Jim Kingsdale has a post up that includes a longish piece by the financial deity Peter Lynch on the cost of energy. Please go read the whole thing, but let me present just a few snippets to entice you to do so:

In my opinion, “Energy” is the number one problem facing the U.S and the world as we move forward into the 21st century. In fact, I think that it may be the greatest problem that mankind has ever faced. All the other “problems” we hear about on the evening news – health care, social security, housing crisis, credit crunch etc. are ALL “small change” compared to the looming worldwide energy crisis. The problem facing us is so large that I am really beginning to believe that people, as well as, governments are simply in mass denial and refuse to believe the magnitude of the approaching problem. Keep in mind that reasonably priced, available energy is what gave birth to our mighty industrial revolution and is what separates the U.S. and the rest of the developed world from becoming third world countries.

This is a problem that CANNOT be ignored and must be addressed rapidly, with a detailed long term plan that MUST be based upon a comprehensive accurate evaluation and assessment. There is still time to move forward, but time is running out and we have to stop with the politics as usual and start to focus on what we ALL need to do for the common good.

What is the price you pay to purchase a gallon of gasoline for your car? Depending on what part of the country you live in, it is probably between $4.00 and $4.50 per gallon.

But what is the “real cost” of that gasoline? Does it count ALL of the direct AND indirect costs to the consumer, society and the nation of our continued and insane dependence on fossil fuels?

I think not.

Everyone knows the posted price, but very few realize or stop to think about the true costs. There are a number of “hidden” costs that most of us do not realize. It may not be obvious but we are quietly paying these additional costs every day. These additional indirect costs actually make the “real” cost of the gasoline and all other fossil fuel related items many times higher than it seems at first glance.

Unfortunately our government does not utilize all of the necessary cost components in order to arrive at an accurate “true cost” number. As a result, they are using a faulty equation, which, of course, will result, EVERY SINGLE TIME, in an incorrect answer and subsequently a fault ridden policy that is based upon error after error.

Some of these costs and associated penalties:

• Health Related Costs
• Air Pollution
• Water and Land Pollution
• Thermal Pollution
• Macro Economic Costs
• National Security
• Global Warming

[Lynch then addresses each item in the above list.]

We can lower our healthcare costs, reduce our air, water and thermal pollution, develop a more stable economy, create an enormous number of U.S. based jobs and become a far more secure nation if we just begin this inevitable process of evolution toward renewable energy sources - solar, wind, biomass, ocean power, energy efficiency and conservation.

We need to educate the American people about the real truth of the current situation and then apply, what has always been America’s greatest “assets” - technical ingenuity, creative innovation and our “can do” attitude.

Now you can see what the “real costs” of our addiction to fossil fuels are. We need to be preemptive and undertake this NOW, before we find ourselves in the midst of a worst-case scenario.

Please go read it all.

I’ve argued perhaps a billion or so times on this site that we need a wide range of actions to deal with our looming energy and environmental issues. We can’t rely on just a grass roots movement or just government action or just leave it all to “the free market”. We need them all, which means we have to be smart about how we combine their costs and benefits; we’re quickly running out of time for stupid or half-hearted measures.

Part of our action has to be expressing our collective will through elected officials, i.e. government action. The nastiest reality of all is that while some people will do what’s right on energy and environmental issues simply because they know it’s the right thing or they get satisfaction because doing it proves their moral superiority, not nearly enough people will act that way. For every member of the Sierra Club or Greenpeace (or regular reader of this site, frankly), there are many more Americans who want nothing more than the cheapest out-of-pocket expense for energy possible, and they reject everything else as a plot by the New World Order or environuts or (gasp!) Al Gore to take over their lives.[1]

Therefore, we need voters and consumers to educate and activate themselves, and force politicians seeking their support as well as corporations seeking their money, to adopt a longer planning horizon and a more enlightened approach and do the right thing.[2]

We also need people to make the myriad of changes I’ve been screaming about on this site for years, like using compact fluorescent bulbs, driving fewer miles, hunting down and killing electricity vampires[3], improving the insulation of their homes, using as little space heating or cooling as possible, etc.

And above all, Lynch is right: We need to do those things now.

(Lest anyone miss the enormous, neon sign hanging over this discussion, let me point to it explicitly: About four years ago when I started this web site and project, I chose the name “The Cost of Energy” precisely because I wanted people to adopt a more expansive and encompassing mindset and consider all the costs of our energy use, not just the immediate and obvious ones measured in cash flow.)

[1] And for the life of me, I have never figured out why the people who say such inane things believe for a moment that other people would want control of their lives. That’s a stupefyingly weird alloy of paranoia and egomania.

[2] For those of you who just laughed at the planning horizon and enlightened approach stuff, answer me this: How much better off would Ford, GM, and Chrysler be today if they challenged Toyota and Honda in developing hybrid vehicles in the 1990’s instead of dismissing it? For that matter, how much healthier would they be, and how many fewer people would they be laying off directly and indirectly, if they had simply put more emphasis on smaller, more efficient vehicles instead of binging on trucks for years, like an unsupervised kid in a candy store? It’s easy to be smug and make fun of calls for the kind of change in corporate boardrooms that I think we need, at least until corporations are greedy and willfully ignorant and then reality bites them on the ass. Then everyone starts wailing about “could GM really declare bankruptcy???” instead of treating this as a huge and very painful object lesson in how companies should be run.

[3] These are all those little things around your home that suck a little (or a lot of) electricity all the time, even when they’re not being used. Do you really need to have your cable modem and router turned on all the time? Do you need to leave your PC on 24/7, even though Windows doesn’t boot so much as it gestates? Walk through your house and do a quick inventory of what’s plugged in, and how often you really use it, and I’m willing to bet you’ll find a good $5 of monthly electricity you can painlessly eliminate. And if that’s too much trouble, then please send me that $5/month (PayPal to lougrinzo [at sign] rochester.rr.com), as I need it to keep this project afloat.

I’ve seen weirder news days than today, but not many and not by much.

To recap the highlights:

• GM’s June sales dropped 8.3 percent vs. June 2007, and that was so much better than the expected drop (-19%) as well as the results from Ford (-19%) and Toyota (-12%), that the company’s stock spiked by 15%. Of course, it would be impolite to compare their results with Honda’s (+14%).[1]
• Oil is up again, thanks to yet another gloomy outlook report–this one from the wacky funsters at the IEA (the Medium-Term Oil Market Report), plus growing fears that Israel will attack Iran, which would cause Iran to attempt to close shipping through the most critical oil shipping lane in the world, the Strait of Hormuz.
• The Alliance of Automobile Manufacturers issued a 77-page report saying that the new US CAFE standards are too costly to implement, as they would require a corporate fleet average of 35MPG in 2020. Um, not to put too fine a point on it, but do these people think that by 2020 they’ll be able to give away any vehicle that gets less than 35MPG?
• The Wall Street Journal is saying that the IEA’s Medium-Term Oil Market Report shows they’re joining the peak oil crowd. I haven’t read the report yet, but the summaries I’ve seen strongly suggest this is a reasonable interpretation, at least until the 2013 time frame.[2]

Dizzy yet? If not, hang on–you will be soon enough.

[1] Because some news outlets report sales trends based on “daily sales rate” and some just go by raw monthly totals, the measures of how well each car company did will vary a lot, as June 2008 had three fewer selling days than June 2007.

[2] I qualify this because I believe the IEA is talking about the oil market remaining extremely tight until then, and I’m not sure if that’s the end of their projection or if they’re saying the market will loosen up afterwards.

The IEA sent out the following press release about the latest Medium-Term Oil Market Report, which I’m quoting in its entirety (emphasis in the original):

Despite Slowing Oil Demand, IEA Sees Continued Market Tightness Over the Medium Term

“Record prices in the oil market in recent months have become a threat to the global economy and social welfare of millions of people – some are calling it the third oil shock. While we have seen some weakening in demand in the OECD, supply constraints, refinery limitations and continued demand growth in key emerging markets will maintain pressure in the market over the medium term”, Nobuo Tanaka, Executive Director of the International Energy Agency (IEA) said today in Madrid at the launch of the IEA Medium-Term Oil Market Report (MTOMR). Speaking at a press conference at the World Petroleum Congress, Mr. Tanaka emphasized that market fundamentals were the main underlying factor behind high oil prices. “OPEC production is at record highs and non-OPEC producers are working at full throttle, but stocks show no unusual build. These factors demonstrate that it is mainly fundamentals pushing up the price,” he added.

The third issue of the IEA Medium-Term Oil Market Report analyses market developments to 2013, building on the short-term analysis of the monthly IEA Oil Market Report. The MTOMR offers a fresh appraisal of upstream and downstream projects worldwide, incorporating recent changes in demand dynamics. The report includes in-depth analyses of price formation, transport trends, non-OECD economies, non-OPEC production decline, project slippage, biofuels and a stronger emphasis on product supply bottlenecks. “We look closely at what investments are committed, which projects are underway, whether demand will continue to surge and where potential risks lie looking forward to 2013,” said Mr. Tanaka.

Supply

Supply growth deriving from a concentration of new project start-ups during 2008-2010, allied to weaker economic growth, sees potential spare capacity rise in excess of 4 mb/d. However, this expansion slows from 2011 onwards when global demand growth recovers, leading to a narrowing of spare capacity to minimal levels by 2013. Since the 2007 MTOMR, significant downward revisions have been made to both non-OPEC supplies and OPEC capacity forecasts. Project delays averaging 12 months, coupled with global average decline of 5.2% - up from 4% last year – are the factors behind these revisions. Over 3.5 mb/d of new production will be needed each year just to hold global production steady. “Our findings highlight again the need for sustained, and indeed, increased investment both upstream and downstream — to assure that the market is adequately supplied,” stated Mr. Tanaka.

Biofuels

Although biofuels will add to supply growth, increasing from 1.35 mb/d in 2008 to 1.95 mb/d by 2013, announced capacity additions may be difficult to achieve given available feedstock and growing concerns due to rising food prices. “Biofuels have helped to diversify energy supply. They cannot be blamed for all of the increase in grain prices, even if they have had an impact. However, we remain cautious in regard to the future growth of 1st generation biofuels as there will be growing competition for feedstocks and we see increased difficulties to expansion of biofuels in some places,” said Mr. Tanaka.

Demand

Global demand for oil products will grow by an average of 1.6% per year to 2013, from 86.9 mb/d in 2008 to 94.1 mb/d. Contrary to supply trends, demand growth will be weakest in the first two years of the period, building as global GDP growth strengthens from 2010 on. “We continue to see a significant shift in demand away from the OECD countries,” Mr. Tanaka noted. “Developing countries will drive demand growth, their total consumption equalling that of mature economies by 2015.” Asia, the Middle East and Latin America will account for nearly 90% of demand growth over the five-year forecast period.

Refining

An anticipated 8.8 mb/d of crude distillation capacity will be added to the refinery system by 2013. These additions should cover supply increases over this period and help ease current refinery tightness, which limits the flexibility of the industry to meet the structurally-strong demand growth for middle distillate fuel. A doubling of costs and longer lead times for delivery of key upgrading units have led to greater uncertainty over project plans in the refining sector. New capacity additions are primarily in China, Asia and the Middle East. Additional investment is expected in upgrading capacity and desulphurisation units. “This medium-term analysis sheds light on where the oil market is headed over the next five years. The better we understand current trends, the more we can do to ensure we have adequate oil supply at affordable prices,” Mr. Tanaka said.

I’ve requested a copy of the actual report (which they apparently don’t distribute automatically to everyone on their press list), and will comment further once I have it.

See also:

Speculation not to blame for oil - report

OPEC growth stalls despite record prices- IEA

Joe Romm touched on a critical point in a post at Climate Progress this morning, “Is 450 ppm politically possible? Part 6: What the Boxer-Lieberman-Warner bill debate tells us”:

Equally important, conservatives now have a very potent political issue to beat back advocates of an economy-wide cap & trade system — high gasoline prices. And gasoline prices are probably going to be much higher over the next few years (see “Must read CIBC report: $7 gas by 2010, 10 million cars off the road, 1970s style GDP growth“). That is one reason I would leave transportation out of an economy-wide cap & trade, but that will be the subject of another post.

As I said on CP in response to that post, this is one of the things I feared the most, that our sense of urgency about GW and the pain of higher oil prices would arrive simultaneously and cause policy paralysis. If we’re not at that point as one might conclude from many of the examples Joe cites in his post, we’re way too close (and getting close) for comfort.

This is a big deal because of the way large groups of people, most notably Americans in this shiny, happy 21st century, deal with major crises. We have a terribly hard time dealing more than one Big Conceptual Issue at a time, and both global warming and peak oil certainly qualify as BCI’s. Even worse is how hard it can be to get us to focus on action now to avert a catastrophic, but not yet present, Issue 2 when Issue 1 is not just big and scary, but hitting us hard in our weekly finances right now.[1]

On top of this foundation of psychological weirdness is everyone’s favorite nasty detail: Perception is reality. Most notably for our purposes GW and PO have taken very different paths through the obstacle course that is public perception space, paths that I suspect virtually no one would have predicted 10 years ago.

Global warming made the leap from science geek and enviro issue to a widely recognized, and even largely accepted, mainstream concept thanks almost entire to An Inconvenient Truth. Yes, many other people have been shouting about this topic for a long time, including some people I respect greatly, like Bill McKibben and James Hansen, plus we’ve seen tireless contributions to this effort from organizations like the NRDC and Greenpeace. And all this happened before the people who were educated and/or convinced were directly affected by global warming. Sure, Uncle Al and others had some compelling imagery to work with–stranded polar bears, disappearing glaciers, US state-size chucks of Antarctica breaking off, implications of more and stronger hurricanes–but the considerable conceptual progress we’ve seen has all been at a distance, with the consequences removed, in both space and time, from those people undergoing a shift in the world view.

Peak oil is a nearly opposite situation. The effects are being felt right here, right now, and in ways that mainstream consumers and voters can’t ignore. So surely people would be clamoring for information about peak oil, and then pressuring their politicians to take appropriate action, right? Of course that hasn’t happened; we have no Al Gore, with or without his nifty presentation and movie, and we have endless debate about What’s Really Causing High Oil Prices, which only feeds the populist streak in Americans as well as our DNA-level belief in infinity. We can’t be running out of cheap oil! There’s plenty of it in the ground! It’s just OPEC or Exxon or Bush or the New World Order or Speculators screwing us again!

Public perception seems to have solidified. The mainstream public sees global warming as a real problem we’ll just have to ignore for now while we get those oil prices down. Peak oil isn’t even on their radar screen, and to the extent people have even heard of it nearly all of them are convinced it’s nothing more than just another of those Internet-fueled conspiracy theories.[2] I’ve said for a long time that peak oil needed our own equivalent of Al Gore, but I think it’s too late for anyone to fill that role.

The biggest problem here is not the disparity of perception about global warming vs. peak oil, but how those two things interact, as Joe Romm pointed out. People are so squeezed by higher energy prices that they’re demanding their elected representatives Do Something Right Now, and I pity the politician who supports a policy that his or her opponent can paint as being a new tax, no matter how well thought out and necessary the policy might be.

What a startling chain reaction. We become global warming aware, but then peak oil keeps us from taking serious action on global warming, and that budding awareness of global warming is at least partly to blame for our inability to deal with peak oil (that “only one crisis at a time” thing).

How do we break that cycle and shun our comfort zone and deal with these twin problems in realistic terms? How much can we expect mainstream consumers and voters to change and pressure their elected representatives? Or is the answer simply to hope that we elect people who know what’s going on, haven’t been bought by special interests, and are willing to do unpopular things that are in everyone’s long-term best interest? I don’t know, and that’s a mix of questions I’m thinking about more than ever not just in connection with my writing here, but also in my current book project, where I’m currently deciding how much of a “crash course in energy analysis” I should include as an explicit section.

[1] This is not to say that I think American consumers are being selfish or too wrapped up in their personal finances. If anything, more attention and careful planning on that front would have helped lessen the impact of the current mess.

[2] The fact that so many people think peak oil is a conspiracy theory and that the “real” explanation is one of their quarter-baked fantasies about a New World Order or oil companies ruling the world (i.e. keeping 100MPG cars off the road), surely deserves to be a first-ballot entry into the Irony Hall of Fame. And yes, I blame both the Cornucopians and the Apocalypticons for much of this mess. One camp is telling us there’s no underlying problem, which leaves people to conclude it’s someone just screwing us again, while the other is so overblown with their rhetoric that they’re too easily characterized as being another clueless, harmless, and ignorable Internet cult.

Jeff Rubin and Behjamin Tal of CIBC World Markets, Inc. have issued a short paper addressing what will happen in the US if we see $200/barrel oil and $7/gallon gasoline by 2010, as their analysis says is possible.

The paper is Getting Off the Road: Adjusting to $7 per Gallon Gas in America [5 page PDF], and it describes massive change (emphasis added, although hardly needed):

We stand at a turning point for US transport. Real gasoline prices have already surpassed the peak levels that followed the second OPEC oil shocks, and even when adjusted for potential fuel efficiency improvements, have increased to the point where they will dramatically change driving behaviour in America.

The some 57 million Americans who own a car and have direct access to public transportation will start to act more and more like Europeans, who have long paid much higher gasoline prices. By 2012, average miles driven will have shrunk by more than 15%. SUV and other light truck sales, which until 2006 accounted for almost 60% of total motor vehicles, will plummet to less than half that level, reversing the last fifteen years growth in market share.

More fundamentally, the freeways are about to get less congested. Not only will the number of vehicle registrations in the United States not grow over the next four years, but by 2012 there should be roughly 10 million fewer vehicles on the road in America than there are today.

For the past half century, America has spent the bulk of its infrastructure money on building highways—only to see that soon, $7 per gallon gasoline prices will lead to fewer and fewer people using them.

Gasoline prices in America have risen from around $1.80 in 2004 to the current $4 per gallon mark. The most recent surge in pump prices has, in inflation-adjusted dollars, already taken pump prices to a buck a gallon above the record prices seen in 1981 (Chart 1). And in percentage terms, the latest increase is almost twice the increase in oil prices that followed on the heels of supply disruptions after the Iranian Revolution.

Yet as daunting as these price increases have been, there is much more to come. Our updated oil price forecast of $200 per barrel oil by 2010 points to Americans paying as much as $7 per gallon for gasoline within the next two years.

Even the temporary 1979-1981 oil shock led to huge changes in driving behaviour. The prospect of a permanent price regime of $200 per barrel oil should trigger changes that will dwarf the adjustment we saw nearly thirty years ago.

See the paper for all the details of fewer cars, escalating transportation costs, people seeking public transportation, etc.

I won’t offer an opinion on the $200 oil/$7 gasoline projection, as talking about such pinpoint numbers (or even ranges) is the equivalent of trying to hit the bull’s eye on a dartboard while on a boat in very rough seas. But the ensuing analysis of what such prices, if they were to happen, would mean seem to be on the mark, with one glaring exception: There’s no discussion of the electrification of personal transportation.

Given that this paper is only talking about the years 2010 to 2012, for the most part, this seems reasonable–EV’s and PHEV’s will account for an infinitesimal share of the vehicles on the road in that time frame. But we’re very likely to see an “adjustment to the adjustment” once several mainstream companies have such cars in their showrooms (around 2009/2010) and production ramps up (likely by 2012). The per-mile cost of fueling an EV or PHEV is so much less than putting gasoline into even a Prius that they will be an economic game-changer all by themselves. Add in the virtually certain government support for residential solar PV panels, and suddenly you have many people in single-family homes (i.e. those with control over their own roof) using solar power from government subsidized hardware to partially offset the cost of recharging their plug-in Prius or Volt or iMiEV or whatever.

If there is an accelerated rate of retirement of gas guzzlers (like my Scion xA, as perceived in 2012 or 2015), combined with the people who have the longest drives flocking to EV’s and PHEV’s, we could see a higher than expected portion of vehicle miles fueled with electrons instead of hydrocarbons. And that, in turn, will reduce the incentive to make sweeping societal level changes.

In other words, we’re headed for not one major wrenching change, but a long, interrelated cascade of them, all triggered by much higher oil prices, that will pull different consumers, businesses, and institutions in different directions at various times.

And for the record, I wouldn’t bet against $7/gallon US gasoline in two years.

From my e-mail queue to your screen:

Energy Information Administration
EIA Reports
U.S. Department of Energy
Washington, DC 20585

FOR IMMEDIATE RELEASE
June 25, 2008

World Energy Use Projected to Grow 50 Percent Between 2005 and 2030

World marketed energy consumption is projected to grow by 50 percent between 2005 and 2030, driven by robust economic growth and expanding populations in the world’s developing countries, according to the reference case projection from the “International Energy Outlook 2008″ (IEO2008) released today by the Energy Information Administration (EIA).

Average world oil prices in every year since 2003 have been higher than the average for the previous year and prices in 2007 were nearly double the 2003 prices in real terms. The IEO2008 uses oil price cases originally developed in the summer of 2007 for use in the “Annual Energy Outlook 2008″, which focuses on the U.S. energy outlook. These prices do not reflect the substantial runup in prices that has occurred since that time. Nonetheless, although liquid fuels are expected to remain the largest single source of energy through 2030, the liquids share of marketed world energy consumption declines from 37 percent in 2005 to 33 percent in 2030 in the IEO2008 reference case (Figure 1).

In addition, the share of conventional oil in the overall liquids supply is declines with expanded use of unconventional oil, biofuels, and other unconventional liquids. High oil prices lead many consumers to switch to other fuels when feasible; fuel-switching and efficiency gains, for instance, slow the growth of oil use in the industrial sector. Those trends are even stronger in the IEO2008 high price case, which reflects oil prices that are closer to those being paid in mid-2008, as this report is being issued.

Other report highlights include:

* Coal’s share of world energy use has increased sharply over the past few years, and without significant changes in existing laws and policies, particularly those related to greenhouse gas emissions, robust growth is likely to continue. Coal accounted for 24 percent of total world energy use in 2002 and 27 percent in 2005, largely as a result of rapid increases in coal use in China. China’s coal consumption has nearly doubled since 2000, and given the country’s rapidly expanding economy and large domestic coal deposits, its demand for coal is projected to remain strong. In the IEO2008 reference case, coal use expands by 2 percent per year between 2005 and 2030, and coal’s share of total world energy consumption reaches 29 percent in 2030.

* Concerns about rising fossil fuel prices, energy security, and greenhouse gas emissions support the development of new nuclear generating capacity. World nuclear capacity is projected to rise from 374 gigawatts in 2005 to 498 gigawatts in 2030. Declines in nuclear capacity are projected only in OECD Europe, where several countries (including Germany and Belgium) have either plans or mandates to phase out nuclear power, and where some old reactors are expected to be retired and not replaced. China is projected to add 45 gigawatts of net nuclear capacity over the projection period, India 17 gigawatts, Russia 18 gigawatts, and the United States 15 gigawatts.

* Sustained high prices for oil and natural gas encourage expanded use of renewable fuels. Renewable energy sources are attractive for environmental reasons, especially in countries where reducing greenhouse gas emissions is of particular concern. Government policies and incentives to increase renewable energy sources for electricity generation are expected to encourage the development of renewable energy even when it cannot compete economically with fossil fuels. Worldwide, the consumption of hydroelectricity and other renewable energy sources increases by 2.1 percent per year in the IEO2008 reference case between 2005 and 2030. In contrast, world coal consumption increases by 2.0 percent per year; natural gas by 1.7 percent per year; nuclear by 1.5 percent per year; and liquids by 1.2 percent per year.

* In the IEO2008 reference case, which does not include specific policies to limit greenhouse gas emissions, energy-related carbon dioxide emissions are projected to rise from 28.1 billion metric tons in 2005 to 42.3 billion metric tons in 2030-an increase of 51 percent. With strong economic growth and continued heavy reliance on fossil fuels expected, much of the increase in carbon dioxide emissions is projected to occur among the developing nations of the world, especially in Asia (Figure 2).

The full report can be found on EIA’s web site at:

http://www.eia.doe.gov/oiaf/ieo/index.html

See also Reuters’ take on it: EIA cuts world 2010 oil output, non-OPEC loss big:

Crude oil production from non-OPEC countries will not be able to keep up with growing global demand in the next few years, forcing oil consuming nations to rely more on the Organization of Petroleum Exporting Countries for supplies, the U.S. Energy Information Administration said Wednesday.

In its long-term energy forecast, the EIA lowered its estimate of non-OPEC oil production in 2010 by 1.1 million barrels per day from last year’s forecast to 51.8 million bpd. For the same period, OPEC oil output was cut by just 400,000 bpd to 37.4 million bpd.

…

Saudi Arabia will remain the world’s biggest oil producer in 2030, but just barely with expected output of 13.7 million bpd. That’s way down from the 16.4 million in Saudi production, the EIA had forecast in last year’s report.

Russia’s output is forecast to be 13.5 million bpd in 2030, up sharply from last year’s EIA forecast of 11.5 million bpd.

I’ll have much more to say about this once I have a chance to download and read the document.

Read the article Rising seas threaten west Antarctic, and it’s all but impossible to think, yet again, of all the chances to take serious, desperately needed action on CO2 emissions that we’ve thrown away over the last twenty years. What could trigger such a bout of depressing navel staring? Try this:

There’s a ‘big gorilla hiding the closet’ whose collapse could have a dramatic effect on sea levels, according to Australian researchers.

Dr Bradley Opdyke, a paleoceanographer from the Australia National University (ANU) believes the West Antarctic Ice Sheet (WAIS) could partially collapse within 20 years, resulting in a dramatic jump in sea levels.

His talk on glacial cycles and the WAIS was presented earlier this month at the Imagining the real: life on a greenhouse earth conference held in Canberra.

“The 900-pound gorilla hiding in the closet is Antarctica. We have evidence that it is not a stable beast,” Opdyke says.

He says the WAIS is inherently unstable, and the current rate of sea level rise is placing it at risk.

“It is pinned on the spines of a few mountains, with ice sheets draped off them,” Opdyke says. “If sea level rise unpins these sheets, it is plausible that there will be dramatic ice collapse in the West Antarctic.”

See the article for the facts behind that conclusion that the WAIS “is not a stable beast.”

And why 20 years? As many of you probably know, Monday was the 20th anniversary of the now-famous testimony by James Hansen before a US Senate committee which happened to include a Senator from Tennessee named Al Gore.[1]

Hansen gave a talk on Monday, Global Warming Twenty Years Later: Tipping Points Near [4 page PDF] to the National Press Club, which began:

My presentation today is exactly 20 years after my 23 June 1988 testimony to Congress, which alerted the public that global warming was underway. There are striking similarities between then and now, but one big difference.

Again a wide gap has developed between what is understood about global warming by the relevant scientific community and what is known by policymakers and the public. Now, as then, frank assessment of scientific data yields conclusions that are shocking to the body politic. Now, as then, I can assert that these conclusions have a certainty exceeding 99 percent.

The difference is that now we have used up all slack in the schedule for actions needed to defuse the global warming time bomb. The next President and Congress must define a course next year in which the United States exerts leadership commensurate with our responsibility for the present dangerous situation.

Otherwise it will become impractical to constrain atmospheric carbon dioxide, the greenhouse gas produced in burning fossil fuels, to a level that prevents the climate system from passing tipping points that lead to disastrous climate changes that spiral dynamically out of humanity’s control.

Changes needed to preserve creation, the planet on which civilization developed, are clear. But the changes have been blocked by special interests, focused on short-term profits, who hold sway in Washington and other capitals.

I argue that a path yielding energy independence and a healthier environment is, barely, still possible. It requires a transformative change of direction in Washington in the next year.

A bit later on:

Climate can reach points such that amplifying feedbacks spur large rapid changes. Arctic sea ice is a current example. Global warming initiated sea ice melt, exposing darker ocean that absorbs more sunlight, melting more ice. As a result, without any additional greenhouse gases, the Arctic soon will be ice-free in the summer.

More ominous tipping points loom. West Antarctic and Greenland ice sheets are vulnerable to even small additional warming. These two-mile-thick behemoths respond slowly at first, but if disintegration gets well underway it will become unstoppable. Debate among scientists is only about how much sea level would rise by a given date. In my opinion, if emissions follow a business-as-usual scenario, sea level rise of at least two meters is likely this century. Hundreds of millions of people would become refugees. No stable shoreline would be reestablished in any time frame that humanity can conceive.

…

The disturbing conclusion, documented in a paper I have written with several of the world’s leading climate experts, is that the safe level of atmospheric carbon dioxide is no more than 350 ppm (parts per million) and it may be less. Carbon dioxide amount is already 385 ppm and rising about 2 ppm per year. Stunning corollary: the oft-stated goal to keep global warming less than two degrees Celsius (3.6 degrees Fahrenheit) is a recipe for global disaster, not salvation.

These conclusions are based on paleoclimate data showing how the Earth responded to past levels of greenhouse gases and on observations showing how the world is responding to today’s carbon dioxide amount. The consequences of continued increase of greenhouse gases extend far beyond extermination of species and future sea level rise.

Arid subtropical climate zones are expanding poleward. Already an average expansion of about 250 miles has occurred, affecting the southern United States, the Mediterranean region, Australia and southern Africa. Forest fires and drying-up of lakes will increase further unless carbon dioxide growth is halted and reversed.

Mountain glaciers are the source of fresh water for hundreds of millions of people. These glaciers are receding world-wide, in the Himalayas, Andes and Rocky Mountains. They will disappear, leaving their rivers as trickles in late summer and fall, unless the growth of carbon dioxide is reversed.

Coral reefs, the rainforest of the ocean, are home for one-third of the species in the sea. Coral reefs are under stress for several reasons, including warming of the ocean, but especially because of ocean acidification, a direct effect of added carbon dioxide. Ocean life dependent on carbonate shells and skeletons is threatened by dissolution as the ocean becomes more acid.

Such phenomena, including the instability of Arctic sea ice and the great ice sheets at today’s carbon dioxide amount, show that we have already gone too far. We must draw down atmospheric carbon dioxide to preserve the planet we know. A level of no more than 350 ppm is still feasible, with the help of reforestation and improved agricultural practices, but just barely – time is running out.

Hansen then talks about public policy, and taxing carbon, but with the stipulation that 100% of the money is refunded to taxpayers, thereby giving everyone a strong financial incentive to use less fossil fuel. (I’m still pondering this one, and don’t have a strong opinion yet.) He also mentions the need for a vastly better electricity grid to better support decentralized renewable energy sources, something I couldn’t agree with more.

You can also see some “related” presentation slides [44 page, 2.9MB PDF] and his web site. I strongly recommend the presentation, as it provides some technical background on CO2 levels, what’s happening to Greenland, etc.

So, what is the point here? Sadly, it’s not merely a matter of having lost time, so that when we do finally get off our collective asses and start working to reduce CO2 emissions it will cost a bit more. Like that other monster under our bed that’s growling ever louder, peak oil, we’ve delayed to the point where the remedies will be exceedingly, and needlessly painful. Ask the coal plant operators how they will deal with CO2 emissions restrictions/taxes, or the airlines and car companies and mainstream consumers how they’re dealing with $136/barrel oil. All indications are that over the next 5 to 10 years those situations will get far worse as the price of oil continues to rise and our awareness of the urgency of global warming grows.

The saddest part of this quickly compounding mess is that the people who will have to do nearly all of the heavy lifting are today’s children and those yet to be born. Those of us who are today adults, and those who came before us over the last two hundred years, have built a world that includes many genuine wonders, but at a horrific price; the accumulated cost of our energy use has been far higher than all but a tiny sliver of the general population realize. By ignoring the warnings of people like James Hansen, Al Gore, Bill McKibben, Ross Gelbspan, and many others over the last 20 years, we’ve thrown away the opportunity of that generation and forced the next few generations to live with a nearly suffocating burden.

None of us should consider giving up, though. There’s still plenty of time for us to help ourselves and our children[2], to begin the process of stepping back from the brink. We can educate ourselves and each other, make more enlightened decisions about the myriad of goods and services we consume, and become more active in politics at all levels to force our elected representatives to do the right things. It’s time for us to turn our backs on the easy myopia and willful ignorance of deniers, recognize the breadth and depth and urgency of these problems, and act like responsible, compassionate adults.

[1] This is not to imply that this hearing is what turned Al Gore green; he saw the light long before 1988.

[2] And yes, they’re all our children, whether or not they share our DNA.

In the endless war of words over whether it’s a war about oil (meaning the current war in Iraq, not the prior war in Iraq), people sometimes bring up the issue of what US Vice President Dick Cheney said in a public appearance in 1999, what it implies about his knowledge of peak oil, etc. The speech was at the London Institute of Petroleum, on November 15 of that year.

You can find the entire text (with an annoying lack of paragraph breaks) here.

Quoting the most often quoted portion from that source, Cheney said:

From the standpoint of the oil industry obviously and I’ll talk a little later on about gas, but obviously for over a hundred years we as an industry have had to deal with the pesky problem that once you find oil and pump it out of the ground you’ve got to turn around and find more or go out of business. Producing oil is obviously a self-depleting activity. Every year you’ve got to find and develop reserves equal to your output just to stand still, just to stay even. This is true for companies as well in the broader economic sense as it is for the world. A new merged company like Exxon-Mobil will have to secure over a billion and a half barrels of new oil equivalent reserves every year just to replace existing production. It’s like making one hundred per cent interest discovery in another major field of some five hundred million barrels equivalent every four months or finding two Hibernias a year. For the world as a whole, oil companies are expected to keep finding and developing enough oil to offset our seventy one million plus barrel a day of oil depletion, but also to meet new demand. By some estimates there will be an average of two per cent annual growth in global oil demand over the years ahead along with conservatively a three per cent natural decline in production from existing reserves. That means by 2010 we will need on the order of an additional fifty million barrels a day. So where is the oil going to come from? Governments and the national oil companies are obviously controlling about ninety per cent of the assets. Oil remains fundamentally a government business. While many regions of the world offer great oil opportunities, the Middle East with two thirds of the world’s oil and the lowest cost, is still where the prize ultimately lies, even though companies are anxious for greater access there, progress continues to be slow.

One of “the” people in the peak oil community is Kjell Aleklett of Uppsala University and President of the Association for the Study of Peak Oil. His highly recommended discussion of this Cheney speech is Dick Cheney, Peak Oil and the Final Count Down [7 page PDF].

Even though I remain convinced that in one form or another both the 1991 Gulf War and the current war in Iraq (which seems to not yet have earned an official name, strangely enough) were “about oil”, this Cheney speech proves nothing. OK, it proves he knew enough about the importance of oil and the realities of the oil business, not to mention the brutal facts that apply to a non-renewable resource (such as it not lasting forever, production inevitably peaking, etc.), to be an executive in a big oil company like Halliburton, but is this really news? In 2008, who among us over the age of about 10 needs further evidence about Dick Cheney’s, shall we say, aggressive pursuit of his goals?

For those who missed it, my most recent take on this whole war for oil question is Thinking the unthinkable.

Michael T. Klare, did a 45-minute interview with Jim Puplava and the Financial Sense Newshour, and you should go listen to it.

Klare is the author of several books on the international ramifications of resource competition, most recently Rising Powers, Shrinking Planet: The New Geopolitics of Energy. In this interview he talks with the host, Jim Puplava, about a lot of resource issues, most related to the growing consumer class in China and India, with a particular emphasis on oil.

The interview is the second hour from the June 21, 2008 edition, and you can download or stream the interview in various ways, or just get it here [12MB mp3].

So, we now see that there’s about to be one heck of an oil deal between some US companies and Iraq (emphasis added):

Four Western oil companies are in the final stages of negotiations this month on contracts that will return them to Iraq, 36 years after losing their oil concession to nationalization as Saddam Hussein rose to power.

Exxon Mobil, Shell, Total and BP — the original partners in the Iraq Petroleum Company — along with Chevron and a number of smaller oil companies, are in talks with Iraq’s Oil Ministry for no-bid contracts to service Iraq’s largest fields, according to ministry officials, oil company officials and an American diplomat.

The deals, expected to be announced on June 30, will lay the foundation for the first commercial work for the major companies in Iraq since the American invasion, and open a new and potentially lucrative country for their operations.

The no-bid contracts are unusual for the industry, and the offers prevailed over others by more than 40 companies, including companies in Russia, China and India. The contracts, which would run for one to two years and are relatively small by industry standards, would nonetheless give the companies an advantage in bidding on future contracts in a country that many experts consider to be the best hope for a large-scale increase in oil production.

There was suspicion among many in the Arab world and among parts of the American public that the United States had gone to war in Iraq precisely to secure the oil wealth these contracts seek to extract. The Bush administration has said that the war was necessary to combat terrorism. It is not clear what role the United States played in awarding the contracts; there are still American advisers to Iraq’s Oil Ministry.

Anyone care to guess whether the US will wind up building and staffing the oft-discussed world’s largest embassy in Iraq, along with those “permanent” military bases, regardless of who wins the upcoming presidential election?

Surely this is all just some sort of wacky, leftist fantasy, right? I mean, there’s no chance that the US, with an executive branch headed by oil men and members of the Project for a New American Century (i.e. the neocons), could have looked at the world oil situation and said, “It will cost a lot in blood, money and international prestige, but we have no choice but to keep someone else from monopolizing that oil (and natural gas).” If that were the case, then surely some reputable news outlet would have had the courage to say something like this, even months before the war began (emphasis added):

The American campaign to overthrow Iraqi President Saddam Hussein, even as al-Qaida’s terrorism thrives around the world and the national economy falters, has many people in America and abroad asking: What’s really motivating Washington to take on Saddam? His record of perfidy and willingness to inflict damage beyond his borders is a matter of record. For many, particularly in post-9/11 America, that is argument enough. But others believe that Saddam and his lust for ever more powerful weaponry is only part of the story. Largely missing from the debate is a simple fact: Iraq sits atop the world’s second-largest reserves of oil — a resource that translates into hundreds of billions of dollars and enormous economic power.

Within America, street protests accusing the administration of yearning to launch an “oil war” occur occasionally, but they pale in comparison to the vehemence of that charge in foreign capitals and newspapers. In European and Asian capitals, and in the restive Muslim world in particular, an “imperialistic quest for oil,” as Saddam himself frames it, is taken by many to be the ultimate goal of American policy toward Iraq. Even friendly Arab nations see it so. Al Ahram, the government-controlled newspaper of record in Egypt, led its editorial page recently with a piece by Palestinian-American Professor Edward Said, who wrote:

“Second to Saudi Arabia, Iraq has the largest oil reserves on earth, and the roughly 1.1 trillion dollars worth of oil — much of it already committed by Saddam to Russia, France and a few other countries … is a crucial aim of U.S. strategy.”

…

No reputable analyst denies the windfall that might result for Western energy firms and the economies they power from an extended American occupation of Iraq. While Iraq’s political landscape is complex and potentially explosive, many see a post-Saddam Iraq as an opportunity to ensure that Iraq’s vast potential as an oil supplier, long retarded by Saddam’s aggression and U.N. sanctions, can be used to stabilize or even lower world oil prices for decades to come.

“It is not necessarily easy, but the scenario exists whereby Britain and the United States, by handling Iraq’s oil resources a certain way, could carve out the ultimate ‘strategic petroleum reserve,’ ” says Dr. F.J. Chalabi, a former Iraqi deputy oil minister who left in 1976 and now runs an energy consulting firm in London. “It is certainly feasible.”

Such speculation about long-term American motives is bolstered by the deep ties between senior Bush administration officials, including the president and vice president, and the energy industry.

Among the facts that raise eyebrows:

The president, vice president and national security adviser all claim a stunning pedigree. Bush is a former director of Harken Energy Corp.; Cheney served as chief executive officer of Halliburton Energy Services Corp.; and National Security Council Director Condoleezza Rice served on the board of directors of Chevron, which later named a super-tanker after her.

Financial disclosure forms reviewed by the Center for Public Integrity, a non-partisan watchdog group, report that the top 100 officials in the Bush administration have the majority of their personal investments, almost $150 million, in the traditional energy and natural resource sectors. For instance, Rice holds $225,000 worth of Chevron stock in a blind trust.

Cheney’s commission on energy policy, which submitted a report last year recommending that the United States “conduct an immediate policy review toward Iraq” that includes “military … assessments.”

Added to all this is a key geo-political fact of the post 9/11 world: America’s deep displeasure with Saudi Arabia, currently America’s largest oil supplier in the Middle East and the nation that, by and large, controls the world’s oil markets through its own enormous reserves and its lock on the internal politics of the oil cartel, OPEC — the Organization of Petroleum Exporting Countries.

Oh wait–someone did. That long quote is from the MSNBC article Oil after Saddam: All bets are in, published November 7, 2002, just over 4 months before the war started. Follow the link for even more detail, and see this page for links to all 5 articles in the series.

So, which is it? Did the US go to war to enrich the oil companies? Or did we do it because Bush and Cheney saw peak oil and the growing oil appetites of China and India looming far too soon for a comfortable transition away from oil, and took the only steps they could see to ensure a supply of oil to the US? (And let me remind everyone yet again of Matt Simmons’ exchange with Bush, in which Simmons asked him what he thought of his (Simmons’) writings and speeches about peak oil, and Bush told him to keep doing it.) Who said there has to be only one reason? Why isn’t it possible that Bush and Cheney saw a “need” to do the unthinkable to Save The Country, and if it meant vast profits for their friends in the oil business, well, that was just a bonus?

And couldn’t this be what Bush is referring to when he talks about being judged kindly by history? Could he really be saying, “Once peak oil has the world by the short hairs, Americans will be thankful I started this war and kept the Chinese from monopolizing Iraq’s oil”?

It’s all too plausible, even for someone like me who deeply believed that the country he loves and has lived his entire life in could never do such a thing. Where are those WMD’s, anyway?[1] Where are the infamous unmanned drones that US Senators were told could reach the US to deliver WMD’s? Why should we think that a country that had no role in the War on Terrorism in 2003 had to be invaded and all but destroyed? As the official reasons for this invasion dissolve, one by one, we’re left with the following inescapable facts:

• The US went to war over oil in this region in 1991. Surely you don’t think the First Gulf War was over fig exports, right?
• The US started a war in 2003 with Iraq, a country that was no threat to us.
• The costs of the war will be many, many thousands of lives lost or irreparably harmed, plus trillions of dollars in the long run, once the US rebuilds its worn-down military and takes care of its wounded for the rest of their lives.
• The US shows no signs of leaving Iraq, regardless of how the November elections turn out. (Who here thinks that we’ll completely withdraw our military forces and leave civilian oil workers in the middle of that mess we’ve created?)
• Western oil companies are about to strike a no-bid, and likely extremely profitable, contract to extract Iraqi oil.
• If peak oil is coming very soon, it could make a huge difference in the US’ outlook to have access, even at very high market prices, to Iraq’s oil and natural gas.[2]

At some point, no matter how frightening or abhorrent or shameful or unthinkable reality is, whether it’s the imminent dangers of peak oil, global warming, and ocean acidification, or our own dawning awareness of the awful reasons for military action, we have to recognize that reality is utterly indifferent to our desires and preconceived notions.

[1] And lest anyone try to tell me the blame for the mysteriously missing WMD’s belongs to the US intelligence agencies, I respectfully suggest you do your homework first. As a start, try Googling “seymour hersh stovepiping” and see how the US intelligence apparatus was misused.

[2] Do not think, even for a second, that I’m in any way suggesting that this was the only course of action open to the US or that it was anywhere near being the best option.

I didn’t want this to be lost in the comments on my prior post about the Bush/McCain ANWR/OCS drilling nonsense, so I’m posting it as a standalone item.

Joe Romm pointed out over on Climate Progress that even drilling the heck out of the outer continental shelf won’t make any significant difference. In EIA bombshell: Offshore drilling “would not have a significant impact on domestic crude oil and natural gas production or prices before 2030″ he says:

The U.S. Energy Information Administration (EIA) recently did a detailed study of the likely outcome of offshore drilling for their Annual Energy Outlook 2007, “Impacts of Increased Access to Oil and Natural Gas Resources in the Lower 48 Federal Outer Continental Shelf (OCS).” The sobering conclusion:

The projections in the OCS access case indicate that access to the Pacific, Atlantic, and eastern Gulf regions would not have a significant impact on domestic crude oil and natural gas production or prices before 2030.

And the impact of the projected 7% (!) increase in lower-48 oil production that might result in 2030 thanks to opening the OCS is… wait for it…

…any impact on average wellhead prices is expected to be insignificant.

The picture for natural gas is no brighter, as the EIA page linked above says: “Similarly, lower 48 natural gas production is not projected to increase substantially by 2030 as a result of increased access to the OCS.”

If you want foolproof carbon capture and sequestration that doesn’t require any technological breakthroughs or the construction of miles-long pipelines, etc., try this: Leave as much of the fossil fuels in the ground as possible.

OK, now that Bush and McCain are making an issue out of opening up currently off-limits area to oil drilling, most notably offshore areas, it’s time for me to address this yet again.

There’s a lot of noise on this issue, and almost all of it ignores the peak oil factor. But first, let me dispense with some of said noise.

The right wingers claim that we should exploit our resources to push down oil prices. If we threw open the offshore areas to oil exploration and exploitation, it would take years, probably 6 or 7 at a bare minimum and likely longer, for any of that oil to reach the market. Not for it to reach the maximum flow, but for the first trickle of black gold to be turned into a usable commercial product. And even then the amount of oil reaching the market will likely result in a minor reduction of oil prices. That’s compared to what they would be years from now without this additional drilling, not compared to current prices; even with this new drilling we could still see prices well above $130/barrel by then, especially if we’re on track for a near-term peak in 2011/2012. So any notion that this oil will return us to cheap prices is ridiculous, although it could be the difference between painfully high and catastrophically high oil prices.

The lefties claim that there will be damage to environmentally sensitive areas. This is no doubt true, in a purely probabilistic sense–there will be at least some damage in some areas–but no one can be sure how bad it will be. They’re also claiming that the oil companies have huge areas of federal lands and offshore areas open to drilling that aren’t being exploited. While I suspect that this is literally true, I’d also guess that at least some of that area is being assessed and explored, but not actually drilled right now, and some has been assessed and determined to be not worth drilling.

So where does this leave us, and what should the US do?

The short answer is that we are once again facing the challenge of cutting through the interminable political noise to find the underlying signal.

The longer answer is bit complicated.

The longer we leave that oil in the ground, the better, as it means less CO2 in the air and more of an incentive (yes, via higher prices and economic pain) to transition away from oil. It also means more oil we can tap if things get truly desperate post peak. But wait, if it takes at least 6 years to develop these oil reserves, then shouldn’t we be starting the process now, when some people (like me) claim that the peak is only 3 or 4 years away? No, because we’re not going to hit a brick wall the day after peak oil is reached. We’ve been on a production plateau for several years already, and higher prices are providing a significant incentive to use less oil in national economies around the world. But to be blunt, we haven’t been truly tested yet by higher prices, and we still have a hell of a lot of low-hanging conservation fruit waiting to be plucked. (For one take from a mainstream economist on how high oil prices could go in the short run, see $7 US gasoline in four years.)

My long-standing prediction is that we will surely drill for that oil (and natural gas), as well as reserves just about anywhere on the planet we can find and extract them. I don’t see a politically viable path for the US and the world to transition away from oil (and natural gas) consumption quickly enough to avert vastly higher prices and economic pain. The demands from consumers for policymakers to “do something” will overwhelm everything, including the widely recognized, desperate need to reduce CO2 emissions.

As the dual problems of global warming and peak oil become so pressing that even US politicians can no longer ignore them, they, and all Americans, will face a daunting series of public policy questions. In one way or another, all the questions raised by the need to rein in CO2 emissions and accelerate our transition away from oil as a primary energy source share one thing in common: An implicit decision about the “proper” roles of government and free markets in achieving these goals. It’s quickly becoming clear that the first of these painfully difficult decision points is already upon us, namely: What can and should the US government do about the imploding airline sector?

This is the question posed by the report “Oil Prices and the Looming U.S. Aviation
Industry Catastrophe: A Hole In The Transport Grid”[8-page, 94KB PDF], written by the Business Travel Coalition and AirlineForecasts, LLC. The report paints an stark picture, by any measure, as summarized in the press release (emphasis added):

At current oil prices, several large and small U.S. airlines will default on their obligations to creditors beginning at the end of 2008 and early 2009, according to a study issued today by AirlineForecasts, LLC and the Business Travel Coalition. The study shows that $130/barrel oil prices will increase yearly airline costs by $30 billion, while airlines will be able to generate only $4 billion in fare increases and incremental fees. The implication of this alarming trend is that several large and small airlines will ultimately end up in bankruptcy, and of those, some will be forced to liquidate.

…

“If oil prices stay anywhere near $130/barrel, all major legacy airlines will be in default on various debt covenants by the end of 2008 or early 2009,” the study conducted by AirlineForecasts for BTC states. “U.S. commercial aviation is in full blown crisis and heading toward a catastrophe.”

“Airlines are the primary source of inter-city transportation, critical to national and local economic development, the flow of human capital, movement of just-in-time parts for manufacturing, perishable food and other goods critical to our economy,” the study says. “With airlines gravely threatened, so is our economic well-being.”

Findings:

* The top 10 U.S. airlines will spend almost $25 billion in higher fuel costs this year over last year when jet fuel averaged $2.11 per gallon. Fuel hedge benefits could offset $5 to $6 billion of the increased fuel costs.

…

* Industry fares will have to increase at least 20% - across the board and on average - just to cover the dramatic gap-up in fuel costs from 2007. This is not possible given the level of uneconomic seat capacity in the system today.

* The upshot of higher fares is less traffic, and given a reasonable estimate of price elasticity, the industry will eventually be forced to shrink its seat capacity by 15% to 20%. However, there is no guarantee that a transition to a smaller, more expensive (for the consumer) airline industry would be successful and sustainable.

* Airlines have the ability to raise some cash, and moreover, suppliers such as aircraft manufacturers, leasing companies and travel management companies will have an incentive to support large airlines that provide a stream of value. Nevertheless, without a swift reduction in the price of fuel, the industry is headed toward a massive failure that will result in more bankruptcies, including liquidations.

“The U.S. airlines, and those who depend on them, are watching with growing alarm as their cash reserves fall precipitously toward zero as the price of oil, already at unsustainable levels, continuously spikes into uncharted territory,” the study says. “These airlines have never faced a darker future.”

“Brand name legacy carriers that we and American communities from coast to coast have depended upon for decades to provide us with affordable, frequent air service are running out of cash, and therefore, toward a date with bankruptcy and liquidation,” the report warns.

“Airlines can attempt to radically shrink the industry,” the study states. “But given the competitive situation they face, it’s highly unlikely that they will have the ability to reduce capacity to levels that will allow all of them to survive. Instead, absent direct policy intervention, the likelihood is several airlines will fail.”

“Stabilizing this ailing industry must become a national policy priority,” the report states. “Many Members of Congress, federal regulatory officials, state legislators and Governors have yet to fully appreciate the devastating impact an oil-crippled airline industry will wreak on our culture and our national and local economies.”

The report itself says (pages seven and eight):

To fully grasp the gravity of the current situation, it’s useful to reference some historic context. During the airline industry cyclical downturn in the early 1990s, the industry lost a cumulative $12 billion between the fourth quarter of 1990 and the first quarter of 1993. What followed were 6 years of profits
sufficient for airlines to repair damaged balance sheets. (US Airways even repurchased $2 billion of its stock.)

The most recent downturn in 2000 lasted until 2006 and reported net losses were over $44 billion. The industry only had one year of profitability, in 2007, at less than $4 billion, to begin the balance sheet repair work before it was plunged into deep losses again in 2008. Importantly, during this most recent downturn, significant costs were taken out of the industry, and for many airlines, virtually all assets were mortgaged. Most airlines have little flexibility now as they face both a slowing economy and record-setting jet fuel prices.

…

A catastrophic result for U.S. airlines can be averted if policymakers, particularly in the White House and Congress, step up purposefully to address this monumental challenge. There is still time to make a difference. This is important not only for airlines and their passengers, but also for every business that uses oil products.

In the weeks ahead, BTC will work with its allies to bring forward to Congress and the Administration some specific proposals that will help address the near and long-term implications of the aviation fuel crisis.

We urgently need a new energy policy that will give the airlines a fighting chance to survive and recover — and serve all members of the traveling public for many years to come.

Even if you want to apply a fudge factor to these claims–it’s a business sector claiming times are tough and asking for government help, not a condition that historically tends to result in understatement–it’s hard not to agree with the conclusions of this paper. We’ve already seen several airlines increasing fees, retiring less fuel efficient airplanes, laying off workers, and even flying slower. As I’ve pointed out in some detail (e.g. Airlines, Apocalypticons, and the rest of us), the essential problem is that airlines have no where to turn; they’re tied to the cost of jet fuel, with no substitutes in sight.

So, if you wake up tomorrow morning and find out you’re the US president (with far more time in office remaining than George Bush) or the Senate Majority Leader or Speaker of the House, say, what policy fixes for this quickly unfolding mess would you propose?[1] I’m not talking about blue sky, magic wand notion that we can talk about on a blog and then blithely ignore, but real world, honest-to-Orville-and-Wilbur solutions that must (1) pass through the legislative process intact, (2) actually address the problem to an acceptable degree, and (3) do so at an acceptable cost to the taxpayer at a time when the US Treasury is geysering red ink and the US has an astronomically high national debt.

The first step, clearly, is to define what “acceptable” in (2) above means. Do you try to save all airlines over a certain size? Or do you determine a minimal size for the overall airline sector and try to save just enough carriers to meet that level of service (meaning coverage and number of flights), regardless of which companies that means saving or throwing to the wolves of the marketplace? My gut feeling is that the latter is the best approach, since our goal is to save the country from the pain of an airline sector collapse, not save individual companies.

Once we have some sort of metric for “acceptable”, then what do we do? I think the only viable approaches are to subsidize tickets or subsidize fuel costs. Subsidizing tickets would quickly turn into a infinite mess, I suspect, as the sheer volume of tickets and the resulting logistics would outstrip the government’s management skills, especially in the short run. If we were to subsidize fuel, however, it would be orders of magnitude simpler to administrate and adjust the program, and we would be directly addressing the problem: Fuel costs.

So, we decide to subsidize all airlines to a set fuel cost. What’s the magic number, and how much does it cost? The above report has a table (page 5) that provides various oil prices and their effects on the airline industry. This table says oil at $130/barrel equates to jet fuel at $3.80/gallon, and $100 oil translates to jet fuel at $3.10/gallon. For the sake of example, assume we’re aiming for the $100/barrel oil, $3.10/gallon fuel price point, although I’m not sure that the airlines would agree that this is enough help.

The US uses about 1.6 million barrels of jet fuel/day, or 67.2 million gallons/day, according to the current TWIP report, and oil is just a bit over $130/barrel. So we’re talking about the government underwriting 70 cents of ever gallon of jet fuel, at a daily cost of about $47 million, which is $17.1 billion/year. Given that the US is spending about $12 billion every month in Iraq, an endeavor which should end sometime within the life of at least some people reading this, this doesn’t seem too bad.

There are some very serious issues here, obviously:

• How long do you subsidize jet fuel? Until oil prices come down on their own? Lots of luck on that front. Until airlines shrink enough that they can survive without subsidies, i.e. the conversion to a boutique industry that serves only the wealthy? That’s what we’re trying to avoid in the first place, so that’s out of the question unless your goal is merely to slow the collapse of the airlines enough to let the rest of the economy adjust and soften the shock.
• Lower fuel prices means you’ll have more people flying than if you hadn’t created the subsidies, so that means more oil diverted to jet fuel and less to gasoline, diesel fuel, and home heating oil, as well as more CO2 emissions that we have to deal with as part of that other growling monster under our bed.
• How do you pay for the subsidies? Do you generate some other revenue stream–windfall profits tax on oil companies, anyone?–or do you simply pile it on the mountain that is our yearly deficit?
• What do you do if the crazy people on the Internet, like, well, me, are right and we hit peak oil in just a few years and oil becomes much more expensive, pushing up the cost of your subsidies? Do you maintain your commitment to subsidize jet fuel at $X/gallon, or is your commitment to subsidize by Y cents per gallon? Even if you stick to the Y cents/gallon formula, how many other, equally dire demands on the government will materialize once we get into the age of truly expensive oil?

I often say that one of the things I’m thankful for on a daily basis when I wake up is that I’m not the president of the US, and this airline situation is a prime example why that observation is less amusing on some days than others. In light of the range of current and developing issues facing the US, all industrialized countries, and essentially the entire human race, I honestly have no idea what I would do about this.

See also:

• Airlines, Apocalypticons, and the rest of us
• Airline Armageddon
• Aviation articles on the TCOE discussion board

[1] I’m assuming that you agree that this is a very big problem that should be addressed if at all possible. If you think it’s either not a problem for the country to have the airline sector implode, or you think we should just let it “sort itself out” as the free marketeers like to say, then consider the rest of this post as an exercise in fantasy.

Three items that I highly recommend to all the TCOE faithful:

First is Mark Lynas’ article, Climate chaos is inevitable. We can only avert oblivion (emphasis added):

Sometimes we need to think the unthinkable, particularly when dealing with a problem as dangerous as climate change - there is no room for dogma when considering the future habitability of our planet. It was in this spirit that I and a panel of other specialists in climate, economics and policy-making met under the aegis of the Stockholm Network thinktank to map out future scenarios for how international policy might evolve - and what the eventual impact might be on the earth’s climate. We came up with three alternative visions of the future, and asked experts at the Met Office Hadley Centre to run them through its climate models to give each a projected temperature rise. The results were both surprising, and profoundly disturbing.

We gave each scenario a name. The most pessimistic was labelled “agree and ignore” - a world where governments meet to make commitments on climate change, but then backtrack or fail to comply with them. Sound familiar? It should: this scenario most closely resembles the past 10 years, and it projects emissions on an upward trend until 2045. A more optimistic scenario was termed “Kyoto plus”: here governments make a strong agreement in Copenhagen in 2009, binding industrialised countries into a new round of Kyoto-style targets, with developing countries joining successively as they achieve “first world” status. This scenario represents the best outcome that can plausibly result from the current process - but ominously, it still sees emissions rising until 2030.

The third scenario - called “step change” - is worth a closer look. Here we envisaged massive climate disasters around the world in 2010 and 2011 causing a sudden increase in the sense of urgency surrounding global warming. Energised, world leaders ditch Kyoto, abandoning efforts to regulate emissions at a national level. Instead, they focus on the companies that produce fossil fuels in the first place - from oil and gas wells and coal mines - with the UN setting a global “upstream” production cap and auctioning tradable permits to carbon producers. Instead of all the complexity of regulating squabbling nations and billions of people, the price mechanism does the work: companies simply pass on their increased costs to consumers, and demand for carbon-intensive products begins to fall. The auctioning of permits raises trillions of dollars to be spent smoothing the transition to a low-carbon economy and offsetting the impact of price rises on the poor. A clear long-term framework puts a price on carbon, giving business a strong incentive to shift investment into renewable energy and low-carbon manufacturing. Most importantly, a strong carbon cap means that global emissions peak as early as 2017.

…

But let’s look at the modelled temperature increases associated with each scenario. “Agree and ignore” sees temperatures rise by 4.85C by 2100 (with a 90% probability); for “Kyoto plus”, it’s 3.31C; and “step change” 2.89C. This is the depressing bit: no politically plausible scenario we could envisage will now keep the world below the danger threshold of two degrees, the official target of both the EU and UK. This means that all scenarios see the total disappearance of Arctic sea ice; spreading deserts and water stress in the sub-tropics; extreme weather and floods; and melting glaciers in the Andes and Himalayas. Hence the need to focus far more on adaptation: these are impacts that humanity is going to have to deal with whatever now happens at the policy level.

But the other great lesson is that sticking with current policy is actually a very risky option, rather than a safe bet. Betting on Kyoto could mean triggering the collapse of the West Antarctic ice sheet and crossing thresholds that involve massive methane release from melting Siberian permafrost. If current policy continues to fail - along the lines of the “agree and ignore” scenario - then 50% to 80% of all species on earth could be driven to extinction by the magnitude and rapidity of warming, and much of the planet’s surface left uninhabitable to humans. Billions, not millions, of people would be displaced.

My view is that we’re definitely deep into the “agree and ignore” scenario, as Lynas points out, and that we’ll completely skip “Kyoto plus” and go straight to “step change”. The key questions I have about this meta scenario are [1] how big will the shocking event(s) have to be to kick start our collective response?, and [2] will Earth’s climate cross a tipping point before we take meaningful action, thanks to to our delay now plus the additional time lost when we take insufficient and just plain wrong steps, whenever that happens?

I know this sounds much more pessimistic than is typical for me on this site, but the more I read about the climate mess we continue to make, the worse I think it is. I’m convinced that James Hansen and others are right, and that the magic number (parts per million of CO2 in the atmosphere) for avoiding truly awful effects is closer to 350 than 450. (We’re currently at about 385, with a hell of a lot more CO2 effectively in the pipeline thanks things like all those existing and new coal plants, all those existing and new vehicles driving around, etc.)

See 350.org for Bill McKibben’s effort to get the word out about the magic number.

You can download the Climate Scenarios document Lynas mentions above here (small PDF).

Second is yet another article on methane release from the no-longer-permafrost, described in the article, Global Warming Could Release Trillions Of Pounds Of Carbon Annually From East Siberia’s Vast Frozen Soils:

East Siberia’s permafrost contains about 500 Gigatons (1100 trillion pounds) of frozen carbon deposits that are highly susceptible to disturbances as the climate warms.

Called the Yedoma, this permafrost has not undergone much alteration by soil microorganisms since its formation, which took place between 20,000 and 40,000 years ago. To investigate how easily this huge carbon stock could be degassed in future warming scenarios, Khvorostyanov et al. use a model of heat transfer and soil organic matter decomposition in frozen soils and find that specific conditions trigger the irreversible thawing of Yedoma, which is maintained by heat production by soil microbial activity.

Once started, irreversible thawing could release 4.4-6.2 trillion pounds of carbon per year into the atmosphere between the years 2300 and 2400, transforming 74 percent of the initial carbon stock into carbon dioxide and methane.

Further investigations reveal that the faster the planet’s surface warms, the sooner fast deep-soil decomposition will start, although the tipping point above which soil carbon starts irreversible mobilization due to permafrost thawing increases slightly with larger external warming rates.

The actual article is here, although only the abstract is freely available.

My most recent posting on this is Pondering a methane apocalypse.

Finally we have one of two dates I refer to as Energy Geek Christmas–the day the BP Statistical Review of World Energy is released. (The other is the day the DOE/EIA releases the Annual Energy Review, obviously.)

The 2008 release of the BP Statistical Review is available in various forms from BP’s site here.

While I haven’t had a chance yet to go through this year’s edition carefully, I did notice a few numbers in the oil section that relates to something I’ve mentioned here numerous times, namely reserves reporting for oil producers, and not just those in the Persian Gulf area.

The numbers below are all from page 6 of the report, the units being billions of barrels of oil in “proved reserves”. (The report also lists Canadian oil sands at the bottom of the table as a separate category from conventional Canadian reserves, at 152.2 billion barrels. Add your own riff on the “it’s not the size of the reserves but how quickly you can extract them” speec