Sunday, July 17, 2016

The Energy Trap

In this post I will address the issue called the "Energy Trap", which was explained well by Tom Murphy on his excellent blog post and re-iterated by oatleg in the comments to my prior post. Basically, the "energy trap" is a scenario where fossil fuels peak and start to decline, and we must start investing energy in building renewables in order to replace fossil fuels. But there is a problem, as follows: renewables require a large up-front investment of energy, but pay back that energy only gradually over many years. As a result, when fossil fuels start to decline, we must make large up-front investments in renewable power precisely when energy for investment is in short supply, leading to a temporary "energy deficit". For a fuller description of this phenomenon, I highly recommend reading Tom Murphy's blog post entitled The Energy Trap.

I decided to model this phenomenon of the "energy trap" by using a small computer program, which I wrote in python. Any reader can download the python interpreter for free and run the simulation on his computer (the source code is posted in the comments below).

For the simulation, I made the following assumptions:
  1. Civilization gets all of its energy as electricity, generated from burning fossil fuels
  2. All fossil fuels peak on the same day and decline immediately according to the right-hand side of a Gaussian curve
  3. Fossil fuels start declining immediately without warning, and without any kind of production plateau
  4. The Gaussian decline curve has a standard deviation of 30 years which is a very rapid decline. As a result, there is a 50% decline in all fossil fuel production in only 34 years.
  5. There are no "unconventional" fossil fuels which will allow us to delay the decline or extend the decline curve
  6. No preparation has been made. The investment in renewables beforehand was zero.
  7. Investors and decision-makers do not begin investing in renewables until 7 years after the declines in fossil fuel production have begun, because it takes time to realize what is happening and ramp up PV production.
  8. Investors use a very naive formula for determining how much PV to build. Once they realize what is happening, they start investing about 5% of electricity production per year to building renewables, later increasing the investment to 1/ERoEI.
Please note that these assumptions are all incredibly pessimistic. These were by far the most pessimistic assumptions which I could imagine but which were still at least somewhat plausible.

If I run my simulation with those parameters, what results do I get? Here are the results in tabular format:
(Note: All values are fractions of the original gross amount of energy from fossil fuels; so an invest_pv column of 0.05 means that 5% of the original gross amount of energy is invested in PV panels)

As we can see, there is an "energy deficit" starting on year 8, because of the energy trap. At that point, civilization is only consuming 93.88% as much electricity as it used to. The reason is because year 8 is when investors have realized that fossil fuels are on a permanent decline, and start "investing" only 5% of yearly electricity in building solar panels. However, the 5% investment is all up front, with little payout this year, leading to an energy deficit of 5% this year plus a few more percent for the amount that fossil fuels had declined thus far. The energy deficit is brief, and civilization is back up to 97% consumption in 4 years.

Which raises the question: what will we actually do? Will we decide to forgo 5% of our electricity consumption now, as I assume above, in order to avert the gradual collapse of civilization over the next few decades? Or will we take the short-term view, and decide to "eat our seed corn" (so to speak) and cannibalize our energy infrastructure, leading to a small increase in our energy consumption now but the destruction of our civilization later?

Tom Murphy has this to say about it:

"Politically, the Energy Trap is a killer. In my lifetime, I have not witnessed in our political system the adult behavior that would be needed to buckle down for a long-term goal involving short-term sacrifice."

I disagree with that remark. These decisions are not made by our political system, but by investors in energy markets. Those investors routinely make short term sacrifices for larger payouts later. That is what investment means. For example, investors routinely carry out long-term planning and buy capital equipment (such as power plants) which will pay out over 30 years, but which require an up-front investment now. That is why we have power plants. Investors could always eat their seed corn and spend the money now rather than investing in the future. In general, they don't do that.

When fossil fuels start declining, the price of energy will skyrocket. Even a modest decline of a few percent of energy, could lead to a tripling of prices or more. At that point, the financial return of investing in renewables would be enormous and nearly certain. Any investment in renewables would promise vast payouts down the line, far higher than are obtained by any other investments. As a result, investors will transfer money from other investments in to this one. Investors are capable of outbidding consumers for that 5% of yearly electricity which is necessary to invest for the transition.

The energy trap is actually a fairly mild problem. Even using the incredibly pessimistic assumptions I outlined above, we will never face more than a 6.12% deficit of energy. The deficit starts decreasing right away and almost vanishes within 9 years after it begun. The energy trap is easy to overcome, with only modest and temporary sacrifices.

Furthermore, the deficit of 6.12% is almost certainly higher than what we will face in reality. We have begun transitioning to renewables decades before fossil fuels have begun declining. Furthermore, we get a large fraction of our energy now from sources other than fossil fuels (like nuclear and hydro-electric). What's more, the decline in fossil fuel production will be far more gradual than I modeled above. Also, there will be a production plateau lasting decades before fossil fuels start declining. Furthermore, investors will use a more sophisticated algorithm when determining how much PV to build, rather than just suddenly increasing PV investment from 0% to 5% (as I modeled above) which briefly worsens the energy deficit. When I run my model with more realistic assumptions that aren't so incredibly pessimistic, I find an energy deficit of less than 0.4% at its worst point.

In conclusion, the energy trap is easy to overcome with only modest adjustments. It requires modest planning--the kind which investment markets routinely carry out. As a result, the energy trap will be a minor problem which will impose only temporary and insignificant reductions in energy, in my opinion. It is also possible that civilization will transition to renewables before we reach peak fossil fuels, in which case the energy deficit will be zero.

(NOTE: The python source code is posted in the comments below)
(NOTE: I made minor changes to the wording of this article two days after initial publication. The values from the table have not changed.)