January 21, 2008
Stuart Staniford: Peak Oil And The Fallacy Of Reversibility
On The Oil Drum Stuart Staniford argues agriculture will not deindustrialize when the production of oil peaks and goes into long term decline.
So when you industrialize a society, is that a reversible process? Can you take it on a backward path to a deindustrialized society that looks in the important ways like the society you had before the industrialization? As far as I can see, the "second wave" peak oil writers treat it as fairly obvious that this is both possible and desirable. It appears to me that it is neither possible or desirable, but at a minimum, someone arguing for it should seriously address the question. And it is this failure that I am calling the Fallacy of Reversibility. It is most pronounced in Kunstler, who in addition to believing we need a much higher level of involvement in agriculture also wants railways, canals, and sailing ships back, and is a strong proponent of nineteenth century urban forms.
I think those who see collapse in a post-oil peak world are making a number of mistakes. First, they are underestimating the potential of substitutes. Granted, the substitutes will initially cost more. So a shift to substitutes will cause a dip in living standards. But that is not collapse of civilization and a reversion to people following oxen around farm fields. The biggest problem with substitutes is the lag time while new capital expenditures for energy substitutes get made as oil production declines. But oil production won't collapse in a year. We will have time to make the shift. For people in First World countries it will be difficult but not a collapse of civilization.
Stuart invents a new term for peak oil doomers that is technically more precise: reversalists.
I am going to christen this general faction of the peak oil community reversalists. This encompasses people advocating a return to earlier food growing or distribution practices (the local food movement), folks wanting to bring back the railways and tramcars, people believing that large scale corporations will all collapse, that the Internet will fail and we need to "make our own music and our own drama down the road. We're going to need playhouses and live performance halls. We're going to need violin and banjo players and playwrights and scenery-makers, and singers."
Stuart argues that reversalist arguments are a distraction from figuring out what we really need to do to handle Peak Oil. I agree.
And before moving on, I stress that I'm not making an argument that our time is in all ways better than earlier times and that nostalgia for the past is entirely misplaced. Nor am I making an argument that peak oil does not pose a massive and important challenge to us. Instead, I'm making an argument that society is unlikely to reverse its trajectory of development, regardless of what we might like. Calls for it to do so are a distraction and get in the way of figuring out what we really need to be doing, and what the real options and dangers are.
Fortunately, I suspect capitalists are not much distracted by the doomer/reversalist talk. The capitalists are looking for ways to profit from high energy prices and that means investing in substitutes.
So why does Stuart think farmers will do well in a period of declining oil production? Stuart compares farm profitability in the United States to oil prices from 1976 to 2006 and finds that farm profitability does not decline as oil prices rise.
The relationship is somewhat stronger - profits are a little likelier to be higher when oil is expensive, but oil prices explain only about 12% of the variance in profit margins. The relationship is just barely statistically significant (p = 4.9%), but I wouldn't set too much store in it, given that the regression is not controlled for any other factors that might be explanatory.
But certainly, there is no evidence for the idea that farms are less profitable at high oil prices - that inference is completely unsupported by the data since 1975.
The analysis does not include 2007, since the cost data are not available yet, but it is likely that 2007 had high profit margins (since crop prices were very high), and certainly it had fairly high oil prices. I will argue below that this is a harbinger of the game-changing role of biofuels, which will tend in the future to make industrial farming more profitable as oil prices rise.
So far higher oil prices have created higher demand for farm products and so higher oil prices have pulled up farm prices and farm production. Will that continue to be the case? I think it depends on whether farms produce more energy than they consume. If they do then Peak Oil means happy times for farmers and high costs for food.
Stuart then shows a graph of farm labor costs versus oil prices which shows that, if anything, farmers use less labor per acre when oil prices are high.
What we see is that wheat and soybeans show essentially no meaningful relationship between oil prices and the amount of labor per acre that farmers use. They use the same low amount regardless. Corn farmers actually spend less on labor when oil prices are high, for reasons that are unclear - however the relationship is quite strong (r2 of 43%) and very statistically significant (p = 0.005%).
Stuart points out that even without subsidies corn-ethanol was profitable part of the time in recent years.
But what I would argue is that if oil gets to $200/barrel, industrial agriculture is likely to do very well. I pointed out in Fermenting the Food Supply that corn-ethanol has been profitable even without subsidies at times in the last few years, and that whenever oil prices go up sharply, there is a huge spurt in the growth of the biofuel industry. This creates an arbitrage between food prices and fuel prices, and mean that the former must go up whenever the latter go up (since the biofuel industry can very easily use most of the global food supply without adding more than a modest fraction to the fuel supply).
Take away the government corn ethanol subsidies and that profitability picture probably wouldn't have changed much. Farmers would have planted less corn and less of the corn would have been bought for corn ethanol. The supply and demand would have intercepted at a lower price point at which corn ethanol would have achieved about the same level of profitability.
Stuart's argument has more merit if farms are net energy producers. If the Energy Return On Energy Invested (EROEI) is a ratio much higher than 1 for highly mechanized farms then farmers can produce more energy from what they grow than they use as inputs. In that case farmers can create the energy they need to run their operations and so the odds of survival for the large scale mechanized farms becomes very high. A lot of debate surrounds the question of EROEI of agriculture. I'm inclined to believe at this point that some types of grain agriculture have positive and rising EROEI. Here's an intuitive illustration of why that's probably true. North Dakota vegetable oil production is a few times greater than the amount of oil needed to operate all of North Dakota agricultural equipment.
Canola, soybeans, sunflowers and safflowers are some of the main crops. All of them are capable of producing about 50 to 100 gallons of fuel per acre that can be used in an unmodified diesel engine, he says.
An estimate of the fuel production from the stateís three main oil-producing crops in 2003 - soybeans, canola and sunflowers - is more than 300 million gallons. Fuel production from any other oil-producing crops would be in addition to this amount. In comparison, North Dakota agriculture uses about 85 million gallons of diesel fuel per year.
Note that North Dakota farmers also grow various grain crops. Also, some of these crops that produce oils also produce meal rich with protein and carbohydrates as byproducts. So it looks at first glance like North Dakota's farmers can produce the energy they need to run their operations.
But this isn't definitive proof by any means. We still need to know about the energy inputs for fertilizer production, farm equipment production, and other components of highly mechanized and automated agriculture.
So here's my conclusion: If mechanised agriculture has an EROEI substantially above 1 then mechanised agriculture survives post-peak oil. I strongly suspect that this is the case for some crops and that biotechnological advances as well as smart innovations in farm practice will raise grain crop EROEI much higher. So we should see mechanized agriculture expand as fossil fuels energy production declines.
Update: Note that with positive EROEI Peak Oil therefore means greater demand for agricultural land even if yield per acre rises. Part of the land will go toward creating energy to use to farm the rest of the land. Part will go to create energy to operate cars and airplanes and other parts of modern civilization. I suspect less of the land will go toward growing food.
If mechanised agriculture has an EROEI substantially above 1 then mechanised agriculture survives post-peak oil.
This is incorrect. The relevant question is whether mechanization makes industrial agriculture more efficient in EROEI terms, as opposed to optimizing for labor- or land-efficiency by increasing energy input. If one dismisses the role of technological progress (as many peak-oil doomers do) the conclusion that pre-industrial agriculture is energy-optimal is straightforward.
Plant efficiency to fuel is abysmally low, even in the best of cases, compared to modern solar cells. What percentaged of a farm's area would have to be covered with Nanosolar's panels, to run the farm machinery on electricity? I bet it's comparable to the area of the farm that's not cropped in the first place.
There have been small scale efforts for years to "grow" meats, with some recent modest progress. What are the chances of serious venturing funding going in this direction if food prices start going up substantially (keeping in mind that it takes a lot of grain and such to produce a pound of beef)?
This is a conclusion that I've thought to be correct ever since I stumbled across the peak oil sites over 3 years ago. Mechanized agriculture, which by the way uses just 2.2% of our oil, is going to be very hard to reverse. Indeed, given the productivity increases of the green revolution over the last several decades we are looking at a global systemic collapse with devastating ecological (and human) consequences if it ever reverses. Stuart has posted before that he has challenged a number of peak oil theorists on this very point and gotten nothing but blank stares. That doesn't mean that the future is entirely rosy, as indeed the first response to the thread indicates. In the next couple of decades as oil supply begins to decline and we desperately try to get off fossil fuels, the cost of energy will go up as substitutes are still more expensive. Some combination of solar thermal/nuclear/wind/other (hot rock geothermal?) and plug-ins/electric cars/cellulosic ethanol can absolutely scale to run our civilization, but not at the same price point as coal and oil, not for a good long while at least. A number of other raw materials are likely to shoot up in price as well, due to depletion/increased competition/increased energy costs. The result is that we may be looking at a prolonged period of declining living standards as labor becomes less valuable relative to raw materials. The question I have is how severe and long-lasting these effects are likely to be, and what the cultural and financial reactions to them will be. Haven't quite gotten that sorted out yet. I'm disinclined to buy the "debt-based monetary system must expand infinitely or it will collapse" theory, but I'm no economist.
I'm speaking in approximate terms and including some assumptions I didn't flesh out. I think the productivity of non-mech non-chem agriculture is so far below mech agriculture that what I'm saying is approximately true.
Also, even if the EROEI of farming is less than 1 it will still get used as a mechanism to convert nuclear/wind/geothermal electricity to liquid fuels.
I do not see the non-mech alternative as viable. Horses aren't going to power the combines. The use of horses is too human labor intensive and too farm product intensive to feed the horses. You can get more useful work out of an acre of land by converting the grain and oil from that acre into fuel and operating tractors than by feeding it to horses.
The solar panels cost more than biodiesel to get the same amount of energy. Plus, the biodiesel comes in a much more convenient form.
However, given cheap enough solar panels they can be used to power tractors on farms and to power chemical plants that convert biomass to usable liquid fuel. So solar can get used to generate liquid biomass fuel.
Well, now, I've heard of farming being called "an indirect way of converting oil into food", and find myself wondering if biodiesel isn't just a way of laundering fossil fuels. If is, the cost of biodiesel is sure to take a real leap as fossil fuel costs climb.
Estimates appear to be all over the map, but I've seen some numbers in the neighborhood of 1.34 btu out,(For corn.) for every btu of energy input into the farm, excluding of course sunlight. On those terms, if you ran the farm entirely on it's own energy output, 3/4 of that output would be used internally. Which, factoring in that plants aren't particularly efficient to begin with, (A maximum efficiency for C4 photosynthesis being about 6.7%) means that a farm producing biodiesel is probably equivalent, to be generous, to an equivalent area of 1.7% efficient solar panels. That's pretty sad, I think, when you consider that solar panels don't consume much drinking water, or cause much in the way of soil exhaustion.
It's a bit too late in the day for me to do the rest of the math for a head to head comparison of biodiesel and Nanosolar's panels, but my suspicion is that biodiesel would lose the contest if the farm had to run off it's own biodiesel output, instead of fossil fuels.
Of course, a lot of this is contingent on Nanosolar's claims being proven out. But if they are, I think we're only a few years away from solar electric being cheaper than biodiesel.
I am glad to see that we are all trying to come up with our own theories on what will be the best and most efficient way to create energy in peak oil times and there after. I think this is the point in our history when we will finally start to turn towards a much cleaner and safer world to live in, regardless of the substitutions we employ.
Why is outsourcing of industry a good thing?
In a post-industrial society the US has seen significant outsourcing of jobs in industrial type work settings. As you know these jobs can be done cheaper overseas by low-paid workers without the regulations and unions which protect us in the US. I feel it is important for the US to re-establish itself in our new economy, the service economy.
Why are high prices good?
In a post-9/11 world peak oil prices are largely inflated past their real-market values which can be seen in countries more friendlily to the Middle East than the US. This increase has done the US a favor, and I see it as a good thing because it allows R&D on new energy sources to be done sooner than the supply/demand curve originally would have triggered such a response. What these oil-rich nations have done is placed a tariff on the US, even though local media does not portray it in this light. We (Americans) call it unfair and we complain about the unrealistic price increases over the past few years. Basically, my point is... good. We need this now more than ever.
How can the United States use this post-industrial, post- 9/11, high gas price, service economy to its benefit?
In order to live well in this new world I feel it is important the US establish itself as the forerunner in the race for new alternative energies. I feel we need to overproduce energy the extent that we become the new world leader in global energy, allowing nations around the world to look to us for their energy needs.
To over-commit in this area and spend equivalent money to that of the nation's space program during our Mercury and Apollo missions, which I believe to be around 4% of the national budget at that time, would speed up progress in our search for new energies. The global energy market would certainly jump at lower prices and the economy would no doubt flourish. Technologies such as computers, nanotechnology, our knowledge of energy-saving properties in appliances, solar, wind, bio-fuels, geothermal, and new techniques in nuclear energy (just to name a few) would all benefit from increased study.
How would this affect our society?
I feel that this interest by the government would inspire and fascinate the world's youth as well as produce jobs. The US would finally send a message to the world that "We're back". No longer would we be seen on the global scale as the self proclaimed police of the world, finally we could stop the dependence on foreign oil and offer a product (something we have not done, on a large scale, for a long time) to the world. I feel people would become more energy conscious and would, without thinking about it, save energy every day, a little at a time.
I do have very strong beliefs in what I believe will, some day, become the most used alternative energy both due to itís abundance, cleanliness, and potential efficiency. I do not want that to be the focus of conversation, however, so I have left this out of my posting.
I want to commend all of you for taking interest in this very important topic and to encourage you get word out that we need to start working and stop talking. Please, stay opinionated and keep it coming with those facts, but leave some room for the next guy; some day he may save us all.
I think many here are missing the big point in peak oil; over-population. When food prices skyrocket and less land is used for food and more for biofuels, less people get fed in a world already boiling over with too many for carrying capacity, hence the children you see starving in Africa on TV. What-ever energy it takes to make solar panels and biofuels, means less energy is available for food, now we won't be able to increase energy use because energy will be declining. Alternative energy has to be grown/made using that declining energy and where is doesn't use that cheap oil, it costs way way more and is slower. Our population needs cheap food and a lot of it to keep everyone fed.
The only way around this is if the cheap oil available (at an ever declining rate) is prioritised for food first, that the 2.2% (i'm assuming includes transport/fertilisers?) will go up an up as other industries fall by the wayside. This continues until it is no longer feasable because the trucks cant be repaired etc, which is a few decades away, or perhaps more I have no idea. But the economy will crash long before then. Unless there is a population reduction in which case there's less to feed clothe and shelter and therefore more oil and a better living stadard but on a smaler scale.
I look forward to a future where I don't have to turn on my television and find every channel is covered in a foreign american sitcom or cheap drama. Finally other western countries like Australia and Britain will be able to have their own culture and not the sad one you Americans enjoy.
Of course biomass energy means less food for people.
What our population really needs most of all: Fewer people. Birth control.
In the last year the world's population grew by 97 million people. The world grows a new United States worth of population every 3 years. We can stop driving cars, move into increasingly smaller houses, and take vows of poverty. But why do that just to feed babies that other people insist on having?