The Third Curve: Book excerpt and TEDx video

We present an excerpt from Peak Oil India member Mansoor Khans new book The Third Curve: The End of Growth. As we know it! as well as a link to a TEDx talk he gave at the KCG College of Technology, Chennai.

The Third Curve
A New Lens to Understand our New Economic Reality

Financial markets are under threat. Growth rates are dropping.
The age-old remedies prescribed to boost economic growth are proving ineffective, if not outright dangerous.
Five years after the 2008 global financial crash, nothing seems to work as per projections.
But what if the rules of the game have inverted?
What if economic growth is eluding us for a reason that we have discounted all this while?
What if there are indeed limits to growth?
Yes, the Modern Industrial World stands at a crucial and unavoidable turning point. The sacrosanct paradigm of modern economics, namely perpetual growth, is in the process of ending. Our economic growth model makes 2 simple yet amazingly unreasonable assumptions:
1. That money is the currency that runs the world. In fact it is energy.
2. That we have limitless energy & other resources on a finite planet.
The Third Curve Book Cover
These assumptions appeared to hold true for the last 150 years – the first half of oil reserves. But now we are about to begin the second half of the story of oil. This half-way point of oil is an unprecedented point in history and is called Peak Oil. Peak Oil is not an ideology but an aspect of geology – the point of maximum oil extraction from the earth.
This geological limit is what defines what will be economically possible in the future starting right now. The global economic collapse of 2008 was the advent of this turning point because past the peak we get only less oil. Therefore less industrial and economic growth. This spells doom to the religion of perpetual economic growth.
This book is NOT directly about morality, justice, equity, environmental consciousness and other noble human values. It is about the head-on collision between:
* Our total acceptance of an infinite economic growth model which is not possible.
AND
* Our total denial of the finiteness of the earth which is evident.

We need a new lens to understand this inversion of economic reality. The Third Curve provides us that lens.
It identifies the root cause of the malady by reminding us of the forgotten relationships between money and energy, capital and resources, concept and reality.

EXCERPT

False Solution # 5: Alternative Energies
False Belief: Other forms of energy can replace oil.

 “Contrary to public perception, renewable energy is not the silver bullet that will solve all our problems”.
- Jeroen van der Veer, Former Shell CEO, The Standard, “Three Hard Truths about the World’s Energy Crisis”

The word “alternative” says it all. It seems to hold a magic promise. It intrinsically reassures us that the energy is somewhere out there to replace oil and we simply have to get it.

Likewise, don’t you wish there were “alternative” jobs for all those who have been laid-off recently around the world?

Then why are they still laid-off? You may say the laid-off folk are simply not trying hard enough to find those “alternative” jobs.

Or maybe the truth is closer to the fact that “alternative” jobs are not paying at the same scale.

What if the new job offered a salary of Rs 60,000 instead of Rs 100,000 and it involves working all night in a seedy part of town with no air-conditioning and fewer holidays… and no free coffee?

So the job-hunter decides to say “no thanks” to that job and just keeps looking.

That is the same story with oil and alternative energies.

Of course there are alternative energies. But how much do they pay-off compared to oil? And what are the other downsides of producing them?

Maybe a hint lies in the fact that we have been talking alternatives for over 4 decades now. Yet alternative energies account for only about 13% of world energy usage, despite generous subsidies by governments all over.

Or maybe the truth is that most alternatives are all like the low paying jobs. They all offer less and therefore will not run our high energy dependent modern world or business as usual. The net energy they provide is either less or marginal compared to the energy you put in (mostly oil energy).

That is like taking up a new 60k job but still needing the old 100k job to keep your life on an even keel. I don’t think that your ex-boss had that in mind when he gave you the slip.

So while we can hold on to oil for a bit longer to run our “alternative” plans, we have to be careful because we must not squander the remaining valuable oil on our experiments with alternatives. At some point, the alternatives should better be able to stand on their own without the help of too much oil. Preferably none.

And more importantly, the alternative energy “solutions” had better return us more energy than we are putting in to make and maintain them. Or there is no point investing in them. Right?

This is a fundamental energy principle and it is called Energy Returned on Energy Invested (ERoEI) or Net Energy. It is kind of how your business sale price has to be greater than cost price to have a net positive profit.

So that brings us to Energy rule #1 Net Energy (ERoEI): The Net Energy gained has to be suitably high for an alternative to be viable.

Some alternatives like solar and wind energy can have a reasonably high Net Energy return. But then the next factor is cost. In present times, it has become evident that none of the alternatives can compete with oil on cost.

So alternative energy experts advise us to wait for oil prices to go up for the good old market wisdom to apply. Namely that when the price of oil gets high enough, the alternatives will become worth it and the market will find a way to replace oil.

But I thought the markets were down exactly for the reason that oil prices were too high. And they are not showing signs of going anywhere near the old levels. Remember? Oil is on the downslope of old Hubbert’s curve.

Which means it will only get more expensive.

Wait a minute! I feel like I am watching my dog chasing its tail.

• Alternatives are expensive in relation to oil.

• Just wait for oil to go up, then alternatives will be worth it.

• Oil goes up and alternatives get more expensive.

• Just wait a little longer for oil to go up again.

• Oil goes up… alternatives get more expensive.

Round and round and round we go.

My head is spinning. Please stop.

What am I missing?

Well for a start that the tail is attached to the end of the same dog that is turning.

Alternatives are the tail. They are all made with oil energy and byproducts. And anyone who does not tell you that, is covering a big fat lie. No matter how fancy their alternative energy “solution” is.

Solar, Wind, Hydro, Nuclear, Bio-fuels, Tar sands, Oil shale, Hydrogen, Fuel cells – you name it and they are all built, run, maintained and then replaced on an oil based infrastructure. They all take a lot of energy to construct and require a petroleum platform to work off. They are not in that sense an alternative at all!

I would call them energy converters. Put in oil energy to make solar panels, windmills, nuclear plants and out comes electrical energy at great cost.

They are all like your 60k job that needs your 100k job to maintain your lifestyle. And that is where we are stuck.

This brings us Energy Rule #2 Oil Dependency: the alternative must not be too dependent on oil and its price.

Well apart from Net Energy and Oil Dependency, alternatives fail at another fundamental level. Most of them are dilute energies. This is because they extract energy as it arrives in real time. Solar, wind, bio-fuels, biomass, wave, tidal, geothermal, etc. involve collecting or extracting energy as it arrives from sunlight, wind, plant growth or heat from the Earth.

Because this is in real time, it is dilute energy compared to fossil fuels – especially oil.

In contrast, fossil fuels allow us to tap the energy of millions of years of stored sunlight at once. Therefore, fossil fuels are an immensely dense form of energy.

To illustrate this point, let us compare the flow of water from rain as opposed to from a reservoir.

Alternative Energies are like the rain.

It is water falling in real time.

The flow is dilute – distributed over a large area and time.

It needs to be collected to be useful.

Fossil fuels are like the overflow of a dam.

It is water/sunlight stored over a large area and a long period of time.

The flow is concentrated and dense.

So what the concentrated overflow of a dam allows you to do, rainfall cannot match by far.

Oil is like a dam that holds 150 million years of sunlight ready to burn at a go.

Just one day’s worth of burning oil is equivalent to using 7 year’s worth of the total solar energy that reaches the Earth. That amounts to approximately 2500 times the rate at which it is reaching us. This point itself, if acknowledged, settles the issue of how little alternatives can do.

But for now, let us just register that this introduces us to another quality that different kinds of energies may have. They can be dilute or dense.

This is called Energy Density.

That brings us to Energy Rule #3 Energy Density: The Energy Density of the alternative must compare with the Energy Density of oil.

Some people argue around this energy density problem as such: if these alternatives are collecting dilute energy, then we can make up by having more of them. Like more solar panels and more windmills. This is called “scaling up”. According to these people, this should solve the problem.

Well, that is exactly what the governments and the alternative energy advocates and the energy venture capitalists have been trying so hard to do for the last 2 decades. Every effort has been made, including steep and generous government subsidies and tax breaks, to encourage the growth or “scaling up” of alternative energies. Yet this is how far we have reached in 2011.

O__

___

C___

A mere total of 13% is renewable energy and the balance 87 % is still fossil fuels (coal, gas & petroleum). Nuclear and Hydro together stand at 11.3%.

And worse, the biggest hopes of solar and wind and other renewables add up to merely 1.6% of global energy production. There obviously seems to be some aspect of reality that is not allowing the use of alternative energies to go up. This limiting factor is measured as Scalability.

Scalability limits are different for each kind of alternative. But they are definitely there. For instance, solar panels need ground area, reliable sunlight, availability of silicon, etc. Windmills need suitable locations with winds above a critical minimum speed for a sufficient number of days.

Many of the other touted options such as algae diesel have been tested for 50 years in labs, but the problem still remains of making it on a large scale to be viable and contributing.

So we arrive at Energy Rule #4 Scalability: The alternative has to be scalable.

Moving on, we find that there is an even larger issue that all alternatives lack. And this one nails them all decisively.

None of the alternatives give any of the byproducts that oil gives us such as bitumen, plastics, fertilizers, lubricants or pharmaceuticals on which the complete fabric of our Modern Industrial World is designed and built.

This huge implication is often slighted but is of astounding importance. It is equivalent to finding another alternative to water to run our human body which constitutes about 60% water. And if you cannot find water then it would require nothing less than a redesign and rebuilding of our body around a new liquid. This is clearly a difficult task. The same applies to the Modern Industrial World. We would have to do nothing less than redesign and rebuild it around the new alternatives. And where is the energy to achieve that going to come from?

So that needs to be embodied as another rule.

Energy Rule #5 Oil byproducts: The alternative energy option must give us the byproducts of oil crucial to building, running and maintaining our Modern Industrial World.

Let us put all the rules together so we get our minds around it.

Energy Rule #1 Net Energy (ERoEI):

The Net Energy gained has to be suitably high for an alternative to be viable.

Energy Rule #2 Oil Dependency:

The alternative must not be dependent on oil and its price.

Energy Rule #3 Energy Density :

The energy density of the alternative must compare with the Energy Density of oil.

Energy Rule #4 Scalability:

The alternative has to be scalable.

Energy Rule #5 Oil byproducts:

The alternative energy option must give the byproducts of oil crucial to building, running and maintaining our Modern Industrial World.

Sadly we may see that all alternatives fail most of the rules above and that is what is curbing their wider usage. That is why I call alternative energies False Solutions.

But maybe they fail because of how we framed the Problem. Namely, we asked, “how can we run our current Modern Industrial World on alternatives exactly as it runs right now on oil?”

So naturally, we expect the Solution to be that alternatives, by part or complete replacement, will be able to run our world in the present manner of exponential growth post peak oil. This means that we expect to run our businesses, factories, industries, transportation, homes, agriculture, etc. pretty much along past exponential trends, even as oil production declines.

Above all, we expect that our economies and markets will continue growing, that we will get return on investment year after year and that the conventional laws of economic growth will be maintained.

We expect all this to happen with the only exception that we will be powering our world by alternatives instead of oil.

To expect Alternative Energies to do this is impossible! And they end up being False Solutions. So you pose the problem wrongly and you get False Solutions.

By this I don’t mean that there is no place for alternative energies in our future world. What I mean is that Alternative Energies have upper limits imposed by thermodynamic laws, cost, scale and applications. That is why they end up giving much less than the oil that went in to make them. So they fail most of the Energy Rules mentioned. Pretty much like the new, lower salary job.

So what should you do when you simply have to go for a low salary job and there is no chance of ever getting back to a higher salary job?

You have to adjust your lifestyle. Scale down! This conclusion for alternative energies can be summed up as:

  • Alternative Energies cannot run the Modern Industrial World in the manner, cost and scale that we have designed and become used to.
  • Sensibly used alternatives can fill important niches but it intrinsically requires scaling down our gross energy usage.
  • This means Economic Shrinkage cannot be averted. Only managed in a non-disastrous way. Yes, growth died with the advent of Peak Oil and no combination of alternative energies can save that.

What a pessimistic outlook, one might feel, but it is interesting to examine this a bit closer. Optimistic and Pessimistic were the only 2 viewpoints that our world recognized when we had plenty of oil and resources to fulfil our wildest concepts and dreams. Then we could make-do with only two outlooks. Either you were an optimist or if you said something that optimists did not like or did not agree with, then you were a pessimist. There was no slot called a Realist.

Why not? Because we had nothing to do with reality. Because we were concept-based, remember? We just assumed that we needed to “conceive” and it would all be there. The Earth was obliged to surrender to our “human ingenuity” requirements. It was all about the Mind… and the Body had to comply.

So today we are pretty much trying to do the same with our approach to alternative energies. Just conceive an alternative energy solution and the laws of thermodynamics (physical reality) are obliged to comply.

Peak Oil and the subsequent energy decline have changed all this and suddenly there is a new respectability in being a realist. A realist is not a pessimist.

He just has far more respect for reality and is willing to change his concepts and lifestyles to be in tune with it.

As Ayn Rand said, “We can evade reality, but we cannot evade the consequences of evading reality”.

The next section helps us evaluate in detail if we are indeed evading reality.

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