Citizen Action Monitor

Most people don’t understand that fossil fuel energy ‘underpins’ modern economies — Nate Hagens (2/5)

The biggest flaw in economic theory is that there’s no accounting of the creation and pollution costs of energy.

No 2217 Posted by fw, May 14, 2018

To access links to other posts by Nate Hagens about The Human Predicament, click on the Tab titled Teachings of Dr. Nate Hagens about The Human Predicament – Links to Posts

Dr. Nate Hagens

“Energy does all the work needed to combine other inputs. It cannot be substituted other than with other types of energy. So this is the standard circular economy model taught in our economics classes – that households buy good and services, that send a signal to the firms, they make more goods and services, and money is exchanged, and then more goods and services, and so on – a circular economy. It completely ignores the [energy] source – which is mostly our fossil sunlight stores that we’re pulling out of the ground: and also the sink, the pollution, the CO2, the other negative impacts. So the biggest flaw in economic theory is we don’t pay for the creation nor the pollution of our most valuable input to our economies – [energy]. All we do is we pay for the cost of extraction.”Dr. Nate Hagens

In Pt 1 of this series of transcriptions of Dr. Hagens’ keynote address at Saudi Arabia’s King Abdullah University of Science and Technology, in January, 2018, he defined the purpose of his talk:

“I’m going to go through seven energy and economy basics; I’m going to explain why humans in the global market economy are functioning like a superorganism; I’m going to have some implications on what that means; and I’m going to conclude with some “What to Do?” suggestions.”

He then proceeded to caution the audience of students that his talk would be —

“… a trade-off between being really accurate and reductionist and precise and being relevant and having a wide scope. My talk is going to be less precise, less accurate, but in my opinion more relevant and a framework for our societal situation. … It’s my opinion that you have to see the system as a whole to understand what’s going on.”

And in this post, Pt 2, Dr. Hagens’ focuses on energy basics – basic terms, basic concepts, basic principles. “They are basic,” he says, “but a lot of people don’t know them.” Further along in his presentation, Hagens incorporates these ‘basics’ in his talk – so, they are important in understanding his message.

Another cautionary note: Hagens covers a lot of new, at times dense, cognitive ground, very quickly. At times, when key words seemed to be missing, context unclear, or figures appearing out of nowhere, I was left in the dust trying to decipher his meaning. For example, in his story comparing manual, semi-automated, and fully automated methods of milking cows, I had difficulty linking the numbers to their antecedent descriptors.

If you get lost, just go back to Pt 1 and review Hagens’ 8 main points, and 4 ideas about “What the future will NOT be” and you will soon see the forest without the trees.

Below is the embedded video of Hagens’ full 58-minute address, followed by a 22-minute Q&A session. My transcript of this segment on Energy begins at the 8:00-minute point and ends at about 18:46 minutes. I have omitted Hagens’ slides.

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WEP2018 TV: Energy, Money and Technology and the Human Superorganism by KAUST Official, streamed live on January 23, 2018

TRANSCRIPT (from 08:00 to 18:46)

08:00 – Let’s get to some energy and economy basics. They are basic, but a lot of people don’t know them, which is why I’m going to do about a 20-minute review here.

08:11 — Number 1 — Energy underpins natural systems and human economies.

If we think about nature, there’s an energy expense and an energy income from every behavior of organisms in the wild. A cheetah will expend a certain amount of calories to catch an antelope. The higher the payoff in the calories that he eats versus the calories expended, the more options, the more benefits, the more adaptive it is for the organism.

08:36 — In nature, there’s something called a trophic cascade where sunlight grows the grass, the grasshoppers eat the grass, the frogs eat the grasshoppers, the trout eat the frogs, and a human would eat a trout. Three hundred trout are needed to support one man for a year. The trout must consume 90,000 frogs, that must consume 27 million grasshoppers that live off 1,000 tons of grass. This is a trophic pyramid.

09:01 — The same things happen, historically, with human societies. And in the present, historically, we turned primary capital – resources, trees, sunlight, fish – into secondary capital – tools, ships — and also goods and services [like] beer and food. And then we had tertiary markers — in the old days it used to be gold – and I’m going to get back to this later. But the central point is that energy also underpins human systems.

09:35Irrespective of technology, every single good and service in our economies first requires an energy input. No matter how you make a cup, whether you make it from a coconut or from plastic or aluminum or ceramic you need an energy input to combine with materials to make that item.

09:55 — So GDP stands for Gross Domestic Product, which is the sum total of goods and services – basically the income of a country. If you add up all the countries you get the world’s GDP.

This is incredibly correlated with energy use. The red line here is GDP. And the light blue line on the bottom is primary energy. And from 1970 to 2000 they started to decouple a little bit because we got more energy efficient at power plants and such. But since 2000 to now there’s been a very, very tight link between energy use and GDP. And if you use high quality energy like electricity, the link is even tighter.

10:45 — This next slide shows that the more energy a country uses, the higher their GDP is in general. Power consumption, energy per unit time, on the bottom in a logarithmic scale, annual GDP per person on the left axis. You can see there’s a pretty tight correlation – the more energy you use, the more GDP you have, on balance.

11:11 — Number 2 — Fossil sunlight underpins modern economies.

[Referring to a slide] Some people call these diatoms*, which are the majority of ocean plankton, which between ten and hundreds of millions of years ago sank to the bottom of the ocean, were compressed in geologic time and heat. A couple of hundred years ago we found them out to be coal, oil, and natural gas. We have been accessing them to power our economies. [*For a better explanation of diatoms, see https://www.britannica.com/science/diatom. And to understand the connection between diatoms and fossil fuels, see What are fossil fuels? here: http://www.answers.com/Q/What_is_the_connection_between_fossil_fuel_and_photosynthesis

11:38 — So this is a picture of me, now one-seventh of a horse after gaining 20 pounds, my horse, which is one horse, and that’s my utility vehicle, which is 45 horsepower, the equivalent of 45 horses, and that’s my truck. My truck, if you could have a couple of these [barrels of oil] in my truck you could push [drive] that truck up a road on a mountain in the snow for many, many miles. Can you imagine how much work a human or 10 humans would have to do to do that?

12:16 — So one barrel of oil has 5.7 million British thermal units (BTUs) energy, which translates to 1,760 kilowatt hours (kwh) of energy, which, converted to work – because there’s heat losses – around 700 kwh. A human, working for 9 hours a day, generates six-tenths of one kilowatt hour of work. So, one barrel of oil, which [a few weeks ago] cost $60 does four and a half years of my work. The average human laborer today makes $57 a day. How many person days of work can you get from the average global daily wage of $57? One. You can get one day of work for $57. For the average American worker, you can only get a fifth of a day of work because the average American wage is almost five times what the world average is.

But oil at $80 per barrel gives us [the energy equivalent of] 6,000 person days of work. Oil at its historical at its historical average of $20 a barrel gives us almost 22,000 person days of work.

Very few people know this. Oil is, on human timescales virtually indistinguishable from magic.

13:32 — Number 3 — Industrialization

Industrialization is the result of massive inputs of low-cost fossil labor. A couple of hundred years ago we started applying large amounts of this incredibly powerful, incredibly cheap energy to our economies. [Two hundred years ago] energy from fossil fuels is very inefficient in our technology, much less efficient than human work. But since it’s so cheap, we would add thousands or tens of thousands of units of fossil labor to replace what humans used to do by themselves.

14:06 — Imagine this. Where I live we milk cows a lot, it’s a dairy state. In the old days we used to milk cows by hand, no external energy use. You had to spend 30 minutes per cow, a profit or a wage of $5 an hour. Then we had these semi-automatic milking machines … [technical problem here] … so the semi-automatic parlor uses 180 times more energy because of the embedded energy and the electricity. And then the fully automated milking machine, the cow just walks up there and gets things attached to it and gets milked. Only one or two minutes of human input. That uses 400 times more energy.

What ends up happening is we add so much of this cheap fossil energy that the wage goes from $5 to $20, in the intermediate stage, and the wage goes from $20 to $25 when we add more and more cheap energy.

15:22 — This is kind of a story of industrialization. That $25 of wages could be cheaper milk, it could be more profits to the factory owner, it could be higher wages to the employee. So, this cheap fossil energy increased wages, increased profits, lowered the price of goods and probably increased the number of people on planet.

15:46 — At over 210,000 kilocalories a day, the average person in the USA or KSA [Saudi Arabia] has the metabolic equivalent of a 30+ ton animal. And this translates into benefits to human societies.

I show America here. America right now has 49 times the income that the average human on the planet had 200 years ago. The world today has 13.7 times the income, adjusted for inflation, that the average human had 200 years ago. That’s because of our fossil helpers. Oil, coal and natural gas are doing 99.5% of the physical work on our planet. Human labor is only doing a half of 1%.

16:35 — But what ends up happening is if prices go up, these benefits dissipate. If you look at the blue of the original graph, that’s 5 cents a kilowatt-hour. If you look at the orange, it doesn’t really impact at the intermediate stage, but on the very energy-intensive process your profits decline dramatically. And if you triple the price from 5 cents to 15 cents, the gray, your profits completely disappear on the super-energy intensive materials because you’ve built the thing expecting 5 cents a kilowatt hour, and now it’s 15 cents a kilowatt hour and you’re adding huge amounts of energy input.

17:23 — Cobb-Douglas, the greatest flaw in economic history. The Cobb-Douglas function is what economists use to describe wealth and productivity. It uses two inputs: labor and physical capital. Energy is ignored. So, $60 worth of oil is $60 worth of entertainment, or $60 worth of clothing, or $60 worth of food, or $60 worth of machinery – to an economist. But we already know from the previous slide that energy is vastly more important to our economies.

17:50 — Energy does all the work needed to combine other inputs. It cannot be substituted other than with other types of energy. So this is the standard circular economy model taught in our economics classes – that households buy good and services, that send a signal to the firms, they make more goods and services, and money is exchanged, and then more goods and services, and so on – a circular economy.

18:17 — It completely ignores the [energy] source – which is mostly our fossil sunlight stores that we’re pulling out of the ground: and also the sink, the pollution, the CO2, the other negative impacts. So the biggest flaw in economic theory is we don’t pay for the creation nor the pollution of our most valuable input to our economies – [energy]. All we do is we pay for the cost of extraction.

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About Dr. Nathan John Hagens – Hagens, 51, worked on Wall Street at Lehman Brothers and Salomon Brothers for 10 years before closing his own hedge fund in 2003 to develop a systems synthesis approach to the human predicament. At one point, he was the lead editor of the influential online news and information resource, theoildrum.com. At present, Dr. Hagens is a professor at the University of Minnesota where he teaches a systems synthesis Honors seminar called Reality 101, A Survey of Human Predicament. The readings and lectures cover literature in systems ecology, energy and natural resources, thermodynamics, history, anthropology, human behavior, neuroscience, environmental science, sociology, economics, globalization/trade, and finance/debt with an overarching goal to give students a general understanding of how our human ecosystem functions as a whole.

Visit Nate Hagens’ personal website at The Monkey Trap.

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