Energy and the economy – Twelve basic principles

Categories: Analysis
Published on: August 17, 2014

Our Finite World / Gail Tverberg / 14 August 2012

There is a standard view of energy and the economy that can briefly be summarized as follows: Economic growth can continue forever; we will learn to use less energy supplies; energy prices will rise; and the world will adapt. My view of how energy and the economy fit together is very different. It is based on the principle of reaching limits in a finite world. Let me explain the issues as I see them.

Twelve Basic Principles of Energy and the Economy

  1. Economic models are no longer valid, as we start getting close to limits.
  2. Energy and other physical resources are integral to the economy.
  3. As we approach limits, diminishing returns leads to growing inefficiency in production, rather than growing efficiency.
  4. Energy consumption is integral to “holding our own” against other species.
  5. We depend on a fragile self-organized economy that cannot be easily replaced.
  6. Limits of a finite world exert many pressures simultaneously on an economy.
  7. Our current problems are worryingly similar to the problems experienced by earlier civilizations before they collapsed.
  8. Modeling underlying the book Limits to Growth shows why depletion can be expected to lead to declining economic growth. It also shows why extracting all of the resources that seem to be available is likely to be impossible.
  9. Our real concern should be collapse caused by reaching limits in many ways, not the slow decline reflected in a Hubbert Curve.
  10. There is a tight link between both oil consumption and total energy consumption and world economic growth.
  11. We need a growing supply of cheap energy to maintain economic growth.
  12. Oil prices that are too low for producers should be a serious concern. Such low prices occur because oil becomes unaffordable. In the language of economists, oil demand drops too low.