neoliberal economic globalization - peak oil

Economic growth is the yardstick of economic globalization which is fiercely pursued by multinationals and countries alike. It is the first goal of most nations because it means an increase in the volume of goods and services produced annually by a nation, generally expressed in terms of GDP (Gross Domestic Product). Corporate trade currently accounts for over 50% of global economic growth and as much as 75% of GDP in the EU. The proportion of trade to GDP continues to grow, highlighting the belief that economic growth is the only way to prosper a country and reduce poverty. Neo-liberal economic theorists therefor believe economic globalisation to be a desirable and beneficial process that advances human well-being all over the world. As part of this argument it is believed that the free market economy is the only arrangement capable of generating sustained increases in prosperity and opportunities for human beings to seek what they desire in life. As a matter of fact growth is crucial and beneficial when a result of goods being produced locally in a way that benefits the whole community


But endless economic growth is clearly unsustainable as GDP can only increase through the continued production and consumption of the world's resources. This paradigm, despite its application to almost all aspects of international and domestic policies, is inherently flawed since the planet has only limited resources and a finite carrying capacity. Continuous economic growth and global development therefore cannot be achieved without an immense overuse of the planet's resources and will be forced to stop at least with the exhaustion of theses resources.


Our world's economy is a subsystem of a larger eco-system. The larger eco-system is finite, non-growing and materially closed. There is an inflow of solar energy into the larger system and an outflow of heat energy radiated from the larger system. As that solar energy is degraded it turns all the biochemical cycles that support life, all the green stuff, it makes all those things move. The economy is seen then as an open sub-system. It's open with respect to both matter and energy. It takes in low entropy matter and energy from the eco-system and expels high entropy waste matter and energy back to the eco-system and lives off of that gradient. It lives off that degradation of materials and energy. The economy can "grow," but only until it reaches the limits of the ecosystem. It cannot grow outside of that boundary


But there are good news: matter can be recycled. We can take some of the waste matter and use it again. But the bad news: you can't recycle energy. More precicly, you can do it but it will always take more enrgy to gather up the waste energy and bring it back and use it again than the amount of energy that you recycle. The enery cost of recycling energy is always greater than the amount of enery recicled. It doesn't matter what the price of energy is, it will just never be possible to recycle energy because there's a physical constraint under which we have to live, the second law of thermodynamics or the entropy law.


Thus we are always in need of fresh energy because energy is the "engine" that drives our economy. ExxonMobil's (the world's largest energy company) web site contains the following illuminating analysis: ‘Energy use and economic growth are closely linked. The relationship is consistent in all regions and countries and represents the trajectory that developing countries will likely follow as they progress toward industrialization. Modern uses of energy are so closely linked to growth because, among many other advantages, they provide the basis for all modern forms of transportation, are needed for both the materials and the processes used in construction, and underpin the mechanization and improved efficiency of agriculture.'


Fossil fuels supplied 80% of world primary energy demand in 2004 (IEA, 2006b) and their use is expected to grow in absolute terms over the next 20-30 years in the absence of policies to promote low-carbon emission sources. Excluding traditional biomass, the largest constituent was oil (35%), then coal (25%) and gas (21%) (BP, 2005). In 2003 alone, world oil consumption increased by 3.4%, gas by 3.3% and coal by 6.3% (WEC, 2004a). Oil accounted for 95% of the land-, water- and air-transport sector demand (IEA, 2005d) and, since there is no evidence of saturation in the market for transportation services (WEC, 2004a), this percentage is projected to rise (IEA, 2003c). IEA (2005b) projected that oil demand will grow between 2002 and 2030.


Conventional oil products extracted from crude oil-well bores and processed by primary, secondary or tertiary methods represent about 37% of total world energy consumption. As conventional oil supplies become scarce and extraction costs increase, unconventional liquid fuels, in addition to CTL and GTL, will become more economically attractive, but offset by greater environmental costs (Williams et al., 2006). Oil that requires extra processing such as from shale, heavy oils and oil (tar) sands is classified as unconventional. Resource estimates are uncertain, but together contributed around 3% of world oil production in 2005 (2.8 EJ) and could reach 4.6 EJ by 2020 (USGS, 2000) and up to 6 EJ by 2030.


And there is another equally important point concerning energy supply, that of ‘net energy'. Net energy, also known as ‘Energy Return on Energy Invest' (EROEI) has been defined as ‘the energy delivered by an energy-obtaining activity compared to the energy required to get it'. Oil production in the US in the 1930 had net EROEI of over 100:1, meaning that for each unit of energy used in the extraction porcess, more than 100 were obtained. This is an incredible energy return, unpredicted in history. However, given the increasing amount of work we had to put into extracting oil and the increased refining needed due to the lower quality of the oil we found, by 1970 that had fallen to 30:1 and is now globally somewhere around 20:1. This is mostly for extracting oil from mature fields. The EROEI for new fields appears to be much lower.


As we can see by the shift in energy supply and the net EROEI data, conventional oil is getting more and more scarce and much harder to extract. At the same time the data point out the over-reliance of our economy on fossil fuels, in particular cheap oil. Cheap oil "fuels" our economy. And a Society without access to cheap oil would be able to do seventy to a hundred times less work than one with it, and would by necessity, look very different from the present.


All the so called economic miracles of the past, including the Green Revolution, were based on the increased consumption of oil and other fossil fuels. When these resources begin to decline, our economy and our income will decline with them and we will become poorer.
We have noted that the measure of an economy is the GNP or GDP, and that these indices are essentially measures of our personal income. Economic "growth" means an increase in this personal income. We have also noted that energy consumption and economic growth are linked. Therefore, energy consumption and personal income are related. This means that increased income correlates with increased consumption of oil (as well as other fossil fuels). Or, in simple words, wealthier people consume more oil; poor people consume less oil. This correlation can be tested by dividing the energy used in various countries or parts of the world by the Purchasing Power Parity (PPP).


The PPP is a normalized measure of per capita income for the nations of the world and used by the UN and the World Bank. The U.S. is the wealthiest member nation of the 30 nations that make up the Organization for Economic Co-operation and Development (OECD). The 30 OECD member nations represent the richer 18% of the world. The U.S. (with a year 2000 population of 281,000,000) has a PPP of $36,300. The PPP of the "Rest of the World" (ROW), which includes the more than five billion people not in the OECD, has a PPP of $3,824. Dividing the PPP by Kilograms of oil used per person per year gives a ratio of approximately 4.5 for both the US and the ROW. This is not a sophisticated analysis but shows the correlation between energy consumption, wealth, and income, thus supporting the argument for linking oil consumption and one's personal income. One's personal standard of living is based on how much energy he or she uses.


Neoclassical economists still deny any resource limits because "technology will always find a substitute." Technology, according to them, is the key to continuously improving productivity which, supposedly, results in continuously increasing wealth.


Technology is concerned with machines - whether they are space ships, airplanes, cars, furnaces, electric toothbrushes, oil refineries, chemical plants or computers. These machines require a continuous input of energy in the form of fossil fuels, directly (as in the case of gasoline for an automobile) or by electricity generated from fossil fuels (as in the case of the electric toothbrush) and indirectly as feedstock for industrial processes (such as natural gas for ammonia based fertilizers).


Jeremy Rifkin, in his book Entropy - A New World View, says: "The emperor isn't wearing any clothes." This is a first recognition of what technology really is. Remove the mystique that surrounds it and what is left, naked and exposed, is a trans-former. Every technology ever conceived by the genius of humankind is nothing more than a transformer of energy from nature'sstorehouse. And, in every case, the energy ends up as dissipated waste, unavailable for future use. The simple fact is that technology never creates energy; it only uses up existing available energy."


But again the question: Is it possible that advanced industrial nations have achieved some level of technical or social development that will minimize the effects of Peak Oil? A more likely possibility is that they could suffer as much as poorer nations. Possibly a people with more wisdom might have already devised a way of living not dependent on increasing fossil fuel consumption.


As Colin Campbell predicts the declining oil supplies will remove the confidence in perpetual growth on which the world's Financial System depends. When people understand that our incomes will also be in decline, borrowing and lending will decline as well. The result will not simply be a decline of 3-5% per year (the estimated rate of oil production decline). Capital we thought we had saved from productive growth will shrink, because much of it is actually "growth speculation," such as stocks and infiated home prices. High mortgage payments, natural gas bills and gasoline costs will make all commodities less and less affordable.


We need a new more community-centred version of economics which does not hold with the principle that individual pursuits will always benefit the community nor that resources are infinite. Rather, the community is held as more important than the self-centred pursuits of the individual. Cooperation is preferred to competition.


Locality will be a vital part of this new economics, which implies local design, local manufacturing, local savings, local investment, and local food production. It means the decline of transnational corporations and the rebirth of locally owned and operated businesses. The last sentence of Perelman's book, The Perverse Economy, states "We should move as quickly as possible to a more democratic, more egalitarian, more sustainable society before it is too late."



Rob Hopkins (2008): The Transition Handbook: from oil dependency to local resilience, Green Books, p.50


The Community Solution Staff, Peak Oil - Peak Economics (Energy Bulletin, 22 April 2005)


Herman E. Daly, Uneconomic Growth in Theory and in Fact, (The First Annual Feasta Lecture, 26. April 1999)


IPCC Fourth Assessment Report: Climate Change 2007, Chapter 4