Monday, June 18, 2007

The Evolution of Fuel

The 1940’s movie The Proud Valley—starring Paul Robeson, depicts a community in South Wales whose economic sustenance depends on coal. Set in the depression era, the film echoes the declining need for coal worldwide. At the time, England was accustomed to being one of the leading providers of coal despite the fact that she occupied only .04% of the world’s land mass.

Long before The Proud Valley story was conceived, Stanley Jevons’, in his book The Coal Question: An Inquiry Concerning the Progress of the Nation, and the Probable Exhaustion of Our Coal Mines, predicted the fall of England’s industrialism and global might due to a limited supply of coal. With the benefit of history on our side, we can see that while economics did shift over time, England has hardly lost its place as a world leader.

Despite the fear that England would run out of coal—causing its ruin, more than 100 years after Jevons’ pronouncement, England has yet to run out of coal. It is still being mined and used in the UK today. The World Coal Institute says, “The UK has proved coal reserves of around 220 million tonnes however total reserves could be well in excess of 1 billion tonnes.”

What happened to coal in England? How was Stanley Jevons—and other notable thinkers of his day, and Robert Malthus of days past—so wrong? Other fuels emerged and began to replace coal for industrial boilers and electricity generation—stretching its supply. Additionally, advanced technology allowed for the discovery of new coal reserves.

Like Jevons in the mid 1800’s, we have our own doomsayers today. Just this morning a link to an article in the June 25 issue of Business Week landed in CARE’s “inbox.” The article, titled From Peak Oil to Dark Age, declares that “peak oil represents a mortal threat to the US Economy.” The author, Eugene Linden, goes on to say, “Alternatives are still a decade away from meeting incremental demand for oil. With nothing to fill the gap, global economic growth would slow, stop, and then reverse; international tensions would soar as nations seek access to diminishing supplies, enriching autocratic rulers in unstable oil states; and, unless other sources of energy could be ramped up with extreme haste, the world could plunge into a new Dark Age.” He concludes the article by suggested a new oil tax.

However a quick review of the history of fuel leads to the conclusion that just as Jevons was wrong, so is Linden and the cadre of other modern-day pessimists. The missing link in the evolution of fuel is human ingenuity.

In his 29 page article in The Review of Austrian Economics, CARE’s Energy Council Member, Robert Bradley, offers an insightful view of various economic models as they relate to the fuel supply. In reading this historical look, one cannot help but to go back to fuel’s ancient history.

Fire was one of man’s earliest inventions. With the thinking capacity that is unique to mankind, early humans discovered that wood would burn—generating heat to stave off the cold and to allow for cooking. Later, man discovered the whale as a source for oil with which he could generate heat and light. Taking a quick jump though history, American settlers had nearly stripped the local forests of wood in their attempts at heating and cooking. Coal was discovered in the 16th century, saving the forests. The whale was nearly extinct when oil from the earth was found and used to light lamps. These are just two examples of orderly transitions between primary energies in world history.

Moving back to England, the starting point of this progression, there was wide-spread and well-founded fear that coal would run out. But before this prediction came true, a new fuel source was developed: oil and gas—allowing the life of the coal supply to be extended (something Jevons could not have imagined). Additionally, as previously mentioned, technology improved to discover new reserves. What we see in this brief history is “resource expansion,” new resources are developed and new techniques created to allow us to make better use of known supplies.

Looking at history, we can assume the same will happen. Despite Linden’s gloom and doom, he suggests that the wide scale use of alternative fuels is ten years off. With human ingenuity, chances are very high that we have ten years worth of oil and gas available. We have time for whatever “the alternative” becomes to be developed. Linden says, “Policymakers can hide behind the possibility that vast troves will be available from unconventional sources.” It is not just policymakers who may cling to that belief, but anyone who studies history. Linden apparently holds to the fixity/depletionism model, believing that there is a limited supply that will run out. On the flip side is mineral resourceship, which is much like manufacturing—the making of capitol goods; the distinction between depletable and nondepletable resources for the sciences of human action.

In its short life (three years) CARE has seen this first hand. We have seen both human ingenuity and the development of new resources come together. Canada’s tar sands and Shell’s oil shale project are just two examples of new resources—both of which required human creativity. Interestingly, exploiting fixed resources promotes future progress because wealth is created from present usage. Higher prices signal the market to develop substitutes. Enforced conservation in ages past would have held back the progress responsible for today’s high standards of living and the capacity to mine new resources. (Industrial development would have been greatly retarded it sixty or eighty years ago the warning of conservationists about the threatening exhaustion of the supply of coal had been heeded.) Again, we have seen this principle ring true at CARE. One of our members has been working on entering old, abandoned wells. These wells once produced oil but were closed when the easy oil was obtained. With modern technology, this group is able to reenter these wells and reap the rewards that higher prices make cost-effective. The tar sands, the oil shale and the reentry of previously mature wells are simple examples of how modern technology, through improved geological techniques and through the incentive of the market, has been finding new petroleum reserves at a rapid rate. Each invention gives rise to numerous others—though the sister resources that can perform the same or similar function may be at a higher cost (at least for the transition period).

In creating the better, we must often destroy the good. Look at history, you’ll see that the bulk of man’s resources are the result of human ingenuity, aided by slowly, patiently, painfully acquired knowledge and experience. The constraints toward particular resources are overcome by the propensity of human capitol to expand the family of resources. If we exhaust creative imagination, we will exhaust resources. However, this is where America leads! This is the vital role of capitalism: the savings and investment generated by a market economy to locate and produce new deposits at stable or declining cost. The countries rich in oil, are not rich in human ingenuity. They are not rich in creativity.

One must acknowledge that the total supply of any mineral is unknown and unknowable because the future knowledge that would create minerals cannot be known before its time. Therefore the distinction between renewable and non-renewable resources is tenuous.

The resources of the future are waiting for us. They are waiting for the forces of economics to come together with human ingenuity. We have the creativity, we have the energy, to again make America great—a leader in mineral resources. America can once again be a world leader. Do we need to worry about peak oil? What does history tell you? The future is likely beyond your imagination!

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