Who’s getting their Malthus on?

In the New York Times yesterday, Thomas F. Homer-Dixon got his Malthus on: Mr. [Paul] Ehrlich and his colleagues may have the last (grim) laugh. The debate about limits to growth is coming back with a vengeance. The world?s supply of cheap energy is tightening, and humankind?s enormous output of greenhouse gases is disrupting the ...

By , a professor of international politics at the Fletcher School at Tufts University and the author of The Ideas Industry.

In the New York Times yesterday, Thomas F. Homer-Dixon got his Malthus on: Mr. [Paul] Ehrlich and his colleagues may have the last (grim) laugh. The debate about limits to growth is coming back with a vengeance. The world?s supply of cheap energy is tightening, and humankind?s enormous output of greenhouse gases is disrupting the earth?s climate. Together, these two constraints could eventually hobble global economic growth and cap the size of the global economy. The most important resource to consider in this situation is energy, because it is our economy?s ?master resource? ? the one ingredient essential for every economic activity. Sure, the price of a barrel of oil has dropped sharply from its peak of $78 last summer, but that?s probably just a fluctuation in a longer upward trend in the cost of oil ? and of energy more generally. In any case, the day-to-day price of oil isn?t a particularly good indicator of changes in energy?s underlying cost, because it?s influenced by everything from Middle East politics to fears of hurricanes. A better measure of the cost of oil, or any energy source, is the amount of energy required to produce it. Just as we evaluate a financial investment by comparing the size of the return with the size of the original expenditure, we can evaluate any project that generates energy by dividing the amount of energy the project produces by the amount it consumes. Economists and physicists call this quantity the ?energy return on investment? or E.R.O.I.... Cutler Cleveland, an energy scientist at Boston University who helped developed the concept of E.R.O.I. two decades ago, calculates that from the early 1970s to today the return on investment of oil and natural gas extraction in the United States fell from about 25 to 1 to about 15 to 1. This basic trend can be seen around the globe with many energy sources. We?ve most likely already found and tapped the biggest, most accessible and highest-E.R.O.I. oil and gas fields, just as we?ve already exploited the best rivers for hydropower. Now, as we?re extracting new oil and gas in more extreme environments ? in deep water far offshore, for example ? and as we?re turning to energy alternatives like nuclear power and converting tar sands to gasoline, we?re spending steadily more energy to get energy.... Without a doubt, mankind can find ways to push back these constraints on global growth with market-driven innovation on energy supply, efficient use of energy and pollution cleanup. But we probably can?t push them back indefinitely, because our species? capacity to innovate, and to deliver the fruits of that innovation when and where they?re needed, isn?t infinite. Sometimes even the best scientific minds can?t crack a technical problem quickly (take, for instance, the painfully slow evolution of battery technology in recent decades), sometimes market prices give entrepreneurs poor price signals (gasoline today is still far too cheap to encourage quick innovation in fuel-efficient vehicles) and, most important, sometimes there just isn?t the political will to back the institutional and technological changes needed. We can see glaring examples of such failures of innovation even in the United States ? home to the world?s most dynamic economy. Despite decades of increasingly dire warnings about the risks of dependence on foreign energy, the country now imports two-thirds of its oil; and during the last 20 years, despite increasingly clear scientific evidence regarding the dangers of climate change, the country?s output of carbon dioxide has increased by a fifth.Homer-Dixon has carved out an impressive career detailing the ways in which resource scarcity and ecological catastrophe will spell doom for the global political economy (Robert D. Kaplan's "The Coming Anarchy" was in many ways a popularization of Homer-Dixon's early work). However, methinks that he's only focusing on one side of the energy question -- the rising cost of supply provision. This is certainly an issue, but it doesn't address a compensating phenomenon -- that the energy-to-GDP ratio is rising even faster. The McKinsey Global Institute just released an interesting paper that takes a look at this very issue. From the executive summary: To date, the global debate about energy has focused too narrowly on curbing demand. We argue that, rather than seeking to reduce end-user demand, and thereby the choice, comfort, convenience, and economic welfare desired by consumers, the best way to meet the challenge of growing global energy demand is to focus on energy productivity?how to use energy more productively?which reconciles both demand abatement and energy-efficiency. According to McKinsey Global Institute (MGI) research, global energy demand will grow more quickly over the next 15 years than it has in the last 15. Demand will grow at a rate of 2.2 per cent per year in our base-case scenario, boosted by developing countries and consumer-driven segments of developed economies. This acceleration in demand growth?particularly problematic amidst escalating world-wide concerns about the growing costs of energy, global dependence on volatile oil-producing regions, and harmful global climate change?will take place despite global energy productivity continuing to improve by 1.0 percent a year. MGI?s in-depth case studies indicate that there are substantial and economically viable opportunities to boost energy productivity that have not been captured?an estimated 150 QBTUs1, which could represent a 15 to 25 percent cut in the end-use energy demand by 2020. This would translate into a deceleration of global energy-demand growth to less than 1 percent a year, compared with the 2.2 percent anticipated in our base-case scenario?without impacting economic growth prospects or consumer well-being.I'm concerned about energy scarcity, but I'm not getting my Mathus on by any stretch of the imagination.

In the New York Times yesterday, Thomas F. Homer-Dixon got his Malthus on:

Mr. [Paul] Ehrlich and his colleagues may have the last (grim) laugh. The debate about limits to growth is coming back with a vengeance. The world?s supply of cheap energy is tightening, and humankind?s enormous output of greenhouse gases is disrupting the earth?s climate. Together, these two constraints could eventually hobble global economic growth and cap the size of the global economy. The most important resource to consider in this situation is energy, because it is our economy?s ?master resource? ? the one ingredient essential for every economic activity. Sure, the price of a barrel of oil has dropped sharply from its peak of $78 last summer, but that?s probably just a fluctuation in a longer upward trend in the cost of oil ? and of energy more generally. In any case, the day-to-day price of oil isn?t a particularly good indicator of changes in energy?s underlying cost, because it?s influenced by everything from Middle East politics to fears of hurricanes. A better measure of the cost of oil, or any energy source, is the amount of energy required to produce it. Just as we evaluate a financial investment by comparing the size of the return with the size of the original expenditure, we can evaluate any project that generates energy by dividing the amount of energy the project produces by the amount it consumes. Economists and physicists call this quantity the ?energy return on investment? or E.R.O.I…. Cutler Cleveland, an energy scientist at Boston University who helped developed the concept of E.R.O.I. two decades ago, calculates that from the early 1970s to today the return on investment of oil and natural gas extraction in the United States fell from about 25 to 1 to about 15 to 1. This basic trend can be seen around the globe with many energy sources. We?ve most likely already found and tapped the biggest, most accessible and highest-E.R.O.I. oil and gas fields, just as we?ve already exploited the best rivers for hydropower. Now, as we?re extracting new oil and gas in more extreme environments ? in deep water far offshore, for example ? and as we?re turning to energy alternatives like nuclear power and converting tar sands to gasoline, we?re spending steadily more energy to get energy…. Without a doubt, mankind can find ways to push back these constraints on global growth with market-driven innovation on energy supply, efficient use of energy and pollution cleanup. But we probably can?t push them back indefinitely, because our species? capacity to innovate, and to deliver the fruits of that innovation when and where they?re needed, isn?t infinite. Sometimes even the best scientific minds can?t crack a technical problem quickly (take, for instance, the painfully slow evolution of battery technology in recent decades), sometimes market prices give entrepreneurs poor price signals (gasoline today is still far too cheap to encourage quick innovation in fuel-efficient vehicles) and, most important, sometimes there just isn?t the political will to back the institutional and technological changes needed. We can see glaring examples of such failures of innovation even in the United States ? home to the world?s most dynamic economy. Despite decades of increasingly dire warnings about the risks of dependence on foreign energy, the country now imports two-thirds of its oil; and during the last 20 years, despite increasingly clear scientific evidence regarding the dangers of climate change, the country?s output of carbon dioxide has increased by a fifth.

Homer-Dixon has carved out an impressive career detailing the ways in which resource scarcity and ecological catastrophe will spell doom for the global political economy (Robert D. Kaplan’s “The Coming Anarchy” was in many ways a popularization of Homer-Dixon’s early work). However, methinks that he’s only focusing on one side of the energy question — the rising cost of supply provision. This is certainly an issue, but it doesn’t address a compensating phenomenon — that the energy-to-GDP ratio is rising even faster. The McKinsey Global Institute just released an interesting paper that takes a look at this very issue. From the executive summary:

To date, the global debate about energy has focused too narrowly on curbing demand. We argue that, rather than seeking to reduce end-user demand, and thereby the choice, comfort, convenience, and economic welfare desired by consumers, the best way to meet the challenge of growing global energy demand is to focus on energy productivity?how to use energy more productively?which reconciles both demand abatement and energy-efficiency. According to McKinsey Global Institute (MGI) research, global energy demand will grow more quickly over the next 15 years than it has in the last 15. Demand will grow at a rate of 2.2 per cent per year in our base-case scenario, boosted by developing countries and consumer-driven segments of developed economies. This acceleration in demand growth?particularly problematic amidst escalating world-wide concerns about the growing costs of energy, global dependence on volatile oil-producing regions, and harmful global climate change?will take place despite global energy productivity continuing to improve by 1.0 percent a year. MGI?s in-depth case studies indicate that there are substantial and economically viable opportunities to boost energy productivity that have not been captured?an estimated 150 QBTUs1, which could represent a 15 to 25 percent cut in the end-use energy demand by 2020. This would translate into a deceleration of global energy-demand growth to less than 1 percent a year, compared with the 2.2 percent anticipated in our base-case scenario?without impacting economic growth prospects or consumer well-being.

I’m concerned about energy scarcity, but I’m not getting my Mathus on by any stretch of the imagination.

Daniel W. Drezner is a professor of international politics at the Fletcher School at Tufts University and the author of The Ideas Industry. Twitter: @dandrezner

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