Gail Tverberg's Blog

Without substitutes at a price that the economy can afford, economies will adapt to lower amounts of oil they can afford by worsening recession, debt defaults, and reduced international trade.

We keep hearing about the many benefits of natural gas–how burning it releases less CO2 than oil or coal, and how it burns with few impurities, so does not have the pollution problems of coal.

An economy such as the United States can cover up the problems caused by high oil prices with variety of financial techniques. In my view, high consumer confidence measures the success of those cover-ups, more than it measures the actual underlying situation.

We are running short of cheap energy, especially cheap oil. High priced oil (or high priced energy of any type) tends to slow down the economy, leading to economic contraction. Our financial system is not made for contraction. Ben Bernanke and others have used artificially low interest rates and Quantitative Easing to try to cover up our current problems, but this is not a long-term solution. At some point, the underlying problems will become evident, and some type of discontinuity will take place. The economic situation will change from one of growth to decline.

Energy plays an important role for each of us as humans, just as it does for other species in ecosystems. The most obvious use for energy is in the food that we eat. Some of the energy we use is embedded energy—that is energy from the past that has been used to make something that we use today.

The tie between energy supply, population, and the economy goes back to the hunter-gatherer period. Hunter-gatherers managed to multiply their population at least 4-fold, and perhaps by as much as 25-fold, by using energy techniques which allowed them to expand their territory from central Africa to virtually the whole world, including the Americas and Australia.

US nuclear production tends to be concentrated in the Eastern part of the US, so that nuclear amounts to 30% to 35% of electric production along the US East Coast. This would be very difficult to replace by generation from another source, other than possibly fossil fuels.

We talk about the possibility of reducing fossil fuel use by 80% by 2050 and ramping up renewables at the same time, to help prevent climate change. If we did this, what would such a change mean for GDP, based on historical Energy and GDP relationships back to 1820?

A few days ago, I showed the close relationship between growth in world oil consumption and growth in world GDP. In this post, I will extend that analysis by building a model that shows how much of an increase in world oil supply is need for a given increase in world GDP.

The usual assumption that economists, financial planners, and actuaries make is that future real GDP growth can be expected to be fairly similar to the average past growth rate for some historical time period.