[A-List] Tipping Point (Part Three)

Bill Totten shimogamo at ashisuto.co.jp
Wed Apr 28 07:34:35 MDT 2010


Near-Term Systemic Implications of a Peak in Global Oil Production -
Collapse Dynamics

Posted by Gail the Actuary

theoildrum.com (April 14 2010)

Recently, a 55 page paper called Tipping Point: Near-Term Implications of
a Peak in Global Oil Production was published as the joint effort of two
organizations, Feasta and The Risk/Resilience Network, with lead author
David Korowicz: http://www.theoildrum.com/files/Tipping%20Point.pdf

We have recently published two excerpts from that paper, which can be
found at this link: http://www.theoildrum.com/tag/tipping_point_paper

This is a third excerpt.

4. Collapse Dynamics

4.1 The Dynamical State of Globalised Civilisation

The period since the end of the last ice age provided the large-scale
stability in which human civilisation emerged. Climatic stability provided
the opportunity for diverse human settlements to 'bed' down over
generations. This formed the basis upon which knowledge, cultures,
institutions, and infrastructures could build complexity and capability
over generations without, by and large, having it shattered by extreme
drought or flooding outside their capacity to adapt.

Within this macro-climatic stability, is the medium-term stability that we
referred to above, the period of globalising economic growth over the last
century and a half. We tend to see the growth of this economy in terms of
change. We can observe it through increasing energy and resource flows,
population, material wealth, and as a general proxy, GWP [Gross World
Product]. We could view this from another angle. We could say that the
globalizing growth economy for the last one hundred and fifty years has
been remarkably stable. It could have grown linearly by any percentage
rate, declined exponentially, oscillated periodically, or swung
chaotically, for example. What we see is a tendency to compound growth of
a few percent per annum. And at this growth rate the system could evolve,
unsurprisingly, at a rate we could adapt to.

This does not mean that there is not unpredictable fluctuations in the
economy. However, the fluctuations are around a small additional
percentage on the previous year's gross output. By magnitude we are
roughly referring to change in GWP divided by GWP. Angus Maddison has
estimated that GWP grew 0.32% per annum between 1500 and 1820; 0.94%
between 1820 and 1870; 2.12% between 1870 and 1913; 1.82% between 1913 and
1950; 4.9% between 1950 and 1973 3.17% between 1973 and 2003; and 2.25%
betwee 1820 and 2003 {i}. Even through two world wars and the Great
Depression in the most economically developed countries growth betweem
1913 and 1950 remained positive and in a relatively narrow band. Figure 4
shows growth rates of the global economy in frequency bands over the last
four decades, again the narrow band indicates system stability. Of course
small differences in aggregate exponential growth can have major effects
over time, but here we are concentrating upon the stability issue only.

Figure 4: Real GWP percentage change year on year 1961-2008. Source: Based
upon World Bank data. See http://www.theoildrum.com/node/6360

Governments and populations are highly sensitive to even minor negative
changes in growth. The constraints felt by governments and society in
general arising from only a very small change in GDP growth should
emphasize to us that our systems have adapted to this narrow range of
stability, and the impact of moving outside it can provoke major stresses.

4.2 Tipping Points in Complex Systems

Despite the diversity of complex systems, from markets to ecosystems to
crowd behavior, there are remarkable similarities. For most of the time
such systems are stable. However, many complex systems have critical
thresholds, called tipping points, when the system shifts abruptly from
one state to another. This has been studied in many systems including
market crashes, abrupt climate change, fisheries collapse, and asthma
attacks. Despite the complexity and number of parameters within such
systems, the meta-state of the system may often be dependent on just one
or two key state variables {ii}.

Recent research has indicated that as systems approach a tipping point
they begin to share common behavioral features, irrespective of the
particular type of system {iii}. This unity between the dynamics of
disparate systems gives us a formalism through which to describe the
dynamical state of globalised civilisation, via its proxy measure of GWP,
and its major state variable, energy flow.

We are particularly interested in the class of transitions called
catastrophic bifurcations where once the tipping point has been passed, a
series of positive feedbacks drive the system to a contrasting state. Such
ideas have become popularised in discussions of climate change. For
example, as the climate warms it drives up emissions of methane from the
arctic tundra, which drives further climate change, which leads to further
exponential growth in emissions. This could trigger other tipping points
such as a die-off in the Amazon, itself driving further emissions. Such
positive feedbacks could mean that whatever humanity does would no longer
matter as its impact would be swamped by the acceleration of much larger
scale processes.

Figure 5 shows how the system state responds to a change in conditions.
The state of a system could represent the size of a fish population, or
the level of biodiversity in a forest, while the conditions could
represent nutrient loading or temperature (both effectively energy
vectors). The continuous line represents a stable equilibrium, the dotted
one an unstable one. In a stable equilibrium, the state of the system can
be maintained once the condition is maintained. In Figures a) and b) we
see two different responses of a stable system under changing conditions.
In the first, a given change in conditions has a proportional effect on
the system state; in the latter, the state is highly sensitive to a change
in conditions. In c) and d) the system is said to be close to a
catastrophic bifurcation. In both of these cases there is an unstable
region, where there is a range of system states that cannot be maintained.
If a system state is in an unstable regime, it is dynamically driven to
another available stable state. If one is close to a tipping point at a
catastrophic bifurcation, the slightest change in the condition can cause
a collapse to a new state as in c), or a small perturbation can drive the
system over the boundary as in d).

Figure 5: The state of a system responds to a change in conditions. The
continuous line represents a stable equilibria. In a) a change in
conditions drives an approximately linear response in the systems state,
unlike b) where a threshold is crossed and the relationship becomes very
sensitive. The fold bifurcation (c, d) has three equliibra for the same
condition, but one represented by the dotted line is unstable. That means
that there is a range of system states which are dynamically unstable to
any condition {iv}. See http://www.theoildrum.com/node/6360

5. Three Peak Energy-Economy Models

5.1 Introduction

While discussions of peak oil have begun to enter the policy arena, and
while it is generally acknowledged that it would have a major impact upon
the economy, the discussion is often fragmented and lacking in a broad
system synthesis. In general, discussion tends to focus on the direct uses
of oil, and sometimes its effect on a country's balance of payments. Where
economic impact studies of peak oil have been done, they are based upon
the direct decline curve assumption such as the 4see model by Arup for the
UK Peak Oil Task Force Report {v}. Nel and Cooper have used the decline
curve assumption and accounted for EROI and peak coal and gas to look at
the economic implications {vi}. The latter authors show a smooth decline
in GDP but acknowledge that their modelling assumptions include that the
financial markets must remain functional, state legitimacy remains intact,
and international law prevails.

In most cases there is an intuitive assumption or mental model of what the
effects of peaking oil production will mean economically and socially. In
order to clarify our discussion, and introduce some working concepts, we
will look at three models.

These should not be considered in isolation. In a very broad and general
fashion we might consider that the linear decline model is valid for small
energy constraints that have a very small effect on the overall magnitude
of real GWP and level of complexity. This merges into a oscillating
decline phase which cause larger perturbations in GWP/Complexity level.
Finally, tipping points are crossed that rapidly cause a severe collapse
in GWP/Complexity.

Finally, we note that what we are trying to do is clarify peak
energy-civilisation dynamics and identify the major structural drivers in
the process. The real world is more unknowable than can ever be engaged
with here.

5.2 Linear Decline

Intuitively we tend to assume that most phenomena respond proportionately
to some causation. This is mostly true. A change in price proportionately
changes demand; an increase in population proportionately increases food
demand; and increase in cars leads to a proportional increase in emissions.

Most commonly, there are two associated assumptions relating to the
energy-economy relationship post-peak. The first is the Decline Curve
Assumption. Thus oil production is withdrawn from the economy at between
two and three percent per annum. The second element is that there is an
approximately linear relationship between the oil production decline and
economic decline. The combination of these assumptions is that the global
economy declines in the form of the slope of the downward projection curve.

Thus we see the price of oil rise as oil becomes scarcer. Having less
energy constrains economic activity. Bit by bit we become poorer; there is
less and less discretionary consumption. The rising prices force more
localized production and consumption, and there is growing
de-globalisation. Jobs lost in the areas serving today's discretionary
needs are over time deployed in food and agriculture, producing with more
direct human effort and skill many of the essentials of life.

In such a case a longish period of adaptation is assumed in which
gradually declining oil production and resulting oil price increases cause
recession, hardship and cause some shocks, but also initiate a major move
into renewable energy, efficiency investments, and societal adaptation.
New energy production that was once too expensive becomes viable. The
general operability of familiar systems and institutions is assumed, or
they change slowly.

Even where the linear decline model is valid, it would be difficult to
adapt. Consider a country's budget in energy terms, with some amount for
health, business operations, agriculture, operations, education, and
investment. As total energy available declined, less and less energy would
be available in each sector. Because we discount the future (we favour
short-term benefits), and the discount rate rises in economic stress, the
ability to maintain investment in renewable energy would become
increasingly difficult. In essence, there would be a choice between
keeping some functionality in a crumbling health service, and stalling
rising employment a little; or accepting job losses and a health crisis in
return for a small energy return per annum in the future.

5.3 Oscillating Decline

In this model, constrained or declining oil production leads to an
escalation in oil (plus other energy and food) prices. But economies
cannot pay this price for a number of reasons. Firstly, it adds to energy
and food price inflation, which are the most non-discretionary purchases.
This means discretionary spending declines, from which follows job losses,
business closures, and reduced purchasing power. The decline in economic
activity leads to a fall in energy demand and a fall in its price.
Secondly, for a country that is a net importer of energy, the money sent
abroad to pay for energy is lost to the economy, unless that country
exports goods of equivalent value. This will drive deflation, cut
production, and reduce energy demand and prices. Thirdly, it would
increase the trade deficits of a country already struggling with growing
indebtedness, and add to the cost of new debt and debt servicing.

Falling and volatile energy prices mean new production is harder to bring
on stream, while the marginal cost of new energy rises and credit
financing becomes more difficult. It would also mean that the cost of
maintaining existing energy infrastructure (gas pipelines, refineries, et
cetera) would be higher, thus laying the foundations for further
reductions in production capability.

In such an energy constrained environment, one would also expect a rise in
geo-political risks to supply. This could be bi-lateral arrangements
between countries to secure oil (or food). Such agreements would tend to
reduce the amount of oil available on the open market. Energy constraints
would also increase the inherent vulnerability to highly asymmetric
price/supply shocks from state or non-state military action, extreme
weather events, or other so-called black swan events.

When oil prices fall below what can be supplied above the marginal cost of
production and delivery, and oil price is what can be afforded in the
context of decreased purchasing power, then energy for growth is again
available. Of course local and national differences (for example energy
import dependence, export of key production such as food) can be expected
to shift how regions fare in the recession and in their general ability to
pick up again. Growth then might be assumed to kick off again, focusing
maybe on more 'sustainable' production and consumption.

However, as growth returns, the purchasing power of the economy will not
be able to return to where it was before. Oil production will be limited
by natural decline and lack of investment, and entropic decay of
infrastructure will reduce the supply-demand price point further. Again
higher oil, food and energy prices would then drive another recession.

In the oscillating decline model: economic activity increases --> energy
prices rise --> a recession occurs --> energy prices fall --> economic
activity picks up again but to a lower bound set by declining oil
production. In this model the economy oscillates to a lower and lower
level of activity. From our discussion about the origins of the current
recession, we see this process has already begun.

5.4 Systemic Collapse

This model draws on ideas from the general dynamics of complex systems and
networks, and tends to see our civilisation as a single complex adaptive
system by virtue of its connectedness and integration. Indeed the concept
of globalization is about integration with a common singular network.

We associate systemic collapse of civilisation with a catastrophic
bifurcation. The state of civilisation at a time is by necessity dependent
upon the state of the globalised economy. The state of the global economy
is dependent on the infrastructure that integrates the operational fabric.
The state of the globalised economy may be parameterized by GWP, which
implies a level of complexity. And GWP (and complexity) is absolutely
dependent upon energy flows.

To argue that civilisation is on the cusp of a collapse, we need to be
able to show that there are tipping points that, once passed, drive the
system rapidly towards another contrasting state through a process of
positive feedback that may in turn drive other feedback processes. We need
to also demonstrate that it is a catastrophic bifurcation in which the
state of the globalised economy is driven through an unstable regime where
the strength of the feedback processes is greater than any stabilizing
process. It acknowledges that there may be an early period of oscillating
decline, but that once major structural components (international finance,
techno-sphere) drop or 'freeze' out, irreversible collapse must occur.

In the new post-collapse equilibrium state we would expect a collapse in
material wealth and productivity, enforced localization aka
de-globalisation, and collapse in the complexity as compared with before,
as an expression of the reduced energy flows.

The collapses in the Roman Empire occurred over centuries; collapse of the
Greenland Viking settlements in decades. We suggest a hypothesis here that
the speed of collapse is a function of the level of integration, coupling,
and the key operational speeds of the systems that support the stability
of the pre-collapse state. For us, that includes the behavioral change in
financial markets, food flow rates, and replacement lifetime of key
components in infrastructure. In discussing the feedback processes in the
next chapter we will see processes are indeed fast.

References

{i} Maddison A (2007). Contours of the World Economy 1-2030AD. Page 81,
Oxford University Press.

{ii} Scheffer M (2009). Critical Transitions in Nature and Society.
Princeton University Press.

{iii} Scheffer M, et al (2009). Early-warning signals for critical
transitions. Nature Volume 461 3 September.

{iv}
http://www.stockholmresilience.org/download/18.1fe8f33123572b59ab8000166...

{v} The Oil Crunch: A Wake-up Call for the UK Economy (2010). Second
Report of the UK Industry Taskforce on Peak Oil and Energy Security.
http://peakoiltaskforce.net/wp-content/uploads/2010/02/final-report-uk-i...

{vi} Nel W and Cooper C (2009). Implications of Fossil Fuel Constraints on
Economic Growth and Global Warming. Energy Policy 37 166-180.

http://www.theoildrum.com/node/6360

http://www.billtotten.blogspot.com
http://www.ashisuto.co.jp




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