Thursday, June 30, 2005

Bringing the State Back In

In reading about Peak Oil, you repeatedly run in to assertions that, because oil is the lifeblood of our society, society will collapse without oil. Given how big a fan I am of Jared Diamond and his most recent book Collapse, you might think I'm partial to this view. (Diamond doesn't say that we're doomed, by the way. He just identifies a number of environmental constraints to the continued existence of western economic conditions.)

Of course, I strongly disagree with what I've called "Apocalypse Porn" in the Peak Oil community. There are two fundamental reasons for this, and both stem from what I think are important misunderstandings.

The first is a misunderstanding of oil, or specifically the useful energy we get out of it. All throughout the Peak Oil community, a ratio you will encounter with tiresome regularity is 30:1. This is the so-called "Energy Return on Energy Invested" (or EROEI) of a barrel of oil, or the energy it contains versus the oil it took to get it out of the ground. This 30:1 number is frequently contrasted with renewables, which are said to have a negative, or only slightly positive EROEI. One apocalyptic site grudgingly concedes that biodiesel might have a EROEI of 3:1. So let's stay with that number for a moment. Biodiesel is a finished product - usable as is. A barrel of oil generally is not. Refining it in to usable fuel is by definition going to lower it's EROEI. By how much? Well, refining costs are usually half the price of gasoline, even here in "over-taxed" Canada. But let's say conservatively that the refining lowers the EROEI of oil by 1/3, so that it's now 20:1. But of course, there's also the fact that we don't get all the energy in a barrel of oil. In a standard automobile, 80% of the energy is simply lost - meaning that suddenly our EROEI on that barrel of oil is suddenly 4:1.

Now, obviously biodiesel or ethanol will suffer a similar loss in an internal combustion engine. But what about plug-in hybrids? The efficiency loss of an electric motor is usually in the ballpark of 20% - one quarter that of gasoline or similar combustion fuels. Some are already arguing that charging batteries with solar power is comparable to paying for gasoline. As solar and battery prices fall, the economics will become even more favourable. While solar panels and batteries have low EROEIs, there's no reason to believe that these are fated, and certainly both can be designed to have decades of useful life - car batteries are already among the most recycled items in production today. There's no reason to believe that this should change.

Of course, this technology won't be rolled out overnight, any more than our current infrastructure was. But people seem to think that our current industrial system grew incrementally, as if we've been building more and more factories at a steady rate since the 1750s. This is the second fundamental understanding I mentioned. Our current industry is directly traceable not to James Watt, but the industrial needs of fighting World War II. While CO2 emissions begin to climb slowly in the 1750s - with the first use of coal as a fuel - they really take off mid-20th century, as the exigencies of war, and the post-war recovery brought incredible industrial growth to first North America, and then western Europe.

How did this happen? Well, it surely wasn't "incremental", and it wasn't a result of natural market forces. In both the western powers and the Communist bloc, this incredible economic progress was largely accomplished by economic planning, along the lines of GOSPLAN in the USSR. The US and Canada had, shall we say, a lighter touch - but dirigisme was very much the order of the day. By the end of the war, a whopping 70% of the US's GNP was a result of government spending. Obviously, this came to an end after the war, but it wasn't the last time the US government dallied with central planning. During the heydays of the Apollo Program, it's said that NASA could identify which mine-cart carried the ore out of the mine to make each of the 2 million parts of the Saturn V rocket. I doubt even the USSR accomplished that. (Ironically, while the US used Soviet-style management to beat the Soviets to the moon, the Communists had built two competing rockets, both of which failed. The wonders of the market!) The important fact to take from the examples of World War II and the Apollo Program is that the state has a nearly-unlimited power to intervene in the market, when it chooses to.

Since the growth of neoliberalism in the 1970s, we seem to have forgotten this. But national governments are only as weak as they choose to be. If the "Apocalypse Porn" camp is right, then I think we can bet on a return to some form of dirigisme in our national politics, if only to maintain the integrity of the state. During the last oil crisis, most western governments imposed various forms of currency, price, and wage controls. Here in Canada, we had the much-hated National Energy Program. If Alberta thinks that a recurrence of the NEP is impossible, they'd better think again. If Peak Oil gets really bad, and the rest of the country is forced in to economic crisis so that Alberta can maintain it's privileged position, I think any kind of intervention is imaginable. Can the federal government re-draw provincial boundaries unilaterally? The constitution currently says no. But put a squeeze on the rest of the country, and... does "well, just watch me" sound familiar?

Now, I think the NEP was actually bad policy on it's own terms, but some kind of federal intervention in natural resources generally, and oil in particular, is probably inevitable. Moreover, I'd be unsurprised to see things like nationalizations of the remaining private rail lines, combined with subsidies (or mandates) that encouraged rail traffic over trucks. If the Federal fiscal situation goes sour in a big way, we could conceivably see a nationalization of the oil industry. Canada is unique in the industrialized world, in that we have a small but long-term supply of oil in the tar sands. While it's small in the global context, it's quite possible to meet all of Canada's needs for the next century off the tar sands. This, of course, would necessitate the demise of NAFTA.

Now, I'd personally have preferred if this heavy-handedness by the state were unnecessary. If we'd taken the lessons of the 1970s seriously, it probably wouldn't have been. But the state will act to protect itself, and if the post-Peak scenarios get as bad as some seem to hope they will, I think we'll all see a much more powerful national government than we're used to.

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