sustainable use humphrey 2009

8/8/2019 Sustainable Use Humphrey 2009

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Sustainable Use and Depletion of NaturalResources: Lessons for the Energy System

Stephen R. Humphrey - University of Florida

All industrial activity depends on energy and material. Knowing the principles for their provision and use

could determine whether industrial societies succeed or failan extraordinary imperative for the rising

generation. My purpose is to clarify these principles for renewable and exhaustible resources,

integrating biophysical dynamics and human behavior. Then Ill apply them to the energy system, for

which adaptation over the next few decades is crucial. My intent is to arm students with some vital

ideas and inspire you to a positive and constructive ambition to meet the challenges ahead.


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What is an exhaustible natural resource? What about non-renewable resources?

All NRR are exhaustible, only the depletion rate can be managed .

Its important to answer some very basic questions, about which people are remarkably confused.

What is an exhaustible natural resource? This economists term is helpful because the class is much

larger than generally recognized. First, all non-renewable resources are exhaustible. These include

crude oil, coal, copper, rock phosphate, uranium, and rubies (illustrated). The amount of stock is usually

uncertain or unknowable, and its depletion is managed through the rate of extraction. Financial

analysts call these depleting resources.


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Key insight: distinguishing stock and flow The supply in supply and demand is not a resource stock!

Supply is flow, or periodic production from stock

Stock is the resource that may be used sustainably or exhausted

Stock

Flow

The key to understanding these resources is to avoid confusing stock and flow. The graphics show

examples of various stocks and flows.

The supply in economic supply and demand models is the flow or periodic production of a resource,

not its underlying stock. If you manufacture wooden toys and demand goes up, you would like to

increase supply so you order more lumber, and the truck brings more black cherry boards. But the

actual stock of the resource is the forest, not the supply truck. Someone else is managing the stock, not

you.


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Special Model 1: sustainable use of arenewable resource

Roughly 5% harvest is the most biological systems can sustain.The sustainable model is simple but crucial to visualize.

0

100

200

300

400

0 5 10 15 20 25 30 35 40 45 50

RelativeValues

Time

Stock

Flow = Production

Price in Constant $

Price is dependable, like a utility, if

Stock is renewed indefinitely, if

If flow is constrained so as to not draw down stock

Once stocks and flows are viewed explicitly, you can integrate biophysical dynamics and human

behavior with this very simple conceptual model of sustainable use of a renewable resource. The

physical stock (orange) can be renewed indefinitely, and the price (green) is dependable like a utility, if

the flow (blue) is constrained so as to not draw down the stock. Notice that the proportion of flow to

stock is drawn as a 5% harvest. This is the most any biological system can sustainexamples are sugar

cane, cattails, or algae. More typically, sustainable harvest for most terrestrial systems is only 1/25th of

5%, so fixation of solar energy into carbohydrates in most terrestrial systems is quite inefficient.Elaborating this simple model in more complex cases helps to visualize resource-use limits and

opportunities for sustainability.


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Corn: sustainable use, disruptive tech

Applies to non-renewable and renewable resources

Mass selection

Mendelian hybrid trait selection

Here is a variation on the simple sustainable-use model, showing previously limited U.S. production of

corn per acre increasing with application of new technology. Under genetic mass selection of seed corn,

flow was stable for many decades. When the disruptive technology of Mendelian hybrid trait selection

began in the 1940s, and other inputs were managed differently, productivity rose five-fold.


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Is modern corn agriculture sustainable?

Depends whether the renewable inputs are used renewably.And whether the non-renewable inputs have substitutes.

Viewed in this way, the controversy over laboratory management of trait selection pales next to the

questions of whether the use of inputs is sustainable and how we can feed 50% more people by 2050. If

we want modern corn agriculture to be sustainable, we should ensure that the renewable inputs are

used renewably and the non-renewable inputs either have substitutes or are recycled.


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Inferring stock is the most diff icult step.Ex: cumulative world oil & gas discoveries

Backdating corrects errors in reporting date and reserve estimates

Documenting resource stocks is very difficult, done mainly by inference. The best example is for crude

oil, for which public companies are required to report reserve estimates (unfortunately, reserve

estimates of national oil companies are notoriously unreliable). The gray data points show cumulative

discoveries of world oil and gas, backdated from the black points of initial reports. Correcting the initial

data is necessary because oil and gas discoveries often are found to be larger or smaller than initially

assessed, and because some new fields turn out to be part of previously discovered fields. The

asymptotic level of the stock is apparent only when new discoveries become vanishingly small, so formost resources the asymptote is unknown or underestimated. (Oil reserve estimates project forward

only about 10 years, because distant projections are costly and inaccurate, but 10 years of visibility is

very helpfulabout as good as the crystal ball gets.)


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Flow i s seen empirically, see Hubberts1956 data on US oil produced; reservesallow inferring US & world production

Roughly a normal curve: goes parabolic, peaks, then declines with long tail

We know a lot about flow of oil resources, but the picture was quite misleading 60 years ago. Hubberts

seminal 1956 publication challenged the conventional wisdom. He looked at oil production in the lower

48 U.S. states, the upper left graph. He inferred that this could not last forever because the physical

resource would become depleted, so he projected a roughly normal cumulative production curve, and

then he extrapolated the U.S. pattern to the world. His contribution was to anticipate the reversal of

the parabolic curve through a peak and decline, and he speculated that the decline would be elongated

relative to the increase.


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Hubberts peak prediction: correct

Shows 11-year lag from discovery to production, flow varies and skewsto the right via conservation & enhanced oil recovery tech

Here is an update by Ivanhoe (1996) of Hubberts model. Hubbert predicted that US oil discoveries

would peak in 1958 and production would peak in 1969. The actual peak of production occurred in

1970, off by only one year. This update shows some variation in flow and a skew to the right due to

conservation, as well as modest enlargement of production by enhanced oil recovery technologies.

Enhanced oil recovery has historically achieved a 20-40% gain, but increasing this to 30-60% or even

more may be possible if sufficient volumes of CO2 were to become available, at the times and places

needed, from new carbon capture and storage technologies.


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World price of oil (in constant dollars)

This is the left half of the U-shaped price curve

Kerosene light

1st light bulbs

1st Ford car

Gasoline motive power

Electric light

Random

geopolitical

event

Model T

Here are data tracking the left half of the U-shaped price curve (green in the model). When oil was first

drilled in 1859 in Titusville Pennsylvania, the initial price was very high price. It rapidly declined (with

high volatility) to a relatively stable price for many decades, disturbed by a random geopolitical event in

the 1970s. Oil was initially valued as kerosene to make light, when light otherwise came from plant and

animal oils. Geological oil was a large new feedstock for making light.

It was not until invention of the light bulb and distribution systems for electricity around 1880 that

demand and access shifted use of fossil oil from kerosene to electric power generation.

Not until the first Ford car came off the assembly line in 1898 and the first model T in 1908 did gasoline

motive power become a major use for oil.


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Phases of the resource development-depletion model for oil

Prior to peak, price is robust to practices-policies-events, becausesupply is elastic; but when supply is constrained, look out!

Innovation

phase

(Moores law,cheap revolution)

Utility phase

Excursion I: US oil

production peaked;

Arab oil embargo,

Iranian revolution,

Iran-Iraq War,

stagflation

Excursion II:

Demand

growth at

supply

plateau;price rises,

then

demand

drops

Competition, combination, monopo ly, anti-trust, depression, WW I, WW II,

import tariffs & quotas, export controls, price controls, cartel, nationalization

Here are price data for the first two model phases of the oil-resource lifecycle. The innovation phase

was completed in 15 years. The utility phase has lasted 125 years. Its most remarkable attribute was

relative price stability despite an enormous array of practices, policies, and events directly affecting oil

prices. Because supply (flow) was elastic (due to ample stock) during the utility phase of the

development/use/depletion curve, production and demand could equilibrate, keeping price volatility

relatively muted at plus or minus 50%.

Two quite interesting and potentially confusing price excursions have occurred during the utility phase,

however. The first was triggered by a series of geopolitical events in 1973-82: the Arab oil embargo, the

Iranian revolution, and the Iran-Iraq war. These shocks caused economic stagflation and deep recession

in the U.S., where domestic oil production was declining after its 1970 peak. U.S. dependence on

imported oil, whose stock was abundant but flow curtailed, caused a decade of very high prices. The

eventual reduction of mid-1980s prices back down to the utility level showed that world oil stocks were

still in excess of demand for flow. Thus this episode was situated in the left half of the model. More

foreboding, this experience of price spiking due to constrained flow presages severe economic

disruption that will accompany the process of global oil depletion.

The second excursion (2004-09) has occurred as evidence mounts that world oil production is peaking,with flow no longer elastic half-way through the resource lifecycle. If demand cannot be met, prices

would be increasingly vulnerable to geopolitical shocks, investment bubbles, and financial speculation.

The right half of the model thus portends chaos from extremely high and volatile oil prices.


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When w ill world oil production peak?

Duncan and Youngquist:

world oil production peaked in 2007 BP Statistical Review data:

world oil production peaked in 2008

National Petroleum Council 2007: Facing hard truths

Dr. Sadad Al-Husseini: the oil boom is over

(former Saudi Oil Minister)

capacity outlook: 10-year production plateau

Association for the Study of Peak Oil: 2010

Former Shell CEO van der Veer: 2015

International Energy Agency 2008: trends in energysupply and consumption are patently unsustainable

Opinions vary about the timing, but not about the outcome!

Ever since Hubberts work, people have debated when world oil production will peak. This peak has

been declared each year since 2004. Global recession in 2009 will reinforce the 2008 claim, so we will

have to await economic recovery to see if flow can rise further. People with various perspectives

(geologists, oil companies, industry advocates, and government ministers) all agree on the outcome that

rising oil production has ended or will soon end. They disagree only about the timing. So if you are less

than 60 years old (and healthy), you are going to live in a post-petroleum world. Your question should

be What is that going to mean and what will we do about it.


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Adding plausible price volatility to thelifecycle of exhaustible oil

Economic cycles (and ideology) mask the depletion trend.

The left half was fun; the right half will be chaotic.

0

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200

300

400

0 5 10 15 20 25 30 35 40 45 50

RelativeValues

Time

Stock/6

Flow = Production

Price in Constant $

TechnologicalInnovationPhase

Utility or Service Phase

Depletion orExhaustionPhase

Demand Destruction

You Are Here

Recent experience with price spikes shows that we also need to visualize the naturally cyclic behavior of

commodity markets. Here is the model adding plausible price volatility into the lifecycle of exhaustible

fossil oil. (Similar examples occur for renewable resources used unsustainably, shown next.) Feedback

from these cost cycles would affect the stock and flow curves too, but it is sufficient to imagine those

without graphing. More importantly, people who understand finance and investing but not geology

view these excursions as conventional business cycles, after which everything returns to normal. But

the cycles and worldviews mask the underlying trend. If the stock is at a plateau, the next phase isdecline towards exhaustion, and prices will trend upwards with huge volatility. Instability of this

magnitude will destabilize the dependent economy, an outcome worth great costs to avoid.


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Caspian sturgeon landings & caviar price

High demand and unsustainable harvest easily can exhaust arenewable resource

Lets digress to reflect on the generality of the two models. The case of Caspian sturgeon is easily

understood in terms of model 2. The data show the peak and depletion phases of fish landings (flow or

production) and caviar price. The three species in the Caspian sturgeon fishery provide the worlds

luxury caviar, so demand is very high (substitutes exist but are less desirable and fetch lower process).

Ongoing high demand led to commercial exhaustion of this renewable resource.


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US/ global whale oil production & price

Also renewable but used unsustainably, so follows model 2;note the demand destruction by kerosene after 1859

Here is a similar graph for world whale oil production and price over a century. (The main whaling ports

were in New England but the fishery was global.) Whale oil was a luxury good, because it burned

cleanly, did not smell bad, and produced the whitest light. It sold to the wealthy for the equivalent in

todays prices of several hundred dollars a barrel.

On the left is a hint of the innovation phase, perhaps hidden by missing data. Production or flow of

whale oil peaked and then declined. Then something really interesting happened. Price spikes during

depletion were muted by demand destruction, which occurred because kerosene became commonly

fabricated in workshops and then became inexpensive after oil wells were drilled in 1859. The price

chart even shows a double top, well known among investors as signaling the end of a growth industry.


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Northern Cod: sustainable use,disruptive tech, rapid depletion

Shifted from Model 1 to Model 2; ecosystem no longersupports a large cod population or fishery

Numerous, small technological advances in fishing gear

1960 factory freezer-trawler, Fairtry III

Earlier, we looked at model 1 for corn, with a disruptive technology leading to a new high level of

production. Heres another complex case. To understand use and depletion of the (theoretically)

renewable northern cod fishery, shift your understanding of the concept from static to dynamic: the

resource-use system morphed from one model to the other and then progressed rapidly to depletion.

Northern cod were fished sustainably (model 1) for a century, except that a consistent uptrend resulted

from a long series of numerous small technological advances in fishing gear. Then in 1960 the British

invented the factory freezer trawler that could go worldwide, stay out for months or even years, and fish

until the freezers filled. This disruptive technology shifted the fishery to unsustainable use (model 2).

Cod populations quickly crashed. Now the ecosystem cannot longer sustain a large cod population or

fishery because of associated changes in the ecosystem.


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Focus: transforming the energy system

Reason #1: energy services from cheap naturalresources are the basis of our industrial economy

I promised to focus on implications of this thinking for the energy system.

Energy services from cheap natural resources are the basis of our industrial economy. Our experience

with depleting resources calls the question: If the end of the current paradigm is appearing, shouldnt

we transform the energy system before crisis develops?

To visualize our energy sources, heres a graphic with renewables on the left and non-renewables on the

right. The data on percent consumption are out of date; the 2008 sum of U.S. renewables was about10.6% (including hydro) and slowly growing.

Well need all of these for a calm transition, but foresight on the prospects of each is imperative.


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Focus: transforming the energy system

Reason #2: greenhouse gases from fossil fuels arechanging climate--an existential threat to civilization.

The second reason for transforming the energy system is that greenhouse gases from fossil fuels are

warming the climate at a rate that is still seriously underestimated. Shifting to a climate unlike that in

which agriculture developed and civilization prospered is an existential threat.

Not until 2014 will the IPCC produce climate-change models including the destabilizing feedback loops

of melting permafrost, glaciers, ice shelves, sea ice, and seabed methane, reduced albedo, and drought-

and fire-induced loss of forests.

Then the twin problems of energy and climate will be seen in their full significance. Remarkably, both

problems might be solved by the same set of strategies and actions.


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Constraints for the new energy system

To avert the climate-change threat, we must halt and reversecarbon release from fossil fuels, forests, and sediments.

So my argument is: Were going to be forced to transform the energy system by (1) insufficient oil flow

and unaffordable prices and (2) the urgent need to preserve a human-friendly climate.

This implies both constraint and restraint. Well need to replace oil with other energy carriers. And

well need to reduce use of other carbon-intensive fuels (especially coal), or capture the CO2 and

sequester it away from the atmosphere. This investment in survival, however, will not lower standards

of living, because it will create profitable assets.


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The substitution puzzle (Solow 1974)

If we can easily substitute other factors fornatural resources, then we can get alongwithout natural resources, and exhaustion isjust an event, not a catastrophe.

But, if no substitute is found, catastrophe isunavoidable.

In between are many cases where the problemis real, interesting, and not foreclosed.

So, substitution needs disciplined thinking,puzzling out Solows uncertain outcomes byfocusing on innovation.

For guidance on the substitution process, lets turn to economist Robert Solow. On the one hand, he

said that if we can easily substitute other factors for natural resources then we can get along without

natural resources, so exhaustion is just an event, not a catastrophe. On the other, catastrophe is

unavoidable if no substitute is found.

Most interesting of all, he said that in between exhaustion and substitution are cases where the

problem is real, interesting, and not foreclosed. Hes advising us to look at the substitution process in a

disciplined way. We need to puzzle out Solos uncertain outcomes and focus on the innovation process.


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Vinod Khoslas system for drivinginnovation/ adoption of energy tech Principles: promising technologies must be:

Inexhaustible or truly renewable Affordable, low start-up cost, short innovation cycle

Capable of scaling up to demand, w declining costs

Competitive without subsidy in ~10 years

Not energy intensive

Policies: government must:

Encourage capitalists to invest

Subsidize next-least-cost tech

See khoslaventures.com

Heres one innovators stimulating, disciplined thinking for adaptive energy technology. Vinod Khosla

co-founded Sun Microsystems and then devoted himself to investing in new energy technology

companies to help them succeed. His website provides many idea papers and presentations articulating

a set of principles for driving the process.

Promising technologies should have a number of attributes: truly renewable (i.e., renewables used

sustainably) or inexhaustible, affordable, scalable, profitable, and not energy intensive. On careful

examination, many options lack some of these qualities and thus are likely to have limited prospects.

He also favors government policies that encourage and assist capitalists as prime actors to move the

innovation agenda. This requires a transformational vision of the future among our political leadership

and decision-makers. It also implies a risk-support role for government with private people and firms

doing the actual work.

Khosla says What is amazing about this is the size of the markets. We are dealing with much harder

science and technology, so we will see much higher rate of failure, but the wins will be bigger. More

money will be made in cleantech than in traditional areas of Silicon Valleyby far.


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Only a few good choices:Bio fue l ( ce l lu los i c e thano l , bu tano l , a lgae)

Our knowledge of the dynamics of sustainable use and depletion is confirmed by the experience and

judgment of Vinod Khosla: there are only a few good choices for the new energy system.

All the conventional energy sources are dirty and/or dangerous, but theres a pragmatic argument for

using them to bridge from here to where we need to be. Ultimately, however, limited stocks and rising

costs will lead us away from these and toward those that are sustainable for the economy, the

environment, and society.

One strong group of choices is the biofuels, specifically cellulosic ethanol, biobutanol, and algae-

generated biodiesel. Food-based ethanol is not justifiable on economic or humanitarian grounds, but it

serves the temporarily useful role of proving biofuels valuable and developing some of essential

infrastructure. Diffusion of the idea is paving the way for better biofuels, and food-based biofuels will

be phased out rapidly as the others become accessible and cheap. A promising development is the

recent partnering of integrated oil companies with biofuel start-ups. Watch this space.


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Only a few good choices:W i n d

Wind power is the most promising of the true renewables. Installed capacity of wind power accelerated

earliest among the true renewables, and it has huge development prospects in many areas of the world.

Wind power is still a very small part of the energy mix in most places (but 20% in Denmark and parts of

Germany), so the growth trend for wind power should continue. Wind could generate 20% of U.S.

electricity by 2030. To accommodate windless intervals, wind power needs to be paired with backup

power from conventional sources, with natural gas making by far the most sense for now.


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Only a few good choices:Ocean w ave / cu r r en t / t i d e/ t h e rma l

Most hydropower sites have already been exploited, but the special case of ocean energy is an

enormous unexploited opportunity. For example, tapping just 1/1000th of the Gulf Stream current could

supply 35% of Floridas current energy use (all of south Floridas). A few of the illustrations are

operational, but most of these are still in the laboratory-pilot-demonstration phases.


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Pushing the learning curve:

solar PV cheaper each year, grid parity soon

Its crucial to see Moore's Law in operation, in this case for solar PV, so you can see the cheap

revolution at work. Steady, incremental tech innovations push down the learning and cost curve. Solar

photovoltaic gets cheaper each year and has already achieved grid parity where conventional power is

expensive (for example, Hawaii and California). The 2008 industry outlook by Deutsche Bank projectedgeneral grid parity in 2013, or sooner if a disruptive technology appears.


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Learning curves, electricity technologies

Steep: biomass combined heat & power.Cheap: wind, fuel cells, gas combined cycle

Here are learning curves for a wide variety of electricity technologies. The cheap revolution is occurring

everywhere.

Most interesting are (1) the steepest curves, particularly biomass combined heat and power (orange),

where the cheap revolution is fastest, and (2) the lowest curves, which are inherently cheapest. In the

latter set are wind, fuel cells (sourced from natural gas), and natural gas combined cycle.


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Infrastructure needed for all the above,including a bigger, better pow er grid

We need better transmission infrastructure for all the above. As usual, this is not just a matter of tech

innovationwe also need vision, policy leadership, and investment. Acting on the 2002 U.S.

Department of Energy recommendations for the national electricity transmission system would do the

job. DOE has already assessed priorities for planning, siting, and development of existing and new

transmission corridors, and appropriate use of the many existing advanced technologies now blocked by

the business uncertainties of political indecision. These available technologies could enhance reliability

and dramatically increase electricity flows through existing transmission corridors. Additional corridorsare needed to carry electricity from areas of high wind and solar resources to population centers.


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To develop new electricity at 2008 prices, natural gas (#5) is cheapest

Wind is cheaper than coal Nuclear is most costly

To assess prospects for transforming the energy system, we need to calibrate the options by costs of

developing new power generation, not costs of legacy generation. Most comparisons in the popular

press are the latter and thus quite misleading. According to the Federal Energy Regulatory Commission,

new natural gas power was cheapest in 2008, new wind next cheapest, and new nuclear most

expensive. Solar thermal was competitive with coal and cheaper than nuclear. The report did not

address other solar technologies. Keep in mind that cost structure changes with economic conditions

from year to year.

One lesson is to ignore or, better, to confront media reports, for example those comparing the legacy

costs of 1960s nuclear power (heavily subsidized then and now) with costs of newly developed

renewables. The comparison makes renewables look infeasible, which is incorrect.


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