sustainable use humphrey 2009
TRANSCRIPT
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Sustainable Use and Depletion of NaturalResources: Lessons for the Energy System
Stephen R. Humphrey - University of Florida
All industrial activity depends on energy and material. Knowing the principles for their provision and use
could determine whether industrial societies succeed or failan extraordinary imperative for the rising
generation. My purpose is to clarify these principles for renewable and exhaustible resources,
integrating biophysical dynamics and human behavior. Then Ill apply them to the energy system, for
which adaptation over the next few decades is crucial. My intent is to arm students with some vital
ideas and inspire you to a positive and constructive ambition to meet the challenges ahead.
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What is an exhaustible natural resource? What about non-renewable resources?
All NRR are exhaustible, only the depletion rate can be managed .
Its important to answer some very basic questions, about which people are remarkably confused.
What is an exhaustible natural resource? This economists term is helpful because the class is much
larger than generally recognized. First, all non-renewable resources are exhaustible. These include
crude oil, coal, copper, rock phosphate, uranium, and rubies (illustrated). The amount of stock is usually
uncertain or unknowable, and its depletion is managed through the rate of extraction. Financial
analysts call these depleting resources.
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Key insight: distinguishing stock and flow The supply in supply and demand is not a resource stock!
Supply is flow, or periodic production from stock
Stock is the resource that may be used sustainably or exhausted
Stock
Flow
The key to understanding these resources is to avoid confusing stock and flow. The graphics show
examples of various stocks and flows.
The supply in economic supply and demand models is the flow or periodic production of a resource,
not its underlying stock. If you manufacture wooden toys and demand goes up, you would like to
increase supply so you order more lumber, and the truck brings more black cherry boards. But the
actual stock of the resource is the forest, not the supply truck. Someone else is managing the stock, not
you.
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Special Model 1: sustainable use of arenewable resource
Roughly 5% harvest is the most biological systems can sustain.The sustainable model is simple but crucial to visualize.
0
100
200
300
400
0 5 10 15 20 25 30 35 40 45 50
RelativeValues
Time
Stock
Flow = Production
Price in Constant $
Price is dependable, like a utility, if
Stock is renewed indefinitely, if
If flow is constrained so as to not draw down stock
Once stocks and flows are viewed explicitly, you can integrate biophysical dynamics and human
behavior with this very simple conceptual model of sustainable use of a renewable resource. The
physical stock (orange) can be renewed indefinitely, and the price (green) is dependable like a utility, if
the flow (blue) is constrained so as to not draw down the stock. Notice that the proportion of flow to
stock is drawn as a 5% harvest. This is the most any biological system can sustainexamples are sugar
cane, cattails, or algae. More typically, sustainable harvest for most terrestrial systems is only 1/25th of
5%, so fixation of solar energy into carbohydrates in most terrestrial systems is quite inefficient.Elaborating this simple model in more complex cases helps to visualize resource-use limits and
opportunities for sustainability.
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Corn: sustainable use, disruptive tech
Applies to non-renewable and renewable resources
Mass selection
Mendelian hybrid trait selection
Here is a variation on the simple sustainable-use model, showing previously limited U.S. production of
corn per acre increasing with application of new technology. Under genetic mass selection of seed corn,
flow was stable for many decades. When the disruptive technology of Mendelian hybrid trait selection
began in the 1940s, and other inputs were managed differently, productivity rose five-fold.
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Is modern corn agriculture sustainable?
Depends whether the renewable inputs are used renewably.And whether the non-renewable inputs have substitutes.
Viewed in this way, the controversy over laboratory management of trait selection pales next to the
questions of whether the use of inputs is sustainable and how we can feed 50% more people by 2050. If
we want modern corn agriculture to be sustainable, we should ensure that the renewable inputs are
used renewably and the non-renewable inputs either have substitutes or are recycled.
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Inferring stock is the most diff icult step.Ex: cumulative world oil & gas discoveries
Backdating corrects errors in reporting date and reserve estimates
Documenting resource stocks is very difficult, done mainly by inference. The best example is for crude
oil, for which public companies are required to report reserve estimates (unfortunately, reserve
estimates of national oil companies are notoriously unreliable). The gray data points show cumulative
discoveries of world oil and gas, backdated from the black points of initial reports. Correcting the initial
data is necessary because oil and gas discoveries often are found to be larger or smaller than initially
assessed, and because some new fields turn out to be part of previously discovered fields. The
asymptotic level of the stock is apparent only when new discoveries become vanishingly small, so formost resources the asymptote is unknown or underestimated. (Oil reserve estimates project forward
only about 10 years, because distant projections are costly and inaccurate, but 10 years of visibility is
very helpfulabout as good as the crystal ball gets.)
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Flow i s seen empirically, see Hubberts1956 data on US oil produced; reservesallow inferring US & world production
Roughly a normal curve: goes parabolic, peaks, then declines with long tail
We know a lot about flow of oil resources, but the picture was quite misleading 60 years ago. Hubberts
seminal 1956 publication challenged the conventional wisdom. He looked at oil production in the lower
48 U.S. states, the upper left graph. He inferred that this could not last forever because the physical
resource would become depleted, so he projected a roughly normal cumulative production curve, and
then he extrapolated the U.S. pattern to the world. His contribution was to anticipate the reversal of
the parabolic curve through a peak and decline, and he speculated that the decline would be elongated
relative to the increase.
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Hubberts peak prediction: correct
Shows 11-year lag from discovery to production, flow varies and skewsto the right via conservation & enhanced oil recovery tech
Here is an update by Ivanhoe (1996) of Hubberts model. Hubbert predicted that US oil discoveries
would peak in 1958 and production would peak in 1969. The actual peak of production occurred in
1970, off by only one year. This update shows some variation in flow and a skew to the right due to
conservation, as well as modest enlargement of production by enhanced oil recovery technologies.
Enhanced oil recovery has historically achieved a 20-40% gain, but increasing this to 30-60% or even
more may be possible if sufficient volumes of CO2 were to become available, at the times and places
needed, from new carbon capture and storage technologies.
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World price of oil (in constant dollars)
This is the left half of the U-shaped price curve
Kerosene light
1st light bulbs
1st Ford car
Gasoline motive power
Electric light
Random
geopolitical
event
Model T
Here are data tracking the left half of the U-shaped price curve (green in the model). When oil was first
drilled in 1859 in Titusville Pennsylvania, the initial price was very high price. It rapidly declined (with
high volatility) to a relatively stable price for many decades, disturbed by a random geopolitical event in
the 1970s. Oil was initially valued as kerosene to make light, when light otherwise came from plant and
animal oils. Geological oil was a large new feedstock for making light.
It was not until invention of the light bulb and distribution systems for electricity around 1880 that
demand and access shifted use of fossil oil from kerosene to electric power generation.
Not until the first Ford car came off the assembly line in 1898 and the first model T in 1908 did gasoline
motive power become a major use for oil.
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Phases of the resource development-depletion model for oil
Prior to peak, price is robust to practices-policies-events, becausesupply is elastic; but when supply is constrained, look out!
Innovation
phase
(Moores law,cheap revolution)
Utility phase
Excursion I: US oil
production peaked;
Arab oil embargo,
Iranian revolution,
Iran-Iraq War,
stagflation
Excursion II:
Demand
growth at
supply
plateau;price rises,
then
demand
drops
Competition, combination, monopo ly, anti-trust, depression, WW I, WW II,
import tariffs & quotas, export controls, price controls, cartel, nationalization
Here are price data for the first two model phases of the oil-resource lifecycle. The innovation phase
was completed in 15 years. The utility phase has lasted 125 years. Its most remarkable attribute was
relative price stability despite an enormous array of practices, policies, and events directly affecting oil
prices. Because supply (flow) was elastic (due to ample stock) during the utility phase of the
development/use/depletion curve, production and demand could equilibrate, keeping price volatility
relatively muted at plus or minus 50%.
Two quite interesting and potentially confusing price excursions have occurred during the utility phase,
however. The first was triggered by a series of geopolitical events in 1973-82: the Arab oil embargo, the
Iranian revolution, and the Iran-Iraq war. These shocks caused economic stagflation and deep recession
in the U.S., where domestic oil production was declining after its 1970 peak. U.S. dependence on
imported oil, whose stock was abundant but flow curtailed, caused a decade of very high prices. The
eventual reduction of mid-1980s prices back down to the utility level showed that world oil stocks were
still in excess of demand for flow. Thus this episode was situated in the left half of the model. More
foreboding, this experience of price spiking due to constrained flow presages severe economic
disruption that will accompany the process of global oil depletion.
The second excursion (2004-09) has occurred as evidence mounts that world oil production is peaking,with flow no longer elastic half-way through the resource lifecycle. If demand cannot be met, prices
would be increasingly vulnerable to geopolitical shocks, investment bubbles, and financial speculation.
The right half of the model thus portends chaos from extremely high and volatile oil prices.
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When w ill world oil production peak?
Duncan and Youngquist:
world oil production peaked in 2007 BP Statistical Review data:
world oil production peaked in 2008
National Petroleum Council 2007: Facing hard truths
Dr. Sadad Al-Husseini: the oil boom is over
(former Saudi Oil Minister)
capacity outlook: 10-year production plateau
Association for the Study of Peak Oil: 2010
Former Shell CEO van der Veer: 2015
International Energy Agency 2008: trends in energysupply and consumption are patently unsustainable
Opinions vary about the timing, but not about the outcome!
Ever since Hubberts work, people have debated when world oil production will peak. This peak has
been declared each year since 2004. Global recession in 2009 will reinforce the 2008 claim, so we will
have to await economic recovery to see if flow can rise further. People with various perspectives
(geologists, oil companies, industry advocates, and government ministers) all agree on the outcome that
rising oil production has ended or will soon end. They disagree only about the timing. So if you are less
than 60 years old (and healthy), you are going to live in a post-petroleum world. Your question should
be What is that going to mean and what will we do about it.
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Adding plausible price volatility to thelifecycle of exhaustible oil
Economic cycles (and ideology) mask the depletion trend.
The left half was fun; the right half will be chaotic.
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200
300
400
0 5 10 15 20 25 30 35 40 45 50
RelativeValues
Time
Stock/6
Flow = Production
Price in Constant $
TechnologicalInnovationPhase
Utility or Service Phase
Depletion orExhaustionPhase
Demand Destruction
You Are Here
Recent experience with price spikes shows that we also need to visualize the naturally cyclic behavior of
commodity markets. Here is the model adding plausible price volatility into the lifecycle of exhaustible
fossil oil. (Similar examples occur for renewable resources used unsustainably, shown next.) Feedback
from these cost cycles would affect the stock and flow curves too, but it is sufficient to imagine those
without graphing. More importantly, people who understand finance and investing but not geology
view these excursions as conventional business cycles, after which everything returns to normal. But
the cycles and worldviews mask the underlying trend. If the stock is at a plateau, the next phase isdecline towards exhaustion, and prices will trend upwards with huge volatility. Instability of this
magnitude will destabilize the dependent economy, an outcome worth great costs to avoid.
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Caspian sturgeon landings & caviar price
High demand and unsustainable harvest easily can exhaust arenewable resource
Lets digress to reflect on the generality of the two models. The case of Caspian sturgeon is easily
understood in terms of model 2. The data show the peak and depletion phases of fish landings (flow or
production) and caviar price. The three species in the Caspian sturgeon fishery provide the worlds
luxury caviar, so demand is very high (substitutes exist but are less desirable and fetch lower process).
Ongoing high demand led to commercial exhaustion of this renewable resource.
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US/ global whale oil production & price
Also renewable but used unsustainably, so follows model 2;note the demand destruction by kerosene after 1859
Here is a similar graph for world whale oil production and price over a century. (The main whaling ports
were in New England but the fishery was global.) Whale oil was a luxury good, because it burned
cleanly, did not smell bad, and produced the whitest light. It sold to the wealthy for the equivalent in
todays prices of several hundred dollars a barrel.
On the left is a hint of the innovation phase, perhaps hidden by missing data. Production or flow of
whale oil peaked and then declined. Then something really interesting happened. Price spikes during
depletion were muted by demand destruction, which occurred because kerosene became commonly
fabricated in workshops and then became inexpensive after oil wells were drilled in 1859. The price
chart even shows a double top, well known among investors as signaling the end of a growth industry.
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Northern Cod: sustainable use,disruptive tech, rapid depletion
Shifted from Model 1 to Model 2; ecosystem no longersupports a large cod population or fishery
Numerous, small technological advances in fishing gear
1960 factory freezer-trawler, Fairtry III
Earlier, we looked at model 1 for corn, with a disruptive technology leading to a new high level of
production. Heres another complex case. To understand use and depletion of the (theoretically)
renewable northern cod fishery, shift your understanding of the concept from static to dynamic: the
resource-use system morphed from one model to the other and then progressed rapidly to depletion.
Northern cod were fished sustainably (model 1) for a century, except that a consistent uptrend resulted
from a long series of numerous small technological advances in fishing gear. Then in 1960 the British
invented the factory freezer trawler that could go worldwide, stay out for months or even years, and fish
until the freezers filled. This disruptive technology shifted the fishery to unsustainable use (model 2).
Cod populations quickly crashed. Now the ecosystem cannot longer sustain a large cod population or
fishery because of associated changes in the ecosystem.
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Focus: transforming the energy system
Reason #1: energy services from cheap naturalresources are the basis of our industrial economy
I promised to focus on implications of this thinking for the energy system.
Energy services from cheap natural resources are the basis of our industrial economy. Our experience
with depleting resources calls the question: If the end of the current paradigm is appearing, shouldnt
we transform the energy system before crisis develops?
To visualize our energy sources, heres a graphic with renewables on the left and non-renewables on the
right. The data on percent consumption are out of date; the 2008 sum of U.S. renewables was about10.6% (including hydro) and slowly growing.
Well need all of these for a calm transition, but foresight on the prospects of each is imperative.
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Focus: transforming the energy system
Reason #2: greenhouse gases from fossil fuels arechanging climate--an existential threat to civilization.
The second reason for transforming the energy system is that greenhouse gases from fossil fuels are
warming the climate at a rate that is still seriously underestimated. Shifting to a climate unlike that in
which agriculture developed and civilization prospered is an existential threat.
Not until 2014 will the IPCC produce climate-change models including the destabilizing feedback loops
of melting permafrost, glaciers, ice shelves, sea ice, and seabed methane, reduced albedo, and drought-
and fire-induced loss of forests.
Then the twin problems of energy and climate will be seen in their full significance. Remarkably, both
problems might be solved by the same set of strategies and actions.
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Constraints for the new energy system
To avert the climate-change threat, we must halt and reversecarbon release from fossil fuels, forests, and sediments.
So my argument is: Were going to be forced to transform the energy system by (1) insufficient oil flow
and unaffordable prices and (2) the urgent need to preserve a human-friendly climate.
This implies both constraint and restraint. Well need to replace oil with other energy carriers. And
well need to reduce use of other carbon-intensive fuels (especially coal), or capture the CO2 and
sequester it away from the atmosphere. This investment in survival, however, will not lower standards
of living, because it will create profitable assets.
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The substitution puzzle (Solow 1974)
If we can easily substitute other factors fornatural resources, then we can get alongwithout natural resources, and exhaustion isjust an event, not a catastrophe.
But, if no substitute is found, catastrophe isunavoidable.
In between are many cases where the problemis real, interesting, and not foreclosed.
So, substitution needs disciplined thinking,puzzling out Solows uncertain outcomes byfocusing on innovation.
For guidance on the substitution process, lets turn to economist Robert Solow. On the one hand, he
said that if we can easily substitute other factors for natural resources then we can get along without
natural resources, so exhaustion is just an event, not a catastrophe. On the other, catastrophe is
unavoidable if no substitute is found.
Most interesting of all, he said that in between exhaustion and substitution are cases where the
problem is real, interesting, and not foreclosed. Hes advising us to look at the substitution process in a
disciplined way. We need to puzzle out Solos uncertain outcomes and focus on the innovation process.
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Vinod Khoslas system for drivinginnovation/ adoption of energy tech Principles: promising technologies must be:
Inexhaustible or truly renewable Affordable, low start-up cost, short innovation cycle
Capable of scaling up to demand, w declining costs
Competitive without subsidy in ~10 years
Not energy intensive
Policies: government must:
Encourage capitalists to invest
Subsidize next-least-cost tech
See khoslaventures.com
Heres one innovators stimulating, disciplined thinking for adaptive energy technology. Vinod Khosla
co-founded Sun Microsystems and then devoted himself to investing in new energy technology
companies to help them succeed. His website provides many idea papers and presentations articulating
a set of principles for driving the process.
Promising technologies should have a number of attributes: truly renewable (i.e., renewables used
sustainably) or inexhaustible, affordable, scalable, profitable, and not energy intensive. On careful
examination, many options lack some of these qualities and thus are likely to have limited prospects.
He also favors government policies that encourage and assist capitalists as prime actors to move the
innovation agenda. This requires a transformational vision of the future among our political leadership
and decision-makers. It also implies a risk-support role for government with private people and firms
doing the actual work.
Khosla says What is amazing about this is the size of the markets. We are dealing with much harder
science and technology, so we will see much higher rate of failure, but the wins will be bigger. More
money will be made in cleantech than in traditional areas of Silicon Valleyby far.
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Only a few good choices:Bio fue l ( ce l lu los i c e thano l , bu tano l , a lgae)
Our knowledge of the dynamics of sustainable use and depletion is confirmed by the experience and
judgment of Vinod Khosla: there are only a few good choices for the new energy system.
All the conventional energy sources are dirty and/or dangerous, but theres a pragmatic argument for
using them to bridge from here to where we need to be. Ultimately, however, limited stocks and rising
costs will lead us away from these and toward those that are sustainable for the economy, the
environment, and society.
One strong group of choices is the biofuels, specifically cellulosic ethanol, biobutanol, and algae-
generated biodiesel. Food-based ethanol is not justifiable on economic or humanitarian grounds, but it
serves the temporarily useful role of proving biofuels valuable and developing some of essential
infrastructure. Diffusion of the idea is paving the way for better biofuels, and food-based biofuels will
be phased out rapidly as the others become accessible and cheap. A promising development is the
recent partnering of integrated oil companies with biofuel start-ups. Watch this space.
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Only a few good choices:W i n d
Wind power is the most promising of the true renewables. Installed capacity of wind power accelerated
earliest among the true renewables, and it has huge development prospects in many areas of the world.
Wind power is still a very small part of the energy mix in most places (but 20% in Denmark and parts of
Germany), so the growth trend for wind power should continue. Wind could generate 20% of U.S.
electricity by 2030. To accommodate windless intervals, wind power needs to be paired with backup
power from conventional sources, with natural gas making by far the most sense for now.
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Only a few good choices:Ocean w ave / cu r r en t / t i d e/ t h e rma l
Most hydropower sites have already been exploited, but the special case of ocean energy is an
enormous unexploited opportunity. For example, tapping just 1/1000th of the Gulf Stream current could
supply 35% of Floridas current energy use (all of south Floridas). A few of the illustrations are
operational, but most of these are still in the laboratory-pilot-demonstration phases.
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Pushing the learning curve:
solar PV cheaper each year, grid parity soon
Its crucial to see Moore's Law in operation, in this case for solar PV, so you can see the cheap
revolution at work. Steady, incremental tech innovations push down the learning and cost curve. Solar
photovoltaic gets cheaper each year and has already achieved grid parity where conventional power is
expensive (for example, Hawaii and California). The 2008 industry outlook by Deutsche Bank projectedgeneral grid parity in 2013, or sooner if a disruptive technology appears.
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Learning curves, electricity technologies
Steep: biomass combined heat & power.Cheap: wind, fuel cells, gas combined cycle
Here are learning curves for a wide variety of electricity technologies. The cheap revolution is occurring
everywhere.
Most interesting are (1) the steepest curves, particularly biomass combined heat and power (orange),
where the cheap revolution is fastest, and (2) the lowest curves, which are inherently cheapest. In the
latter set are wind, fuel cells (sourced from natural gas), and natural gas combined cycle.
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Infrastructure needed for all the above,including a bigger, better pow er grid
We need better transmission infrastructure for all the above. As usual, this is not just a matter of tech
innovationwe also need vision, policy leadership, and investment. Acting on the 2002 U.S.
Department of Energy recommendations for the national electricity transmission system would do the
job. DOE has already assessed priorities for planning, siting, and development of existing and new
transmission corridors, and appropriate use of the many existing advanced technologies now blocked by
the business uncertainties of political indecision. These available technologies could enhance reliability
and dramatically increase electricity flows through existing transmission corridors. Additional corridorsare needed to carry electricity from areas of high wind and solar resources to population centers.
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To develop new electricity at 2008 prices, natural gas (#5) is cheapest
Wind is cheaper than coal Nuclear is most costly
To assess prospects for transforming the energy system, we need to calibrate the options by costs of
developing new power generation, not costs of legacy generation. Most comparisons in the popular
press are the latter and thus quite misleading. According to the Federal Energy Regulatory Commission,
new natural gas power was cheapest in 2008, new wind next cheapest, and new nuclear most
expensive. Solar thermal was competitive with coal and cheaper than nuclear. The report did not
address other solar technologies. Keep in mind that cost structure changes with economic conditions
from year to year.
One lesson is to ignore or, better, to confront media reports, for example those comparing the legacy
costs of 1960s nuclear power (heavily subsidized then and now) with costs of newly developed
renewables. The comparison makes renewables look infeasible, which is incorrect.
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