Returning to Simplicity (Whether We Want To or Not)
Eventually the point is reached when all the energy and resources available to a society are required just to maintain its existing level of complexity. - Joseph Tainter
The modern world depends on economic growth to function properly. And throughout the living memory of every human on earth today, technology has continually developed to extract more and more raw material from the environment to power that growth.
This has produced a faithful belief among the public that has helped to blur the lines between human innovation and limited natural resources. Technology does not create resources, though it does embody our ability to access resources. When the two are operating smoothly in tandem, society mistakes one for the other. This has created a new and very modern problem -- a misplaced trust in technology to consistently fulfill our economic needs.
What happens once key resources become so dilute that technology, by itself, can no longer meet our growth needs?
We may be about to find out.
The twin disasters, Deepwater Horizon in the Gulf of Mexico and Fukushima in Japan, took place only nine months apart in 2010-2011, but together they have provided the world’s economy with a lesson in 21st Century un-priced risk. Our various energy systems, vastly arrayed across regions and hemispheres, have now reached a late phase of complexity. And societies, particularly in the West, have enjoyed technological progress for such a long, uninterrupted period of time that the delicate nature of this modern infrastructure has evolved to escape notice.
The BP disaster arose within the oil and gas sphere more than a century after the start of widespread oil extraction. The collective knowledge of the industry was, in one sense, a support to the operation that allowed the recovery of oil several miles below ocean and earth, using ultra deepwater drilling techniques. But a century of global oil production was also a constraint, as Deepwater Horizon illustrated the outer reaches to which a mature industry had been driven to obtain its next tranche of resources. The capital BP has set aside for cleanup stands at $40 billion. Additionally, government resources, from equipment to personnel, that were diverted to the Gulf and Gulf Coast that summer (see photo above) were reminiscent of a small military operation.
Deepwater Horizon also showed that modern energy extraction now occurs with the greatest-ever separation between human operators and their resource target(s). This physical distance is so great that, in the case of very deep offshore oil drilling, it’s no longer possible to reliably stop a blowout. Why? Because no equipment exists to easily take men and material to such depth to conduct repairs. Indeed, it was at least as much due to luck as skill that BP was able to halt the well flow several miles down. And the almost comical trial-and-error efforts (junk shots) proved what many have long asserted: In the past decade, the cost of the marginal barrel of oil has crossed a threshold to a completely new era. It now becomes possible to ask the question, Is it worth it? Is it even economic to obtain this new tranche of oil?
The Fukushima disaster, triggered by the an offshore earthquake, ripped the lid off Japan’s power grid and illustrated how the country has historically balanced its lack of domestic fossil fuel supply against its enormous manufacturing base. On a small level, the actual sequence of events at the Fukushima nuclear power plant revealed an amazing vulnerability. For it was not the passing of the tsunami that performed critical damage to the installation’s structure; rather, it was the auxiliary power that was knocked out, depriving the plant of its cooling functions. Hence the meltdown, and the subsequent issues with recriticality (resumption of fission).
Meanwhile, on a larger level, the world came to understand how dependent Japan had become on nuclear power, which provides 30% of the country’s electricity needs. Japan is also one of the largest importers of LNG (liquefied natural gas) and still has to import 80% of its overall energy mix, which includes oil and a very great quantity of coal. (Indeed, Japan is the fourth largest world consumer of coal, behind only China, the US, and India). Unsurprisingly, the country had to significantly boost imports of LNG and coal in the wake of the disaster.
What has been the cultural response to the Deepwater Horizon and Fukushima disasters? In the US, the oil spill in the Gulf, which exacted a great economic toll, echoes the aftermath of other post oil-spill environments: The moratorium on offshore drilling was quickly lifted, but in its place lies a new set of regulations and restrictions. Most of these have a single aim -- that similar blowouts in deepwater be preventable or fixable. The evidence seems to suggest that deepwater drilling in the Gulf has peaked. The rig count has recovered but is still down below the highs, with many of the largest and most expensive operators having left for other parts of the world.
Meanwhile, the global response to the Japanese catastrophe rippled through several economies, especially those, such as Germany, that rely heavily on nuclear power. German chancellor Angela Merkel announced that her country had to accelerate its transition to renewables, becoming less reliant on nuclear. Other countries have increased their inspection procedures, and for the first time in many years, it seemed possible that many aging plants in the US would not see their licenses renewed. In Japan, there have been protests. And given the long lifespan of the nuclear event, which will ripple outwards for decades upon the affected portions of the northeast Japanese coast, it is not surprising:
TOKYO (AP) -- Chanting "Sayonara nuclear power" and waving banners, tens of thousands of people marched in central Tokyo on Monday to call on Japan's government to abandon atomic energy in the wake of the Fukushima nuclear accident. (Source)
Western Faith in Progress
Education in the West has, as a core feature of its curriculum, a narrative of progress. This is especially true of US history offerings and of any discipline that addresses the post-Industrial Revolution (roughly the two centuries after 1800). The examples of technological progress most available to Western cultures, as we moved from the Age of Wood to the Age of Coal and finally the Oil Age, are highly confirming of the view that humanity always finds a way. And in particular, it finds a way to grow, and even thrive.
It is particularly worth noting the symbiotic relationship between the machines that were developed to extract resources (like the steam engine that pumped water from coal mines) and the life cycle of those machines as utilizers of those resources. Coal mining triggered development of machines that would run on coal, just as oil would eventually power the latest machines that would be used to extract oil. It is this awesome ratchet effect that’s so persuasive to Western culture, and it is the story it repeatedly tells itself.
One can hardly fault the highly educated person, with an advanced position in business, communications, technology, or academia, for generally believing that innovation (and the power of prices) will obtain all of the resources we require. I believe this bias is what Daniel Kahneman would call an availability heuristic. The risk to this bias is that at some point in human development innovation and technology may very well carry forward and confirm society’s faith, but at the same time start to offer increasingly diminishing returns to progress. In my opinion, that is the lesson of Deepwater Horizon and Fukushima. And I expect it also to be the lesson of the Alberta Tar Sands.
There is a lens through which we can view events like Deepwater Horizon and Fukushima. Charles Perrow, in his important work on Normal Accident Theory (NAT) examines these accidents by type and plots them according to their complexity. See, for example, where nuclear power is located on the following grid: (Source: Accidents, Normal -- opens to PDF).
What has begun to take place in global energy extraction is that the current tranche of resources obtained by more complex methods -- deepwater drilling, underground fracturing, in-situ mining, and other strip mining -- have begun to move towards the quadrant of Perrow’s chart that is occupied by nuclear power and chemical plants. Here, systems are both technically advanced and tightly coupled, which is to say that failures anywhere in their operations can spread easily and cause systemic failure.
Additionally, the boundaries of those failures can also be rather broad. That nuclear contamination spreads over large geographical areas has been known for some time. But Deepwater Horizon warned that contemporary oil extraction has also crossed the threshold into very wide boundaries. Despite the current euphoria over North American shale natural gas and the continuing confidence that production can be lifted in the Alberta Tar Sands, there are already indications that groundwater supply is going to become a much, much bigger issue as we try to increase access to these resources.
As Joseph Tainter explains (see the quote in the header to this essay), resources in civilization are eventually marshaled not for further growth but simply to maintain current systems, usually in their most advanced iteration. This is the terminal phase of expansion that the large, OECD regions (Japan, Europe, US) have likely reached. This is a vexing and frustrating limit that just about everyone, no matter their political orientation or economic view, will struggle to digest. For example, in an analysis of Fukushima’s impact on future energy policy, I thought this reaction from the team at the BTI Institute, was somewhat correct but perhaps a bit hasty:
Yet lost in the hyperbolic claims of nuclear opponents, the defensive reactions of the nuclear industry, and the carefully calibrated repositioning of politicians and policymakers is the reality that Fukushima is unlikely to much change the basic political economy of nuclear power. Wealthy, developed economies, with relatively flat energy growth and mature energy infrastructure haven't built a lot of nuclear in decades and were unlikely to build much more anytime soon, even before the Fukushima accident. The nuclear renaissance, such as it is, has been occurring in the developing world, where fast growing, modernizing economies need as much new energy generation as possible and where China and India alone have constructed dozens of new plants, with many more on the drawing board. (Source)
While it’s true that the long-forecasted nuclear renaissance in the West never took place, with little prospect now that it ever will, it’s not exactly true that the developing world is choosing nuclear power in any meaningful way. Coal remains the dominant energy source in the developing world, for obvious reasons: it’s portable, it stores well, it remains cheap, and (most of all) it is not complex.
Given that the externalities of coal use are rather brutal, it also the case that human beings place steep discount rates on the future. Society is much more fearful of accidents which take place suddenly and with little warning, than of the long term negative effects of a different set of policies on their health. It may not be logical, but that is our preference.
Tilting Away from Complexity
An emerging theme out of Silicon Valley over the past few years has been the epiphany that venture capital experienced regarding the extraordinary difficulty of greentech. “No mas” has been the conclusion. Why build expensive prototype energy boxes or invest in large vats of algae, when little apps can populate quickly across Internet devices, with no heavy lifting or messy cleanup? The difference between the two worlds has been summed up like this: In Atoms vs. Bits, it’s undeniable that “atoms are simply too difficult.” Yes, and this, too, is the lesson of Deepwater Horizon and Fukushima. If investment in complex resource extraction has either tail risk that could overwhelm returns, or externalities that overwhelm the well being of society, why do it?
Recently I spotted an insightful remark that addresses the issue, from Alan Nogee on Twitter.
In Part II: Why We Must Embrace Simplicity Now, we explore how diminishing returns have now triggered in our various complex systems. Eventually it will become clear that the cost to repair damages from their destructiveness is simply too great. Technology is practically telling us (begging us?) to place less faith in its ability to solve all problems.
It's obvious that our elected leadership has no concept of a growth limit that could render the economy’s obligations insoluble. The Fed transcripts are yet one more piece of evidence that unless we get a better handle on the enormous, complex systems we are already operating, we will continue to suffer more frequent and painful "unexpected" economic accidents. Given our track record in this regard, the alternate route would be to step back from these complex systems and regain our footing in simplicity. Or else maintain the status quo approach until market forces pressure us to.
Click here to access Part II of this report (free executive summary, enrollment required for full access).
About Gregor Macdonald
Gregor Macdonald Archive
|11/21/2013||What Happened to the Future?||story|
|07/09/2013||The Dead Weight of Sluggish Global Growth||story|
|01/30/2013||The Siren Song of the Robot||story|
|12/20/2012||A Tale of Two Forecasts||story|
|11/27/2012||The New Future of Energy Policy||story|
|10/16/2012||The Future of Gold, Oil & the Dollar||story|
|10/03/2012||The War Between Credit and Resources||story|
|09/07/2012||The Repricing of Oil||story|
|08/20/2012||The Demise of the Car||story|
|08/01/2012||When Quantitative Easing Finally Fails||story|