As argued in more detail by Ted Trainer in this symposium the best hope for transition to a ‘post carbon’ — or, better, a sustainable society (a much broader goal) — lies in a process of radical societal reconstruction, focused on the building, in the here and now, of self-governing and self-reliant settlements, starting at the micro-local level.

The ‘Simpler Way’ vision we promote, in my view, is an inspiring alternative that we can and should work for. The hope is that these local movements — which have already begun to emerge — will network, educate and scale up, as the global crisis intensifies.

In what follows, I want to complement this view, by sketching why I think the global economy will inevitably face a terminal crisis of net energy in coming years. In making this prediction, I am assuming that global transnational elites (i.e. G7 elites), as well as subordinate national elites — who manage the globalised neoliberal economy — will pursue economic growth at all costs, as elites have done since the birth of the capitalist system in Britain 300+ years ago.

That is, they will not voluntarily pursue a process of organised ‘degrowth’. In my view, at best, they will vigorously pursue ‘green’ growth, i.e. via the rapid scaling up of renewable energy and promoting efficiency etc., but with no intention of actively reducing the overall level of energy consumption — indeed, most of the mainstream ‘green growth’ scenarios assume a doubling of global energy demand by 2050 (for a critical review of one report, see here).

I am focusing on energy but, of course we can, and should, add to this picture the wider multidimensional ecological crisis (climate change impacts, soil depletion, water stress, biodiversity loss etc) which, among other things, means that an ever increasing proportion GDP growth takes the form of “compensatory and defensive costs” (See i.e Sarkar, The Crisis of Capitalism, p.267–275) to deal with past and expected future ecological damage.

Energy and GDP Growth

Axiom 1: As the biophysical economists have shown global economic growth is closely correlated with growth in energy consumption.

Professor Minqi Li of Utah University’s Department of Economics, for example, shows that between 2005 and 2016:

‘an increase in economic growth rate by one percentage point is associated with an increase in primary energy consumption by 0.96 percent.’

GDP growth also depends on improvements in energy efficiency — Li reports that over the last decade energy efficiency improved by an average of 1.7% per annum.

One of the future uncertainties is how rapidly we are likely to improve energy efficiency — future supply constraints are likely to incentivise this strongly, and there will be scope for significant efficiency improvements, but there is also to be diminishing returns once the low hanging fruit has been picked.

Axiom 2: Economic growth depends not just on increases in gross energy consumption and energy efficiency, but the availability of net energy. Net energy can be defined as the energy left over after subtracting the energy used to attain energy — i.e. the energy used during the process of extraction, harvesting and transportation of energy. Net energy is critical because it alone powers the non-energy sectors of the global economy.

Without net energy all non-energy related economic activity would cease to function.

Insight: An important implication is that net energy can be in decline, even while gross primary energy supply is constant or even increasing.

Below I will make my case for a probably intensifying global net energy contraction by discussing, first, broad factors shaping the probable trajectory of global primary energy growth, followed by a discussion of overall net energy. Most of the statistics are drawn from Minqi Li’s latest report which, in turn, draws on the latest BP’s Statistical Review of World Energy.

Prospects for Gross Energy Consumption

Over the last decade, world primary energy consumption grew at an average annual rate of 1.8 percent. It’s important to note, however, as Jean- Jancovici shows, that in per-capita terms the rate of energy growth has significantly slowed since the 1980s, increasing at an average annual rate of 0.4% since that time, compared to 1.2% in the century prior. This is mainly due to the slowing growth in world oil supply, since the two oil shocks in the 1970s.

There are strong reasons for thinking that the rate of increase in gross energy availability will slow further in coming decades. Recently a peer reviewed paper estimated the maximum rate at which humanity could exploit all ultimately recoverable fossil fuel resources. It found that depending on assumptions, the peak in all fossil fuels would be reached somewhere between 2025–2050 (a finding that aligns with several other studies see i.e Maggio and Cacciola 2012; Laherrere, 2015).

This is highly significant because today fossil fuels make up about 86% of global primary energy use — a figure that, notwithstanding all global efforts to date, has barely changed in three decades. This surprising early peak estimate is substantially associated with the recent radical down-scaling of estimated economically and technically recoverable coal reserves.

The situation for oil is particularly critical, especially given that it is by far the world’s major source of liquid fuel, powering 95% of all transport. A recent HSBC report found that, already today, somewhere between 60–80% of conventional oil fields are in terminal decline. It estimated that by 2040 the world would need to find four Saudi Arabia’s (the largest oil supplier) worth of additional oil just to maintain current rates of supply and more than double that to meet 2040 projected demand.

And yet, as the same report showed, new oil discoveries have been in long term decline — lately reaching record lows notwithstanding record investments between 2001–2014. Moreover, new discoveries are invariably smaller fields with more rapid peak and decline rates. The recent boom in US tight oil — a bubble fueled by low interest rates and record oil industry debts — has been responsible for most additional supply since the peak in conventional oil in 2005, but is likely to be in terminal decline within the next 5–10 years, if it has not already peaked.

All this, as Nafeez Ahmed has argued, is generating the conditions within the next few years (once the current oil glut has been drawn down) for an oil supply crunch and price spike that has the potential to send the debt-ridden global economy into a bigger and better global financial crisis tailspin. It may well be a seminal event that future historians look back as marking the beginning of the end for the oil age.

An alternative currently fashionable view is that peak oil will be effectively trumped by a near-term voluntary decline in oil demand (so called ‘peak demand’), mainly due to the predicted rise of electric vehicles. One reason (among several), however, to be skeptical of such forecasts is that currently there is absolutely no evidence that oil demand is in decline — on the contrary, it continues to increase every year, and since the oil price drop in 2014, at an accelerating rate.

When peak oil does arrive, there are likely to be powerful incentives to implement coal-to-liquids or gas-to-liquids but, apart from the huge logistical and infrastructure problems involved, a move in this direction will only accelerate the near-term peaking of coal and gas supply, especially given the energetic inefficiencies involved in fuel conversion. Peak oil will also likely incentivise the acceleration towards electrification of transport and renewable energy, to which I will now turn.

Given peak fossil fuels, the prospects for increasing, or even just maintaining, gross energy depends heavily on how fast renewable energy and nuclear power can be scaled up. Nuclear energy currently accounts for 4.5% of energy supply, but globally is in decline and there are good reasons for thinking that it will not — and should not —play a major role in the future energy mix (see i.e Our Renewable Future, Heinberg & Findlay, 2016, p132–135).

In 2016, all forms of renewable electricity (i.e. excluding bio-fuel) accounted for about 10% of global energy consumption in 2016, but a large portion of this was hydroelectricity, which has limited potential for expansion. Wind, Solar PV and Concentrated Solar Power (CSP) are generally agreed to be the major renewable technologies capable of a large increase in capacity but, notwithstanding rapid growth in recent years, in 2016 they still accounted for just 2.2% of world primary energy consumption.

Insight: In recent years many ‘green-growth’ reports have been published with optimistic renewable energy forecasts — one even claiming that renewables could supply all world energy (not just electricity) by 2050. But, it should be recognised that this would require a very dramatic increase in the rate of growth in renewable capacity.

In the last six years, new investment (including government, private sector etc) in all forms of renewable energy has leveled off at around the $300 billion a year. Heinberg and Finlay (p.123) estimate that this rate of investment would have to multiplied by more than a factor of ten and continued each year for several decades, if renewable energy was to meet current global energy demand, let alone the projected doubling of demand in most mainstream energy scenarios.

In other words, it would require an upfront annual investment of US$3 trillion a year (and more over the entire life cycle). By comparison, in 2014 the IEA estimated that global investment for all energy supply (i.e fossil fuels and renewables etc) in 2035 would be US $2 trillion per year. In addition, if fossil fuel capacity is to be phased out entirely by 2050, it would require much premature scrapping of existing capital — depriving investors of making full returns on their capital — which can be expected to trigger fierce resistance from large sections, if not the entire, transnational capitalist class.

Currently both oil and gas supply, if not coal, are growing much faster than all renewables, at least in absolute if not percentage terms. No wonder that the most ambitious IPCC emission reduction scenarios assume continued large scale use of fossil fuels through to 2050, and rely instead on highly uncertain and problematic ‘net emission’ technologies (i.e Carbon Capture and Storage, massive planting of trees etc).

Based on current trends, Minqi Li’s recent energy forecast predicts that the growth of renewable energy will, at best, offset the inevitable decline in fossil fuel energy over coming decades. He forecasts that a peak in gross global energy supply (including fossil fuels and renewables) will be reached by about 2050.

This of course does not include the very real possibility of serious energy ‘bottlenecks,’ resulting, for example, from the peak in oil — for which no government is adequately preparing — and with no alternative liquid fuel source, on the scale required, readily available.

The Net Energy Equation

The foregoing has just been about gross energy, but as mentioned above, the real prospects for the growth-industrial economy depend on net energy, which alone fuels the non-energy sectors of the economy. This is where the picture gets really challenging.

With regards to fossil fuels, EROI is on a downward trajectory. The current estimate (in 2014) for global oil & gas is that EROI is about 18:1. And while it’s true that technological innovation can improve the efficiency of oil extraction, in general this is being overwhelmed by the increasing global reliance on lower EROI unconventional oil & gas sources — a trend which will continue from now until the end of the fossil fuel age.

Axiom 3: What is often overlooked, is that declining EROI will exacerbate the problem of peak fossil fuels.

As Charles Hall explains, declining EROI will accelerate the advent of peak fossil fuels, because more energy is needed just to maintain the ratio of net energy needed to fuel the economy. And when, inevitably, we begin to move down the other side of Hubbert’s peak, things will get even more challenging. At this point, decreasing gross supply will be combined with ever greater reliance on lower EROI supplies, rapidly reducing the amount of net energy available to society.

The situation would be improved if the main renewables could provide an additional source of high net energy (i.e EROI). But, while this question is the subject of much current scholarly debate, and is quite unsettled, it seems highly likely that any future 100% renewable energy system (as opposed to individual technology) will provide far less net-energy than humanity — or at least, the minority of us in the energy rich affluent regions — has enjoyed during the fossil fuel epoch. This is for the following theoretical reasons outlined by energy experts Moriarty and Honnery in a recent paper:

Due to the more energy diffuse nature of renewable energy flows (sun and wind), harvesting this energy to produce electricity, requires the construction of complex industrial technologies. Currently, this requires the ‘hidden subsidy’ of fossil fuels, which are involved in the entire process of resource extraction, manufacturing and maintenance of these industrial technologies. As fossil fuels deplete, this subsidy will become costlier in both financial and energy terms, reducing the net-energy of renewable technologies.

The non-renewable resources (often rare) needed for construction of renewable technologies will deplete over time, and will thus take more energy to extract, again, reducing net energy.

Due to the intermittency of solar and wind, a 100% renewable energy system (or even a large portion of renewable energy within the overall mix) requires investment in either large amounts of redundant capacity (to ensure there is security of supply during calm and cloudy weather) or, alternatively, large amounts of (currently unforeseen on the scale needed) storage capacity — or both. Ultimately, either option will require energy investment for the total system.

Because the main renewable technologies generate electricity, there will be a large amount of energy lost through conversion (i.e. via hydrogen) to the many current energy functions that cannot easily be electrified (i.e. trucks, industrial heating processors etc). In fairness, the conversion of fossil fuels to electricity also involves substantial energy loss (i.e. about 2/3 on average), but given that about 80% of global primary energy is currently in a non-electrical form, this appears to be a far bigger problem for a future 100% renewable system.

As renewable energy capacity expands, it will inevitably have to be built in less ideal locations, reducing gross energy yield.

Axiom 4: Regardless of the net energy that a future 100% renewable energy system would provide, it is important to recognize that attempts to ramp up renewable energy at very fast rates — far from adding to the overall energy output of the global economy — will inevitably come at a net energy cost.

This is because there would need to be a dramatic increase in energy demand associated with the transitional process itself.

Modelling done by Josh Floyd has found that in their ‘baseline scenario’ (described here) — which looks to phase out fossil fuels in 50 years — net energy services for the global economy would decline during that transition period by more than 15% before recovering.

This would be true of any rapid energy transition, but the problem is particularly acute for a transition to renewable technologies due to their much higher upfront capital (and therefore energy) costs, compared to fossil fuel technologies.

Conclusion

The implication of the above arguments is that over the coming decades, the global economy will very likely face an increasing deterioration in net energy supply that will increasingly choke off economic growth. What will this look like for people in real life?

Economically, it will likely be revealed in terms of stagnating (or falling) real wages, rising costs of living, decreasing discretionary income and decreasing employment opportunities — symptoms, as Tim Morgan argues, we are already beginning to see, albeit, to varying extents across the globe — but which will intensify in coming years.

How slow or fast this happens nobody knows. But given capitalism is a system which absolutely depends on endless capital accumulation for its effective economic functioning and social legitimacy, this will prove to be a terminal crisis, from which the system cannot ultimately escape.

We therefore have no choice but to prepare for a future economy in which net energy is far lower than what we have been used to in the industrial era.

Insight: To be clear, crisis by itself, will not lead to desirable outcomes — far from it. Our collective fate, as Trainer explains, depends largely on the rapid emergence of currently small scale new society movements — building examples of the sane alternative in the shell of the old — and rapidly multiplying and scaling up, as the legitimacy of the system declines.