Fossil Debt

An off-hand comment by Marc Gunther in an article on Solyndra about the started an email chain between the two of us on green jobs.

We agree that most of the debate is silly, but I see some interesting economics underlying green jobs. I explore those ideas in this article: The Microeconomics of Green Jobs.

The article also gave me the opportunity to explore a parallel between using fossil fuels and running up the deficit:

[I]f we spend too much borrowed money to create jobs today, the long-term drag on the economy caused by paying back the debt will leave everyone worse off.

Economic growth fueled by the extraction of non-renewable resources is very similar to economic growth fueled by debt. When we extract these resources and use them, we increase economic activity today, but their non-renewable nature means that we lose the opportunity to extract and use them tomorrow. Hence, the economic stimulus today comes at the cost of an economic drag tomorrow, and the future economic drag will generally be larger than today’s stimulus, since improving technology should allow us to get more benefit from each unit of resource in the future.

Using renewable resources to stimulate growth does not have this problem: Tapping the wind or the sun for energy today does nothing to diminish the wind or sun tomorrow.

In my mind, this is a deep contradiction in current Conservative politics: they don’t like debt (and I agree) but they do like fossil fuels.

I’d be a conservative, if being a conservative actually meant conserving things.

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1 Comment

  1. Nimigje said

    Wind energy harvesting in the world started hundreds of years, before peoples learned to produce, distillate or refining the oil and use the product as fuels to energize different motors with combustion, or produce other energies, steam, electricity or other uses on the chemical industry or fertilizers, plastic etc. etc. Today we see that this product, has a vital place on economic development, but the reserves are depleting every day.
    Peoples know not about the wind energy, or sun energy, and they learned to harvest different energies, waive energy, hydro energy, thermo energy, atomic energy, bibful energy, etc. etc. You as a reader can ad hydrogen energy, biochemical energy, human energy, animal’s energy, fusion or fission, algae energy, traditional dirty coal energy or clean coal energy, natural gas energy, wood energy, dung energy, geo-thermal energy, or others that I may not know, or I have forget to mention.
    On this competitive environment, oil has a key place because, oil can be used to fuel the transportation, the airplanes, ships and other automobile that is designed and cannot be move anymore if the oil will be missing tomorrow.
    The simple fact is that all the energies recognized by mankind until now, have not competed with the oil, and we now understand that one day, the oil production will decline, and all our investments based on oil will be idle and worthless, starting from my car and other cars, or airplanes will be idle, or even the tractors to dig the earth and produce food.
    The other energies cannot move the world, and during the development on the past, has not been invented something better to use the clean and renewable energies.
    One think I will say am sure, the development will continue, the competition will continue, and better discoveries will be done on the future.
    I personally will agree that a finite world with unlimited growth of population needs unlimited sources of energies, and these energies must be renewable, clean and usable everywhere the mankind needs to keep the continuous development. But this is simple, it is theory, it can be written from me, from you or from everybody.
    The real problem of energy is on practice, on the everyday practice. We need energy today, to keep the life normal on the developed world, and to increase the standard of life on the developing world, to disappear the poverty on millions and millions of peoples. We need energy today to continue and produce all the other ores, produce steel, produce plastics and polymers, produce wind mills, dig to produce coal or drill for other oil and gas, we need energy to transport all the goods on the final place. We need energies to produce all agriculture products and transport these products.
    Unfortunately, we today use about 32 % energy from oil, about 24% energy from gas, and around 30% energy from coal. Talking on percentage, we see that the numbers looks normal, talking for the potential of the renewable clean energies, we again find possibilities, but we cannot replace everything overnight, we have to invent first, and after do our job, work and work and work, until the job will be done.
    I believe, that oil, together with coal and the gas have done and still are contributing on the overall progress that we have today. I believe that all this knowledge will be base of new discoveries and future development.
    The oil price increase, gradually or on a sharp shape, has been and is a problem for importing countries, and on the actually times the high prices, have damaged seriously many economies, have increased probably the unemployment, have effected on increasing the prices of every good or services, have closed many companies. Today, oil companies many times are in front of big problem, not because the oil price is low, but even they make a lot of money, billions of dollars, they are investing back the money to discover new reservoirs, and many times they fail, they lose the money, they many time cannot make any more money on the old wells or old reservoirs and they need money and to abandon the old wells and return the area on normal and natural conditions that the environment has been before drilling. This is associated and with other problems, they invest on researches and new discoveries to increase the oil recovery from old reservoirs need big investment, sometimes they need water to produce steam and produce heavy oil or bitumen, they need to capture the gas carbonic produced on different factures and inject deep on old reservoirs, and they need other agents to do the job, but the agents are not cheap and abandonment, sometime they need light oil products but these are not abundant and are not cheap. All these have brought all of us infront of high prices, and these prices will keep drilling on deep seas, in Arctic or other places, where the cost is even higher, the risk of other disasters is immense, and there is the risk for the company to lose the money, because they find no oil.
    The high oil price, of course is bad thing, but if the oil will be short and the demand will be higher than the supply, then the only peaceful way is to increase the gasoline and diesel price, and many of us “live” oil where it is, and I mean live it there in gas station, for all of them who can afford it.
    My understanding is simple, and as the oil or oil products used as fuel on transportation, measure at around 55% of the oil produced, then at least 30-50% of this amount, can be “saved” to save the mankind from a deeper shortage on the future. Based on the level of oil consumption we have today, around 90 mm bbl per day, the amount that can be “saved” is around 15-25 mm bbl per day. This is a huge amount, but this is a big sacrifice from many peoples who until today are using their cars, and they “voluntarily” will keep away from gasoline or diesel with high price, and use for their transportation the public transportation.
    I have put the word saved and the word voluntarily on the QUOTING MARKS, because indeed this will be achieved only by increasing the gasoline and diesel prices, so only peoples that can afford the price will continue to use their cars for some more time, until the new energies will easy and cheap be used again on transportation.
    In reality, to give a simple idea for peoples who want it, the world is awash with oil resources, but we cannot produce all the oil that is inside the tiny pores of the rocks, deep on the earth. And based on the advanced technologies we today can produce only around 25-45% of the oil, and only on few cases we can produce more. To give another idea, how hard it is to produce the oil, I will say to everybody to remember the cleaning of any stein of oil, edible oil on the shirt, and we have the shirt on the front of our eyes and it is hard or sometime we cannot clean the shirt and we will throw it. The production of crude oil from the depths of the earth is even harder, than the cleaning of the edible oil on the shirt that I mentioned. All what I say, is not to blame or to justify, but I want peoples to be realistic, and try to detect problem, learn to solve the problems that they detected, and finally apply the knowledge to develop the economy. Simply, detecting the problems, and waiting from the others to solve the problems, does not work, or is with dangerous results at all.
    With oil we are on the point that we have detected the problems, and we continue to do researches to replace the oil with clean energies, we continue to invest with the hope to discover new reservoirs and new technologies, but the reality is that we are on delay, we do not have any possible solution to continue the life like before, and to do the business like before.
    I am not a person that want to panic the world, the hope is, we see that the effort to decrease the oil consumption, or better to match the oil demand with oil supply, even by increasing the price, looks that is an effort to solve the problem with the present knowledge.
    Another hope is to increase the researches, and find ways or technologies to produce oil from the depleted or abandoned reservoirs, the places or reservoirs that we know, and gradually increase even more the researches, discover and develop new renewable clean energies.
    For today and for tomorrow, the shortest way to solve the problem of the oil shortage, is increase the production from existing reservoirs, use this old non-renewable energy by using more effective cars, by increasing the recovery factor, by drilling more wells, by stimulating wells to produce more, by using the EOR or IOR technologies, by using horizontal drilling and multifractures, by using SAGD or cyclic steam injection, by increasing the knowledge and discoveries every day.
    On long term, the mankind needs to harvest the renewable and cleans and safe energies.

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