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Review: Out of Gas

Out of Gas: The End of the Age of Oil
by David Goodstein
W. W. Norton and Company, 2004
Hardcover, 128 pp.
ISBN 0393058573
US$21.95

In David Goodstein’s Out of Gas: The End of the Age of Oil, a grim picture is painted of “Civilization as we know it” coming to an end. The basic argument is as follows: “In the 1950s, M. King Hubbert predicted that the rate at which oil would be extracted from wells in the United States would peak around 1970 and decline rapidly after that.” The so-called “Hubbert’s peak” in extraction occurs when about half the oil is gone. Hubbert’s prediction for the US was spot on. Goodstein extrapolates a global Hubbert’s peak and comes up with sometime between now and 2020.

With prices of oil hovering near $0.40/liter ($48/barrel), everyone is suddenly wondering whether the sky is the limit for the price of oil. This might open up a case for lunar platinum exports (see “Review: Moonrush”, The Space Review, August 16, 2004) and solar satellites.

Goodstein worries that there will not be time to emplace an earthbound “array spread over 200,000 square kilometers” of solar cells when only 10 have been produced so far. Solar panels cost about $3.69 per watt at www.partsonsale.com. For $295 we can buy one that is about two-thirds of a square meter. That’s 6.7 x 10-7 square kilometers. So the entire 200,000 square kilometers conversion of the Earth to solar power could be produced for $87 trillion. That’s a big number, but the world economy is $50 trillion a year. We do not have to convert all in one year. Recall that at Hubbert’s peak, half the usable oil is still unused.

The entire 200,000 square kilometers conversion of the Earth to solar power could be produced for $87 trillion. That’s a big number, but the world economy is $50 trillion a year.

Goodstein worries that there will be trouble ramping up production in time. This may be the $64-trillion question. IDC figures that by 2008 we will have $280 billion a year in semiconductor sales. At that rate, it would take centuries to build up enough capital stock to go solar. Oops, it looks like I fell into one of the traps that Goodstein says that geologists fall into, that we will “continue at the same rate we are doing now”. Continuing at the 12% growth rate IDC says we will slow to in 2008 from 18% in 2004, it will only take 30 years to emplace all the solar cells if the entire industry converts over to producing solar cells by 2008.

Remember that we only need to use about half as much oil in the transition because we will have nearly half as much solar cells halfway through the installation. That means we only need about 15 years of consumption left when we get religion and a sufficient industrial base. We could probably get some gains for mass production that would cancel out the costs of the rushed semiconductor production conversion and allow us to make the solar conversion quicker if not cheaper.

If Earth-based solar is good, space-based solar could be better. Goodstein says that about 800 solar satellites the size of Manhattan in geosynchronous orbit would do the trick. At $1,000 per kilogram we would only need to spend $15 trillion or so on launch costs to heft 15 billion kilograms of solar cells, which would only be about one-fourth as much as 200,000 square kilometers because there’s about four times as much light up there with no clouds and no night. Throw in another $10 trillion for the cells and some more for the microwave ground stations and we have a pretty good case for solar orbital. We should probably exhaust the case for stratospheric lighter than air solar before we invest, but there are other objections.

One trouble with this plan is that oil, coal, natural gas, and oil sands are so cheap that no one will want to switch away from fossil fuels to solar until they are closer to running out. I have been taught since I was a kid (and Goodstein repeats) that it is better to use our finite reserve of hydrocarbons to make plastic and pharmaceuticals instead of burn it. That makes about as much sense as conserving water. If there was a shortage of plastics expected, the manufacturers would bid up the price of plastic. The economy works great to use resources where they are needed most.

Economics also works great to use resources when they are needed most. Economics predicts that because owners have to be made indifferent between extracting now and extracting later that the price of non-renewable resources will rise roughly at the rate of interest. If it rose faster, it would pay to wait to extract later. If it rose slower, it would pay to extract it all now and put the money in the bank. It is not a big leap from there to say that the price of oil now and the interest rate make a very good predictor of the price of oil for next year and the year after. If in 20 years the price of fossil fuels is still less than the price of bottled water, it will take some effort to get people to switch to solar.

The key argument that Goodstein misses is that he should be looking for Hubbert’s peak for global fossil fuel energy usage instead of for oil… Oil use peaking in 2010 is a non-event in the global economy if energy use keeps going up.

So the markets say that Goodstein is wrong when he predicts a major social upheaval in the transition away from oil. (Of course it was also predicting in April that the price would be $0.24/liter in 2024.) If you don’t believe my calm prediction, buy oil stocks or build a bolt hole somewhere, depending on your level of disbelief.

The key argument that Goodstein misses is that he should be looking for Hubbert’s peak for global fossil fuel energy usage instead of for oil. Back in April before the price of oil spiked up, Reuters reported that world demand for energy would be up 54% in the next 20 years. Oil use peaking in 2010 is a non-event in the global economy if energy use keeps going up. The normal turnover of automotive capital will switch to whatever becomes the most economical, whether it is natural gas or something like hydrogen or direct electric (maybe in the roads) both produced by burning coal.

What if the price of oil doubled to $0.80/liter? People would take mass transit more. They would maybe use an inbound model for food and order it over the Internet to be delivered instead of taking a there-and-back trip to the store. Maybe they would telecommute to work more and have more telemeetings instead of plane trips. They would probably drive a hybrid car and use an LED light instead of an incandescent one. That might reduce oil use by 40 percent, which is right around what economists estimate the long-term price elasticity of oil is. People would ride trains, minis, and bicycles. It would look a lot like The Netherlands, where gasoline is already triple what it is in the United States.

I agree with Goodstein that if we continue to burn fossil fuels, we face uncertain consequences about rising sea levels and higher atmospheric temperatures. A prudent government strategy would be to impose a carbon tax to encourage decreased consumption and a switch to nuclear, wind, geothermal, tidal and solar. The size of the carbon tax would have to be really big to make a dent. Energy demand might not drop much unless the price of energy doubled. An oil tax to have much bite would have to be about $0.40/liter to cut it 40%. That would raise nearly $2 trillion a year worldwide. I think it would have to be more than twice that if all other forms of fossil fuels were also taxed. That could raise $9 trillion a year in energy taxes including natural gas, hydrites, and coal. If you recall what trouble the $63 billion that the oil for food program generated, you ain’t seen nothing yet. Since that would be 18% of world GDP, I guess I have to agree that civilization as we know it would be at an end. The income and social security taxes should probably be repealed with such a steep energy tax or at least scaled back to the top few percent of earners. It probably makes sense to cut sales and value added taxes and expand the earned income tax credit. A big difficulty in the transition would be my spin on Gates’s law that “Software expands to use all available memory and processing power”; government spending expands to use up all available money. Anyone at NASA for a carbon tax?

So much as I would like to believe it, the case is not really there for lunar extraction yet.

I helped pen an Automobile Manufacturers Association recommendation for a $0.25/tonne tax on coal in 1997 working for Charles River Associates, Inc. That would be a little less than a one-percent tax on coal and raise about $250 million a year and cut coal use by two percent. Coal use would probably be more inelastic for higher tax levels especially if there was a huge tax on oil and natural gas. We might need about a 100% tax to cut consumption in half, taking the price of coal up from about $20 to $40/tonne at the mine, which would raise maybe $10 billion a year in taxes in the US. It’s funny how when coal states are so-called “battleground” states for the presidential election the candidates are falling over themselves to provide tens of billions of dollars in coal research subsidies instead.

So much as I would like to believe it, the case is not really there for lunar extraction yet (except perhaps for the presidential platforms and ADM’s lobbying agenda). Solar satellites may do better than terrestrial solar, but that is not really relevant until the price of oil hits $0.80/liter or the price of space access drops. So it appears that the energy problem will be little different than the bowling ball pendulum that Goodstein risks in “The Mechanical Universe” that swings across the Caltech lecture hall and back and always comes a few inches from doing any harm.


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