Although current oil prices are temporarily low, long-term energy costs are on the rise, reports the Worldwatch Institute in its State of the World 2015Â report. The Worldwatch Institute warns that âhigher energy costs will have ripple effects through economies built around continued large energy-input requirementsâ.
According to contributing author Nathan John Hagens, a former hedge fund manager who teaches human macro-ecology at the University of Minnesota, ânations are papering over those costs with debt. Higher energy costs are leading to continued recessions, excess claims on future natural resources, and more-severe social inequality and povertyâ, says Hagens.
In a press release earlier this month, the Worldwatch Institute notes âthat the relatively low cost of energy extraction compared to the benefits obtained from fossil fuels has been perhaps the most important factor in the industrialized worldâs economic success. Historically, large quantities of inexpensive fuels were available even after accounting for the energy lost to extract and process them.â
However, it warns that âas remaining fuels become less accessible, higher energy costs will have ripple effects through economies built around continued large energy-input requirements. Rising costs will endanger highly energy-intensive industries and practicesâincluding the energy sector itselfâas well as widen and deepen poverty as everything becomes more expensive.â
âDespite having âplenty of energy,â higher physical costs of extraction suggest that energy likely will rise from a historical average of 5 percent of GDP [gross domestic product], to 10â15 percent of GDP or higher,â writes Hagens.
Hagens sees a connection between the rising cost of energy and the rising debts of countries. âIn the short term, nations are taking on growing debt to avoid losses in GDP. Since 2008, the Group of Seven nations (Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States) have added about $1 trillion per year in nominal GDP, but only by increasing their debt by over $18 trillion. However, continued use of credit to mask the declining productivity of energy extraction is unsustainable. For each additional debt dollar, less and less GDP is generated, and, at the same time, our highest-energy-gain fuels are being depleted. Energy is becoming more expensive for the creditor in the future than for the debtor in the present.â
âWe have entered a period of unknown duration where things are going to be tough,â writes Hagens. âBut humanity in the past has responded in creative, unexpected ways with new inventions and aspirations. While policy choices such as banking reform, a carbon and consumption tax, and moving away from GDP as a proxy for well-being are good long-term ideas, we urgently need institutions and populations to begin to prepareâŚfor a world with the same or less each year instead of more.â
The Worldwatch Instituteâs State of the World 2015 investigates hidden threats to sustainability, including economic, political, and environmental challenges that are often underreported in the media. State of the World 2015 highlights the need to develop resilience to looming shocks.
Mike Parr says
Not mentioned is “energy efficiency” which is by far the lowest cost action one can take to reduce energy expenditures (and by implication make more expensive energy go further). Furthermore, RES energy costs (in the right place) are now cheaper than new fossil generation. Furthermore, payback for this tech is relatively quick (e.g. 8 years for the recent Danish off-shore tender round) & offers no hostages to fortune. However, I agree with the author that humanity will respond in creative ways to growing fossil costs.
Kevin Brandon says
Actually the author did discuss efficiency in the chapter, as being important but secondary to rising prices. Starting with a price index of 100, if prices triple (300) and we somehow get 30% more efficient, we are not at 210 instead of 100. Also, the point (I think) isn’t that renewables are getting cheaper, but that at todays prices any combination of renewables and FF can’t continue to service global financial claims, which means other problems not being addressed will come sooner.