Fleeing Vesuvius. Gillian Fallon
side of the global economy is goods and services, the other side is money and credit. Money has no intrinsic value; it is a piece of paper or charged capacitors in an integrated circuit. It represents not wealth, but a claim on wealth (money is not the house or food we can buy with it). Across the globe we exchange something intrinsically valuable for something intrinsically useless. This only works if we all play the game, governments mandate legal tender and monetary stability and trust are maintained. The hyper-inflation in Weimar Germany and in Zimbabwe until it adopted the US dollar shows what happens when trust is lost.
The Thermodynamics of the Global Economy
Like human beings and life on earth, economies require flows of energy through them to function and maintain their structure. If we do not maintain flows of energy (directly, or by maintenance and replacement) through systems we depend upon, they decay. Humans get their energy when they transform the concentrated energy stores in food into metabolizing, thinking and physical labor, and into the dispersed energy of heat and excreta. Our globalizing economy is no less energy constrained, but with one crucial difference. When humans reach maturity they stop growing and their energy intake stabilizes. Our economy has adapted to continual growth, and that means rising energy flows.
The self-organization and biodiversity of life on earth is maintained by the flows of low-entropy solar energy that irradiate our planet as it is transformed into high-entropy heat radiating into space. Our complex civilization was formed by the transformation of the living bio-sphere and the fossil reserves of ancient solar energy into useful work, and the entropy of waste heat energy, greenhouse gases and pollution that are the necessary consequences of the fact that no process is perfectly efficient.
The first law of thermodynamics tells us that energy cannot be created or destroyed. But energy can be transformed. The second law of thermodynamics tells us how it is transformed. All processes are winding down from a more concentrated and organized state to a more disorganized one, or from low to higher entropy. We see this when our cup of hot coffee cools to the room’s ambient temperature, and when humans and their artifacts decay to dust. The second law defines the direction in which processes happen. In transforming energy from a low-entropy to a higher-entropy state, work can be done, but this process is never 100% efficient. Some heat will always be wasted and be unavailable for work. This work is what has built and maintains life on earth and our civilization.
So how is it that an island of locally concentrated and complex low-entropy civilization can form out of the universal tendency to disorder? The answer is that more and more concentrated energy has to flow through it so as to keep the local system further and further away from the disorder to which it tends. The evolution and emergence of complex structures maximizes the production of entropy in the universe (local system plus everywhere else) as a whole. Clearly, if growing and maintaining complexity costs energy, then energy supply is the master platform upon which all forms of complexity depends.9
The operational fabric evolves with new levels of complexity. As integration and codependency rise, and economies of scale become established, higher and higher fixed costs are required to maintain the operational fabric. That cost is in energy and resource flows. Furthermore, as the infrastructure, plant and machinery that are required to maintain economic production at each level expand, they are open to greater depreciation costs or, in thermodynamic terms, entropic decay.
The correlation between energy use and economic and social change should therefore come as no surprise. The major transitions in the evolution of human civilization, from hunter-gatherers through the agricultural and industrial revolutions, have been predicated on revolutions in the quality and quantity of energy sources used.
We can see this through an example. According to the 1911 Census of England and Wales, the three largest occupational groups were domestic service, agriculture and coal mining. By 2008, the three largest groups were sales personnel, middle managers and teachers.10 What we can first notice is 100 years ago much of the work done in the economy was direct human labor. And much of that labor was associated directly with harnessing energy in the form of food or fossil fuels. Today, the largest groups have little to do with production, but are more focused upon the management of complexity directly, or indirectly through providing the knowledge base required by people living in a world of more specialized and diverse occupational roles.
What evolved in the intervening century was that human effort in direct energy production was replaced by fossil fuels. The energy content of a barrel of oil is equivalent to 12 years of adult labor at 40 hours a week. Even at $100 a barrel, oil is remarkably cheap compared with human labor! As fossil-fuel use increased, human effort in agriculture and energy extraction fell, as did the real price of food and fuel. These price falls freed up discretionary income, making people richer. And the freed-up workers could provide the more sophisticated skills required to build the complex modern economy which itself rested upon fossil-fuel inputs, other resources and innovation.
In energy terms a number of things happened. Firstly, we were accessing large, highly concentrated energy stores in growing quantities. Secondly, fossil fuels required little energy to extract and process; that is, the net energy remaining after the energy cost of obtaining the energy was very high. Thirdly, the fuels used were high quality, especially oil, which was concentrated and easy to transport at room temperature; or the fuels could be converted to provide very versatile electricity. Finally, our dependencies co-evolved with fossil-fuel growth, so our road networks, supply-chains, settlement patterns and consumer behavior, for example, became adaptive to particular energy vectors and the assumption of their future availability.
The growth and complexity of our civilization, of which the growing GWP is a primary economic indicator, is by necessity a thermodynamic system and thus subject to fundamental laws.
In neoclassical models of economic growth, energy is not considered a factor of production. It is assumed that energy is non-essential and will always substitute with capital. This assumption has been challenged by researchers who recognize that the laws of physics must apply to the economy and that substitution cannot continue indefinitely in a finite world. Such studies support a very close energy-growth relationship. They see rising energy flows as a necessary condition for economic growth, which they have demonstrated historically and in theory.11,12,13 It has been noted that there has been some decoupling of GWP from total primary energy supply since 1979 but much of this perceived decoupling is removed when higher energy quality is allowed for.14
It is sometimes suggested that energy intensity (energy/unit GDP) is stabilizing, or declining a little in advanced economies, a sign to some that local decoupling can occur. This confuses what are local effects with the functioning of an increasingly integrated global economy. Advanced knowledge and service economies do not do as much of the energy-intensive raw materials production and manufacturing as before, but their economies are dependent upon the use of energy-intensive products manufactured elsewhere, and the prosperity of the manufacturers to whom they sell their services.
Peak Oil
The phenomenon of peaking — be it in oil, natural gas, minerals or even fishing — is an expression of the following dynamics. With a finite resource such as oil, we find in general that which is easiest to exploit is used first. As demand for oil increases, and knowledge and technology associated with exploration and exploitation progress, production can be ramped up. New and cheap oil encourages new oil-based products, markets and revenues, which in turn provide revenue for investments in production. For a while this is a self-reinforcing process but eventually the reinforcement is weakened because the energy, material and financial costs of finding and exploiting new production start to rise. These costs rise because, as time goes on, new fields become more costly to discover and exploit as they are found in smaller deposits, in deeper water and in more technically demanding geological conditions. In some cases, such as tar sands, the oil requires very advanced processing and high energy and water expenditures to be rendered useful. This process is another example of declining marginal returns.
The production from an individual well will peak and decline. Production from an entire oil field, a country and the whole world will rise and fall. Two-thirds of oil-producing countries have already passed their individual peaks. For example, the United States peaked in 1970