thinkingstring.com

The debate, if you can call it that, in the US over health care system reform is a truly bizarre spectacle, and one that is an abject lesson in how to distract an argument away from the core subject being discussed.

The indisputable fact is that approximately 40,000,000 people in the US cannot afford access to basic health care services. By “basic” I refer not to agonising decision over whether to have nipple enhancement or not while you’re in to get your breasts done. No…by ‘basic’ I mean services like non cosmetic dental care, A&E care, blood pressure and cholesterol diagnosis and treatment, diabetes diagnosis and treatment, natal care, and services to repair all the wear and tear experienced during the average first 18 years of life. The bottom line here is that the current system, the status quo, is structured such that 40 million mothers, fathers, grandparents, sons and daughters have zero ability to pay for services to fix health problems that are chronically painful and perhaps life threatening. With no “health care net” available either “no ability to pay” translates into “zero access”.

To reiterate what is an important and fundamental point. The current population of the UK is approximately 60 million people. If 40 million people in the UK were similarly effectively blocked from access to health care then two thirds of the population could not go to the dentist or doctor ever. The current population of Australia is 21 million - so if you deported all the doctors, nurses and dentists from Australia and closed all the hospitals and clinics you’d still only be halfway to denying 40 million people basic health care services.

Meanwhile, for the other 260 million or so Americans who do have access to health care, services and treatments are eye poppingly expensive. However, be careful your eye doesn’t pop too far out as it may not covered by the health insurance scheme provided by your employer - which is shelling out an estimated US$12,000 per employee per annum to pay for that insurance (providing insurance for the employee and up to 3 dependants). That’s US$12,000 more that could be paid directly to the employee as wages if the employer did not structurally have to cover the health insurance costs. If you think twelve thousand bucks is chicken feed, it is worth remembering that that figure is the about the US minimum wage - though it is also worth remembering that if you were an employee actually on minimum wages, it is unlikely that your employer would also be providing health insurance making you perhaps one of those 40 million people unfamiliar with the inside of a doctor’s waiting room.

This author speaks from experience with regards to the platinum coated pricing schemes of US health care as we had a son born in New York state during the family’s four year tenure in the USA. It is worth providing a short summary of those costs to provide perspective:
- total time mother/son spent in a hospital: 12 hours (the minimum time before you’re allowed to check out after giving birth)
- total time doctor spent in room: 60 seconds (to sign a form)
- nursing staff: 1 “in and out” with the majority of nursing provided by self funded midwife
- drugs and other interventions: zero (yes you read that right; no drugs, no interventions)
- use of “machines that bleep”: zero
- use of ambulance or similar: zero

In short - you would struggle to describe a birth experience that required less support from neo-natal services other than a home birth.

Total cost: just shy of US$8000; with the employer provided insurance paying for 90% and leaving us with a 10% or US$800 deductible. Just what was worth eight thousand dollars of medical treatment remains a mystery to this day.

Meanwhile the US is ranked by the WHO in almost all indicators, except for cancer survival rates, far below Oman, Morroco and Colombia, as well as the UK, France, Germany (just keep listing other major European and Scandinavian countries here), and Australia. The USA ranks 37th.

To summarise: the US has a health care system today that under-delivers against important key performance indicators (infant mortality, average life span etc), is eye wateringly expensive for those treatments it does provide, and leaves 40,000,000 people with zero health care. Oh, and by the way the status quo is projected to bankrupt the country entirely as it will fail to scale further as the populations increases and ages.

The debate therefore ought to be a simple one - does the US maintain this status quo, or does it seek to reform health care in such a way as to drastically improve the USA’s WHO rankings , provide basic services universally, and reduce the overall costs to prevent budgetary collapse.

However that isn’t the debate that is taking place. The debate that is taking place is over whether the provision of universal health care is “socialist” (translation: pinko subversise communist), and whether fantastical death panels will rule over the worth of Grandma’s life (Sarah Palin says she can see the Death Panels from her medicine cabinet). Take these two distracting and emotive topics, add a little dash of Glenn Beck to the aforementioned Salt of Palin and you’ve just hijacked what was a needed and sensible debate, and you’ve turned it instead into a roiling mess of argument that churns onward and achieves nothing. Or more accurately, it achieves the maintenance of the status quo.

Which brings us naturally to the topic of peak oil (this as my old friend George Watt would say, is a “neat little seque”). The connection here is twofold and less tenuous than you might think. Firstly, oil provides the energy that enables modern health care. Secondly, and more directly relevant to the main point here is that the debate over the timing of peak oil has been allowed to overshadow the necessary debate over the future of (petroleum based) energy prices.

The truth of the matter is that we will only definitively know when global oil supplies have peaked once we’re well down the slope of decline. Far enough down perhaps to have put behind us a few (more) instances of supply having insufficient scope of growth to meet real demand. There is much evidence to suggest that we’re already basically at the peak point, or just beyond. However arguing this point tends to just around in circles. It is very easy for peak-deniers to point to the status quo and argue that “Providers report significant reserves as they have in the past. They didn’t stop pumping last year. So they won’t stop pumping this year. And anyway, we can just drill a few more holes in the Alaskan tundra if we need more.” Such drill-baby-drill responses are the peak-oil equivalent of the pinko-communist-death-panel responses in the US healthcare debate. The main purpose, intentional or otherwise, is to maintain the direction and rate of the status quo and delay or prevent structural change and improvement.

The real discussion that needs to be taking place concerning oil is whether cheap oil will continue to be available. “Cheap” is of course a relative term. Ignoring for a moment that (not insignificant) fact of the infamous US$147 p/bl price peak, by “cheap” means “the median price of oil over the period during which it has fuelled the development and growth of the current economic model.” Furthermore, given that the maintenance of the social/economic/world-balance-of-power status quo relies on the oil price remaining somewhat near that median price, what are the implications for the economic decisions that are made countless times every day, that are based on the price of oil?

The outlook is such that it is almost certain, on balance, that anything but the status quo will result. For example, OPEC has for some time now called for a price range of between US$70 and US$80 p/bl as being the minimum that can support the necessary infrastructure and exploration investments required to maintain supply levels. Shell CEO Jeroen van der Veer stated in June of this year that “(All this) points to new price spikes and volatility further down the road.” The same Kuala Lumpur hosted Asian Oil and Gas conference heard BP CEO Tony Hayward state that a target price of US$60 to $80 p/bl is also in BP’s sights in order to pay for required investments.

A per barrel target price of between US$70 and $80 p/bl is a very interesting one for a number of reasons.

For a start, it represents the upward slope of prices for petroleum and oil-derived products (fertilizer and plastics feed stocks) that are felt downstream by consumers and industry. The Wall Street Journal reports that petroleum prices as a percentage of disposable income more than doubled between 1981 and 2008. This is enough to change consumer behaviour, and certainly enough to alter the balance of cost calculations for heavily oil dependent industries.

Secondly, it is worth looking at the 2006 study performed by the US Department of Commerce titled “Macroeconomic and Industrial Effects Of Higher Oil and Natural Gas Prices”. The D.O.C. study was designed to predict the effects on the US economy (and by extrapolation all other developed economies) of an oil price that is maintained in the range of US$70.00 to $80 p/bl for two years or more. Not surprisingly, the study found depressive effects on GDP, industrial output, consumer disposable income levels and more. All other things being equal such a price would also result in an additional 500,000 people becoming unemployed due to cross sector job losses, compared to an oil price range in the US$50 to $60 p/bl range.

Those resulting changes occur for a very simple reason: as oil prices increase (and therefore the prices of products derived directly and indirectly from oil increase) the decisions made by individuals whether acting as individual consumers or in their capacity as business decision makers changes too. Spend less, invest elsewhere, carry less employees, locate and manufacture elsewhere. Scaling upwards to the strategic and structural as oil prices continue to go upward from US70+ we eventually reach a point where airlines downsize and go out of business en masse, and where commuters desert their SUVs and catch a train or a bus instead. Jeff Rubin, former Chief Economist of CIBC Worldmarkets is quoted as saying “I think we’ll see a return to triple digit prices (per barrel oil prices) very early into an economic recovery”. His book titled “Why Your World is About to Get a Whole Lot Smaller: What the Price of Oil Means for the Way We Live” is worth a read as a basic outline of his thinking.

This therefore is the discussion we ought to be having - how do we achieve a soft landing for society as oil prices increase, and the associated economic decisions are reworked? Sure, there are clearly some, like Mr. Rubin who are sounding the drum. However the majority of individual and corporate decision makers continue with the assumption that energy prices will remain roughly in line with those enjoyed during the past 50 years, and that therefore the same structural economic system will continue. All the rest have either not noticed at all, or have been distracted by the circular debate regarding peak oil.

All of which is a segue if I ever seen one. And a sick one at that.

At school, I was taught that “mankind consumes two types of resources; renewable resources and non renewable resources”. Vague memories come to me of that being a core aspect of the early stages of either the economics curriculum or that of what was fuzzily called “Social Sciences”. The latter subject embraced everything from geography to politics to society, and if memory serves me was led for a while by one of the more interesting teachers to have chalked the blackboards during my formative years. I seem to recall that a number of prepubescent young ladies found the subject of renewable anything utterly engrossing as long as it was explained by a certain foppishly haired Social Science teacher.

Anywhere, there you have it, we have a group of important people (mankind, one presumes the woman were off doing things like cooking the latest Margaret Fulton pavlova recipe) doing the important things they are destined to do (consume stuff) while the world sits there doing exactly what it ought to do (provide resources for the consuming of). Furthermore, the world either provided all those resources as a one-off (gold, diamonds, hit singles by The Vapors), or in the form of an almost magical cut-and-come-again manner (trees, water, foodstuffs, The Magic Pudding. Thus enlightened a classroom full of eager eyed students were that little bit readier to be sent out to play their parts in the great circle of consumption and commerce that is modern life.

Except for one little oddity: oil.

Oil, which logic dictates ought to be classified as a non-renewable resource has thus far been treated as a renewable. Oil supplies have truly been treated as though they are the Magic Pudding energy supply. However, given that the source of oil is what you get when you compost prehistoric algal blooms for a really long time, under conditions of heat and pressure it stands to reason that oil must be a non-renewable resource. Finite algae = finite algal bloom derived product. QED.

Meanwhile, oil literally powers the engines of commerce, while being the feedstock for diverse products from fertilisers to plastics. The history of the 20th century, and the conflicts and problems of the 21st could not more intimately connected with the history and realities of oil production then they are. We are literally living in an oil based society.

Oil’s status as a non-renewable resource, combined with its unique role as the foundation for society’s structure and everyday actions means that we must ensure that we have a plan for the eventual decline of supply. Now if that eventual decline was a long time off, say 100+ years from now, then we would still have enough breathing space to engineer a switch away from using this resource the way we do today (notwithstanding the fact of oil’s role as principle AGHG pollutant - but climate change is a whole other issue). But if a material decline in supply levels were to be only a short time away, say between 10 and 30 years, then good governance would dictate that humanity ought to be applying some of that unique ability to forward plan that is said to differentiate Homo Sapiens from the rest of the animal kingdom. In short, the urgency with which we take action to seek alternatives to oil ought to dictated by how long it is until oil supplies materially decline.

Back in the 1950’s the “science” of calculating just when an individual oil producing field’s production rate will begin to decline was formulated by M. King Hubbert. Hubbert’s seminal work resulted in the concept of what has come to known as “Hubbert’s Peak” - referring to the point at which an oil field’s production peaks and then begins to decline. I’ve written at length on the science and history of Hubbert’s peak here, and here (latter link opens a PDF which provides an introduction to the concept of peak oil). However the fact that we might be approaching the decline in worldwide production capacity in the near term rather than the long term has continued to be treated as a fringe theory by much of the mainstream, and certainly by the markets.

However the Chairman of the International Energy Agency Dr Fatih Birol is an individual one would hardly label as “fringe” or as being an individual prone to conspiracy theories. Therefore his statements as published in UK newspaper The Indepedent are of the “sit up a little straighter and pay attention” variety.

Dr. Birol is quoted as saying “One day we will run out of oil, it is not today or tomorrow, but one day we will run out of oil and we have to leave oil before oil leaves us, and we have to prepare ourselves for that day. The earlier we start, the better, because all of our economic and social system is based on oil, so to change from that will take a lot of time and a lot of money and we should take this issue very seriously,”

How seriously?

The IEA Chairman’s statements come on the back of the agency updating its calculations regarding the health of known oil fields, their remaining capacity, and the potential for there to be significant reserves yet to be found. The IEA recently updated its estimate of the rate of decline for production from 3.7% per year to 6.7% decline per year. That means two things; firstly that the rate of decline is increasing, which would tend to indicate that we are at or near the peak point already (maybe just before, maybe just after the peak). And secondly it means that for oil production capacity to remain steady, we need to find new supplies equal to the capacity being removed from the system through the very natural phenomena of individual oil field decline - at a rate of 6.7% per year. Meanwhile, the global demand for oil holds steady and is forecast to grow as emerging economies such as India and China ramp up their needs.

Business as usual just doesn’t seem to make a lot of sense in such circumstances.

Which is why it is both refreshing to see Dr. Birol’s statements being made in the mainstream press. It is also very concerning that 24 hours later it was all as if nothing ever happened. Which perhaps just goes to show that Homo Sapiens might not be that good at forward planning after all. I am betting that there is not a single organisation I will speak to in the coming 12 months that will have flagged this issue as being one that is fundamental to the question of its business strategy, looking forward to the decades ahead. I await the pleasant surprise of a contrary experience. Meanwhile, its back to the fringes of conspiracy theory. At least while there I will have the good company of Dr. Birol, Jeremy Legget, Matthew Simmons and a whole host more.

What isn’t surprising is that America hammered home a ground stake yesterday at the G8 Summit with the declaration that they will commit to an 80% reduction in GHG emissions, achieved by 2050. The idea that the Obama administration would take such a direction crystallised on the evening of October 2nd, 2008 in St. Louis Illinois.

On that evening the then Alaskan Governor Sarah Palin and the current Vice President Joe Biden primped, positioned and even occasionally answered a question during the Vice Presidential (nominee) televised debate. Biden, in response to a question regarding the causes of climate change responded; “It’s man made, it’s clearly man-made. That’s why the polar ice caps are melting”.

For those paying attention, this was a watershed moment – remembering that every answer given in that debate must have been subject to intense preparatory deliberation by an expert team of policy setters and massagers of messaging. Biden’s answer unequivocally nailed a sign on the wall pointing to the direction the administration would take. Here we are, some nine months later, and the bright spark Biden gave voice to that night has gestated in the G8 announcement.

And yet, like a newborn child, there is both an infinity of possibility and the great potential for tragedy all wrapped up in the same bundle. The G8 announcement, designed to spur developing countries like China and India into making similarly far reaching commitments, is problematic in that it fails to set aggressive commitments for interim emissions targets. Climate scientists would like to see developed nations achieve 50% emissions cuts by 2020, on the way to the overall 80% cuts three decades later. The announcement also courted controversy for the failure to concretely specify the baseline year against which relative targets are calculated – “OK…I’ll cut 80%. 80% of what though?” So…dramatic progress, but the devil remains in the details.

If the announcement isn’t a complete surprise then, is there anything that is? There’s certainly no surprise in the fact that 99% of the western world will get up today and do exactly the same things that they did yesterday, even if they read the newspaper headlines regarding the announcement as they crunch through their morning bowl of cereal. They’ll eat the same food, use the same transport method to get to work or drop little Mary-Jane and Muhammad at the local school, and book the same holiday destination regardless. An infinitesimal number of people will internalise the news and begin to think how their lives might be different if conducted such that they generate only 20% (or less, depending on the baseline year) of emissions than they do today.

Similarly, business leaders will generally have the same meetings they otherwise would have had. Focussing not on the method by which they may achieve profitable operations with 80% less emissions, but instead on this quarter and this year. Product Managers, Vice Presidents of Futurology and other foretellers of the future will spend the day dreaming up two-dot-oh this and three-dot-oh that, mashed up, twittered and iPhone ready for all. Ministers of Education, School Principals and Teachers will pull out the same textbooks and all give no thought as to how to enable the room full of fresh-faced 9 year olds with an education suitable to successfully progress and contribute to an economic model that is undergoing a fundamental shift throughout the duration of their future working lives. The 9 year olds of today are the 50 year olds of 2050. They are generation of Emissions Transitioners – the Digital Immigrants of the carbon-down age. Their lives will be defined not by the rhetoric of the 2009 G8 Summit, but by the continued action of many throughout the coming forty years.

Perhaps the surprise then, if there is any, is simply the degree to which the minutia of planning necessary to actually enact structural change has thus far failed to materialise. To have the head and the mouthpiece of the dog bark is one thing, but to have the body react requires specific directions to be sent to the nerves and muscles that initiate and coordinate action. It is high time that detailed consideration is given to how change will be achieved and successfully guided and governed along the way.

Clearly the necessary structures to accommodate and encourage change remain illusive – preceding the G8 announcement by just a few days was the news that an ambitious plan to generate 4,000 megawatts of wind farm electricity in the USA was being mothballed. The project was cancelled, according to the chairman of BP Capital Management due to fact that “transmission issues and the problem with the capital markets make (the scheme) unfeasible at this point”. The country that does achieve such a plan for renewable energy generation and distribution will be the first to lay claim to the pole position in the rankings of countries decoupled from the pollution, profit, violence and warfare associated with oil production in many parts of the world.

A high game of brinkmanship therefore continues to be played amongst the world’s leaders. At stake is nothing less than the shape of the geopolitical stage and the economic ordering of the winners and losers in the “green economy”. Mixed in amongst that is the question of what sort of everyday opportunities and decisions will be available to everyone alive today who is 45 years of age or less – for we are the generations of transitional action. L’Aquila may rumble with the aftershocks of tectonic discontent, but it is the aftershocks from the 80% announcement that will rumble far longer and with far more potential reach.

A recent tweet by Monkchips caught my eye; “good question from @tomraftery. regarding smartgrid resilience how will we defend against electro magnetic pulses?”.
Having recently written about smart grids the question of potential security risks is a good one in my view. I got to thinking that the question of whether the vendor spokespeople had anything scripted to say was interesting, and perhaps indicative in a small sample way of the lack of strategic risk analysis in the vendor community. But the really interesting question is the other one; are smart grids inherently more at risk from an EMP incident?

“Compared to what?” is the first response. Compared to the status quo of national and international grids powered by baseload and demand plants fueled mostly by fossil fuels? Compared to individual off-the-grid power generation by the likes of smal PV and wind based renewables? Smart grids and the status quo approaches rely on networked generation, so they both carry the added risk of a cascaded failure, where a failure in one part of the grid unbalances neighbouring zones. Individual power generation failures cannot cascade; all failures are local failures.

Meanwhile smart grids share the same generation methods and technologies that are used in individual off-the-grid generation. A mix of renewable generation techniques including PV, wind, wave, water, thermal tower and the like would be used, as suited to the local environmental conditions. Is such equipment especially vulnerable to EMP? If the vendors Monkchips spoke with are indicative it might be safe to say that EMP shielding is unlikely to be a current design feature on standard, commercially available installations. There is inherently more electronics distributed throughout a smart grid than in the status quo grid, therefore it is fair to say that on a component basis the equipment used in smart grids is damaged more easily by EMP.

In a smart grid, some of those electronic components will be involved in managing the flow of electricity across the grid; controlling and measuring consumption and contribution whilst maintaining a baseload current. So a failure due to EMP would not only knock out local generation in the affected area, it would also knockout the controlling grid management nodes. There is in this case the potential for cascade failure flowing out from the area directly affected by the pulse.

In reality however, the status quo grid is today national and international structure of both radial and interconnected design. Switches between network branches control the flow of electricity, dictated by spot market price fluctuations and efforts to balance the grid to baseload demands. Switch changes are made both manually and automatically. The existing danger of cascade failure was famously demonstrated in the 2003 failure of the grid in the North East of the USA. This article (http://www.newsmax.com/weyrich/emp_radiation/2008/06/25/107194.html) holds the view that the existing grid is already gravely at risk from cascade failure.

Arguably, smart grids might actually be more resilient than the existing switch grid networks in two important ways. Firstly, the modern equipment may detect an up or downstream fault faster, make a decision faster, then enact a switch change faster than current systems. The difference may only be milliseconds, however that may be the difference between cascade or otherwise. Secondly, smart grids are intended to have a more granular switching capability, though they will likely share the same suburban and rural trunk and backbone transmission as is already used today. “Lower” down the food chain from the suburb level subgrid might be street level controlling nodes and so on. The greater granularity of such control nodes may also isolate a cascade faikure within a smaller zone.

So far its a fairly even match. The generation nodes in smart grids and local off-the-grid designs is likely to be less EMP resilient than a coal fired power station. On the other hand both the smart grid and the status quo share a risk of cascade failure. The smart grid design may even be a little more resilient to cascade failure.

But there’s one more thing worth considering; that is the question of whether there is a material risk of an EMP incident anyway. An EMP incident isn’t something that is likely to occur everyday; the detonation of a nuclear weapon high in the atmosphere would do it. There are a few other ways, but all require nothing less than considerable money, skills, madness, and balls. A hostile EMP incident will either be an active of war launched by a nation state, or one of terrorism by an unallied group. There is also the possibility of friendly fire by way of an industrial accident, or the failure of one or another item of ill maintained national critical infrastructure (whether privately or publically managed).

If the EMP incident was as a result of friendly fire then it is highly unlikely that an atmospheric nuclear detonation would occur. If the attack was an act of terrorism then it is on the balance more likely that an EMP pulse could be generated locally to a generation plant or other critical element, and less likely that a nuclear bomb could be procured and exploded in an aeroplane or launched in a rocket to explode over the target company. Again, the affect would therefore be localised and unlikely to result in catastrophic cascade failure throughout the grid.

In the event that a nationwide EMP incident did occur, the country is probably at war. At that point all this discussion is perhaps interesting, but whether we have a smart grid or the status quo grid probably isn’t our biggest problem. Other than the fact of course that it is arguable that there will be more international conflict ahead of us if we continue the status quo approach, fuelled by resource shortages and social disruption resulting from the effects of climate change.

The concept of “peak oil” remains a touch too uncomfortable for most. Too close to being “big conspiracy”, too far from the everyday, and the implications too far reaching for the idea to sit comfortably in the repertoire of the polite dinner party conversationalist. Religion, politics, and peak oil to be avoided at all costs - best to stick to something safe and controversial like whether its OK or not to build a duck house at the taxpayer’s expense.

Only there are some interesting indicators pointing to the fact that in many ways, we’re already beyond the peak point. Here’s a list of indicators, which can be handily printed off, kept to hand, and ticked off the list as each occurs:

- the price of oil increases by a significant margin in a short period of time. Say, doubles within the space of 6 months. Its important that such price increases are not aberrations related to factors such as short term political instability in a producing country, or a war, extreme weather event, buy-side price manipulation and so on.
- the target price talked up by the various oil ministers of the major producers is even higher still, with the justification being that such a relatively high price is required “in order to fund the required infrastructural investments necessary to maintain supply”.
- the target price that OPEC et al aim for is within the range deemed by the USA’s Department of Commerce to be dampening (all other things being equal) on the US economy. Indeed, in this 2006 study the Department predicted significant downward GDP pressures, unemployment, and a slowdown in manufacturing sector output resulting from oil prices in the $70 to $80 range.
- vehicle manufacturers that have ignored fuel efficiency in their ranges struggle to sell their models as consumers become more sensitive to oil price.
- major oil consuming businesses like airlines post significantly poor results citing high oil prices as a major catalyst for their poor trading results.

So lets compare that to today’s reality:
- oil price has doubled so far in 2009 and is currently in the high $60 pbl range (hitting a $66 high Friday last)
- the target price is in the $70 to $80 range. OPEC Secretary-General Abdullah al-Badri has called for oil to hit that range by the end of 2009. Other OPEC ministers, including Ali al-Naimi of Saudi Arabia saying “the world was ready to cope with oil at $75-$80 and that it could reach that level before the end of the year.”
- GM has shed $50B of shareholder value in the last decade and will roll into Chapter 11 bankruptcy faster and more predictably than a Chevy Tahoe drinks Texas Tea.
- British Airways as one example posted a “worst ever loss” of £401M after being hit with a fuel bill just shy of£3B. The weak pound and the drop in passenger numbers as a result of trimmed travel budgets (itself a result of the recession) didn’t help at all. In the lead up to the loss it was reported that “Costs far outstripped revenues of just under £9bn due to high fuel prices”

So this is what it looks like - we’ll know where at the point of peak oil not when the unaudited reserves of Ghawar are finally shown to be a sham, but rather when the economic indicators “downstream” of the depletion point exhibit the market behaviours associated with sensitivity to the resulting high oil prices. Because at that point the level of actual reserves is somewhat academic, and we’re dealing with the reality of the actual price point.

Interestingly, the Department of Commerce itself states that “Over the long-run it is possible for the economy to adjust to the higher prices of energy imports by improving its energy efficiency, finding alternative sources of energy, or searching out additional supplies of energy. ”

So the bright lining is that investment in alternative energy sources, and also in fuel consumption efficiency ought to be accelerating.

Sometime in the next one thousand, four hundred and fifty eight days its all going to get really ugly. There will be no single day of reckoning, but rather a wave of reckonings - somewhere around 303,824,640 of them. According to no less an authority than the CIA 303,824,640 was the USA population back in mid 2008, though there have been a few burials and births since then so perhaps this piece of intelligence, like so many others from the CIA should be taken with just a pinch of salt.

Arguably more than a few have already tipped into the realisation of just what is in store for them should the newly elected US President, Barack Hussein Obama II actually bring into reality the promise of a low carbon economy. Most however are still dazed by the spectacle of the inauguration to give it real thought. Carrying on his shoulders the hope of so many Americans (and no small number of the majority of the world’s population i.e. the rest of us) that he can steer the USA away from its socially, morally, and physically destructive ways, President Obama cocoons many from the reality of what those changes might mean for them. When they’re told, or when they find that they can’t do today what they could do yesterday, stand well clear ladies and gentleman of the spinning fan blades.

The Obama/Biden administration is the first to unequivocally state that anthropogenic global warming (AGW) is reality, and that it represents a major risk for the survival of life. While there have arguably been many missed opportunities to say more on the subject during the 2007/2008 election cycle and during the limbo days since the election it is worth quoting again from the Vice Presidential debate of 2008:

“MODERATOR: Senator (Biden), what is true and what is false about the causes (of global warming)?
BIDEN: Well, I think it is manmade. I think it’s clearly manmade. And, look, this probably explains the biggest fundamental difference between John McCain and Barack Obama and Sarah Palin and Joe Biden — Governor Palin and Joe Biden. If you don’t understand what the cause is, it’s virtually impossible to come up with a solution. We know what the cause is. The cause is manmade. That’s the cause. That’s why the polar icecap is melting.”

Obama gave further nod to the road ahead when, in his inauguration speech he said:
“And to those nations like ours that enjoy relative plenty, we say we can no longer afford indifference to the suffering outside our borders, nor can we consume the world’s resources without regard to effect. For the world has changed, and we must change with it.”

On those scores the Obama/Biden ticket would have got my vote (had I been entitled to one), though in fairness to my Inner Sceptic I should hasten to add that action is what will make the difference not words. And it is that action which brings me back to my original thesis: its going to get real ugly some time during the next four years.

Of those three hundred and three odd million American people there are very few who really get what those words might mean to them and their daily lives. It is one thing to hear the words, it is another to listen to them, it is yet another thing to internalise them and absorb the implications. The challenge ahead no longer lies with convincing a nation’s leader of the reality of AGW, the challenge ahead lies in bringing the citizenry of that country along the same road. I suspect that for most, it is today somewhat akin to the cynical exercise of going to Church on Sundays. Being inspired by the rhetoric of the preacher, washing out the stains of a few sinful acts in the confessional, praying with heartfelt earnestness for the redemption of those who have lost the way on the true path…and then going right back to the same shit way of living by Sunday evening.

So sometime during the next four years, those 303,824,640 or so people are going to find that navigating the road ahead involves their participation. The problem hasn’t been solved by a newly elected President dropping one sentence into his inauguration speech. The problem won’t be solved the by Washington twiddling a knob or two on the economic and social control panels that mysteriously manages (or not) the ebbs of flows of the macro economic maelstrom. Nor will it be solved by changing a light bulb or two, turning down the thermostat a degree, and manufacturing the same old stuff in the same old way but with a nod toward any resulting device having a better energy efficiency than last year’s model.

Obama’s implementation of his campaign words will instead involve changes in the running of every day American life. And seeing as so many other countries are followers and imitators of that social and economic model a lot of other lives too. Yours. Mine. Your neighbours. Your parents and your friends. What we drive, whether we drive. Where we holiday and how we get there. What we eat, how that food is grown and where it is grown - and therefore when it is available. Where and how we design our communities and buildings. How we define success and freedom and how we reward it. What our expectations for economic and social growth are. Which businesses make sense. Which businesses need to be deliberately shut down. These are just a few of the smaller questions that we must address as we enact change.

Some of them have undoubtedly already twigged. A largish number who perhaps already have one of these plastered on the back of their Chevy Suburban. Any slick talkin’ Dem-o-crat who tries to wrestle the keys for their Chevy from their clenched fist and swap it for the electronic keyfob for a shiny new Prius (or even a Chevy Volt) is probably going to find themselves staring down the barrel of a constitutionally legal firearm. These people are going to resist with every braincell, every dollar, every decision, and perhaps even with their physical might any effort to have them change their day to day way of life.

There are to be counted also the relatively small number of people who already truly understand the personal implications of dealing with AGW. They have proactively made personal decisions, and have set themselves on a course somewhat different to the day to day path followed by mainstream. They are the Eco-Amish. They already walk. They already eat a little differently. They already holiday locally. They already teach their children that unbridled economic expansion derived from profligate consumption of fossil fuels might well be mainstream, but it is also a truly dangerous thing.

Then there are the rest of them. To quote the newly elected President - change is coming. What worries me isn’t whether the newly installed US administration says and believes those words, it is whether the everyman understands the truth of those same words. And most importantly, whether the everyman accepts the change to them that delivering on those words means.

Hang on for the ride, this is where it gets really interesting.

What a slippery and exciting ride its been during 2008 for oil prices. Just a few months ago the world was feeling dizzy from the heady fumes of $147 a barrel oil and petrol sniffing was becoming so expensive a habit it almost had the necessary exclusivity to become widespread among the rich and well heeled. Even the most loyal of Chelsea Tractor drivers began to be dazzled by the hypnotically spinning numbers at the petrol bowser as they filled their tank. “Peak oil” made it from the vocabulary of the conspiracy theorists to the business pages of the broadsheets and dire predictions were made regarding the availability and cost of fuel supplies. But just in time for Santa to refuel the sleigh, New York Crude has fallen to below $34 a barrel, lower than any time in the last four years.

The gleeful exclamations of those who continue to wish for a world awash in cheap and plentiful petroleum fuel sources can be heard even over the roar of the newly restarted four barrel Holly V8s. Not for them a future of restrained oil supply, just “business as usual”. Now if only Chrysler and GM weren’t under Congressional and Executive pressure to build girly electric cars, we could all go back to the nirvana that is a multi-tonne SUV’d future.

But is it fair to point to the current crashing of oil prices and assume that we are in fact back to the days of cheap energy? Firstly it is appropriate to recognise that OPEC is committed to a price well above the thirties, albeit they recognise that North of $140 might be good for the hip pocket in the short term, but it is globally economically unsustainable in the long term. The fundamental factors behind oil pricing are the same as any other commodity - the balance of supply and demand. Above $100 a barrel oil prices began to contribute to the economic drag that was already beginning spreading from other factors. Though OPEC made substantial noises that they would increase supply to stabilise the price the reality is that relatively little extra capacity was able to brought online, not helped by the fact that not all members of the cartel wanted to play the game as they were in it for the short term gains.

More influential were the speculators, whose trading created an additional detachment effect that further dulled OPEC’s ability to control prices through altering supply.

What of the future? OPEC’s inability to much increase supply flow actually lends support to the views of industry insiders such as Matthew Simmonds who cast doubts on the accuracy and truthfulness of the claimed remaining reserves of the Saudi (and other major worldwide) fields. The IEA continues to cast doubts on the ability for us to find further significant fields, and despite the “Drill, baby drill” bluster expressed during this year’s US election campaign, the reality is that exploration of new fields offshore of the US or in ANWR make little real difference to global supply levels.

Oil price is also a bit like a piece of elastic. Once stretched, it will never return to the same size again. Now that OPEC has seen that the world will go as far as $140+ before choking, they will not settle for a long term price of less than $50. Even they hear the warning bells ringing from the calls to decouple Western (read: USA) economic growth from Middle Eastern oil. Such efforts will take a decade or more before they are successful, but in the long term OPEC must realise that the days of taking trillions from Western pockets are drawing to a close. Best to suck out as much money while the wallet remains at all open.

OPEC is now attempting to again stabilise the price, this time upward. At an OPEC meeting this month, Saudi Arabian oil minister Ali al-Nuaimi again indicated he thought US$75 per barrel would be “fair and reasonable,” adding that anything lower could lead to more, not less, instability. Ali al-Nuaimi reportedly saying “When oil is priced lower, such as it is now, there will be less investment and less future supply”. We should need no clearer indication that OPEC will cut supply to keep prices high, and furthermore are signalling that any existing field capacity will require difficult, innovative, and increasingly marginally effective (translation: expensive) extraction methods.

Conclusion: The strategic approach is to recognise that the future does indeed require us to migrate off petroleum based energy sources as soon as possible.