Tag Archives: Economy

Iceland, In Conclusion

I want to conclude my “Iceland Series” by pointing out something very simple and straightforward that they have learned in Iceland and put into practice, but that we in Hawai‘i have not:

Cheap and proven technology, and clean energy projects, protect an economy from oil crises.

If what the International Energy Association says is true – that we have come to the end of cheap oil – then the bottom line is that by decoupling from expensive oil, we protect ourselves. It is the cost that’s important, not the color or anything else.

In Hawai‘i, we are trying to replace fossil fuel oil with biofuels. But if the replacement is as expensive as oil – which biofuels for electricity generation is – this doesn’t do us any good.

Geothermal, on the other hand, would totally disconnect us from the high cost of energy. It’s the cost that is the most important. And because it’s safer to diversify, we should also maximize our other energy sources, such as wind and solar, without destabilizing the electric grid.

When you go over to Iceland, you see that they have inoculated themselves from rising oil prices. In doing so, they have also made themselves food secure, because their electricity is cheap relative to other sources of energy. For instance, when they export aluminum, which is electricity-intensive, as long as their electricity costs are lower than that of their competitors, they will always have money coming into their economy.

Iceland’s economy depends on cheap energy and fishing as its base. (And Iceland’s tourism increased when the country devalued its currency, so cheap energy had a double benefit.) Hawai‘i’s economy depends on the military and tourism. We need a third leg to give our economy some stability and security.

It was interesting for me to see how a native people, left to their own devices, coped. As of today, Iceland is more energy and food secure than Hawaii! This is why Ku‘oko‘a needs to purchase HEI. The rubbah slippah folks all know this to be true.

Cheap electricity makes an economy competitive in the world. This is where the people’s needs and the utility’s needs should coincide.

Everybody knows that Iceland’s economy crashed in 2008. That happened because they privatized their banking industry, the banks went crazy, and they got caught by the downturn. But because the country has cheap energy, they are pulling out of their recession and the excesses of their banks – while we are struggling to forestall a double dip recession.

This shows us that if you’re in a competitive position relative to energy, and you don’t do anything stupid, you can withstand any oil-induced depression or recession, which is where the world is headed.

Iceland is also concerned about its dependence on fossil fuel for transportation. It has a commercial hydrogen refueling station, and I rode in an SUV powered by methane from municipal waste. They are even looking into making liquid fuels from geothermal electricity and CO2.

Iceland is like a little lab. You go over there and look at the country and say, “Holy smokes! It can be done.”

Now to do it here.

We are Teaching Our Economics Students Wrong

In economics, we teach everyone that Land, Labor and Capital are the elements of production. Along the line, we forgot that energy from cheap oil is what made deploying Capital so important. We started to believe that growth was automatic. And we taught that to millions of students.

The U.S. Department of Education shows 4,861 colleges and universities with 18,248,128 students in 2007. We are teaching these students wrong. Millions of students are being taught that finite resources are not important.

The cover of the July 4th edition of Barron’s magazine says Get Ready for $150 Oil:

…As oil producers’ spare capacity gradually declines to worrisome levels, the average monthly price could reach a record $150 per barrel by next spring, with spikes to $165 or $170. With this, $4.50-a-gallon gasoline will become the norm. That will put a huge dent in consumer wallets, while ramping up the desirability of fuel-efficient cars.

Read the rest

Why is this a surprise?

We’ve known about Peak Oil for at least 20 years. How come our whole country was not warned, so we could be preparing?

Maybe this complex society we have built from cheap oil has become too complex to understand?

To look back: In the 1600s, those who owned lots of land were wealthy. The energy that made things grow was the sun. So the more land you had, the more sun energy was working for you. Makes sense.

Then in the 1700s, we started to use metal tools to produce more food and so we had extra people floating around. We organized the extra people in factories, and with steam engines we produced wealth. Okay, that’s understandable. The Industrial Revolution came about and Labor was an important factor of production. So far, so good.

Then in the mid-1800s we started to use cheap oil, and over the next 150 years we built a very complex society. We needed to keep score and deploy resources and so we described that as Capital. And things became very complex.

So what happens as oil starts to decline? It seems to me that the total amount of work the people of the world can do will also decline. Let’s say that instead of a full four quarts of gas, you are sent out to cut down trees with your chainsaw and only three quarts of gas. You will probably produce fewer logs and be less productive.

Hall_murphy_change-in-gdp

I think that is what we can expect to happen to the world economy.

I truly believe that the social science of economics has lost its way.

This is Part One of a three part discussion. See Part Two here.