Thursday, January 3, 2008

$100/BBL: Happy New Year!

Sweet light crude oil, for a few minutes on the NYMEX yesterday, could not be bought for less than $100/barrel. This long-awaited moment has a kind of psychological "point of no return" feeling to it. I hope. because we really need to stop using this stuff.

It's hard, gosh knows, hard, but you can do it. And it's getting easier by the day to switch out from oil-based energy. You can buy 100% renewable power through the grid, you can first insulate, then switch your home to firewood or some other other biofuel, or get a heat pump, and in more and more places you can buy a liquid biofuel suitable for for your existing car. Exciting new technologies such as Nanosolar film or Tesla cars, featured below, are rapidly accelerating research and moving towards full scale production. Unity students have, of course, preempted the commercial biofuel craze by making their own biodiesel, or making grease cars whose fuel comes for free. And generally doing all kinds of crazy engineering and lifestyle stuff to avoid using oil.

The other thing ALL Unity students get is a small but important dose of sustainability theory. They all learn the Bruntland definition, and the Daly throughput model, as well as the Daly input-output rules. They also learn how to build simple feedback models to understand and even solve environmental problems where feedback is a factor, like climate change, or, as it turns out, oil depletion. Teaching feedback is a recommended outcome for introductory environmental science curriculum, one of several recommendations from the National Council for Science and Environment CEDD curriculum research program.

How would we know if we were running out of oil? Would the market know? Most market analysts see oil depletion as a supply-demand problem, which it most clearly is. But supply-demand theory assumes that supply is infinite, but that there may be increasing costs to scale, which is why supply curves slope uphill. The higher the price, the more producers will enter the market, the more supply is available. this is true for oil, as higher prices drive exploration and development of close substitutes, such as Alberta's tar sands.

But what if total conventional crude oil supply is actually finite, as it most assuredly is? That the planet may have certain resources whose supply is finite is not factored in to normal market analysis. They consider a shorter time span. A finite oil supply is actually best modeled using feedback loops, involving exponential (asymptotic) decay caused by the links between oil price and consumption. There are other feedbacks, including the effect of price or economic growth, which affects consumption, price of exploration, which affects new oil discovery, which however, is finite, and so on.

All Unity juniors learn to construct simple feedback models in their third year Environmental Sustainability class. This is good math to learn, since it's the math of lots of important things in the world, like climate change, population growth, or even, and we use this example to drive home the importance of the math, student loan payback periods.

You can use a spreadsheet program to do this, you can construct difference tables, you can use calculus and differential equations, or, as in the first picture above, you can find a graphics-based computer modeling program like Stella® from ISEE Systems. We do a bit of all of these.

One experiment we do in class is to construct a basic model of oil feedback loop affects, and then do thought experiments by changing the parameters. Students divide themselves into interest groups and come up with the following hypothetical parameters based on their (shamelessly stereotypical) assumed interests.

1) The quantity of known reserves. Is it high, 2500 giga-barrels, as stated by the USGS, or low, 700 giga-barrels or less, as is believed by pessimists like Dr. Colin Campbell?

2) The amount of oil waiting to be discovered. High or low? You can factor tar sands and shales in here and model those too.

3) The price elasticity -- how quickly will consumers switch to other fuels as price rises? A steep demand curve is price inelastic demand, consumers can't or won't buy less of a product as price changes. A shallow demand curve is price elastic demand, as price rises, consumers buy much less and vice-versa. A key concept, as you'll see below.

4) The rate of economic growth: How quickly will the total scale of the economy grow, and thus oil demand, grow. This has to be qualified by the estimate of price elasticity.

Typically, students, who are give free rein to dream up schemes, come up with three or four of those shamelessly stereotypical interest group categories. Apologies to those who belong to one or more of these groups. No-one gets off lightly at un-PC UC, so beware!

a) The "Rush Limbaughs," who want high economic growth, are super optimistic, and thus assume high available undiscovered oil reserves. High assumed known and undiscovered reserves, high economic growth, steep price elasticity

b) The "soccer moms," who want to keep putting gas in their relatively inefficient family vans and have a very steep price elasticity -- they just cannot switch out of oil easily, because changing lifestyles is hard, and what would we do if we couldn't go to the mall? But even soccer moms are more cautious than Rush about reserves and prefer a steady growth - not an overheated economy that causes rapid social and suburban change, with all the difficulty that means for schools and neighborhoods. High assumed known and undiscovered reserves, high economic growth, steep price elasticity

c) The UC "Bunny hunters":
back-to-the-lander, grease car-driving, totally organic, totally crunchy types who want the oil economy to end quickly and all its minions to go back to the dark side where they presumably came from. Very low assumed known and undiscovered reserves, shallow price elasticity.

Of course, and this is the lesson here, when you crunch the numbers, no-one quite gets what they expect or want when ecological feedback is involved:

Soccer mom (first graph) has medium reserves and growth and steep price elasticity, so she actually makes life less stable by burning up the oil fast. Should have put the kids in a Prius.

Rush (the second graph above) is surprised by how quickly he burns up even 7,000 GB of hydrocarbons. Oil shale, tar sands, throw it all in, economic growth of five to ten percent will burn it up more quickly. And the endgame might be unpleasant, as that steep price elasticity makes depletion effects more dominant than conservation effects towards the end of the oil era. Oops.

Bunny hugger does the opposite of what she wants -- she extends the lifespan of the oil economy. That shallow price elasticity is what does this. Everyone saving energy, riding bikes, taking mass transit. All those oil imps stick around for another 100 years.

Go figure. What of this is actually realistic? Very little. These are just teaching tools. And the daily ups and downs of oil price, which ARE determined by supply and demand in a short time span, being based largely on complicated international oil news that changes daily, make predictions much more complicated than these simple models.

(But I have a private version of the model that I keep to myself that tracks the oil price very well.)

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