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The Radio Ecoshock Show: California Drought: Is this the big one?

The Radio Ecoshock Show: California Drought: Is this the big one?.

RADIO ECOSHOCK SPECIAL ON CALIFORNIA DROUGHT Despite recent rains, California’s reservoirs are near empty, snow-pack light, and groundwater depleted. Four experts on a drought that really started in 2006, impacts on economy, food, farming, and nature. Guests: Dr. Peter Gleick, Dr. Jay Famiglietti, David Schroeder, Dr. Reagan Waskom

http://tinyurl.com/lrqaxqe

THE CALIFORNIA DROUGHT IS NOT OVER!

Rainstorms finally arrived in California, after a 14 month drought with no significant rain. But the big reservoirs are still pitifully low, and snow pack is less than a quarter of normal. Hundreds of thousands of acres will not be planted, and food bills will likely go up in North America, and possibly around the world.

This is the Radio Ecoshock special on the California drought, as a case study of what we can expect in many parts of the Earth. I’ve lined up 4 experts all with something new for you.

Dr. Peter Gleick is a climate and water specialist who has been warning this could happen for years.

Dr. Reagan Waskom is another water and agriculture expert from Colorado.

We connect with boots-on-the ground water conservation specialist David Schroeder in Montclair, right on the edge of thirsty Los Angeles.

Finally, we get back to the big picture, as Professor Jay Famiglietti at University of California Irvine warns of depletion of the ground water under one of the world’s biggest food producing areas. That’s a trend all over the world, as we race toward peak water.

Download/listen to this Radio Ecoshock show in CD Quality or Lo-Fi

PETER GLEICK: Is the drought climate change?

Our first guest is Dr. Peter Gleick. He’s president of the Pacific Institute in Oakland, California, one of the world’s leading independent think tanks on water issues. Peter is also a scientist known around the world.

Peter introduced the term “Bellwether Drought” for this event. We know climate change threatens the water cycle. Scientists believe the wet areas (like the UK!) will get wetter, and the dry areas like California, will get dryer. So the dice are loaded for more droughts to occur in this major food producing area.

Dr. Gleick points out we could say this drought started in at least 2006. There have been several drier-than-normal years since then. Scientists have found records showing California has experienced droughts lasting more than a hundred years in the past, in the 1100’s for example.

So we may be asking if human-induced climate change has triggered this drought cycle. The causes of regional weather events are complex. We have ocean currents, natural cycles like El Nino and El Nina, and changes to the Jet Stream. All of those, especially the Jet Stream (as shown by the work of Jennifer Francis et al at Rutgers) can be influenced by climate change.

It’s a Bellwether event because whether or not we can nail down direct causation by climate disruption – it’s a sure test of what is likely during the coming decades. As in Australia, it is possible Euro-humans arrived in California during a cyclical wet spell that was bound to end. But have we hastened that process?

I also talk with Peter about desalination, it’s promises and obstacles. A new desalination plant has been build to feed the San Diego water system. But really, it’s so energy intensive and expensive that desalination cannot save the whole California agricultural system.

Peter Gleick is an influential scientist in many places. He talks about the global work his institute is involved in, and it’s heavy-duty stuff. It’s cool he Tweeted this program link out to his 11,000 plus followers.

You can download or listen to this 18 minute interview with Dr. Peter Gleick inCD Quality or Lo-Fi.

DR. JAY FAMIGLIETTI: Looking at the drought from space.

When the rains don’t fall in California, every one checks their wallet for rising food prices. But rain or not, cities and farmers are pumping out California groundwater at an alarming rate. Thanks to new satellite science, now we know how much of that unseen wealth has been depleted. It’s a problem for farmers and all humans all over the world, as we grab water stored over the ages, to keep us alive right now. At some point, the water runs out.

Dr. Jay Famiglietti is a Professor of Earth System Science, and Director of the Center for Hydrologic Modeling at the University of California, Irvine. He’s an expert’s expert.

When the federal government, and state agencies cut off water supplies, as they did just this past month, farmers don’t just roll over and die. All those who can start pumping up groundwater furiously. They’ve been doing that for decades, always at an increasing level. You may think ground water gets replenished with rains, but some of it was captured and contained over millions of years. When I have a glass of water in my village, that water is 100,000 years old.

So just like oil, ground water is a limited resource. When you run out, that’s it.

Amazing to tell, scientists can measure the rate of groundwater depletion in California from space. The twin GRACE satellites have shown the loss of mass in Greenland as the glaciers melt. Now scientists at the University of California Irvine report that California is setting new records for groundwater loss. The state is literally getting lighter.

Find out about the GRACE satellites here. Oh, and by the way, one of their top stories is the discovery that climate change is causing the Earth’s poles to migrate. Don’t believe that? Read about it here.

One result is the land starts to sink, once the water below is removed. That’s serious in the Sacramento delta, where so much of North America’s fruits and vegetables are grown. Once it goes too low, a rush of salt water, say from a storm surge, can take thousands and thousands of prime acres out of production.

Jay Familietti describes what we know. He says the average of prediction of when California will run out of groundwater at current rates is 60 years from now. After that, the glory days of big populations and big cities may be done. Some experts say it will come sooner than that.

That same story is being repeated, even worse, in countries like China and India. India is pumping out the water tables at an alarming rate. In both countries, as thousands of wells go dry, they drill deeper, and burn even more energy with bigger pumps, just to keep up. Some places are already out of water, and out of production.

Keep this story in mind as you build the big picture: peak groundwater. It’s coming.

By the way, I ask Dr. Famiglietti what happens to all the water we pump out for our fields and cities. Some of it goes into the ocean, to become salt water. The warmer atmosphere can hold 4% more water vapor already, since 1970, and that’s a huge amount. Other water ends up falling in those places that are already wet.

Don’t miss this 12 minute interview with Jay Famiglietti. It’s short but powerful. Listen or download in CD Quality or Lo-Fi

Read a key article by Dr. Famiglietti “Epic California Drought and Groundwater: Where Do We Go From Here?“. And check out his LA Times Op-Ed from 2013, “California’s water house of cards“.

DR. REAGAN WASKOM – Feeding the western food supply

I was referred to Dr. Waskom by Michael Cohen of the Pacific Institute. Even though Waskom is the University of Colorado in Fort Collins, he’s one of the country’s wisemen when it comes to water supplies and our food system.

Reagan Waskom is the Director of the Colorado Water Institute, and Chair of the Colorado State University Water Center.

It turns out Colorado supplies much of the water to Southern California. We are not talking about the big food production areas, but more the heavy populations in places like Los Anglees. So what happens in Colorado matters a lot to California.

The good news is there is a heavy snow pack this year in Colorado. How useful that is depends on how fast the snow melt is, among other factors.

I ask Dr. Waskom what happens if California really is in a long-term drought. Could we replace all that food with farming somewhere else in the country?

Dr. Waskom has also been studying the big use of water by the fracking industry. We touch on that.

My final question is more personal: “You’ve taught a lot of students, and graduate students. Do you think young people are more disconnected from natural reality than when you were growing up?”

I learned a lot just talking with the man. You probably will too. Download this 17 minute interview in CD Quality or Lo-Fi.

DAVID SCHROEDER on the ground outside of LA

I wanted to get you some reporting from right on the ground in southern California. Acting on a tip from a Radio Ecoshock listener, we’ve reached David Schroeder. He’s a Water Conservation Specialist with the Chino Basin Water District. That’s based in Montclair California, right on the edge of one of America’s biggest cities, Los Angeles.

We talk about where water for southern California comes from, and what to do when it doesn’t. Dave specializes in getting the public involved in tearing up grass to install natural vegetation, to use less water in the home, and so on. There isn’t much farming left in the south of the state. Now the challenge is huge cities and endless suburbs.

Dave lives in the mountains that used to be white with snow in winter, when I lived in L.A. many moons ago. No snow there this year he reports. That’s not good news for the coming fire season, for anything.

Download/listen to this 10 minute interview with David Schroeder in CD Quality

WRAP UP

That wraps up my Radio Ecoshock special on the California drought, 2014. I hope you learned, as I did, about where our water comes from, where it’s going, and the dangerous tightrope we walk trying to feed a growing world population during climate disruption.

Radio Ecoshock is provided free to more than 75 non-profit radio stations. I depend on your financial help to keep going. Find ways to support this program in this blog, and at the show archive and web site, ecoshock.org

I’m Alex Smith. As always, thank you for listening, and caring about your world.

Posted by at 5:37 PM

Coffee to Soybean Wagers Climb on Brazilian Drought – Bloomberg

Coffee to Soybean Wagers Climb on Brazilian Drought – Bloomberg.

By Luzi Ann Javier  Feb 10, 2014 4:19 PM ET
Photographer: Dado Galdieri/Bloomberg

A woman harvests coffee beans at the Ponto Alegre estate farm in Cabo Verde, in the… Read More

Hedge funds raised bullish commodity bets to a 15-week high after a drought in Brazilthreatened crops from coffee to soybeans.

The net-long position across 18 U.S.-traded commodities climbed 15 percent to 900,330 futures and options in the week ended Feb. 4, the biggest gain since August, U.S. Commodity Futures Trading Commission data show. Investors turned bullish on arabica coffee for the first time since July 2012 and soybean wagers rose by the most in almost three months. Brazil is the biggest exporter of both crops.

The Standard & Poor’s GSCI Agriculture Index of eight commodities rose 3.3 percent last week, reaching an eight-week high Feb. 6. In Brazil, also the top sugar grower, the driest January since 1954 drained dams and scorched plants. Extreme global weather also is threatening other crops with too much rain hampering Indonesia’s cocoa harvest and freezing temperatures damaging U.S. wheat.

“Agriculture is probably the best hope for a decent commodity run this year,” said Peter Sorrentino, who helps manage $4.4 billion at Huntington Asset Advisors in Cincinnati. “These weather issues will definitely have a decided positive influence on prices.”

The S&P GSCI Spot Index of 24 raw materials gained 2.1 percent last week. The MSCI All-Country World index of equities rose 0.8 percent, while the Bloomberg Treasury Bond Index slid 0.1 percent. The Bloomberg Dollar Spot Index, a gauge against 10 major trading partners, dropped 0.8 percent. The S&P GSCI Agriculture Index rose 0.2 percent at 4:18 p.m. New York time.

Coffee Bulls

Money managers held a coffee net-bullish position of 7,981 contracts on Feb. 4, the CFTC data show. That’s the first bet on a rally since July 2012. Prices for arabica, the variety favored by Starbucks Corp., surged 23 percent since Dec. 31, the best start to a year since 1997.

Plantations in Brazil are enduring dry weather just when rain is needed the most for tree roots to absorb nutrients as the beans begin to grow inside the coffee cherries. Rain may be “too late” and there isn’t enough time to reverse the damage to trees and beans, Terra Forte, a Sao Joao da Boa Vista-based shipper, said in a report.

Hot, dry weather cut potential soybean yields in as much as 40 percent of Brazil’s growing areas, Commodity Weather Group LLC in Bethesda, Maryland, said in a report Feb. 7. In Kansas, the top winter-wheat-growing state, 35 percent of the crop was in good or excellent condition, down from 58 percent on Dec. 30 after sub-zero temperatures swept the nation, the government said Feb. 3. The Indonesian Cocoa Association sees the nation’s crop dropping to the lowest in a decade as rains in the third-biggest grower hurt flowering and delay the harvest.

Goldman, Citi

Raw materials from copper and corn to sugar and coffee will be have supply surpluses this year after a decade-long bull market spurred producers to build new mines, drill more wells and expand planting of crops. Banks led by Goldman Sachs Group Inc. and Citigroup Inc. say commodities are heading for losses in 2014. The S&P GSCI Agriculture Index tumbled 22 percent last year, the most since 1981, after U.S. crops recovered from the worst drought since the 1930s.

Inventories of soybeans around the world will equal 26.7 percent of consumption this season, up from 23.5 percent a year earlier, the U.S. Department of Agriculture said Jan. 10. Corn stockpiles will equal 17.1 percent of use, compared with 15.4 percent a year earlier. Global coffee production is set to exceed demand for a fourth season, pushing stockpiles to a five-year high, according to the USDA.

Supply ‘Buffer’

“We’re not in a precarious situation for crop supplies like we were a year ago,” said Kelly Wiesbrock, a managing director at Harvest Capital Strategies in San Francisco, which oversees $1.8 billion. “We do have a buffer today in the event that we have below-trend yields this year. It’s unlikely we see drastic price reaction.”

World food prices fell in January to a 19-month low, the United Nations’ Food & Agriculture Organization said Feb. 6. The Rome-based group’s index of 55 food items is 4.5 percent lower than a year ago.

The S&P GSCI Enhanced Commodity Index, Goldman’s preferred measure, will drop 3 percent in the next 12 months, the bank said in a Jan. 12 report. Precious metals will lead losses with a 15 percent drop, while agriculture will decline 11 percent.

Money managers increased their net-bullish soybean holdings by 20 percent to 146,533 contracts, the highest this year. Prices gained 3.8 percent last week, the most since August. Cocoa wagersgained 7.2 percent to 83,038, a second straight increase. Investors held a net-short position of 52,963 in wheat, compared with 62,501 a week earlier.

Gold Wagers

Wagers on a gold rally slid 2.1 percent to 59,408 contracts, the first decline this year, the CFTC data show. Federal Reserve officials said Jan. 29 they would trim monthly purchases of bonds to $65 billion from $75 billion, after a $10 billion cut announced in December. Bullion rose 70 percent from December 2008 to June 2011 as the Fed pumped more than $2 trillion into the financial system.

Gold rebounded 5.6 percent this year after a 28 percent decline in 2013 that was the biggest since 1981. About $1.6 trillion was erased from the value of global equities in 2014 amid signs of slow economic growth in China and a slump in emerging-market currencies. Sales of gold coins by the U.S. Mint rose 63 percent in January to the highest since April.

Copper Inventories

Investors became bearish on copper before prices capped the biggest rally this year. Funds are holding a net-short position of 6,832 contracts, compared with a net-long of 11,735 a week earlier. Futures in New York rose 1.2 percent last week, the most since Dec. 27. Inventories at warehouses monitored by the London Metal Exchange declined 16 percent this year to the lowest since December 2012.

“Commodities, especially base metals, might be getting to close to a point where investors have discounted something close to a worst-case scenario,” said Sameer Samana, a senior international strategist at Wells Fargo Advisors LLC, which oversees about $1.4 trillion. “There will be pockets of strength. The issue in Brazil could be a catalyst.”

To contact the reporter on this story: Luzi Ann Javier in New York at ljavier@bloomberg.net

To contact the editor responsible for this story: Millie Munshi at mmunshi@bloomberg.net

Flood alerts across England and Wales as south-west braces for 80mph storm | UK news | theguardian.com

Flood alerts across England and Wales as south-west braces for 80mph storm | UK news | theguardian.com.

Somerset, Devon and Dorset at greatest risk of flooding as Environment Agency issues warnings as far north as Hull
theguardian.com, Saturday 8 February 2014 12.26 GMT
Waves break at Porthleven in Cornwall

Waves break at high tide in Porthleven, Cornwall, on Saturday as south-west England and Wales braced for more storms and flooding. Photograph: Matt Cardy/Getty Images

Large areas of England and Wales are on flood and storm alert as a new storm is poised to hit the south and south-west with winds of up to 80mph.

The flooded Somerset Levels where many residents have already been forced from their homes after weeks of heavy rain remain at the highest risk of continued flooding on Saturday.

The Environment Agency said there was a risk of flooding along the coast of Devon and Dorset from the combination of high tides and high winds.

There are more than 300 low-level flood alerts and nearly 200 medium-risk flood warnings in place across Wales and southern and central England as far north as Hull.

The Met Office issued an amber warning of high winds for the south of England and Wales and yellow rain warnings for the south and west of England and Wales.

“After a short lull, winds will increase from the south-west during the course of Saturday with severe gales affecting coastal districts, bringing gusts of 60-70mph and isolated 80mph at the most exposed locations within the amber warning area. Large waves are also expected to affect south-west facing coasts. Further inland, gusts of 50-60 mph are likely.”

The Met Office warned the public to be prepared for disruption to transport and power supplies, particularly when combined with the effect of heavy rain.

A spokesman for the Ministry of Defence said an additional 1,500 troops were on six hours’ notice to move if required to help victims of new flooding. Several hundred Royal Marines and engineers are already helping in south-west England.

Engineers have strengthened the shore along the railway line at Dawlish in Devon to prevent further damage to the tracks although Cornwall and Plymouth remain cut off from the rest of the rail network. Flybe said it will increase the number of weekday flights between Gatwick and Newquay in Cornwall from three to six after the airport said it would waive fees.

As residents in Somerset have struggled to cope with rising water, police arrested three men on suspicion of stealing fuel from near the cut-off village of Muchelney.

The arrests follow the theft of 600 gallons of domestic heating oil from a farm in Moorland and the theft of two fire service quad bikes from Burrowbridge last week.

Eric Pickles, the local government secretary, has ordered a flood defence repair audit of both Environment Agency defences and private defences after the latest meeting of the government’s emergency committee Cobra on Friday night.

He said: “We continue to make sure every preparation is made before the severe weather expected this weekend and the following days. I ask everyone to remain vigilant and follow the advice being issued by the Environment Agency.

“I want to reassure the country that everything possible is being done to help those communities affected by these terrible storms, and work to be prepared for any further bad weather we may see in the days ahead.”

Is It Hot in Here or Is It Just Me Telling You It’s Hot in Here? – Bloomberg

Is It Hot in Here or Is It Just Me Telling You It’s Hot in Here? – Bloomberg.

As the mercury drops in the eastern U.S. this week, expect snow, icy driving conditions and ludicrous statements about global warming from Donald Trump andRush Limbaugh.

These statements are caricatures of debate, and obscure the real and persistent way that weather actually does make climate change confusing.

Many people apparently have weather on the brain when the topic turns to climate change. The ease with which we confuse the two offers a window into how the human mind works: Asked about a complex issue, people often will provide an answer about a related, easier topic. It’s an example of “attribute substitution,” a mental process defined by behavioral economists Daniel Kahneman and Shane Frederick in 2002, the same year Kahneman won the Nobel Prize in economics.

This particular phenomenon, in which people instinctively allow weather to influence their judgments about climate change, has been called the local warming effect.

A new study in a leading peer-reviewed journal, Nature Climate Change, asks why the local warming effect should be so influential. The researchers conducted several experiments to try to overcome participants’ reliance on cues from weather. The work was led by Lisa Zaval of Columbia University’s Center for Research on Environmental Decisions.

Source: Land and Ocean Percentiles, Jan.-Dec. 2013. NOAA’s National Climatic Data Center

NOAA reported yesterday that “most regions across the globe were warmer than average.”…Read More

They tested to see whether survey questions containing the phrase “global warming” caused people to believe or be concerned about science any more than questions with “climate change” did. They didn’t, and the researchers concluded that the local weather effect isn’t driven by buzzwords.

In another test, they gave participants information explaining that local weather and global climate change are different things, adapting NASA material to say, for example, “climate is what you expect, like a hot summer, and weather is what you get, like a hot day with thunderstorms.” Explaining this difference to research subjects didn’t kill the local weather effect.

A third approach investigated the effect of “priming,” or providing subtle topic cues. Researchers gave subjects hotness or coldness cues before answering questions about climate change. Study participants were asked to make four-word sentences from five-word groups, such as:

potatoes she the roasted it

Or:

the shivers man old of

People who were given “hot” priming sentences tended to believe and be concerned about climate change science more than those given “cold” or neutral sentences.

A further test, which involved asking people about yesterday’s temperature, led the researchers to conclude that the previous day’s temperature didn’t have as large an effect as it today’s. Recent sensation — “the immediacy of experience with temperature” — influences thoughts about climate change most. Humans evolved big, reasoning brains that still have trouble competing with the five senses.

That weather can guide people’s thinking so strongly, and that this bias is so difficult to overcome, is indicative of a larger problem not limited to climate change. “The local warming effect is an important real-world demonstration of how opinion on important issues can be constructed in response to a direct enquiry, rather than retrieved from memory,” the authors write.

In other words, when asked to say what they think about climate change, many people don’t retrieve and open their mental file on climate; they make up a new one, drawing on a seemingly related and easier topic, the temperature outside. After all, as Bob Dylan put it, you don’t need a weatherman to know which way the wind blows.

“Priming” studies are common in behavioral research. Scientists still don’t know as much about it as one might like. If streets and news media were filled with images of people sweating and thirsty in a desert, it wouldn’t lead to a rational federal climate policy. But just why it wouldn’t isn’t well understood.

As Zaval explained over email: “Unfortunately, we just don’t know how long the effects of temperature cues might last — concern for climate change sometimes seems to be as transient as the weather.”

Polar Vortex 2.0? | Zero Hedge

Polar Vortex 2.0? | Zero Hedge.

With California experiencing emergency drought conditions and sun-glass-clad bronzed beauties driving their convertibles around in Lake Tahoe amid not an inch of real snow, the East Coast – just emerging from the cocoon following Polar Vortex 1.0 – is, as we warned, about to be confronted with another chilly blast of “Arctic Cold” weather with temperatures up to 25 degress below average and 8 inches of snow due for New York City tomorrow, and wind chills up to 40 below for the Upper Midwest On the bright side, it will be a BTFD opportunity for all those missed earnings expectations for Q1 retailers.

As MarketWatch notes:

New York City could get up to 8 inches on Tuesday and Tuesday night, while Washington D.C. could get up to 7 inches. In Chicago, up to 5 inches could fall overnight Monday and temperatures Tuesday could be as cold as 13 below zero, including wind chill

Via  National Weather Service,

A strong cold front will dive southward from the Plains and Midwest on Monday to the East Coast and Southeast on Tuesday. Bitter wind chills to 40 degrees below zero will impact the Upper Midwest. At the leading edge of the cold air, a winter storm is forecast to develop on Tuesday that will impact the Mid-Atlantic and Northeast Coast with snow and blowing snow.

…Heavy snow for the Mid-Atlantic into Southern New England…

…Temperatures will be 10 to 25 degrees below average from the Mississippi Valley into the Northeast/Mid-Atlantic…

A front moving off the Northeast/Mid-Atlantic Coast will develop a wave of low pressure over the Tennessee Valley that will intensify rapidly moving off the North Carolina Coast by Tuesday afternoon/evening.  The storm will continue to deepen Tuesday night into Wednesday morning moving just off the Mid-Atlantic Coast paralleling the Northeast Coast to just off Cape Cod by Wednesday morning.

The system will produce light snow over parts of the Middle Mississippi Valley by Monday evening expanding into parts of the Ohio Valley by early Tuesday morning.  As the storm moves into the Mid-Atlantic on Tuesday, moisture from the Atlantic will move inland aiding in the development of snow over the Mid-Atlantic to the Ohio Valley/Tennessee Valley.

The system’s dynamics will increase, producing an area of moderate to heavy snow over parts of the Mid-Atlantic by Tuesday evening, moving into Southern New England and Coastal Northern New England by Wednesday morning.

Why EIA, IEA, and Randers’ 2052 Energy Forecasts are Wrong | Our Finite World

Why EIA, IEA, and Randers’ 2052 Energy Forecasts are Wrong | Our Finite World.

What is correct way to model the future course of energy and the economy? There are clearly huge amounts of oil, coal, and natural gas in the ground.  With different approaches, researchers can obtain vastly different indications. I will show that the real issue is most researchers are modeling the wrong limit.

Most researchers assume that the limit that they should be concerned with is the amount of oil, coal, and natural gas in the ground. This is the wrong limit. While in theory we will eventually hit this limit, because of the way fossil fuels are integrated into the rest of the economy, we hit financial limits much earlier. These financial limits include lack of investment capital, inability of governments to collect enough taxes to fund their programs, and widespread debt defaults.

One of the things I show in this post is that Economic Growth is a positive feedback loop that is enabled by cheap energy sources. (Economists have postulated that Economic Growth is permanent, and has no connection to energy sources.) Economic Growth turns to economic contraction as the cost of energy extraction (broadly defined) rises. It is the change in this feedback loop that leads to the financial problems mentioned above.  These effects tend to lead to collapse over a period of years (perhaps 10 or 20, we really don’t know), rather than a slow decline which is easily mitigated.

If, indeed, most analysts are concerned about the wrong limit, this has huge implications for energy policy:

1. Climate change models include way too much CO2 from fossil fuels. Lack of investment capital will bring down production of all fossil fuels in only a few years. The amounts of fossil fuels included in climate change models are based on “Demand Model” and “Hubbert Peak Model” estimates of fossil fuel consumption (described in this post), both of which tend to be far too high. This is not to say that the climate isn’t changing, and won’t continue to change. It is just that excessive fossil fuel consumption needs to move much farther down our list of problems contributing to future climate change.

2. It becomes much less clear whether high-priced replacements for fossil fuels are worthwhile. In theory, they might allow a particular economy to have electricity for a while longer after collapse, if the whole system can be kept properly repaired. Offsetting this potential benefit are several drawbacks:  (a) they make the economy with the high-priced replacements less competitive in the world marketplace, (b) they tend to run up debt, increase government spending, and decrease discretionary income of citizens, all limits we are reaching, and (c) they tend to push the economic cycle more quickly toward contraction for the country purchasing the high-priced renewables.

3. A large share of academic writing is premised on a wrong understanding of the real limits we are reaching. Since writers base their analyses on the wrong analyses of previous writers, this leads to a nearly endless supply of misleading or wrong academic papers.

This post is related to a recent post I wrote, The Real Oil Extraction Limit, and How It Affects the Downslope.

 

Types of Forecasting Models

There are three basic ways of making forecasts regarding future energy supply and related economic growth:

1. “Demand Based” Approaches. In this method, the analyst first decides what future GDP will be, and uses that estimate, together with past relationships, to “work backwards” to figure out how much energy supply will be needed in the future. The expected needed future energy supply is then divided up among various types of fuels, giving more of the growth to types that are favored, and less to other types. Very often, estimates of growth in energy efficiency, growth in “renewables,” and growth in the amount of GDP that can be generated with a given amount of energy supply are included in the model as well.

This method is by far the most common approach for forecasting expected future energy supply, especially at high levels of aggregation. One advantage of this method is that can provide almost any answer the analyst wants. Governments are paying for reports such as the EIA and IEA forecasts, and oil companies are paying for forecasts such as those by BP,Shell, and Exxon-Mobil. Both governments and oil companies prefer reports that say that everything will be fine for the foreseeable future. Demand Based approaches are good for producing such reports.

Another advantage of this approach is that the analysts don’t have to think about pesky details like where all of the investment capital will come from, or how large an   improvement in the ratio of GDP to energy consumption can actually occur. They can simply make assumptions and point out that the forecast won’t come true if the assumptions don’t hold.

2. “Hubbert Peak Model”. This model is based on an interpretation of what M. King Hubbert wrote (for example, Nuclear Energy and the Fossil Fuels, 1956) . The basic premise of this model is that future supply of oil, coal, or gas will tend to drop slowly after 50% (or somewhat more) of the fuel supply potentially available with current technology has been extracted.

In fact, we don’t really know how much oil or coal or natural gas will be extracted in the future–we just know how much looks like it might be extracted, if everything goes well–if there is plenty of investment capital, if the credit system works as planned, and if the government is able to collect enough tax revenue to fund all of its promises, including maintaining roads and offering benefits to the unemployed.

What most people miss is the fact that the world economy is a Complex Adaptive System, and energy supply is part of this system. If there are diminishing returns with respect to energy supply–evidenced by the rising cost of extraction and distribution–then this will affect the economy in many ways simultaneously. The limit we are reaching is not that oil (or coal or natural gas) extraction will run out; it is that economic system will at some point seize up, and rapidly contract. The Hubbert Peak Method shows how much fuel might be extracted in each future year if the economy doesn’t seize up because of financial problems. The estimate produced by the Hubbert Peak Method removes some of the upward bias of the Demand Model approach, but it still tends to give forecasts that are higher than we can really expect.

3. Modeling How the Economy Actually Works. This approach is much more labor-intensive than the other two approaches, but is the only one that can be expected to give an answer that is in the right ballpark of being correct with respect to future economic growth and energy consumption. Of course, observing signs of oncoming collapse can also give an indication that we are nearing collapse.

The only study to date modeling how long the economy can grow without seizing up is the one documented in the 1972 book The Limits to Growth, by D. Meadows et al. This analysis has proven to be surprisingly predictive. Several analyses, including this one by Charles Hall and John Day, have shown that the world economy is fairly close to “on track” with the base scenario shown in that book (Figure 1). If the world economy continues to follow this course shown, collapse would appear to be not more than 10 or 20 years away, as can be seen from Figure 1, below.

Figure 1. Base scenario from 1972 Limits to Growth, printed using today's graphics by Charles Hall and John Day in "Revisiting Limits to Growth After Peak Oil" http://www.esf.edu/efb/hall/2009-05Hall0327.pdf

Figure 1. Base scenario from 1972 Limits to Growth, printed using today’s graphics by Charles Hall and John Day in “Revisiting Limits to Growth After Peak Oil”http://www.esf.edu/efb/hall/2009-05Hall0327.pdf

One of the findings of the 1972  Limits to Growth analysis is that lack of investment capital is expected to be a significant part of what brings the system down. (There are other issues as well, including excessive pollution and ultimately lack of food.) According to the book (p. 125):

The industrial capital stock grows to a level that requires an enormous input of resources. In the very process of that growth it depletes a large fraction of the resource reserves available. As resource prices rise and mines are depleted, more and more capital must be used for obtaining resources, leaving less to be invested for future growth. Finally investment cannot keep up with depreciation, and the industrial base collapses, taking with it the service and agricultural systems, which have become dependent on industrial inputs (such as fertilizers, pesticides, hospital laboratories, computers, and especially energy for mechanization).

Jorgen Randers’ 2052: A Global Forecast for the Next Forty Years 

In 2012, the same organization that sponsored the original Limits to Growth study sponsored a new study, commemorating the 40th anniversary of the original report. A person might expect that the new study would follow similar or updated methodology to the 1972 report, but the approach is in fact quite different. (See my post, Why I Don’t Believe Randers’ Limits to Growth Forecast to 2052.)

The model in Jorgen Randers’ 2052: A Global Forecast for the Next Forty Yearsappears to be a Demand Based approach that perhaps uses a Hubbert Peak Model on the fossil fuel portion of the analysis. One telling detail is the fact that Randers mentions in the Acknowledgements Section only one person who worked on the model (apart from himself). There he thanks “My old friend Ulrich Goluke, for creating the quantitative foundation (statistical data, spreadsheets, and other models) for this forecast.” Ulrich Goluke’s biography suggests that he is able to prepare a Demand Model spreadsheet. It would be hard to believe that he that he could have substituted for the team of 17 researchers who put together the original Limits to Growth analysis.

The Need to Add to the Original Limits to Growth Analysis

The original Limits to Growth analysis was primarily concerned with quantities of items such as resources, pollution, population, and food. It did not get into financial aspects to any significant extent, except where flows of resources indicated a problem–namely in providing investment capital. One thing the model did not include at all was debt.

In the sections that follow, I show a model of how some parts of the economy that weren’t specifically modeled in the 1972 study work. If the economy works in the way described, it gives some insights as to why collapse may be ahead.

Economic Growth Arises from a  Favorable Feedback Loop

Economic growth seems to arise from a favorable feedback loop, as shown in Figure 2, below.

Figure 2. Author's representation of how economic growth occurs in today's economy.

Figure 2. Author’s representation of how economic growth occurs in today’s economy.

This model above is intended to reflect the situation from, say, 1800 to 2000. The situation was somewhat different before the use of fossil fuels, when far less economic growth took place. Furthermore,  as we will see later in this post, the model changes again to reflect the impact of diminishing returns as the cost of energy production increases in recent years and in the future.

The critical variables that allow economic growth to take place are (1) cheap energy available from the ground, such as coal, oil, or natural gas–if cheap renewables were available, these would work as well (2) technology that allows us to put this cheap energy to work to make goods and services, and (3) a way to pay for the new goods and services.

Debt. In this model, debt plays a significant role. This happens because fossil fuels allow a huge “step up” in the quality of goods and services, and debt provides a way to bridge this gap. For example, with fossil fuels, we have electric light bulbs, metal machines in factories, and farm machinery, all of which vastly improve efficiency. The ability to pay for the new fuel and the new devices using the fuel, is much greater after the new devices using the fuel are put in place.  The way around this problem is simple: debt.

The use of debt becomes important at many points in the economy. Increased debt can theoretically help (a) the companies doing the energy extraction, (b) the companies building factories to create the new goods and services, and (c) the end consumers, since all of these benefit greatly from the services that cheap fossil fuels provide, and can better pay afterward than before.

Government debt, such as debt used to finance World War II, can also be used to start and maintain the cycle. John Maynard Keynes noticed this phenomenon, and recommended using an increase in government debt to stimulate the economy, if it was not growing adequately. The detail he was unaware of is the fact that the debt only works in the context of cheap energy supplies being available to make use of this debt, enabling growth.

How the Feedback Loop Works.  The loop starts with the combination of a cheap-to-exploit energy resource, technology that would use this resource, and debt that allows those would like to gain access to the resources to have the benefit of them, before they are actually able to pay cash for them.

This combination allows goods to be produced which initially may not be very cheap. Over time, new methods are tried, allowing technology to improve. Consumers are able to buy increasing amounts of goods and services, both because of their own increased productivity (enabled by fossil fuels and new technology) tends to raise their wages, and because the improving technology lowers the cost of goods. Government services are expanded as tax revenue per capita increases. Infrastructure such as roads are expanded making the economy more efficient.

In this context, profits of companies grow, allowing reinvestment. Investment is also enabled by increasing debt. This allows the cycle to start over again, with better technology and more infrastructure in place. The economy tends to grow, and the standard of living tends to rise.

Overview. One way of explaining the tendency toward economic growth is that a cheap-to-extract fossil rule has an extremely high return on investment. This very high return enables benefits to all: workers receive higher wages; businesses receive higher profits; and governments receive both higher tax revenue and the ability to build new roads and other infrastructure cheaply.

Another way of describing the tendency toward economic growth is to say that the value to society of the (cheap) energy product is far greater than its cost of extraction.  This difference provides a benefit which flows through to many parts of the economy. Economists do not recognize that this situation can happen, but it seems to be a major source of economic growth.

The Spoiler: Diminishing Returns 

The problem with energy extraction is that we extract the inexpensive-to-extract energy sources first. Eventually these sources get depleted, and we need to move on to more expensive-to-extract energy sources. I illustrate this situation with a triangle that has a dotted line at the bottom.

Figure 3. Resource triangle, with dotted line indicating uncertain financial cut-off.

Figure 3. Resource triangle, with dotted line indicating uncertain financial cut-off.

Businesses start by extracting the cheapest to extract resources, found at the top of the triangle. As these resources deplete, they move on to the more expensive to extract resources, further down in the triangle. Looking downward, it always looks like there are more resources available–it is just that they are more expensive to extract. This is why reported reserves tend to increase over time, even as supplies are depleted. The limit is a financial limit, illustrated by a dotted line, which is why virtually no one can figure out when the limit will actually arrive.

One somewhat minor point: When I say, “Cheapest to extract resources,” I am referring to broadly defined costs. What businesses want is resources that produce goods and services most cheaply for the consumer. Thus, they are really concerned about cheapesttotal cost, considering the entire chain that goes all the way to the consumer, including refining and transportation. The costs would include energy used in extraction, labor costs, transportation costs, taxes, and the cost of debt. It probably should include the cost of mitigating pollution effects as well.

A major problem is that as the cost of energy extraction grows, the favorable gap between the cost of extraction and the benefit to society (as mentioned in the previous section) shrinks. There are many ways that this problem manifests itself in the economy. Figure 4 shows a list of such problem with respect to higher oil prices:

Figure 4. Image by author listing some of the problems created by rising oil prices.

Figure 4. Image by author listing some of the problems created by rising oil prices.

One indirect impact of these issues is that there are more layoffs and fewer new job opportunities. If we calculate average wages by taking (total US wages) and dividing by (total US population), we see that during periods of high oil prices, wages tend not to grow, as they had in periods when oil prices were lower–just as we would expect (Figure 5, below).

Figure 5. Average US wages compared to oil price, both in 2012$. US Wages are from Bureau of Labor Statistics Table 2.1, adjusted to 2012 using CPI-Urban inflation. Oil prices are Brent equivalent in 2012$, from BP’s 2013 Statistical Review of World Energy.

Figure 5. Average US wages compared to oil price, both in 2012$. US Wages are from Bureau of Labor Statistics Table 2.1, adjusted to 2012 using CPI-Urban inflation. Oil prices are Brent equivalent in 2012$, from BP’s 2013 Statistical Review of World Energy.

Another issue is that it is not just the price of oil that rises. The price of natural gas rises as well. We have not felt this in the United States, because demand has kept the price down below the price of shale gas extraction. The cost of coal, delivered to its destination, has risen because transport uses oil, and transport costs are a significant share of total costs. The cost of base metals has also risen since 2002, because oil is used in metal extraction. Food prices in general have tended to rise as well, because oil is used in production and transport of food. When wages are close to flat, and the cost of many goods are rising, workers find that their paychecks are increasingly squeezed.

While costs of making goods in the US are rising, and paychecks are stagnating, an increasing amount of goods are imported from areas around the world where energy costs  and wage costs are lower. This helps keep the cost of consumer goods down, but it makes the problem of lack of jobs for US workers worse.

With all of these things happening, the government has more and more problems with its funding. Expenditures continue to rise, but taxes flatten, as the government tries to help the economy grow by not raising taxes to match expenditures (Figure 5, below).

Figure 6. Based on Table 2.1 and Table 3.1 of Bureau of Economic Analysis data. Government spending includes Federal, State, and Local programs.

Figure 6. Based on Table 2.1 and Table 3.1 of Bureau of Economic Analysis data. Government spending includes Federal, State, and Local programs.

Government expenditures can be thought of as expenditures out of the surpluses of the economy. As indicated previously, these are to a significant extent possible because of the favorable difference between the cost of extracting fossil fuels and the benefit those fossil fuels provide to the economy. As the use of fossil fuels has grown over the years, these government services have grown. In recent years, the presence of more unemployed workers has driven a need for more government services.

Since the early 2000s, government revenues have flattened. The lack of revenue, together with the ever-rising government spending, is what is driving continued big deficits. The danger is that this difference cannot be fixed, without huge cuts to programs that people are depending on, like unemployment insurance, Social Security and Medicare.

How the Economic Growth Loop Changes to Contraction

In my view, what causes a shift to contraction is a shift to higher energy costs. With higher energy costs, there is less surplus between the cost of extraction (broadly defined) and the benefit to society. Because of the smaller surplus, the parts of the economy that use this surplus, such as government spending, must shrink.

Figure 7. Higher energy cost leads to unfavorable feedback loop. (Illustration by author.)

Figure 7. Higher energy cost leads to unfavorable feedback loop. (Illustration by author.)

We gradually find that all the great things we had learned to enjoy–inexpensive roads and other infrastructure, cheap goods, rising wages, and rising government serves–start going away. We increasingly find consumers maxed out on debt. We also find companies (especially energy companies) reporting lower profits, so they have more trouble investing in new energy extraction. The government cannot collect enough taxes for all of its services, so finds itself needing to keep raising its own debt levels.

The government can kind of “paper over” its difficulties with growing debt levels for a while, by using Quantitative Easing (QE). QE has the effect of making the interest the US must pay on its own debt lower. It makes the cost of business investment in new plants and equipment (including shale oil drilling) cheaper. It also helps stretch the incomes of increasingly impoverished workers by allowing monthly payments on homes and cars to be lower than they would otherwise would be.

The Party Ends With a Thud 

Most readers can deduce that a shift from a growing economy to a shrinking economy is not a pleasant situation. It has all of the makings of collapse.

One of the big problems is debt defaults, as it becomes increasingly impossible to repay debt with interest. This creates conflict between borrowers and lenders. Debt defaults are also likely to cause huge problems for banks, insurance companies, and pension plans, because of the impact on their balance sheets. Some institutions may close.

To the extent new credit is cut off, the lack of credit cuts off new investment in energy extraction, in buying new cars and trucks, and in almost everything else. Such a cut-off in credit is likely to increase job layoffs and to lead to yet more defaults. Lack of investment in new energy extraction causes oil supply to fall quickly–far more quickly than standard “decline” models  would suggest.

Businesses that in the past found that they could benefit from “economies of scale” as they grew find that fixed costs stay the same, even as sales shrink. This means that they either need to raise prices to cover their higher per-unit costs, or lose money.

Governments find that they need to cut government services to balance their budgets.  Discontent grows among citizens as those who lose their benefits become very unhappy. Discord grows among political parties, because no one can agree how to cut programs equitably.

We don’t know how this will end, but we do know that the Former Soviet Union collapsed into its constituent parts when fossil fuel surpluses were reduced, prior to 1991. Egypt and Syria both have had civil unrest as their oil exports ended. Clearly very large government changes are possible, as surpluses disappear.

This list of potential impacts could be expanded endlessly, but I will spare readers from a more comprehensive list.

Polar Vortex – The Sequel: Coming To A Frozen US City Near You | Zero Hedge

Polar Vortex – The Sequel: Coming To A Frozen US City Near You | Zero Hedge.

Just when everyone thought the infamous polar vortex is gone (if not quite forgotten, having dipped the temperatures in some part of the US to sub-Martian levels), it’s baaaack. Sky News reports that America is set to be hit by another blast from the polar vortex although this time Niagara falls may not freeze, as temperatures are likely to be higher than last week’s extreme conditions. “The polar plunge is expected to move south from Canada, bringing colder air and sub-zero temperatures to the US this week. Forecasters say it will sweep over the lower Mississippi Valley and Midwest on Tuesday and Wednesday, and then hit the East on Thursday. The main thrust of the cold air will follow up a couple of days later.”

Polar vortex to return to US

More from Sky:

“Following the retreat of Arctic air this weekend, waves of progressively colder air will move southward over Canada this week,” said Paul Pastelok, AccuWeather.com’s lead long-range forecaster. “We will likely see a piece of the polar vortex break off and set up just north of the Great Lakes spanning January 16 to 20.

“This next main arctic blast will not rival, nor will be as extensive as the event last week.”

Many areas are still recovering from last week’s polar vortex, which saw the mercury plunge to -12C (11F) in New York City and -24C in Chicago.

A Coast Guard cutter was brought in to keep shipping lanes open, but the ice was too thick to break in places.

Residents have flocked to the river banks to take pictures of the polar conditions.

Rick Wilson, from Yardley, Pennsylvania, told an ABC TV station: “Incredible. I came down here just to take pictures of this. My grandchildren would not believe this. This looks like something you’d find in Antarctica.”

Sky News weather producer Jo Robinson said: “After a milder spell, plunges of cold air are expected later in the week. “The first is expected across parts of Canada, the Midwest and eastern parts of the US over the next few days. “More significant cold air will affect those areas by the weekend, but thankfully it doesn’t look to be as cold as last week.”

Of course, what is bad news for anyone who needs to buy heating at surge pricing, is great news for apologists of bad economic data, because don’t look now, but January employment numbers just became “meaningless” and if the BLS issues another disappointing jobs report on the first Friday of February, it will be the weather’s fault. And, “logically”, if the report is great, it will be entirely due to the recovery.

Is extreme weather the new normal? – Canada – CBC News

Is extreme weather the new normal? – Canada – CBC News.

 

News – Storm leaves thousands of Quebecers without power amid scorching heat wave – The Weather Network

News – Storm leaves thousands of Quebecers without power amid scorching heat wave – The Weather Network.

 

News – Here’s what rising sea levels look like – The Weather Network

News – Here’s what rising sea levels look like – The Weather Network.

 

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