I.O.U.S.A The Solution

Back on October 18th, 2009 I wrote about the documentary I.O.U.S.A. The Peter G. Peterson Foundation has produced a follow up documentary called IOUSA Solutions.  As the title suggests, this sequel proposes solutions to the national debt.

The solutions involve both spending cuts AND tax increases.  Some of the specific proposals include:

1. Increasing the retirement age for social security recipients
2. Means testing social security
3. Letting the Bush tax cuts expire
4. Reforming Medicare and Medicaid

And many others.  The entire film is on YouTube in 5 parts.   This is a must watch documentary.

Economic Growth By Any Means Necessary

Lu Guang Pollution in China

That picture is from China Hush.   In Haimen city, Jiangsu province Chemical Industrial District sewage treatment plant discharges waste water into Yangtze River. June 5, 2009.

Water is life.

Without water, there is no life.

With polluted water, there is much pain and suffering in life.

Economic growth by any means necessary is the reason why the water is polluted and why life is unbearable in certain parts of China.  That is what you get when you measure your country’s success by GDP growth.

China, of course, is not the only country that obsesses over GDP growth.  The United States leads the world in this obsession with GDP.  Politicians in this country cannot win elections by promising Zero Growth.  They always promise more growth.

More cars.

More roads.  More highways.

More jobs.

More houses.  More swimming pools.  More shopping malls.  More golf courses.

More oil.  More coal.  More natural gas.  More copper.  More plastics.

More of everything.

It seems most people want more of everything.  Very few people want less.  The world will be a much cleaner place if more people wanted less.

Google Insights into Peak Oil

Google Insights for Search is a tool that allows you to find out about search volume in different regions of the world.  The data goes back to 2004.  The following is a volume chart of the search term “peak oil”.

As you can see, searches for “peak oil” peaked in 2005 when oil prices first spiked. Searches for “peak oil” again shot up in the summer of 2008 when crude oil traded for nearly $150 a barrel.

We can also look at where in the world people are searching for “peak oil”. Since it is an English term, we expect to see searches mostly from the English speaking world. What surprises me is that there are more searches for “peak oil” in New Zealand than in the United States.  New Zealanders are more “peak oil” aware than Americans.

The tool can further break down the popularity of the search term within United States by state, metro, and city.

Portland, Oregon is the most “peak oil” aware metro area in the United States.  That is not a surprise to me.  The Portland City commissioned an 86 page report on peak oil in 2007.  Seattle-Tacoma region is second.  Number ten on the list of top metro regions searching for “peak oil” is Phoenix, Arizona.  The American Southwest will most likely see large out-migration as peak oil takes hold.  The region’s lack of fresh water and overt reliance on automobile for personal transportation pose serious threats.  I believe the residents of the Phoenix metro area are concerned about their own long term survival prospects.

United States military on peak oil

For the first time ever, I believe, the United States military publishes a report that contains the word “Peak Oil”. The United States Joint Forces Command (USJFCOM) publishes the Joint Operating Environment (JOE) report each year.  The report is “a strategic framework that forecasts possible threats and opportunities that will challenge the future joint force.” The full report is here.  I have included a copy of it below.

The report is a boiler plate of the usual trends that will affect United States security.  Forces like economic challenges, climate change, globalization, demographics, etc can all have an effect on the US military.   The interesting part is on page 26 of the report:

To meet even the conservative growth rates posited in the economics section, global energy production would need to rise by 1.3% per year. By the 2030s, demand is estimated to be nearly 50% greater than today. To meet that demand, even assuming more effective conservation measures, the world would need to add roughly the equivalent of Saudi Arabia’s current energy production every seven years.

Really?  We need to add a new Saudi Arabia (10 million barrels per day) every seven years?  We are barely keeping up with demand.  That is why oil is still trading above $80 a barrel while the world is recovering from a severe recession.  The energy summary is on page 31:

To generate the energy required worldwide by the 2030s would require us to find an additional 1.4 MBD every year until then.
During the next twenty-five years, coal, oil, and natural gas will remain indispensable to meet energy requirements. The discovery rate for new petroleum and gas fields over the past two decades (with the possible exception of Brazil) provides little reason for optimism that future efforts will find major new fields.

…

By 2012, surplus oil production capacity could entirely disappear, and as early as 2015, the shortfall in output could reach nearly 10 MBD.

Think about what was just said there.  We need to add 1.4 million barrels per day to keep up with demand.  But we’re not doing that.  And by 2015 we could be short 10 million barrels per day.  The supply and demand curve ALWAYS match.  We cannot consume more oil than we can produce.  To maintain current oil prices, new oil must be brought online.  If the new supply just is not there, the price will rise dramatically to bring down demand.

Mainstream media on Mexican oil production

The mainstream media always try to explain the fall in Mexican oil production due to political and technological reasons.  A typical story is this one from the NY Times by Clifford Krauss and Elizabeth Malkin.  Here is a quote:

Mexico probably still has plenty of oil, especially beneath the deep waters of the Gulf of Mexico, but Pemex lacks the technology and know-how to get it out. Inviting foreign companies into the country to help is one of the touchiest propositions in Mexican politics.

This explanation is pure nonsense. Pemex already has access to foreign technology.  One does not need to design and build a high tech offshore drilling platform.  One can lease a drilling platform from companies like Transocean for $500K/day.  A lot of foreign technology is already in use everyday.  We can blame lack of funding because the Mexican government uses Pemex as a piggy bank.  But we cannot blame lack of technology.

A simpler explanation is that Mexican oil production peaked in 2004-2005 and has gone into irreversible decline.  The following chart is from Greg Macdonald’s blog gregor.us.  He writes extensively on Mexico. Cantarell is Mexico’s largest oil field.  And as you can see below, production peaked in 2004-2005 and is in sharp decline.

Cantarell Peaked

Mexico will not be an oil exporter in another 5 years.  It will be an oil importer.  What will happen to the Mexican economy as the government can no longer subsidize the price of oil for its citizens?  What will happen to the Mexican government budget as oil export revenue dries up?

Rare Earth Extraction

Lindsey Hilsum is a reporter for Channel 4 News in the United Kingdom.  Her reports on China’s rare earth mining industry show that wind turbines and hybrid cars are not green at all.  Rare earth extraction is extremely dirty.  Here is her article on the Channel 4 blog “The non-green processes behind green technologies”:

Two weeks in China have shown me the environmental cost of saving the planet.

It’s all about rare earths, elements with magnetic properties and high conductivity, which are the key to new green technologies such as wind turbines and hybrid cars. I’ve just seen how they’re extracted and processed, and it’s not pretty.

In Jiangxi, in south-eastern China, mafia bosses collude with local Communist Party officials to extract the valuable elements from the hillsides by pumping acid into the earth. The villager who took us around wore a motorcycle helmet in case anyone saw her – she was terrified.

The central government ordered the plants to close, because of the environmental damage they were doing, but she said they operate under cover of darkness, protected by armed guards.

Her husband has been in prison since September because he and other villagers blocked the roads to stop truckloads of acid and toxic chemicals.

They used to live off rice and ducks, she said, but now the rice withers and the ducks grow to only half their normal size. The land has been poisoned.

It was a similar story in Baotou, in Inner Mongolia, where the majority of rare earths are mined and processed.

Rarely have I been somewhere so polluted and miserable. (The fact that it was below freezing didn’t help).

But the story’s bigger than that. The demand for rare earth is rocketing, as the world tries to move to a low carbon economy. Suddenly people are waking up to the fact that we’re dependent on China for these essential elements.

They exist elsewhere, including the USA, Canada and Australia, but for the past 10 years no one has been able to compete with China on price.

So rare earths are hot, I learnt, when I went to the 5th International Metal Events rare earths conference in Hong Kong. China is restricting export and investors who last year wouldn’t part with their cash for a rare earth project in Australia are now more than keen.

The price is going up, western governments are beginning to understand that they need to guarantee supply, and many say a shortage is inevitable.

So much for the low carbon future.

According to her report, a Toyota Prius uses 1 kg of neodymium and each battery use about 10 kg of lanthanum.  Compact fluorescent light bulbs use europium, terbium and yttrium.  The permanent magnets used in a wind turbine need about two tonnes of neodymium and other rare earths.

And of course, it takes diesel fuel to mine and extract the rare earth elements, to manufacture the hybrid vehicles and wind turbines, to transport the hybrid vehicles and wind turbines around the world, and to operate the cranes used to install the wind turbines.

The only way to be “green” is to reduce the amount of resources that we use.  That means taking public transportation is better than driving a Prius.  Buying a small home instead of a gigantic McMansion to reduce heating/cooling cost.  And there is no dancing around the issue:  reduce human population.  Not just slow the growth but reduce the overall numbers.

Below is her must see video on the rare earth extraction process in China.

Shortage of Rare Earth Elements Could Thwart Innovation

Another story on rare earth elements.   I wrote a previous post on the same topic back in September 2009.  This time it is from Live Science by Jeremy Hsu.  Full article is quoted below.  One should be aware that a lot of the “clean” and “green” technology is anything but clean or green.  Wind turbines appears to be clean, but when you look inside you will find powerful magnets that are made from rare earth elements.  The extraction of of rare earth elements in China is anything but clean or green.  I will write more in future posts about the mining of these elements and the environmental pollution that it causes.

Shortage of Rare Earth Elements Could Thwart Innovation

By Jeremy Hsu, TechNewsDaily Contributor

posted: 15 February 2010 10:29 am ET

Silicon may represent one of Earth’s more common elements, but it transformed Silicon Valley into a high-tech corridor and helped usher the world into the Information Age.

Now rare earth elements with exotic names such as europium and tantalum hold the key to hybrid cars, wind turbines and crystal-clear TV displays — that is, if a looming supply shortage doesn’t stop innovation in its tracks.

Rare earth elements, called “rare earths” by those who use and study them, often prove irreplaceable in green technologies and high-tech consumer products. Yet the world’s production of rare minerals relies mainly upon China, and the Chinese government warned last year that its own rising demand will soon force it to stop exporting the precious elements.

“Countries and companies that have or plan to develop industries that need rare earth minerals to make products are concerned about China’s growing consumption, which they fear will eliminate China’s exports of rare earths,” said W. David Menzie, chief of the international minerals section at the U.S. Geological Survey (USGS).

China has also encouraged companies that use rare earths to locate their manufacturing facilities in China, Menzie told TechNewsDaily. But some companies fear moving because of concerns about intellectual property protection, he added.

Deposits of rare earth elements exist in the United States, Canada and other countries. But only China’s government supports the mining and refining industries capable of processing the resources from start to finish.

Jack Lifton, an independent consultant for U.S. rare earths, thinks it’s time for the U.S. government to subsidize the creation of such industries to ensure a future supply, lest a shortage of rare earth elements cripple production of high-tech products.

Examples of rare earth elements used by the technology industry include:

Europium: This extremely rare but critical chemical makes the red color for television monitors and energy-efficient LED light bulbs. China is the only country today that produces europium, dysprosium and terbium, which are necessary for either boosting the efficient operating temperature of magnets or for producing red in color displays. In December, USGS scientists discovered Alaskan deposits of europium, but even the few U.S. companies that mine rare earth elements must send the resources to China for processing.

Lanthanum: A primary component of the nickel-metal hydride battery in Toyota’s popular hybrid car, Prius. The Prius also incorporates neodymium, praseodymium, dysprosium and terbium. Lifton estimates that Toyota may use as much as 7,500 tons of lanthanum and 1,000 tons of neodymium per year to build its Prius cars. That dependence on rare earth elements has prompted the company to search for alternative sources outside China.

Neodymium: This represents a main component of the permanent magnets at the heart of the most efficient wind turbines. China’s own wind production efforts could consume all the available neodymium production and leave nothing for the rest of the world’s booming wind industry, Lifton notes in a recent report titled “The Rare Earth Crisis of 2009.” Neodymium is also used in the glass of incandescent light bulbs produced by General Electric, which has unsurprisingly invested in both Chinese and alternative sources of rare earth elements.

While the rare earth elements are crucial to the future of high-tech industries, some of these more basic elements – such as iron and aluminum – remain invaluable to basic infrastructure such as roads and communications needed to build a modern economy.

“If you are a developing country trying to build a manufacturing industry, the traditional ferrous (iron) and base metals can be very important as can construction materials such as cement and crushed stone,” said Menzie of the USGS. “Countries such as China have been developing their manufacturing industries and require large amounts of iron ore, nickel, zinc and other alloying metals, as well as copper and fuels.”

Oil and the End of Globalization

Jeff Rubin

Why Your World Is About to Get a Whole Lot Smaller: Oil and the End of Globalization by Jeff Rubin.  I decided to read Jeff Rubin’s book after watching his presentation at the Business of Climate Change conference in Toronto.  My previous entry has a link to the video on YouTube. I have read many peak oil books already so I was a little skeptical about “yet another peak oil book”.  But this one is a little different.  Rubin does not spent a lot of time trying to explain oil field depletion or the Hubbert curve.  This is not a heavily technical book like Matthew Simmons’ “Twilight In The Desert” or Kenneth Deffeyes’ “Beyond Oil”.   This book is more about the social changes that will occur in a world of  PERMANENT  high oil prices.  It is about simple things like getting coffee in the morning or having Chinese food for dinner. Coffee beans are grown all over the world and transported by diesel powered ships and diesel powered trucks to coffee houses all over the world.  How much will that coffee cost when diesel fuel cost $10 a gallon?  And will you still be having Chinese food when the ingredients have to be transported 5000 miles and the people preparing the food cannot afford to immigrate to your country?

Thomas Friedman thinks that the world is flat.  Jeff Rubin does not.  Globalization is a brief experiment made possible only with cheap oil.  It is an experiment that is coming to an end.  Rubin goes into detail explaining the social aspects of high oil prices, from food production to immigration.  The latter is an interesting new concept that I have not thought of in the context of peak oil.  A society’s tolerance of immigrants is directly related to the health of the economy.  If the economy is under a permanent strain of high energy prices, immigration will likely not be embraced.

There will be big macroeconomic shifts in the economy. A whole lot of people currently working in the service economy like serving coffee or processing insurance claims will have to adjust to new lives in the manufacturing or farm economy.  We will need toaster repairmen because we simply cannot afford to throw the old one away and buy a new one.  We will need more farm hands instead of baristas because there will not be a lot of people drinking expensive coffee.  There will be a lot more food produced locally and local farmers need all the help they can get when they cannot afford to operate diesel powered farm equipment.

The world of high energy prices is a much smaller world.  It is a world focused on the local community.  It is a much better world in my opinion.  This is a very good book.  I highly recommend it.

Jeff Rubin on Oil

The world is not running out of oil. The world is probably NEVER going to run out of oil. What the world is running out of is cheap oil. Jeff Rubin’s talk at the The Business of Climate Change Conference 2009 is a must see.

Amusing Ourselves To Death

Stuart McMillen has done an excellent illustration of Neil Postman’s foreword from “Amusing Ourselves To Death”:

What Orwell feared were those who would ban books. What Huxley feared was that there would be no reason to ban a book, for there would be no one who wanted to read one. Orwell feared those who would deprive us of information. Huxley feared those who would give us so much that we would be reduced to passivity and egoism. Orwell feared that the truth would be concealed from us. Huxley feared the truth would be drowned in a sea of irrelevance. Orwell feared we would become a captive culture. Huxley feared we would become a trivial culture, preoccupied with some equivalent of the feelies, the orgy porgy, and the centrifugal bumblepuppy. As Huxley remarked in Brave New World Revisited, the civil libertarians and rationalists who are ever on the alert to oppose tyranny “failed to take into account man’s almost infinite appetite for distractions”. In 1984, Huxley added, people are controlled by inflicting pain. In Brave New World, they are controlled by inflicting pleasure. In short, Orwell feared that what we hate will ruin us. Huxley feared that what we love will ruin us.

This book is about the possibility that Huxley, not Orwell, was right.

Amusing Ourselves To Death