Oil wells that end well

Zhubin posted a comment below challenging me to respond to this website about the supposedly imminent oil crisis. I could write everything I know about energy policy on the back of a small postcard, so I was just going to ignore it.

By a fortunate coincidence, however, Andrew David Chamberlain has come through with a post on his redesigned weblog The Idea Shop (“where the dismal science gets groovy”). Here he outlines the free market perspective on decreasing oil reserves. Sorry Z, his analogy will still leave you thinking libertarians are nuts, but his point’s a fair one.

Still no indication of Andrew’s perspective on the fake orgasm.


7 thoughts on “Oil wells that end well”

  1. First off, I’m disinclined to consider Chamberlain as someone worthy of my time (and I think you should too, Jacob), as I do anybody who attempts to consider the “psychological” rationales behind competing ideologies instead of debating their intellectual merit. I could easily argue that Chamberlain’s slavish adoration of free-market ideology [edited…] but wouldn’t we all agree my resources would be better spent scrutinizing the systematic flaws of capitalism?

    Regardless, while the points he makes are true, they seem a bit irrelevant. Certainly people are going to stop buying oil when an alternative energy source is cheaper, but my concern is the price at which that will exist. The loss of oil would be no problem if we can just cheaply switch over to an equally costly (or even slightly more expensive) solar or wind-based energy. The problem here is that we have NO viable alternative energy source that can sustain a civilization at our level. Even assuming we could cobble together some sort of, say, solar energy source in the next ten years, it’ll doubtlessly be heinously expensive and inefficient. Does Chamberlain (or you, for that matter, Jake) think that people will just swallow it when their monthly heating bill goes from $60 to $34,000?

    Chamberlain even admits that his discussion doesn’t settle the question of “what technology we’ll switch to when supplies get low,” but it seems to me that THAT is the question that we should all be worried about. No one cares about the question he spent all that blog space answering; we all KNOW we’ll switch to whatever is available. We’ll HAVE to.

    The problem that I have with market forces is that they are notoriously short-term, in that companies will only start looking to the solution when there’s no alternative; that’s the profit incentive for you. Exxon-Mobil and Shell have no real incentive to shuck an energy source that they depend on for their existence, and energy production is far too expensive for smaller companies to start the “competition” cycle you libertarians are so confident in. You could argue, I suppose, that the oil companies may initiate alternative-energy-source research by themselves, in an effort to dominate that market, but that’s putting a lot of faith in companies that haven’t really had a history of thinking long-term.

    Ultimately, it seems to me that with unregulated corporations in charge of our energy system, there isn’t going to be a real drive to start researching solar power until oil hits a thousand bucks a gallon, and of course that kind of research is going to take decades. By that time, New York is in flames and you and I are fighting over the remaining boom-boom sticks.

  2. I don’t know why you’re opposed to discussing the psychology behind policy rationales. Sometimes that can be very interesting. Chamberlain’s a smart guy, too.

    There are people a lot better qualified than I am to tackle your points, but one thing I’ll say is that Mathusian predictions like the kind made on that link you sent me have been notoriously wrong in the past. Basically, it pays to be a pessimist. Look up the bet between Julian Simon and Paul Ehrlich for a famous example of this. Ehrlich lost, but he’s still widely respected. As Chamberlain points out, these professional pessimists are putting their own foresight above that of the people with actual money on the line. Whom would you trust?

    I don’t know anything about this, but maybe a good historical example would be the switch from wood fuel to coal. I think in England especially this change was provoked by dwindling forests. Another example could be Americans’ response to the oil crisis of the 1970s or the relatively cheap oil of today in terms of how much they care about fuel efficiency in their cars. These cases might demonstrate that the market can actually be rationally responsive to changes in the price of energy.

    All of that said, I’m not so ideologically libertarian that I’m not open to the idea that some basic research in alternative energy should be funded by the government (whether directly or through tax credits). Overall, though, I think profit-driven innovators will be coughing up the cash for R&D well before crunch time.

    Finally, Zhubin, let me remind that I am from Texas. That means I’ll have the advantage in oil and boom-boom sticks, so watch your back come the revolution!

  3. I’m actually a bit surprised that you don’t mind discussing psychology rationales, Jake. They seem to me to be extremely insulting to those “being analyzed”; the analyzer is essentially saying that their positions are the result of mental processes they have no control over, rather than reasoned conclusions, which presumably are the foundations of the analyzer’s own positions. But I wrote the part you edited out only as a joking response to Andrew’s post; I certainly didn’t mean to offend him and I apologize if I did.

    Regarding the rest of your post, I agree that I’m being a bit pessimstic, and I’m usually not by nature (I laughed at the people worried about the Y2K bug). But your precedents don’t seem to be on point; the difference betwen England’s switch from wood fuel to coal and our society’s switch from oil fuel to X fuel are so massive as to be qualitative instead of quantitative. England switched to coal because coal was there and available, and switching would not have affected the standard of living (in fact, it was much more productive in terms of energy output). The world today, however, has no such available alternative productive enough to keep us at our level, and even if we could find it the costs of restructuring our entire oil-based system would be enormous. The 1970s switch was only figuring out how to burn oil more efficiently, not to shift to an entirely different source, which is just a tad more drastic.

    In any event, I’m certainly hoping that profit-driven innovators will start doing R&D soon, but I think more relevant precedents would be the tech boom and 1920s boom, where everyone was well aware that the bubble was going to burst in the long-term, but everyone was too focused on getting what they could in the short-term to properly prepare. I hope I’m wrong, though, for your sake, because if you think your crew of mutated rifle-holding Texans is going to defeat my Tennessee shotgunning biker gang in a street war across the burning ruins of Nashville over a bag of wheat, you’re going to be sorely disappointed come 2025.

  4. I don’t know enough to comment on the England example. The point of the 1970s example was that markets would respond rationally to rising prices, finding ways to conserve oil until whatever the next energy source is becomes developed. The change will be gradual; there won’t be some “oh shit” moment when we suddenly realize we’re out of oil and should have done something about it (assuming that the basic research gets done, whether privately or publicly).

    As for discussing psychological policy rationales, I should clarify that I mean that I think that’s ok for discussing how we as a species or society structure our political discourse. Trying to weave a psychological history for an individual’s views through psychoanalysis, on the other hand, I think is suspect and, as you say, possibly insulting. (I get the irony of what I edited from your original comment now.)

  5. Zhubin:

    The point of Andrew’s argument was that oil prices are going to rise gradually over the course of years if not decades as the most lucrative oil fields get exhausted. That means that the world will have plenty of time to develop alternative fuel sources as the price of fossil fuels rises. Right now, oil prices are below their 1970s peak in real terms, so clearly the world isn’t in imminent danger of running out of oil.

    Your claim that markets only consider the short term is absurd. How do you explain markets in 30-year treasury bills, or the billions that get invested every year in long-shot tech startups who aren’t likely to pay off for years, if not decades in the future? How do you explain companies’ decisions to invest in multi-billion dollar factories which will take years to turn a profit big enough to repay the capital? How do you explain the billions of dollars pharmaceutical companies spend on R & D? Most of it doesn’t pan out, and the few successful drugs take years to get on the market.

    Markets take long-term effects into account all the time. In fact, modern financial markets are exceedingly good at managing long-term risks and at investing for future payoffs. It is the government, driven by 2-year election cycles, that has trouble dealing with the long-term. Look at our half-trillion dollar deficit, our crumbling schools, and our unsustainable entitlements programs. Everyone knows these problems need to be solved, but politicians know that they’ll be out of office before the shit hits the fan.

  6. There are a few new technologies. For example, newly developed Thermo-Depolymerization Technology (which converts carbon-rich garbage into crude oil). The conversion process doesn’t create any harmful pollutants and use of the new form of oil actually releases less greenhouse gases than would be released by the natural decay process if the material had been stored in a landfill – in the case of naturally decaying material. The process can also be used to convert plastics and other non-decaying material.

    ‘Turkey waste turned into oil’ – New York Newsday – New TDP plant generating a positive cash flow while selling crude oil converted from garbage at a price 10% less than equivalent oil produced at a conventional refinery.

    ‘Missouri plant begins making oil from farm waste’ – Waste News – Crude oil No. 4, produced from agricultural waste products, put on the market.

    ‘Turkey Fuel? Factory to Turn Guts into Crude Oil’ – National Geographic – Details how a Carthage plant is converting turkey waste into crude oil and its potential to solve many of America’s waste disposal problems while making us less dependant on foreign oil.

    ‘Researchers turn manure into crude oil’ – MSNBC News – Researcher Yanhui Zhang of the University of Illinois has successfully converted pig manure into oil in small batches. He uses a similar process to the one already being used by a plant in Carthage, Mo., that converts tons of waste material, such as feathers and entrails, from a nearby Butterball Turkey plant into light crude oil.

    Successful Result of a California Pilot Thermo-Depolymerization Plant in the Philadelphia Navy Yard on the California Energy Commission’s government website

    And on the hydrogen frontier, there was a recent breakthrough in an ethanol-to-hydrogen reactor that will make hydrogen much more competitive as an energy source. The new reactor eliminates the need for large expensive facilities to produce hydrogen – being small and cheap enough for home and car use.

    Mark Harm
    Candidate for State Representative – Michigan

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