentioning the serious resource issues that the world economy is really facing.I expect that within a few months, a new crisis of some sort (perhaps financial) will come along, further reducing resource use. This will happen, whether or not the problem of the novel coronavirus is solved. In this post, I will try to explain the situation. [1] The world s economy is a self-organizing system, powered by the laws of physics. It requires a mix of resources, including energy resources, to operate.The laws of physics require that energy be dissipated whenever activities we associate with generating GDP take place. For example, if a person is to drive a truck, he/she will need to eat food for his/her own personal energy. This food is dissipated by digestion. If the truck is to transport goods, it will need to burn some type of fuel, such as diesel. This fuel is dissipated by burning. If a computer is to operate, it will need to dissipate electricity. If a room (or a liquid) is to be heated or cooled, some sort of energy dissipation will be required. The world economy grows in a very orderly manner. It gradually adds population, as more babies are born than people die. All of these people need food and fresh water; they also need some type of housing and clothing to protect them from the elements. Ideally, they need some type of transportation in addition to walking. Businesses are formed to enable access to goods and services that fill these needs. Governments are also formed to provide services used by all and to regulate the system. A financial system is formed to facilitate transactions, among other things. The world economy cannot slow down and quickly restart. This is especially the case for an economy that had already started slowing, even before the 2020 pandemic. If not enough resources of the right kinds were available to enable true economic growth before the pandemic, it is hard to see how the situation would be very much improved a year later. One key to understanding how a self-organizing economy works is to understand that the economy is multi-sided. Businesses need to make an adequate profit, to continue in operation. Workers need to earn an adequate wage to raise a family. Customers need affordable prices. Shortages of inexpensive-to-extract resources can lead to many different problems: lack of profitability for producers, or too much wage disparity among workers, or too high prices for customers. Resource shortages can also lead to people with inadequate wages wanting to migrate. They can also lead to empty shelves in stores.[2] Depleted coal mines near population centers in China have adversely affected the Chinese economy more than it tells the outside world.China joined the World Trade Organization (WTO) in December 2001. The Kyoto Protocol mandated that 37 industrialized nations cut their greenhouse gas emissions. More than 100 developing countries, including China and India, were exempt from the treaty. This combination of events allowed China to greatly ramp up its economy, building many new roads, factories and housing units from concrete, with little competition from the 37 industrialized economies. China had very large coal resources, which it ramped up (Figure 2). Of course, this greatly increased world coal consumption, an effect precisely the opposite of the stated purpose of the Kyoto Protocol–to reduce world CO2 emissions. The problem that China ran into about 2013 was that its coal mines, especially those near population centers, began depleting. The cost of extraction started rising because the thickest coal seams, closest to the surface, were badly depleted. In theory, there was still a great deal more coal available from those mines if the price would rise sufficiently high. Coal from new mines that were more distant from population centers might also be used if the price would rise high enough to include overland transport costs. Coal prices didn t rise to match the higher cost of production. If they had risen, they would have raised the cost of many goods manufactured for export, making these industries less profitable. Because coal prices stayed too low for coal producers, over 70% of China s coal companies were reported to be unprofitable by the first half of 2014. China closed unprofitable mines and added new mines at more distant locations. China s coal production has struggled in recent years. A constant problem has been keeping coal prices high enough to cover the rising cost of extraction and delivery to population centers. There are recent indications that coal supply is inadequate: Parts of China experienced rolling blackouts in the winter of 2020-2021, and warnings have been given to expect possible electricity shortages this summer. China has been accepting few coal imports, largely because it wants to keep its local prices sufficiently high that its own coal producers can be profitable.China uses coal in many ways, including generating electricity, making steel, and manufacturing cement, which is the most important ingredient in concrete. Concrete is used in producing roads, bridges and buildings of all types, including high rise buildings used in many places in China. Figure 3 shows that China s cement production fell at a time similar to that at which coal production flattened out. This would not be surprising if a shortage of coal led China to cut back on its use of cement in order to save coal for electricity production. China, like other countries, has been seeing its population rise. Figure 4 shows coal and cement amounts for China on a per capita basis. This approach shows that, viewed on a per person basis, both coal consumption and concrete production have been falling since about 2013-2014. In fact, coal consumption began to fall slightly before cement production, suggesting that the fall in coal consumption is the cause of the fall in cement production. [3] A decrease in new home building in the United States after 2008, as well as the recent difficulty in ramping construction back up again, are further evidence that the world is reaching resource limits of some kind. Figure 5, above, shows that the number of new single-family housing units, relative to population, dropped dramatically after late 2005, early 2006. (This was when US Federal Reserve target interest rates rose, leading to higher borrowing costs for both builders and purchasers.) New home building plunged before and during the Great Recession. Building of new units has not ramped up very much, since then. Even in 2020 and early 2021, the number of new units being started is very low by historical standards. It certainly wouldn t be surprising if a lack of resources is part of what is depressing new home production. It may also be causing the spurt in resource prices (for example, lumber and copper) when new-home production does try to ramp up.[4] World oil production seems to be falling for the same reason that China s coal production stopped growing: Prices are too low for producers because of depletion issues. Oil producers cannot make an adequate profit, so they are reducing production. World crude oil production was at its highest level ever in 2018. It has fallen ever since. Figure 7 shows that oil production has been falling in many parts of the world in recent years. The shining star of crude oil production, at least until recently, has been the United States with its shale oil production.Unfortunately, with low prices, US shale oil is unprofitable. Shale production fell in 2020, and indications for the year 2021 are down as well. Worldwide, the oil industry seems to require a price of $120 per barrel or more to make investment in new production profitable, and current prices are far below this. Part of this high price is required to provide adequate tax revenue for oil exporting countries that are dependent on this revenue.[5] Relative to population, worldwide oil and coal consumption reached its highest level in 2007. It has fallen recently. Figure 9 shows that on a per capita basis, combined oil and coal consumption reached its highest level in 2007 and dipped during the Great Recession. It reached somewhat of a plateau in the 2011 to 2013 period, but started slipping in 2014 and had fallen ever since. Those who follow oil prices closely will notice that combined oil and coal consumption per capita tends to be high when oil prices are high relative to other goods; consumption tends to be low when oil prices are low. The lower per capita oil and coal consumption since 2007 would be expected to hold back the production of goods of many kinds, including houses, automobiles, roads and electrical transmission lines. The All Other category is really not a stand-alone category. It depends on oil and coal for its pipelines and electrical transmission, among other things. Without concrete bases, it would be difficult to have wind turbines. Solar panels without steel supports wouldn t work well either. In theory, if a huge amount of transition were done, perhaps steel and concrete could be produced in reasonable quantities with only the All Other types of energy, but someone would need to figure out precisely how this could be accomplished, including the timeframe required. Digging deeper wellsPiping fresh water from a distance, nearly always uphillDesalinationImplementing any of these workarounds for water shortages takes energy of different kinds, mostly coal (to make steel) and oil (for transporting goods and extracting metal ores). These workarounds make the cost of fresh water higher. Higher water costs are especially a problem for agriculture and for poor families, struggling with budgets that cover little more than the price of food and water. If fixes for the fresh water supply problem cannot be found, irrigation will need to be cut back. Such a change would likely lead to a fall in world food supply. [7] We are probably kidding ourselves if we think that production of semiconductor chips can be ramped up significantly in the future.China is now a major producer for rare earth minerals, and it is practically the only processor of rare earth minerals. Semiconductor chips are created using rare earth minerals, water and huge amounts of heat in an exceptionally clean environment. The leading producer of chips is Taiwan, using raw materials from China. There is a long lead time required for building new factories. My concern arises because of the resource issues China and the rest of the world is facing.We use semiconductor chips in many things, including computers, cell phones, automobiles and smart appliances. Without a ramp up in semiconductor chip production, many high-tech dreams for the future will likely remain only dreams. [8] With a falling supply of coal and oil per capita and inadequate fresh water in many parts of the world, we have already reached the point where some types of optional activities need to be cut back. An early optional activity that was cut back on was recycling. Oil prices fell in 2014, making the recycling of many types of goods, especially plastics, non-economic because the resale value of recycled products dropped with oil prices. China cut back greatly on its recycling efforts, effective January 1, 2018. Other countries have followed suit. China s cutbacks on recycling allowed it to save its coal supplies (which were no longer growing, see Figures 2 and 4) for other activities that had the possibility of being more profitable. In early 2020, cutbacks associated with the pandemic gave the world economy some breathing room with respect to resource shortages. Cutbacks in travel left more oil for other uses. Oil prices could drop back. This was especially helpful to countries that are big importers of oil, such as those in Figure 10, below. It is not surprising that some of the countries with the biggest oil import problems have been the most enthusiastic about travel cutbacks related to COVID-19. [9] The world economy has a very serious resource problem. There seem to be three different approaches to hiding the problem, none of which will really solve the problem.The serious problem that the world economy is encountering is the fact that the supply of both coal and oil are running short, especially when viewed on a per capita basis. The world is also very short of fresh water. China is affected as much, or more than, other countries by these problems. As a result, China s future growth prospects are likely quite low, even though few are expecting this change. Without a continued strong forward pull from China, the world economy may be headed for collapse, a condition which has affected many civilizations in the past. There seem to be three different approaches to doing something about the world s resource limits problem, without mentioning the nature of the real underlying problem:[a] Develop a fear of future climate change story by creating models that assume we have huge amounts of fossil fuels that can be burned in the future, even though the evidence is very much the opposite: We are running out of coal and oil right now, but in a different way than economists have theorized (low price, rather than high price). At the same time, argue that a transition to renewables (particularly intermittent wind and solar) is possible in the next 30 years. The fact that essential minerals for such a change, including copper and lithium, are themselves in short supply relative to the incredibly large quantities required, is overlooked. No one stops to calculate the true cost, measured in energy products and other materials, required by such a transition, either.[b] Create a fear of the coronavirus story, and use it to keep people inside and away from traveling as much as possible. Emphasize the possibility of mutations. If people cut back on traveling, it saves oil. If they cut back on eating out and large celebrations such as weddings, it reduces food wastage. If a pandemic takes place, politicians can use it as an excuse to mitigate problems of many kinds:Reduce the need for imported oil, by keeping citizens at homeKeep factories closed, without disclosing that the factories could not really operate at full capacity because of inadequate orders or missing raw materialsUse shutdowns to keep order in areas disrupted by uprisings related to low wagesHide the problem of many failing stores and businesses behind a new temporary problemGive the politician a new sense of control with new rules related to the epidemicIt is disturbing that back in 2010, the Rockefeller Foundation was looking at using pandemics to control people when the foundation was examining possible workarounds for too large a population relative to resources.[c] Hide the existing resource problem with more debt, to the extent possible. In fact, having a circulating coronavirus has assisted in this effort because everyone can see the need for more debt on a temporary basis, until this problem goes away. Of course, the resource problem is not going away, which means the world is likely headed for serious financial problems when the economy tries to ramp up again. See my post, Headed for a Collapsing Debt Bubble. [10] My expectation is that the world economy will try to bounce back from this pandemic, but it won t really be able to bounce back.There really aren t enough resources of any kind to pull the world economy much farther forward. A day of reckoning seems to be coming, probably in the next few months. The financial system looks like it is the weakest link. If the world economy dramatically slows, borrowers will not be able to repay debt with interest. There may be rapid shifts in currency relativities, disrupting derivatives markets. International trade will become less and less possible, perhaps taking place only among a few trusted partners. Enter your email address to subscribe to this blog and receive notifications of new posts by email. Join 23,625 other subscribers Email Address The Afghanistan Fiasco (and Today s High Level of Conflict) Reflect an Energy Problem - Even though it is not obvio… twitter.com/i/web/status/1… 2weeksago Contact If you would like to contact me, please send me an e-mail at GailTverberg at comcast dot net.I can also be reached at (407) 443-0505.

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