Actually, this is wrong. I'm quoting from the first part of Chapter 11 of
Julian Simon's _Ultimate Resource_. The whole book is online at:
http://www.inform.umd.edu/EdRes/Colleges/BMGT/.Faculty/JSimon/Ultimate_Resou
rce/
Forgive the formatting. If you want a cleaner version, try the website.
> WHEN WILL WE RUN OUT OF OIL? NEVER!
>
>CHAPTER ELEVEN: TABLE OF CONTENTS
>Energy, the Master Resource
>The English Coal Scare
>The Long-Running Running Out of Oil Drama
>The Long-Run History of Energy Supplies
>Jumping Off the Eiffel Tower
>The Theory of Future Energy Supplies
>The Bogeyman of Diminishing Returns Again
>The Best - and Worst - Ways to Forecast Future Energy
> Availability
>Better Technical Forecasting Methods
>What About the Very Long Run?
>The Non-Finiteness of Oil
>Conclusions
>
>
>What will we do when the pumps run dry?
>
>- Paul and Anne Ehrlich, The End of Affluence
>
>
>
> ENERGY, THE MASTER RESOURCE
>
> Energy is the master resource, because energy enables us to
>convert one material into another. As natural scientists continue
>to learn more about the transformation of materials from one form
>to another with the aid of energy, energy will be even more
>important. Therefore, if the cost of usable energy is low enough,
>all other important resources can be made plentiful, as H. E.
>Goeller and A. M. Weinberg showed.
> For example, low energy costs would enable people to create
>enormous quantities of useful land. The cost of energy is the prime
>reason that water desalination now is too expensive for general
>use; reduction in energy cost would make water desalination
>feasible, and irrigated farming would follow in many areas that are
>now deserts. And if energy were much cheaper, it would be feasible
>to transport sweet water from areas of surplus to arid areas far
>away. Another example: If energy costs were low enough, all kinds
>of raw materials could be mined from the sea.
> On the other hand, if there were to be an absolute shortage of
>energy - that is, if there were no oil in the tanks, no natural gas
>in the pipelines, no coal to load onto the railroad cars - then the
>entire economy would come to a halt. Or if energy were available
>but only at a very high price, we would produce much smaller
>amounts of most consumer goods and services.
>
> The question before us is: What is the prospect for oil scarcity
>and energy prices? Here is the summary - at the beginning rather
>than at the end of the chapter to provide guideposts for your foray
>into the intellectual jungle of arguments about energy.
>
> (1) Energy is the most important of natural resources because
>
> (a) the creation of other natural resources requires
>energy; and
>
> (b) with enough energy all other resources can be created.
>
> (2) The most reliable method of forecasting the future cost and
>scarcity of energy is to extrapolate the historical trends of
>energy costs, for reasons given in chapters 1 and 2.
>
> (3) The history of energy economics shows that, in spite of
>troubling fears in each era of running out of whichever source of
>energy was important at that time, energy has grown progressively
>less scarce, as shown by long-run falling energy prices.
>
> (4) The cause of the increasing plenty in the supply of energy
>has been the development of improved extraction processes and the
>discovery of new sources and new types of energy.
>
> (5) These new developments have not been fortuitous, but rather
>have been induced by increased demand caused in part by rising
>population.
>
> (6) For the very long run, there is nothing meaningfully
>"finite" about our world that inevitably will cause energy, or even
>oil in particular, to grow more scarce and costly. Theoretically,
>the cost of energy could go either up or down in the very long run.
>But the trends point to a lower cost.
>
> (7) Forecasts based on technical analyses are less persuasive
>than historical extrapolations of cost trends. Furthermore, the
>technical forecasts of future energy supplies differ markedly among
>themselves.
> (8) A sure way to err in forecasting future supplies is to look
>at current "known reserves" of oil, coal, and other fossil fuels.
>
> (9) An appropriate technical forecast would be based on
>engineering estimates of the amounts of additional energy that will
>be produced at various price levels, and on predictions of new
>discoveries and technological advances that will come about as a
>result of various energy prices.
> (10) Some technical forecasters believe that even very much
>higher prices will produce only small increases in our energy
>supply, and even those only slowly. Others believe that at only
>slightly higher prices vast additional supplies will be
>forthcoming, and very quickly.
> (11) Causes of the disagreements among technical forecasters are
>differences in
> (a) scientific data cited,
>
> (b) assessments of political forces,
>
> (c) ideology,
>
> (d) belief or non-belief in "finiteness" as an element of
>the situation, and
>
> (e) vividness of scientific imagination.
>
> (12) The disagreement among technical forecasters makes the
>economic extrapolation of decreasing historical costs even more
>compelling.
> Now let's fill in this outline.
>
> Because energy plays so central a role, it is most
>important that we think clearly about the way energy is
>found and used. This is the common view:
> Money in the bank, oil in the ground.
>Easily spent, less easily found.
>The faster they're spent, the sooner they run out.
>And that's what the Energy Crisis is about.
>
>But this jingle omits the key forces that completely alter the outcome. We
shall see
>that, with energy just as with other raw materials, a fuller analysis
produces an
>entirely different outlook than does this simplistic Malthusian projection.
>
> The analysis of the supply of mineral resources in chapters 1-3
identified four
>factors as being important: (1) the increasing cost of extraction as more
of the resource
>is used, if all other conditions remain the same; (2) the tendency of
engineers to
>develop improved methods of extracting the resource in response to the
rising price of
>the resource; (3) the propensity for scientists and businesspeople to
discover
>substitutes - such as solar or nuclear power as substitutes for coal or
oil - in response
>to increasing demand; and (4) the increased use of recycled material.
> The supply of energy is analogous to the supply of other "extracted"
raw materials
>with the exception of the fourth factor above. Minerals such as iron and
aluminum can be
>recycled, whereas coal and oil are "burned up." Of course this
distinction is not
>perfectly clear-cut; quarried marble is cut irreversibly and cannot be
recycled by
>melting, as copper can. Yet even cut marble can be used again and again,
whereas energy
>sources cannot.
> The practical implication of being "used up" as opposed to being
recyclable is that an
>increased rate of energy use would make the price of energy sources rise
sharply, whereas
>an increased use of iron would not affect iron prices so much because iron
could be drawn
>from previously used stocks such as dumps of old autos. This may seem to
make the energy
>future look grim. But before we proceed to the analysis itself, it is
instructive to see
>how energy "shortages" have frightened even the most intelligent of
analysts for
>centuries.
>
>
>The English Coal Scare
>
> In 1865, W. Stanley Jevons, one of the last century's greatest social
scientists,
>wrote a careful, comprehensive book proving that the growth of England's
industry must
>soon grind to a halt due to exhaustion of England's coal. "It will appear
that there is
>no reasonable prospect of any relief from a future want of the main agent
of industry,"
>he wrote. "We cannot long continue our present rate of progress. The first
check for our
>growing prosperity, however, must render our population excessive". Figure
11-1
>reproduces the frontispiece from Jevons's book, "showing the impossibility
of a long
>continuance of progress." And Jevons's investigation proved to him that
there was no
>chance that oil would eventually solve England's problem.
>
>Fig 11-1 from Jevons
>
> What happened? Because of the perceived future need for coal and
because of the
>potential profit in meeting that need, prospectors searched out new
deposits of coal,
>inventors discovered better ways to get coal out of the earth, and
transportation
>engineers developed cheaper ways to move the coal.
> This happened in the United States, too. At present, the proven U.S.
reserves of coal
>are enough to supply a level of use far higher than the present
consumption for many
>hundreds or thousands of years. And in some countries the use of coal
must even be
>subsidized because though the labor cost per unit of coal output has been
falling, the
>cost of other fuels has dropped even more. This suggests that not enough
coal was mined
>in the past, rather than that the future was unfairly exploited in earlier
years. As to
>Jevons's poor old England, this is its present energy situation: "Though
Britain may
>reach energy self-sufficiency late this year or early next, with its huge
reserves of
>North Sea oil and gas lasting well into the next century, the country is
moving ahead
>with an ambitious program to develop its even more plentiful coal reserves."
>
>The Long-Running Running Out of Oil Drama
> Just as with coal, running out of oil has long been a nightmare, as
this brief history
>shows:
> 1885, U.S. Geological Survey: "Little or no chance for oil in
California."
>
> 1891, U. S. Geological Survey: Same prophecy by USGS for Kansas and
Texas as in 1885
>for California.
>
> 1914, U. S. Bureau of Mines: Total future production limit of 5.7
billion barrels,
>perhaps 10 years supply.
>
> 1939, Department of the Interior: Reserves to last only 13 years.
> 1951, Department of the Oil and Gas Division: Reserves to last 13
years.
> The fact that the gloomy official prophesies of the past have regularly
been proven
>false does not prove that every future gloomy forecast about oil will be
wrong. And
>forecasts can be overoptimistic, too. But this history does show that
expert forecasts
>often have been far too pessimistic. We therefore should not simply take
such forecasts
>at face value, because of the bad record as well as because they are
founded on an
>unsound method of proven reserves, as discussed in Chapter 2.
>
> THE LONG-RUN HISTORY OF ENERGY SUPPLIES
>
> The statistical history of energy supplies is a rise in plenty rather
than in
>scarcity. As was discussed at length in chapter 1, the relevant measures
are the
>production costs of energy as measured in time and money, and the price to
the consumer.
>Figures 11-2, 11-3, and 11-4 show the historical data for coal, oil, and
electricity.
>Because chapter 1 discussed the relationship of such cost and price data
to the concepts
>of scarcity and availability, that discussion need not be repeated here.
Suffice it to
>say that the appropriate interpretation of these data is that they show an
unambiguous
>trend toward lower cost and greater availability of energy.
>
>Figures 11-2a and b, 11-3a and b, 11-4a and b
>
> The price of oil fell because of technological advance, of course. The
price of a
>barrel (42 gallons) fell from $4 to $0.35 in 1862 because of the
innovation of drilling,
>begun in Pennsylvania in 1859. And the price of a gallon of kerosene fell
from 58 cents
>to 26 cents between 1865 and 1870 because of improvements in refining and
transportation,
>many of them by John D. Rockefeller. This meant that the middle class
could afford oil
>lamps at night; earlier, only the rich could afford whale oil and candles,
and all others
>were unable to enjoy the benefits of light.
> The price history of electricity is particularly revealing because it
indicates the
>price to the consumer, at home or at work. That is, the price of
electricity is closer to
>the price of the service we get from energy than are the prices of coal
and oil, which
>are raw materials. And as discussed in chapter 3, the costs of the
services matter more
>than the costs of the raw materials themselves.
> The ratio of the price of electricity to the average wage in
manufacturing (figure 11-
>4a) shows that the quantity of electricity bought with an hour's wages has
steadily
>increased. Because each year an hour's work has bought more rather than
less electricity,
>this measure suggests that energy has become ever less troublesome in the
economy over
>the recorded period, no matter what the price of energy in current dollars.
> In short, the trends in energy costs and scarcity have been downward
over the entire
>period for which we have data. And such trends are usually the most
reliable bases for
>forecasts. From these data we may conclude with considerable confidence
that energy will
>be less costly and more available in the future than in the past.
>
> The reason that the cost of energy has declined in the long run is the
fundamental
>process of 1) increased demand due to the growth of population and income,
which raises
>prices and hence constitutes opportunity to entrepreneurs and inventors;
2) the search
>for new ways of supplying the demand for energy; 3) the eventual discovery
of methods
>which leave us better off than if the original problem had not appeared.
> An early illustration of the process: In 300 BCE, so much wood was
being used for
>metal smelting that the Roman Senate limited mining. (Using the coercive
power of
>government, instead of the creative power of the market, is a very old
idea. Almost two
>millennia later, in England, the shortage of wood for use as charcoal in
the casting of
>iron became so acute - it was affecting the building of naval ships - that
in 1588
>Parliament passed a law against cutting trees for coke in ironmaking, and
then banned the
>building of new foundries in 1580. Though the use of coal in place of
charcoal had been
>known, there were technical difficulties - impurities that affected the
quality of the
>iron. This time, the wood shortage exerted pressure that led to the
development of coal
>as well as blowing machines to be used in smelting, a keystone in the
upcoming Industrial
>Revolution.
>
>JUMPING OFF THE EIFFEL TOWER
> You may object that extrapolating a future from past trends of greater
and greater
>abundance is like extrapolating - just before you hit the ground - that a
jump from the
>top of the Eiffel Tower is an exhilarating experience. Please notice,
however, that for a
>jump from the tower we have advance knowledge that there would be a sudden
discontinuity
>when reaching the ground. In the case of energy and natural resources,
there is no
>persuasive advance evidence for a negative discontinuity; rather, the
evidence points
>toward positive discontinuities - nuclear fusion, solar energy, and
discoveries of energy
>sources that we now cannot conceive of. Historical evidence further
teaches us that such
>worries about discontinuities have usually generated the very economic
pressures that
>have opened new frontiers. Hence there is no solid reason to think that we
are about to
>hit the ground after an energy jump as if from an Eiffel Tower. More
likely, we are in a
>rocket on the ground that has only been warming up until now and will take
off sometime
>soon.
> More appropriate than the Eiffel Tower analogy is this joke: Sam falls
from a
>building he is working on, but luckily has hold of a safety rope.
Inexplicably he lets
>go of the rope and hits the ground with a thud. Upon regaining
consciousness he is
>asked: "Why did you let go of the rope?" "Ah", he says, "it was going to
break anyway."
>Analogously, letting go of all the ropes that support the advance of
civilization - for
>example, turning our backs on the best potential sources of energy - is
the advice we now
>receive from energy doomsters and conservationists.
>
>
> THE THEORY OF FUTURE ENERGY SUPPLIES
>
> Turning now from trends to theory, we shall consider our energy future
in two
>theoretical contexts: (1) with income and population remaining much as
they are now, (2)
>with different rates of income growth than now. (The case of different
rates of
>population growth than now will be discussed in chapter 28.) It would be
neatest to
>discuss the U.S. separately from the world as a whole, but for convenience
we shall go
>back and forth. (The longer the time horizon, the more the discussion
refers to the world
>as a whole rather than just to the U.S. or the industrialized countries.)
> The analysis of energy resembles the analysis of natural resources and
food, but
>energy has special twists that require separate discussion. With these two
exceptions,
>everything said earlier about natural resources applies to energy: (1) On
the negative
>side, energy cannot easily be recycled. (But energy can come much closer
to being
>recycled than one ordinarily thinks. For example, because the fuel supply
on warships is
>very limited, heat from the boilers is passed around water pipes to
extract additional
>calories as it goes up the smokestack.) (2) On the positive side, our
energy supplies
>clearly are not bounded by the earth. The sun has been the ultimate source
of all energy
>other than nuclear. Therefore, though we cannot recycle energy as we can
recycle
>minerals, our supply of energy is clearly not limited by the earth's
present contents,
>and hence it is not "finite" in any sense at all - not even in the
non-operational sense.
> Furthermore, humanity burned wood for thousands of years before
arriving at coal,
>burned coal about 300 years before developing oil, and burned oil about 70
years before
>inventing nuclear fission. Is it reasonable and prudent to assume that
sometime in the
>next 7 billion years - or even 700 or 70 years - humanity will not arrive
at a cheaper
>and cleaner and more environmentally benign substitute for fission energy?
> But let us turn to a horizon relevant for social decisions - the next
5, 25, 100,
>perhaps 200 years. And let us confine ourselves to the practical question
of what is
>likely to happen to the cost of energy relative to other goods, and in
proportion to our
>total output.
>
> THE BOGEYMAN OF DIMINISHING RETURNS AGAIN
> First let us dispose of the "law of diminishing returns" with respect
to energy. Here
>is how Barry Commoner uses this idea:
>
> ... the law of diminishing returns [is] the major reason why the
United States
>has turned to foreign sources for most of its oil. Each barrel [of
oil] drawn
>from the earth causes the next one to be more difficult to obtain.
The economic
>consequence is that it causes the cost to increase continuously.
> Another environmentalist explains her version of the
>"law of diminishing returns" with respect to oil:
> We must now extract our raw materials from ever more degraded
and inaccessible
>deposits. This means that ever more of our society's precious
investment
>capital must be diverted to this process and less is available for
consumption and
>real growth. Fifty years ago, getting oil required little more than
sticking a
>pipe in the ground. Now we must invest several billion dollars to
open up the
>Alaska oilfields to deliver the same product. Economists, if they
understood this
>process as well as physical scientists, might call it the declining
productivity of
>capital [law of diminishing returns].
> All these quotes are just plain wrong; it costs less today to get oil
from the ground
>in prime sources than it cost fifty years ago to get it from the ground in
prime sources.
>(The second afternote to chapter 3 explains how there is no "law" of
diminishing returns
>in general, and hence why this line of thinking is fallacious.)
> In brief, there is no compelling theoretical reason why we should
eventually run out
>of energy, or even why energy should be more scarce and costly in the
future than it is
>now.
To be continued...
-YEAH BABY I CAN'T IMAGINE THAT YOU'D WANT ME TOO-