Suburbia--NOT resilient, but with potential

One point I wanted to raise (and that was brought up in comments at The Oil Drum) regarding my "Resilient Suburbia Series": I'm not claiming that suburbia, at present, is resilient or sustainble. Far from it. Rather, my argument is that the current dispersion in suburbia, of land ownership, of population density, etc., provides a lattice structure on top of which it is possible to build a truly resilient, sustainable society. This society may not look anything like today's suburbia--the reason why today's suburbia is relevant in this context is that it provides a suitable foundation for such a development, whereas urban areas (and their equally unsustainable present form) do not (or, at least not to the same extent).

A Resilient Suburbia 4: Accounting for the Value of Decentralization

This series has been considering the role of suburbia in a post-peak future. One necessary, though generally ignored, element of any analysis of suburbia is a consideration of the value of decentralization per se. The decentralized mode of suburbia presents problems (greater energy requirements for transportation), and advantages (greater potential for individual self-sufficiency), but what about the economics and politics of decentralization itself?

This post will argue that, when measured from the perspective of the median participant, decentralization offers a superior structure for both economic and political organization, a structure that may prove far more sustainable in a post-peak world than our current, centralized, hierarchal patterns of organization. Suburbia, not as a model for material consumption, but as a legal and social lattice of decentralized and more uniformly distributed production land ownership, has the potential to serve as the foundation for just such a pioneering adaptation—a Resilient Suburbia.

There are many efficiencies gained through centralization and specialization (of both place and activity, or, as Jaques Ellul termed it, “technic”). These two principles combine to lay the foundation for most of “classical” economic theory. These efficiencies, however, also produce externalities—side effects that are generally unrecognized and unaccounted for when weighing the value gained by centralization and specialization. I’ve termed these “anti-economies.”

When weighing civilizational choices, it is also important to considering the dueling perspective of the median vs. the mean. A policy that grows overall wealth in an economy (raising the mean wealth) does not necessarily increase the wealth of most people within that economy (which is best measured by the median wealth). Is an overall richer society comprised of one super wealthy Tiger Woods and 100 destitute peasants preferable to an overall poorer society comprised primarily of a “middle class” at some level of wealth above destitute peasantry? How do we weight the value—from the perspective of economics, politics, sociology, sustainability, etc.—of equality of distribution versus overall wealth distributed? This is a question that is critical to any consideration of the value of decentralization, and represents a lens through which we must view the relative value of suburbia and its alternatives, their present failures, and future potential.

While, to some extent, the economics and politics of centralization cannot be separated, there are clear economic benefits to centralization and specialization. Great cities from New York and London in the present to the Hanseatic free cities or Phoenician trading bases of the past demonstrate this in spades.

If the economic advantages of urbanization are so clear-cut, what are its economic disadvantages? First, as an expression of hierarchy, a boundary analysis of cities must include their constituent hinterland—the region that produces the raw materials for urban production and consumes the services and products produced in the urban core. In our increasingly globalized world, this hinterland is also global—for example, the Vietnamese factory worker churning out products designed by the downtown LA design firm and financed by New York banks, or the peasant farmer’s income impacted by the cheap, subsidized grains produced on industrial farms and exported through the ports of major US cities. (Which comes first: the masses of urban poor dependent on government and aid organizations or the flight of farmers from small plots where they cannot compete with subsidized western agricultural exports?) In addition, peer-polity competition for control and coordination of this hinterland makes the hierarchal model of urbanization fundamentally growth-driven, and therefore unsustainable. Cities are peer-polities, competing with each other to coordinate and control the economic activity of the largest possible share of a limited hinterland. If one city were to focus on a sustainable, no-growth approach to this game, it would be out-competed by others more concerned with near-term growth and intensification. This is natural selection among polities. Cities, by virtue of their necessary participation in the global peer-polity “eco-system,” are forced to adopt unsustainable practices—or they are out-competed in the game for near-term survival by those who do. Where a superficial sustainability-consciousness exists, its effects are generally limited to token measures within the city’s political jurisdiction, rather than the relevant and vastly larger economic reach to its effective hinterland.

It is also important to consider the “success” of urbanization through the mean/median lens. Urbanization, and the industry, trade, and centralization of economic activity that it supports, certainly increases the mean wealth within its bounds, but what does it do to the median wealth? Further, if the requisite hinterland is included within the bounds of our analysis, does urbanization even increase the mean wealth within that boundary, or does it simply affect an increasing concentration of wealth? These are the structural disadvantages of the urban form. Do they outweigh its advantages? We simply don’t have the data to answer that question definitively. What we do know is that, especially within American and European cities, the environmental damages and marginalization of the “hinterland” population largely falls outside our borders, onto the fragile ecosystems and massive poverty of the second and third worlds. This civilizational accounting failure represents a massive subsidy to urbanization—perhaps the greatest subsidy in history, and one that is incredibly damaging and short-sighted.

No matter how energy-efficient cities may be (especially when compared to presently extant alternatives like suburbia), they are most fundamentally the manifestation of hierarchal structures engaged in peer-polity competition—a mode of human organization that, I believe, is at its core the root of humanity’s unsustainability (because it drives our demand for growth) and it is, itself, undesirable (because it emphasizes the mean at the expense of the median, marginalizing the vast majority of participants).

Not only are there distinct, structural disadvantages to the urban model, but there are also nascent advantages of decentralized, non-hierarchal organization. The potential for distributed manufacturing is one example. The potential, and advantages of decentralized innovation is another. 2000 small farmers each trying to develop a better system will develop and evaluate more theories than a single, equivalently-sized industrial farm, and the dispersed effort will also develop more locally-appropriate solutions. The advantage of decentralized innovation is particularly apparent in military innovation—the decentralized innovation laboratory of insurgents in Iraq, for example, has equaled or bettered the worlds single largest, centralized R&D facility (the US military-industrial complex), despite dramatic differences in funding, personnel, education, and other resources. Localized self-sufficiency and increased liberation from the peer-polity competition additionally frees innovators to focus on producing quality of life for the median, rather than intensifying the empire of the mean. The mindset of the 20th century was that physical aggregation was necessary for the hierarchal coordination of complex economic activities. The mindset of the 21st century may be that physical distribution excels, and is even preferable, when pursuing non-hierarchal, open source, and emergent coordination of complex economic activity.

There seems to be a nearly endless stream of skeptics who claim that physical proximity (e.g. the city) is necessary for the kind of complex economic activity that underlies our quality of life. Usually, in my opinion, these theories rely on an outdated or misinformed understanding of economic coordination. These doubters seem broadly unfamiliar with advances in open-source, distributed manufacturing; of platform-driven systems; of the potential for tying vernacular resource bases into global networks of open-source innovation. They usually focus on the services and amenities that cities can provide to the privileged few, while ignoring at great moral hazard the concomitant impact of these structures on the vast majority of its citizens—those that live beyond political borders but well within the economic hinterlands. Others point to the opportunities for interaction in urban areas—while it is certainly possible to see and interact face-to-face with more people in an urban setting on a constant basis, the attractiveness (or horror) of this situation seems far more closely tied to individual personalities and psychological adaptation than to any fundamental economic advantage of cities. Both evolutionary psychology and modern commerce suggest that cities may actually be counter-productive in these functions.

Dunbar’s number, for example, shows that human interaction functions best with group sizes of roughly 150--the norm in our ontogeny, and something that does not depend on the human density of cities. Additionally, cities may be liabilities when considering the theory of weak networks--the notion that the most powerful way to leverage humans’ limited capacity to form connections is to form several very strong, very close connections, and then several extremely distant and weaker connections. Cities present an environment more susceptible to tight-group isolation (though they don’t force such an arrangement), whereas the reliance by more distributed settlement on fairs (historically) and the internet (in modernity) may actually tend toward more powerful structure to coordinate economic activity.

This is not meant as a dispositive proof of the superior economic potential of distributed systems, but rather as food for thought—we tend to assume without questioning that cities are necessary and desirable for economic functioning, all the while ignoring significant evidence that this may be the result of little more than inertia. When readers wish to discuss a complex niche topic with other interested parties—a classic analogue for economic coordination—they are generally better served by a highly distributed virtual community (such as The Oil Drum) than by the kind of permanently physically collocated group one would find in a city. My guess is that even a well-connected individual in a “flagship city” like New York would be hard pressed to find the quality of discussion on a topic such as Peak Oil equal to what exists daily on this site. This same advantage spreads from agriculture to Medicine, to military theory--just one anecdote: go to the physical epicenters of military theory, such as the Army War College or one of the service academies, and you will fail miserably to find face-to-face discussions of the caliber you can find daily at John Robb’s blog between people from all over the world.

Additionally, highly centralized and specialized economic structures tend to require a great degree of “middle men” to effectively coordinate complex economic activity on a large scale. As a result, a huge majority of “workers” are not actually performing “end production,” but rather are performing some kind of coordination, command, or control activity. This is generally referred to as “Span of Control”—on the simplest level, one person can only effectively command so many subordinates. Historically, militaries have settled on a span of control of 5 (only 3 of which are operational). This leads to massive “middle management” in large-scale organizations. A similar effect exists in economics—while a massive dairy farm may reap significant economies of scale, it also tends to involve large behind-the-scenes forces performing management, compliance, legal, finance, marketing, transportation, human resources, and other non-milk-producing functions. Open source networks of innovation have the potential to fundamentally replace this mode of economic coordination in a manner that eliminates the need for this middle-management. Every producer a part-time innovator/theorist, and every innovator/theorist a producer. This might sound like a hippy fantasy-world to some, but it is happening right now from commodity coordination by individual peasant farmers in Africa (via cheap, disposable cell phones) to a revolution in insurgent tactics in Asia. Ask yourself, do you actually make anything? Do you even know anyone who actually makes anything? Or do you and most of your associates engage in one of these “coordinating” functions? If this is the “efficiency” of our current, city-centric economic structure, it looks more like a target of historic opportunity to me.

Finally, the same structural tendencies of our economic systems have dramatic effects on our political systems and the course of our civilization. Centralization and specialization are the opposites of self-sufficiency and independence. When we centralize production of something we require, as individuals or communities we become dependent on the system that provides continuing access. We’ve been so indoctrinated to the benefits (and hidden from the externalities) of these interlacing networks of dependency that we rarely realize the degree to which we have ceded our own potential for sovereignty. The implications are striking

Rainwater Farming

As an appropriate follow-up to last week's post on creating suburban self-sufficiency, take a look at this interesting post from Brad Lancaster about farming with runoff rainwater in Tucson.

I'll wrap up my series on Resilient Suburbia next Monday with a post on the economic and political merits of decentralization.

A Resilient Suburbia 3: Weighing the Potential for Self-Sufficiency

A backyard garden in Oregon

Over the past two weeks, I have examined the challenges facing suburbia in a post-peak world. I’ve argued (in Part 1) that financial reality will prevent us from building an alternative to suburbia, and (in Part 2) that the superficial transportation issues facing suburbia are better viewed as a much broader economic threat posed by peak oil that equally threatens urban and suburban living. In this post, I’ll look at some of the unique advantages of our present suburban arrangement—is it possible that suburbia not only won’t be abandoned post-peak, but that peak oil will act as a catalyst for the adaptation of suburbia into a flourishing, vibrant built environment? I think it’s possible, but that it will be challenging. In this post I’ll explore this possibility—both the potential, and the challenges—of creating A Resilient Suburbia.

Specifically, this post will look at the potential of suburbia to produce some degree of self-sufficiency in food, water, and energy. At one extreme, if suburbia can sustainably produce 100% of the food, water, and energy, then the prospects are excellent for a resilient suburbia.

While true self-sufficiency may be theoretically possible, I don’t think this goal is realistic. Some degree of self-sufficiency, however, is possible. While the majority of this post will address the potential, and challenges, of attaining different degrees of self-sufficiency, there are two additional issues that must be addressed.

First is the degree of self-sufficiency relative to urban settlement. Suburbia is (in virtually all instances) a more energy intensive form of civilization than urban settlement. If, however, after adding the potential resource production of suburbia into the equation, suburbia has the potential to be less net-energy intensive than urban settlement (which, in almost all circumstances, has a lower potential for resource production), then suburbia would be, on balance, more sustainable than urban settlement.

Second, a point which I will raise now but leave unaddressed until next week’s post, is the function of economic coordination. Urban settlement, by its very nature, sits atop a large pyramid of control and dependency--in isolation it is less energy intensive, but it depends on a vast hinterland, the energy requirements of which are often ignored in calculating the sustainability of urban living. Suburbia, in contrast, has the potential to evolve into a flatter, more inclusive mode of civilizaiton (it certainly isn't there now!). Traditionally, urban areas, by virtue of their geographic density, best serve the critical function of coordinating economic activity in a hierarchal fashion. While this function—its costs, benefits, and alternatives—must be considered in weighing the sustainability of different modes of the built environment, I’ll ask that we focus discussion on the first topic for this week’s post.

1. Food:

How much of its own food can suburbia produce? In America, the average suburban lot size is approximately 12,000 square feet. That’s about a quarter-acre. At an average of 2.56 people per household, and a rough average of 10,000 feet per lot not covered by structures, that’s just under 4,000 square feet of yard per person. Of course, this ignores the potential for parks and other open spaces in suburbia to be converted to food-production. It is also an average figure—some neighborhoods will have far less space, others far more. Despite these sources of variability, it is a good jumping-off point. Is 4,000 square feet enough to provide for a person? There are three requirements: calories, nutrition, and the variety and selection necessary to support culture and quality of life. In addition, there are four limiting factors to food production in a given area: sunlight, water, labor, and soil/nutrients. In the interest of space, I’ll only address three of these: calories, nutrition, and soil/nutrients—please feel free to discuss the other requirements and constraints in comments.

Can 4,000 square feet produce enough calories to feed one person? At 26 calories per ounce and roughly 8,000 pounds of potatoes harvested from 4,000 square feet (based on intermediate yields from John Jeavons “How to Grow More Vegetables,” p. 92), that’s 3.3 million calories, or 9,000 calories per day. This is, of course, completely unsustainable, insufficiently nutritious, etc. But it does answer the question—it is possible to grow enough calories on 4,000 square feet per person. The real limiting factors are nutrition and soil, discussed below:

Can 4,000 square feet produce enough nutrients to feed one person while simultaneously sustaining and improving the soil? One issue is that topsoil has been scraped away from more recent suburban developments. How effectively can we re-build soil, and how long does it take? John Jeavons has addressed this question in depth (summarized at p. 28-29 of “Grow More Vegetables”). He concludes that 4,000 square feet is roughly enough to feed one person a complete, nutritious diet, while simultaneously improving soil quality. His method involves 60% (by area) focus on growing soil-improving crops (high carbon content food crops for eventual compost), 30% mixed high-calorie root crops, and 10% mixed vegetables.

I’m sure Jeavons’ is one of many possible ways to approach the problem. One alternative is forest-gardening, depending largely on fruit and nut production from long-lived trees coupled with understory vegetable and root crops. Another, more high-tech route is hydroponics. While I anticipate a lively discussion on these points, I’ll cut my presentation short, closing this point on a simple thought: Jeavons (a practicing expert in the area) argues that 4,000 square feet is realistic. My mother (admittedly, a Master Gardener) is doing exactly this in her roughly 5,000 square foot home garden. I don’t claim it will be easy. I don’t even argue that suburbia can consistently provide 100% of its food production. But I do argue that suburbia can realistically provide around 50% of its food, can act as a localized buffer against disruptions, and can provide a high percentage of vitamins, minerals, flavor, and culturally-important foods.

Critically, while attaining self-sufficiency on suburban lots may not be easy, it is certainly more practical to obtain a significant degree of food self-sufficiency in suburbia than it is in urban settings. This isn’t to say that urban areas shouldn’t explore gardening possibilities—it is simply to point out that suburbia’s food-production potential is an asset when compared to urban settlement. Whether or not its food-production advantage outweighs its transportation disadvantage is not clear—but more on this later.

2. Water:

In the next century, water will be one of the most critical, and scarce, resources for many parts of the world. Even in those areas where there water supplies are plentiful, there is a significant energy requirement to build, maintain, and operate the infrastructure required to gather, store, transport, and purify water. How realistic is it for suburbia to provide its own water, both for domestic use and for suburban gardening?

Many people will initially object to the potential for suburban water self-sufficiency on the grounds that rainfall is erratic, and that some areas of the country are quite arid. While it isn’t the Atacama Desert, skeptics should read Brad Lancaster’s excellent guest-post on rainwater harvesting in Tucson, Arizona (average 12” of rainfall per year). For several years now, Lancaster has been using simple rainwater harvesting techniques at his modest suburban Tucson residence to harvest sufficient rainwater for both domestic needs and to sustain an impressively productive garden. The average suburban home has a roof area of roughly 2000 square feet (garage roofs and overhangs count here, but not on home square footage). In Tucson, with 12” of rain per year, that catches as much as 14,000 gallons per year (or 40 gallons per day)—more than enough for frugal domestic usage by one family, though certainly not enough for several hot baths, a backyard pool, and multiple loads of laundry daily. In wetter climes—say, Ohio with 37.77 inches per year on average--the potential is even more clear.

Two concerns for rainwater harvesting are droughts and purification. Lancaster’s article, and his several books on the topic, address both in depth. Bottom line: storage and purification are relatively simple, cheap, and require little energy, though the solutions are by no means fool-proof. In perhaps one of the greatest differences between suburbia and urban areas, suburbia has the clear potential to be water self-sufficient, whereas dense urban areas do not.

3. Energy:

What about the potential for suburbia to produce its own energy—for heating, cooling, cooking, lighting, and transportation? While suburban homes tend to use more energy than urban homes—for all of these requirements, with the possible exception of cooking—does their potential to produce energy compensate for this?

Let’s start again with the average roof area of a suburban home: about 2,000 square feet, or roughly 780 square feet per person. Solar photovoltaics have the potential to produce roughly 180 Watts per 15 square feet, or 12 Watts per square foot (one sample spec sheet - .pdf). That works out to about 24 KW per house, or about 9 KW per person. Cut that by two-thirds to confine placement to properly oriented sections of the roof, and the average suburban home can install roughly 8 KW of photovoltaic panels (or 3 KW per person). What percentage of a home’s energy needs would that provide? First, it’s important to note that 1 KW of installed capacity doesn’t equal 1KW-Hour of production for every hour of sunlight—it provides significantly less, depending on location and weather. Based on a very informal survey of conservation-aware households, a WAG is that 20 KW-Hours per day, per household is realistic (probably conservative) for suburban electricity usage with some focus on conservation. Using the rough metric of 1300 KWh per year from 1 KW installed capacity, our hypothetical suburban household would require 5.6 KW of solar capacity. In other words, there’s plenty of roof space in suburbia to meet suburbia’s electricity demand. Two important caveats: 1) such a system won’t provide power when suburbanites currently use it (a net-metering system paired with other forms of generation would be necessary), and 2) while some households use electricity for home heating, water heating, and cooking, in many areas and homes it simply isn’t realistic to heat a home with 5.6 KW of installed solar power only.

While I’ve been focusing on photovoltaics (actually one of my less-favored forms of renewable energy) because they’re readily available and easily understood, I think that solar hot water, passive solar heating, and increasing insulation and on-demand ventilation are actually more promising means for suburbia to generate its own power. By combining passive solar hot-water and air heating with sufficient thermal mass and improved insulation and sealing, it is possible to provide nearly all energy requirements for the vast majority of suburban homes using only that home’s roof space. Urban homes often lack one of the key features of suburbia: plentify solar access. The vast majority of suburban roofs have excellent solar access--though some tree-pruning may be required. Even moderately dense apartment blocks (not to mention high-rise residential) does not have the necessary insolation to power itself through in a distributed fashion. In the interest of space, I’ll leave discussions of home geothermal and heat pumps (promising), home wind-power (less promising), and home wood-lots (less promising) for another day.

While these kinds of retrofits cost money, by improving the viability of suburban homes they don’t face the same kind of financial Catch-22 addressed in the first post in this series (whereby it isn’t possibly to finance alternatives to suburbia because credit markets are tied to the value of suburbia that is destroyed by the creation an alternative).

Additionally, it isn't realistic at present to think that we'll be able to put enough solar panels on our roofs to charge the batteries on the twin electric-Escalades sitting in our garage for the daily commute to work. I increasingly believe that suburbia can be resilient and sustainable, but not as a mere "Star-Trek" version of the present. Rather, by minimizing our travel requirements at the outset, and then transitioning to high-efficiency vehicles, ridesharing, bicycles, and especially electrified rail for remaining journeys, suburbia can adjust to a radically lower transportation energy-budget.

Conclusion

Suburbia has a significant potential to provide its own food, water, and energy. It won’t be as simple as snapping our fingers. And it likely won’t be possible for suburbia to consistently produce 100% of its needs. But I think one thing is quite clear: the potential increase in suburbia’s self-sufficiency is significantly greater than the potential for urban areas to increase their self-sufficiency in food, water, and energy. We can argue the degree to which this is the case, but I’ll be interested to see if anyone seriously disputes the issue generally. If we accept that suburbia has greater potential for self-sufficiency, and if we accept that suburbia requires more energy for transportation and transportation infrastructure in its current manifestation, then the big question is this: does suburbia’s advantage in potential self-sufficiency outweigh its disadvantage in transportation? It's quite easy to toss out an unsupported opinion on the answer--I won't attempt to do so, and I'll caution that anyone who does, without empirically and irrefutably answering the potential for suburban self-sufficiency, is just guessing. The answer partially turns on the degree to which suburbia can convert itself away from a commuter model and toward a knowledge-based, distributed production model. It also, as I’ll discuss next week, turns on the value of distributed ownership and self-sufficiency as a force in determining the political structure and evolution of civilizations.

A Resilient Suburbia 2: Cost of Commuting

In the second post in this series on suburbia and peak oil, I’ll consider one of the threats that peak oil poses to suburbia: the increasing cost of commuting to and from work for suburban residents. My conclusions may surprise readers: suburbanites aren't particularly vulnerable to the rising cost of gasoline. Instead, like all of us, they are vulnerable to general economic shocks that may be caused by peak oil, but the elasticity of their commuting budgets may better position them to deal with these shocks than urban residents.

The first thing that comes to mind when people discuss peak oil and suburbia is the massive amount of gasoline used to commute to and from work. I think this is also the least problematic. However, to the extent that it is a problem it won’t result in the abandonment of suburbia—rather, it will act as a catalyst to reshape the economic structure of suburbia.

For the purposes of this article, I’ll discuss the hypothetical suburban commuter who drives 10 miles to and from work 22 days each month. I realize that many suburbanites drive farther than this, and that some drive shorter distances, but it’s an easy number to work with. Here’s a graph of what that commute costs each month at varying prices of gasoline and vehicle MPG figures:

Not very scary, is it? It’s important to remember that most suburbanites drive more than just to and from work, that most suburban families are two-income/two-commute families, and that there are more costs of commuting than just the gasoline (auto depreciation, parking, etc., though these don’t generally increase with increasing gasoline costs). So let’s make a more extreme, scary, and arguably realistic graph. Here’s the cost to a family that drives two cars 40 miles each per day, plus 48.5 cents per mile (the IRS business deduction) as an approximation of cost of car-ownership, plus $10 per day for parking for each commuter, plus $100 for insurance for both cars (that’s $1394/mo baseline plus the cost of gasoline):

There’s a number of take-aways from these graphs: 1) these numbers are higher than average cost of commuting, 2) to the extent that they’re accurate, commuting is VERY expensive, 3) the majority of the cost of commuting is the base cost, not the gasoline, 4) for most suburbanites, the ability to afford life in suburbia is more a function of the shape of the overall economy (e.g. the earning power of suburbanites) than it is a function of gas prices in isolation.

What are the options to commuting? First, looking at the graphs above, it should be clear that eliminating a suburban family’s need for one of their two cars will have a greater effect than doubling the miles per gallon of both of their cars. There are many ways to do this: ride sharing, mass transit, and telecommuting are the most obvious.

Ridesharing (Carpooling): For all the talk about improving vehicle efficiency, there are few solutions that are simpler, more elegant, and more practical than putting more than one person in each car. For our hypothetical suburban family in the example above, if the happy couple can drive to work together and only maintain, insure, and park one car, they would save $697 after-tax dollars per month--and this is assuming no reduction in car-miles driven. Similarly, workers can organize car-pool clubs, etc. The downside of ridesharing is inconvenience. It’s convenient to only go straight from your house to work and not pick anyone up along the way. It’s convenient to pick when you commute. It’s convenient to have access to a car while at work in case you need to run an errand, etc. If, for our hypothetical family above, they can afford $32/day and the convenience gained is worth more than that, then it probably makes financial sense to drive alone (ignoring environmental arguments, etc.).

Mass Transit: Mass transit is another option for most suburbanites. Again, the viability of mass transit is a matter of weighing the cost savings against the inconvenience. In some cases, mass transit may actually be more convenient, but for most suburbanites it 1) takes longer, 2) is less flexible, and 3) doesn’t address the “last mile” and still requires one car (and its associated costs) per commuter.

Telecommuting: Working from home, one or more days per week, is another approach to making suburbia viable. This is already a common practice, and the ability to expand upon it has been explored here before.

I sense that, at this point, many readers will be a bit baffled by my focus on the base cost of commuting rather than the variable cost of commuting caused by higher gas prices. This is, after all, an article about peak oil and suburbia. I think it’s critical to focus on this differentiation—-the base cost of commuting vs. the variable cost.

If the variable cost (as gasoline gets more expensive) of commuting is what will kill the finances of suburbanites, then urbanites will be far better positioned to adapt to the impact of peak oil. They don’t have these long commutes, they often don’t have a need to own one car per family, let alone 2+. However, if it’s the base cost that is the primary issue (as I argue here), then we need to envision the scenario where suburbanites can no longer afford this base cost. This is even more true to the extent that America’s auto fleet gradually improves in efficiency (a topic I have largely ignored).

As long as suburbanites maintain their present income levels, they should be able to afford their present costs of commuting--in most cases rising gas prices won't break the bank, and can largely be addressed through improved efficiency. However, a sharp economic downturn has the potential to dramatically reduce these income levels. Here’s the key: a sharp economic downturn will most likely reduce urbanites’ income levels by a similar amount. So while these economic troubles may make life in suburbia much more difficult, it will also make life in urban areas much more difficult. Precisely because the issue is base cost of commuting, not variable cost, this economic impact is felt equally in suburban and urban areas. In fact, because there are so many viable (if inconvenient) options for suburbanites to reduce base commuting costs (outlined above), it may be easier for suburbanites to adapt to a sharp economic downturn than urbanites. Cutting down from two commuter cars to one could cut a suburbanite's total expenditures by 10-20%+ per month without great change. That's a large chunk of suburban budgets that is quite elastic, and lends a great deal of resiliency to suburbanite finances. How many urban households can cut expenses by this much merely by doing something as simple as carpooling?

My purpose in writing this series is not to make a partisan stand in favor of suburbia. Rather, my intent is to push the debate beyond “suburbia sucks” to the more important question of how we will address its weaknesses. As I argued last week, it isn’t practical to think that we’ll simply abandon suburbia in favor of some preferable urban option. This week, my conclusion is that suburbia may actually be no worse situated to deal with the economic impact of peak oil than urban areas. It is the base cost of commuting, not the variable cost, that most impacts suburban finances—-suburbanites have already (by definition) budgeted for this cost, and have more viable options to reduce this cost than urbanites have viable options to comparably reduce their expenditures. Next week I’ll argue that suburbia may be more than on equal footing with urbia—-it may actually be better positioned to deal with the more extreme potential impacts of peak oil such as food shortages, water shortages, and energy shortages.

A Resilient Suburbia? (Part 1)

Many argue that suburbia was a terrible idea—a giant waste of land, capital, and culture. I largely agree. But there you have it: suburbia happened, with no refund available. It is a sunk cost—not only the millions of homes, but the vast infrastructure for transportation, employment, governance, and distribution that is fundamentally intertwined with the suburban model. Looking into a future of energy scarcity and economic challenge, it is time for the discussion to shift from “suburbia sucks” to “what are we going to do about it?” Is it possible to build a vibrant, sustainable, and self-sufficient civilization on the framework of existing suburban development? More importantly, is there any viable alternative? This four-part series will take a critical look at suburbia in an environment of peak oil, beginning with this post’s discussion of sunk costs and credit markets as they impact our options.

This series will consist of four separate posts: 1) this post, on sunk cost and credit, 2) a discussion of the suburbia’s economic prospects and the challenges of commuting and production after peak oil, 3) the potential and limitations of producing food, water, and energy in suburbia, and 4) the impact of decentralization, self-sufficiency, and lessons from history as they inform our “solutions” to suburbia.

In this first post, I will develop the argument that sunk cost and the current credit crisis prevent any the development of any meaningful alternative to suburbia. Specifically, suburbia presents a Catch-22 situation where the theoretical viability of an alternative effectively destroys our ability to either leave suburbia or build that alternative. This is a crucial foundation to this exploration of suburbia: because there is no alternative that is both theoretically viable and realistically implementable, we must focus on adapting suburbia to a post-peak oil future.

For most readers, the threat posed to suburbia by peak oil and generalized resource scarcity is clear. I won’t detail the exhaustive arguments in support of this proposition, but briefly: peak oil threatens our ability to commute from suburbia and transport supplies to suburbia; suburban civilization is dependent on cheap energy to heat, cool, light, and transport and purify water supplies; suburban America represents too large a population for any viable, unified version of America to continue if it truly “fails” without a suitable alternative.

Suburbia in light of its alternatives: I think that we can all agree that suburbia is imperfect, perhaps even fatally flawed. What I propose is that the task, going forward, is not whether suburbia is “bad,” but rather an evaluation of our options informed by a realistic appraisal of the alternatives to suburbia. It’s fine to say that suburbia is too dependent on long, oil-powered food supply lines. What is the alternative? It’s fine to say that suburban residents will soon be unable to commute to work, and that will render suburban living untenable. What is the alternative. In the initial phases of a debate, it is valuable to refine criticism, to point out flaws. We must now move past that. Most of us understand the flaws of suburbia, but we are now at the point where it is only productive to point out a flaw if we do so to argue why a specific solution is preferable.

What are the alternatives? For my own purposes, I’ve divided the spectrum of choices into re-urbanization, re-ruralization, and clustering, but I’m interested to hear how others would categorize our choices. I will discuss each of these in a later post, but first it is necessary to outline the key hurdles facing any effort to shift to an alternative: the sunk cost of suburbia and the paucity of credit to finance such a shift.

Sunk cost is the economic concept that some costs, if they cannot be recovered once they have been incurred, have significant effects on our decision making. What is the sunk cost of Suburbia? Individual homes, for individual buyers, may not entirely represent “sunk cost” if they sell immediately, though to the decline in prices over the past months does represent sunk cost. If everyone in suburbia wanted to leave, however, then the entire suburban project--tens of trillions of dollars--would represent a sunk cost.

In layman’s terms, if you bought your house for $200,000 but can only sell it today for $50,000, then your sunk cost is $150,000. Even if you didn’t have a mortgage, that would represent a significant disincentive to selling. If your mortgage is $185,000, and you have no savings to make up the difference, you are in an even more inflexible situation. However, from a societal standpoint, the sunk cost in suburbia is even greater than the sum of its home values. There is a tremendous amount of energy invested in these homes and in the infrastructure to support them. While suburbia may be highly energy-inefficient, at some point in the not too distant future (possibly today) it will no longer be possible to replicate that kind of energy investment to create a sustainable alternative.

As the example above illustrates, declining housing values make suburbia more inelastic. As prices go down, people are less able to move out of suburbia to an alternative. To the extent that rising energy prices make suburban house values decrease, they also act to make it more difficult for suburbanites to move to more energy-efficient locations.

Similarly, as credit markets remain tight, it is increasingly difficult to both afford a move to a more energy-efficient home, as well as it is increasingly difficult to finance the development of more energy-efficient projects (whether “new urbanism,” condos, light-rail systems, or energy-retrofits of existing suburban homes).

There is a feedback-loop between declining house values and tight credit markets. Declining home values and increasing foreclosure rates (one result of declining home values) undermine the viability of mortgage-backed securities (and send shockwaves into the credit default swap markets). This makes credit tighter, decreasing the pool of people able to buy homes, which leads to further home value declines, ad infinitum. This is the core of our current financial crisis.

The even more critical problem, however, arises when that feedback-loop process interacts with peak oil. Absent the challenges of peak oil, the above cycle can eventually be “solved” through some combination of market forces and government intervention. However, if we accept that peak oil presents a challenge to suburbia, a Catch-22 situation arises. To the extent that suburbia retains its value over the long-term, we can afford to build an alternative to it that addresses the energy challenges facing suburbia. But if suburbia does maintain its value, where’s the motivation to do so? To the extent that energy challenges undermine the viability of suburbia, causing a desire to move to an alternative and a decline in the value of suburban homes, our ability to finance that alternative is destroyed.

That’s exactly the catch: to the extent that we need to end the suburban experiment, we aren’t able to do so. To the extent that early adopters “get out” soon and buy in to more sustainable alternatives, the vast majority who are left behind are increasingly stuck. For this reason, suburbia isn’t going anywhere—at least not in my lifetime. This is not to say that suburbia won’t undergo dramatic change. It will, but we're stuck with its basic existence. The potential and great challenge of making something sustainable and life-affirming out of the fact of suburbia will be the topic of the rest of this series.

Why fungibility matters (Part 2)

Finishing up last week's post on the disappearance of fungibility in energy markets, let's look at the other factors that are contributing to "fixedness" in our civilizational energy flows:

Sunk cost fixedenss: In the '90s and early part of this millenium, the United States invested in massive natural gas-driven electricity generation capacity. Now, with natural gas much more expensive, that sunk cost is forcing up the price of electricity. Likewise, while it is certainly possible to generate the power needed to get our cars and trucks from point A to B, we've invested in a hugely expensive fleet of liquid-fuel driven vehicles. There is a great deal of fixedness introduced by this sunk cost, and it is slowing the transition to both electric-powered vehicles, and to our transition away from single-commuter modes of transportation.

Project timeline fixedness: Additionally, the increased volatility in energy supplies is wreaking havoc with the long time-lines to plan, permit, and build our energy infrastructure. Not only does it take years to get a project off the ground, that project must operate for years to decades to be financially viable. Because we effectively lock in energy choices a decade or more in advance, the volatility of supply and demand for different types of energy, and the volatility for demand at different locations is causing serious problems. It has taken over a decade to get a liquid natural gas terminal operational in Baja California (to serve San Diego and Los Angeles), during which time the viability of LNG, the global demand, and the supply, have all dramatically shifted. It takes over a decade to bring a nuclear plant online in the US--how certain are we about our supply of uranium 10+ years from now, especially when China can (and is) bringing on new nuclear plants in two to three years, meaning the demand picture will shift significantly before our plant ever gets online. The credit crisis--both in terms of capital availability and the illiquidity of long-range derivatives to hedge energy supply isues--is only exacerbating this issue.

Geopolitical fixedness. If oil (or gas, or coal, or uranium, or rare earth metals used in photovoltaics, etc.) was equally available from anywhere, then geopolitics wouldn't enter into the discussion of supplies. But because resources are increasingly located in geopoliticaly challenging locales, the worlds of geopolitics and energy are increasingly interrelated. Europe is largely dependent on Russia and North Africa for its supply of natural gas, for example. Because of the massive investment necessary to bring trans-national pipelines to operation, long-term commitments to certain geopolitical alliances are required. Additionally, because these infrastructure assets represent fixed-targets, they incur very fixed vulnerabilities for consumers.

Now, it's important to point out that energy fungibility as it existed in the 20th Century was truly a historical anomaly. The utter dominance of the West over global trade routes and the temporary surplus of high energy-surplus, easily transported, and truly interchangeable crude oil created a "golden age" of energy fungibility. This didn't exist in the Middle Ages, in Rome, at the height of the Caliphate, or at any other time in our historical past. In fact, the level of free energy that we enjoyed during the 20th Century was a huge historical abberation. It funded the explosive growth in population and in the "middle class." It has come to an end. Oh, there will be plenty of energy around for quite some time to come, but phenomena such as decreasing fungibility of that energy will make our access to it--and our enjoyment of the benefits it provides--far more intermittent, far more regionally concentrated, and far less certain.

Why does fungibility matter (and where did it go)?

Why fungibility matters. Take any of a number of hypotheticals: revolution in Saudi Arabia cuts 8 million barrels per day of global oil supply; congress passes strict prohibition on burning coal; revolution in Algeria cuts natural gas supplies to Europe; dispute with the Ukraine cuts natural gas supplies to Europe; peak oil creates oil production supply drops much sharper than expected. What do they all have in common? Answer: our ability to cope, adapt, and overcome these problems is largely a function of substituting with alternatives. And our ability to substitute with alternative sources of energy is a factor of how fungible energy really is--how easily we can bring alternative B to replace lost supply of energy A.

Truly fungible? Traditionally, the term fungibility is used to describe the notion that a given energy commodity such as crude oil is of roughly equal value if it is delivered to China or the US. This is critical because it means that a drop in consumption in the US is negated by an equivalent rise in consumption in China. Likewise, it means that it's pointless to "remove our reliance on Middle Eastern oil" if that just means we buy the same amount of oil from elsewhere--the fungibility of oil simply tells us that when we stop buying from A and buy from B instead, the previous customer of B will now buy from A and little will change. But, of course, it isn't that simple. If you're protesting over the simplicity (naivete?) of my little A-B/B-A example a sentence ago, that's because there's no such thing as a truly fungible commodity. The point of this article is to discuss how the real world tends to intrude on fungibility of our various sources of energy and what this matters...


How do we define fungibility? Several ways. First, we can look at the characteristics of an energy source. Solar and wind supplies are seasonally, regionally, and temporally variable. In other words, sometimes the sun shines, sometimes the wind blows, and sometimes it doesnt--in very different patterns in different places. Fossil fuels are geologically constrained. Hydro has its own unique set of availability characteristics that are largely a result of decisions and compromises in dam construction. All of our energy sources are geographically constrained to some extent--you can't just "move" an oil field to China because that's where the demand is. In this sense, very few energy sources are "geographically fungible." Small nuclear reactors (as on naval vessels) and solar photovoltaics are eamples of energy sources that are geographically fungible, though one can argue that these are really conversion mechanisms, not sources. We can also define degree of fungibility by the characteristics of the energy produced. How easily can coal substitute for a shortfall in oil? How easily can uranium substitute for natural gas? Most importantly, we can define fungibility of an energy source by its characteristics transportability. Oil can be transported quite easily by tanker truck or tanker ship. Enriched uranium can be transported, as can liquified natural gas, coal, and electricity. It's important to point out, however, that the different problems encountered by the different means of transporting various types of energy introduce differing degrees of fixedness to our energy system.


Demand fixedness. How fixed is our demand for specific characteristics of energy? How important is is that we have the "instant on" of a natural gas stove versus a slower electric induction cooktop. How much have we already invested in liquid fuel-driven transportation that is keeping us from quickly and easily conveting to electrically-powerd transport. How long woudl it take and how much would it cost to make the switch? What about electric light vs. oil lamps? And what about electricity for communications and computers? It seems quite difficult to substitute any other form of energy to that end.


Storage/time fixedness. Likewise, how does the timing of our demand for a type of energy relate to our ability to store that type of energy? If we want hot water for a 6:00 a.m. shower, it makes it more difficult to rely on a solar hot water heater. If we want reliable electricity supply from solar or wind then we either need lots of batteries or a very expansive transmission grid with localized capacity to generate surplus electricity. This is one of the key characteristics that makes liquid fuels so fungible--they store easily in a readily accessible form and are relatively easily transportable.


Transport/geological fixedness. Pipelines introduce a very significant element of fixedness into our oil and gas supplies, just as transmission lines do for electricity.


Other generators of fixedness that I'll explore in future posts: Generation/conversion infrastructure fixedness; Project timeline fixedness; Fixedness due to sunk cost; Fixedness due to financing constraints; Geopolitical fixedness.


Is there a trend toward fixedness? While I've rambled a bit about these various sources, the real question that must be answered is whether our energy system is becoming less fungible, more fixed--and by imlication less adaptable to crisis, less resilient, more brittle.

Geopolitical Risk: Derivatives Markets without the Upside

There has been a lot of discussion about derivatives over the past few months, and for good reason. Derivatives--a broad class of complex financial instruments--include collateralized debt obligations (securitized-mortgages) and credit default swaps, which are right at the core of our current financial crisis. It's easy to get down on derivatives because when things go wrong, they can go terribly wrong (potentially much worse than we're currently seeing). But there's also an up-side to derivatives: they spread risk, allow parties to risk to effectively insure themselves, enable projects and ventures that would otherwise be untenable, etc. In this post, I want to compare and contrast the kinds of financial risk addressed by derivatives with geopolitical risk.

Defining geopolitical risk. Geopolitical consists of the following: the risk that the political or legal environment will change (e.g. nationalization, money transfer restrictions, etc.); the risk that the security environment will change (military coup, civil war, insurgency, etc.); the risk that the probability of either of these increase, thereby creating a positive-feedback loop that destabilizes the environment. That's all a fancy way of saying "all risk that isn't financial risk."

Can you insure against geopolitical risk? Yes. But there's a fundamental difference between insuring against financial risk and insuring against geopolitial risk. When we insure against financial risk, we make the whole system more stable (to a point, admittedly, and one we've been testing of late). Therefore, the more that people insure against financial risk--default, bankruptcy, etc.--the more stable the system becomes. This means that more insurance activity (more volume on the derivatives market) makes that insurance less expensive. Not so with geopolitical risk. You can essentially place a bet with one of a variety of geopolitical risk insurance providers that, say, your oil lease in Nigeria won't be reposessed, or that your employees in the Ogaden won't be kidnapped. But that activity of insurance doesn't make these events less likely to happen. Arguably, it actually makes them more probable (in the case of leasing, it commits more desirable and seizable infrastucture and resources to countries that might nationalize, for kidnapping it provides an alternative to investing in security services and ensures there's money via K&R insurance to pay ransoms).

In the end, this is because financial risk is spread through dillution, whereas geopolitical risk spreads through contagion. When we use derivatives to spread financial risk, we create both positive and negative effects. On the negative side, more parties are exposed to the risk, creating a higher degree of interdependency. A potential shock is no longer contained, but rather spreads to all involved parties. However, on the positive side, the speading of financial risk also dilutes that risk (you can argue this is undone by simultaneously facilitating yet more leverage, but up to a point this is still a good thing). That isnt' true of geopolitical risk. With geopolitical risk, hedging against geopolitical risk doesn't dilute the risk at all--it just shifts it from the insured to the insurer. And, because the shield of insurance facilitates increased involvement in geopolitically risky regions, the net effect is actually to increase interconnectedness. Geopolitical risk can't be diluted (only redistributed), and hedging against it actually makes the shock waves travel further.

Why these differences are important, especially to energy supply. It is critically important to understand this difference between financial risk (and associated markets) and geopolitical risk (and associated markets), especially when it comes to understanding our energy future. Right now, high energy prices create an incentive to explore and produce energy resources everywhere--including the most geopolitically riskly locales. Normally, the geopolitical risk would make many such areas financially inaccessible. However, with inaccurately priced means to hedge geopolitical risk (both through pure geopolitical risk derivatives and through various other vehicles such as long-term futures contracts, tax deductions, etc.), all comers are wading waist-deep into the fast running waters of Nigeria, Angola, Sudan, Ethiopia, Khazakstan, Bolivia, and elsewhere. As a result, we're maintaining global energy production and facilitating our ongoing profligate consumption of these resources while dramatically increasing our exposure to geopolitical risk. In part because of the positive feedback-loop nature of this risk (see my brief on the topic), this creates a self-fulfilling prophecy of geopolitical supply shock. And here, just like with the credit markets, the longer it takes for this shock to materialize, the more severe it will be.

At the end of the day, while financial derivatives markets are a key component of our current financial mess, they are a truly powerful tool that can be used for great long-term good if regulated (with an understanding of long-term systemic risk issues) to ensure they are not abused for short term profit. Derivatives markets that address geopolitical risk, on the other hand, only delay an inevitable accounting for the underlying causes of the risk--rather than diluting risk they merely facilitate increased exposure to that risk. When this incrased exposure is combined with the geopolitical positive feedback loops that I've discussed previously, it is a recipe for disaster. In particular, because the "force of nature" character of geopolitical positive feedback loops is not well understood, geopolitical derivatives tend to be priced incredibly inaccurately, ensuring that the future geopolitical situation comes as a severe shock.

The Timing of the Financial Crisis & Peak Oil

Here is the big topic that needs to be developed over the next several weeks and months: the interrelationship between peak oil/peak energy and the financial crisis/global economy.

In my opinion, it's necessary to take a deeper look at the impact of the financial crisis on our economy--because it is not clear at this point that "financial crisis" is the same as "general economic crisis." The financial crisis is like a falling soufle--you pump enough air into something by way of what I've called "financial wizardry," and eventually it will pop and deflate. But it isn't like a balloon--when the derivative-driven froth is blown off the pint of beer, there's still beer underneath. It's a question of how much...

I'll stop with the metaphors (for now). It's undeniable that the implosion of global credit and derivatives markets has very real effects--both on the global demand for oil and for general economic activity.  However, the recent tumble in oil prices is, in my opinion, more due to the aggressive pricing into the market of a long global recession than it is of an actual change in the supply and demand situation.  It's worth noting that the IEA just revised their projection for the next year's oil demand growth from 0.8% to 0.5%.  Note that is still growth, a very real 350,000 barrels per day or so.   What is also undeniable is that, even if global credit locks down permanently, there are very real prospects for economic activity and growth. At one extreme, if the credit markets lock down, you can't buy a $800,000 house with nothing down, no credit, and no verification of income. That hurts the housing price bubble. On the other hand, even with no credit market at all, the Adam Smith-style economic opportunities still exist: you can still grow vegetables and sell them, you can still assemble raw materials into a value-added product you can still provide services for money or barter, you can still build furniture, buy houses, etc. Every "real" economic activity that can be done with credit can be done without. There is, of course, a huge catch here: you can't do it the same WAY.

You can buy a house with a frozen credit market--you just have to save up the cash purchase price first. Novel approach, I realize, but there you have it. Believe it or not, people used to do this fairly frequently.

You can still manufacture complex products. But, rather than getting a loan to buy the capital equipement, materials, and pay the labor, then give it to the customer, get them to pay you, and repay the loan, now you need to 1) get the customer to pay you, or 2) maintain enough cash reserves to carry this cost until payment. This means that either the customer or the producer  needs to save up the money for the end product first, rather than pay later. This also has a dramatic impact on business models--the 'get big first, then figure out how to profit' model advanced by Amazon.com and others simply doesn't work. All these changes really shake up the rate of throughput while System B reverts back to System A.

Of course, it's also worth pointing out that our credit markets are nowhere near frozen. They just aren't quite as artificially lubricated as they recently were. As with most things in life, when it comes to credit today you can get anything you want, but most likely not everything you want.

So back to the froth on the beer. Most of that froth is going away. The question is how much beer is left underneath. When the economic fantasy land of recent credit-driven excess falls back down to earth, there will still be a very vibrant agricultural sector, a vibrant market for cheap, energy efficient transport, a vibrant market for clothes, homes, etc. just as there always has been. It might be more potatoes and less Cabernet. It might be more renting and less owning a 4,000 square foot home on a $50k/year salary. It might be more buses and light rail and fewer Escalades. And make no mistake--there will still be plenty of excess, plenty of luxury, plenty of waste. But, to the degree that things change, this is opportunity for economic activity and profit. The economies of specialization and centralization haven't gone away (though the energy cost of distribution from a centralized facility must be considered).  But the traditional economies of scale and place will be in increasing competition with what I've termed the "anti-economies."  Whether you're a farmer, an accountant, a furniture maker, or a nurse, you still perform an important economic function.

And that's the point: When the froth is gone, there is still a very vibrant economy hiding underneath. In fact, and this is where I start to get concerned, to the degree that we refocus our efforts away from keeping the froth full of air, we'll start to focus more of our effort to revving up the fundamental economic engine that sits beneath it. And so will the rest of the world, which brings me to the other half of the equation: Peak Oil.

It seems likely that it takes a few years to fully sort out the frothy mess we're currently in. But when this is sorted out, we'll still have 5 billion people in the developing world who want home heating and air conditioning, want to drive a car, want to eat more meat, want hot water on demand, etc. And there's no fundamental problem with our underlying economics that will prevent them from demanding these things. Except Peak Oil. The next two or three years of focus, budget, and effort fixing the financial crisis are two or three years where we aren't using oru rapidly dwindling supply of high net-energy surplus oil and gas to invest in a renewble energy infrastructure or to restructure our economy away from the demand for continual growth. In fact, the short-term drop (or at least fear thereof) in commodity consumption is likely to depress prices enough that there's no financial incentive to even invest in keeping production steady.

We're setting ourselves up for the perfect storm. Resurgent global demand for energy will hit just about the time that our energy supplies (especially our net energy supplies) begin to rapidly decline. As I've said in jest many times on this blog, the Mayan prophecies about 2012 may not be that far off the mark--at least as far as timing is concerned. This topic--the interrelationship (and political disconnect) between finance and energy, and what we can do about it--will be a frequent topic going forward...

See a few older posts on this topic:

- Timing of Peak Oil and the Credit Crunch

- TheOil Price Head Fake (inspired by Charles Hugh Smith, who's original article is looking very prescient right now)

- Financial Wizardry and Collapse

Open Source Ecology--Help Needed

If you've been following my writing on rhizome, the problem of growth, and the hamlet economy, or if you've been reading John Robb's posts on the "Resilient Community," then you'll also be interested in the work being done on an open-source toolkit for the sustainable village of the future at Open Source Ecology.

There, Marcin Jakubowski, a person I met through the excellent P2P Foundation, is blazing ahead with a very real, implementable "Global Construction Set" of open-source tools, platforms, and knowledge sets to empower a future of sustainable, vernacular, and decentralized food production, energy generation, architecture, and social structures. Here's an visual overview:


One of my favorite parts of their plan is their work on an open source compressed earth block machine. This is something that is truly decentralized and vernacular-tech, but that can have a revolutionary effect on the architecture and energy demands of both the rural poor in the third world and the adventurous rich in American and elsewhere. Importantly, Open Source Ecology is not just a theory shop--they already have put much of this into practice in the real world, such as building a compressed earth block press, a hexayurt, and they're working on an open source solar turbine.

Right now what they need are both online and real-world volunteers and financial support. If you have money to contribute, this seems like a very worthy project (here's their donation page). If not, as long as you're interested in the topic you'll notice that their entire site is a wiki--contribute information, start new projects, etc. If, like me, you'd rather help design a annualized solar heating system than an open source tractor, Open Source Ecology has built an amazing platform to do just that...

The Geopolitics of Energy: A Systems-Thinking Approach

Here's my presentation from last week's ASPO conference in Sacramento. I've taken my speaking notes and turned them into a narrative after each slide, so the text is probably quite close to what I actually said. Here's the PowerPoint file if you're so inclined. Thanks to Guy Kawasaki--though I've given innumerable Power Point presentations in the past, in the spirit of continual innovation I tried some of his "Top 10" format for this presentation and I've received nothing but positive feedback.



I think that this concept of “Energy Geopolitics” is extremely broad and complex. As a result, it’s necessary to take a systems-thinking approach, addressing the issues of complexity and feedback loops head-on. My goal here is, in only 10 slides, to start with the sources of geopolitical conflict and tie them up into a coherent model of a system of geopolitical disruption to energy and resource supplies.



1. The first source of conflict is the result of simple economic processes. Here, rational extraction sets the stage for increasing geopolitical problems. It’s well understood that we pursue the geologically “easy oil” first, and are now left with the more geologically and net-energy challenging oil reserves. This same process also operates in the realm of geopolitics. Just as we exploited the geologically easy oil first, we also exploited the geopolitically easy oil first. Now, what is left is increasingly geopolitically challenging.

So, geologically, we exploit the East Texas field before we go to Tupi or the Arctic. By the same process, but applied to geopolitics, we go to Pennsylvania before we go to Nigeria.

While such simple and linear explanations are useful, we need to move beyond exclusively linear models and recognize that geopolitics form complex, non-linear systems. So, BOTH of the following are true (and they aren’t the same thing): 1) oil is increasingly in geopolitical trouble spots, and 2) there is increasingly geopolitical trouble where there is oil.



2. The character of our energy demand also exacerbates geopolitical problems. As we pass peak oil, reduction in oil consumption will increase the inelasticity of remaining demand as we choose to cut the most elastic demand first. This tightens the system: all actors will take increasingly extreme measures to ensure supplies to meet their increasingly inelastic demand.



3. There are a number of catalysts to geopolitical conflict. First, there is the division between State and Nation. Where, especially in post-colonial and globally networked environments, the demands of the Nation and the desires of the State don’t line up, there is conflict. Likewise, there is conflict where there is disparity between the demands of State and Non-State groups such as religious sects, or ideological or affinity groups. There is also conflict between the “Legal” owners of a resource and those who claim “Moral” ownership. Consider, for example, an Ijaw villager in the Niger Delta region. He sees that his land, and the land that his people have occupied as long as anyone can remember, is now being exploited by a foreign oil company. He feels that he has moral ownership to this land and this oil. He isn’t concerned that, because the British amalgamated 250+ distinct ethnic groups into the colonial construct of the Nigerian state over 100 years ago, there is a legal structure in place that gives ownership to a distant government that is then leased to an IOC. Instead, this disparity between moral and legal ownership drives conflict.

All of these sources of conflict fall under the general heading of “Mutually Exclusive Overlap.” When the minimum demands of groups A and B can’t be simultaneously met, this situation perpetuates conflict, causes sides to dig in, escalate the conflict, and choose to use violent means to forcibly meet their minimum demands. We certainly see this today in regions such as Iraq and Nigeria.


4. Additionally, in a world of dwindling resource supply, actors must make tough choices: do they accept reduced supply or fight to maintain current levels of consumption? Generally, actors will seek to secure their slice of a shrinking pie.

This creates a resource insecurity issue, and harkens back to the old (but increasingly new again) economic philosophy of Mercantilism. These mercantilist tendencies manifest in a number of ways. One is pipeline mercantilism. There is this tendency to accept without qualification the assertion that oil and natural gas are globally fungible commodities, but in reality there is a certain element of fixedness of resource flows introduced by the sunk cost in energy infrastructure. Actors seek to ensure that this infrastructure, these pipelines, direct resource flows toward their markets. Another mechanism of mercantilism is the long-term, bi-lateral supply contract coupled with aid deals. This is a favorite of China and India of late. And finally, if these fail, there is always military adventurism. This is something that we already see in the headlines: Iraq and the Georgian conflict just to cite two obvious examples. However, this has the potential to spread to many more areas: the Spratly Islands, Ethiopia’s Ogaden province, North Africa (with increasing Russian influence), and the dark horse, the Arctic.



5. In a sense, the Nation-State conflict and the mercantilism/resource insecurity issues both become issues of a changing military landscape: a shift in power relationships and a democratization of the state’s traditional monopoly of the use of violence (at least in theory). This evolution in military tactics is exacerbating the geopolitical threat to energy supplies (spreading understanding of targeting methodology that leads to selecting energy infrastructure targets as critical nodes capable of inducing cascading failures, recognition of the increasing ROI of energy targets as energy becomes increasingly scarce, network-innovation advantage held by decentralized adversaries, innovations in modern “swarming” and “guerilla” tactics, etc.).

So, simultaneously you have a situation where disenfranchised groups of all stripes have an improved ability to challenge established power structures militarily AND a situation where the increasingly preferred and effective means of doing so is to directly disrupt energy supplies.

These tactical developments certainly aren’t new—the graphic above shows a swarming span style="font-size:100%;">situation encountered by Alexander the Great over two millennia ago, but it is resurgent.These military developments really close the circle, taking discrete causes of geopolitical tensions and wrapping them up into a system of geopolitical feedback loops disrupting resource supply.

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6. All of these developments act as positive feedback loops (they are driven by the scarcity and value of energy, and by taking energy supplies off the market they increase that scarcity). These phenomena form a system of positive feedback loops—a system that will only grow more intense as we pass peak oil and peak energy.



7. So here’s the dramatic graphic. The right side of civilization’s oil supply curve will not look like the left. Peak oil is dramatic enough in suggesting that the right side might look as bad as the left, but my argument is that geopolitics will actually make it look significantly worse.

Is this an over-dramatization? My answer: IF peak oil is a problem, then geopolitical feedback loops will make it worse. If we find a suitable energy substitute to continue fueling global economic and population growth indefinitely, then neither peak oil nor geopolitical feedback loops will pose a real challenge to humanity. The danger presented by geopolitical feedback loops is that, while we may understand the geological and economic nature of peak oil, we may persist in underestimating the problem if we fail to understand that geopolitics are not a separable set of phenomena, but rather are the inextricable result of geologically-driven scarcity.

So where are we now on this graph? As we’re all well aware, there is legitimate debate about the exact timing of peak oil. There’s debate about not just the timing but also the very existence of peak energy. But geopolitical feedback loops aren’t driven by the date of peak. Rather, they’re driven by the transition point from accelerating supply growth to decelerating supply growth, and there can be little doubt that we’ve passed that point.

What about the sharp cliff at the end of the geopolitical curve? Shouldn’t geopolitically determined supply mirror the gradual tail-off of the classic peak oil production curve? Not necessarily. While we’ll never run out of oil, it is certainly possible that we run out of the necessary geopolitically-permissible environment and level of economic complexity necessary to produce, export, or import oil in any substantial quantity.



8. I think it’s tempting to think of these phenomena as a bunch of conceptually and geographically separable problems. However, my argument is that this is a global feedback system (conflict in Nigeria increases scarcity which, in turn, drives energy targeting choices in Mexico, which further invigorates the conflict in Nigeria). As long as there is increasing global scarcity, there will be increasing catalyst for localized geopolitical problems even in regions that have not yet peaked.

This is a critical concept because events in regions that are clearly out of control—like Nigeria—are substantially impacting the geopolitical environment in formerly very stable areas like Scotland and Canada. Just a few years ago that might draw laughs, and I’m certainly not suggesting that we’ll soon see hoards of Picts and Scots wielding bucklers and swords advancing on York. But what I think is not questionable is that increased scarcity due to events in Nigeria are exacerbating the very real tensions around resource nationalism that already exist in places like Scotland.



9. There’s also a temptation to think of geopolitical troubles as a group of discrete, “solvable” problems that just need a good does of “good governance” or a bit more “democracy.” This may be true, to a degree, in an environment of decreasing scarcity, but in an environment of increasing scarcity of energy and resources it is not.

Instead, attempts to solve one geopolitical symptom often leads to an alternative negative outcomes. Nigeria’s corruption and failure to distribute oil wealth effectively to its people inflames existing conflicts between state and ethnic groups. However, it also keeps Nigeria’s people in abject poverty. If we “solve” the problem of Nigerian governance and properly distribute oil revenues to the people, we may close the door on one problem (ethnic insurgency) and open the door to another (rising domestic consumption). If the objective is good governance and supporting human rights, then the choice is clear. If the objective is to alleviate global energy woes, both outcomes make the situation worse.



10. “Solving” the geopolitical threat to energy requires far more radical restructuring than many assume. A global economy predicated on the notion of perpetual growth is fundamentally incompatible with reliance on a scarce and dwindling resource. Radical decentralization of energy sources, transition to truly renewable energy sources, reliance on vernacular modes and levels of consumption, and moving away from growth-generating hierarchal structures MAY be able to truly solve the problem. However, this “solution” would require such a radical restructuring of human affairs that it is highly unrealistic as a proactive choice. Individuals, communities, even regions may be able to pursue such a radical agenda to insulate themselves from the grinding effects of these geopolitical feedback loops but, in my opinion, the most pragmatic approach to these geopolitical phenomena is to treat them much like we treat geology: an immutable force of nature.

Regardless of whether you think that the problem of geopolitics can be “solved” or not, here is the key take-away:

Our energy future is not controlled solely by the comparatively straight-forward issues of geology, economics, and technology, but also by the much less concrete limiting factor of geopolitics. Oil supply under geopolitical reality will always be less than what is geologically, economically, and technologically possible. How much less? I don’t know—but I think it will be a significant and ever increasing difference. If you aren’t planning for this kind of uncertainty beyond the issues presented by economics and geology, then you aren’t prepared.

ASPO-USA

Tomorrow I'll be speaking at the ASPO-USA annual conference in Sacramento:



I'll post my slides and presentation notes next week...

Geopolitical Disruptions #2: Identifying the Feedback Loops

This post, the second in a series on Geopolitical Feedback Loops (see part 1 here), will outline the various geopolitical feedback loops that operate to disrupt oil and resource production. I've tried to link most of these feedback loops around a common theme of ownership dispute, illustrated below. There are several examples for each feedback loop, but in the interest of time I've just listed them and linked to further information--each could be a post in its own right.


Figure 1: Does the state own oil reserves or the nation? When the two are contiguous it makes little difference, but as they become increasingly dissimilar the dispute drives conflict. While I haven't divided the feedback loops explicitly along ownership lines, this graphic may help conceptualize these processes as a single system.

GFL1: "Nation"/State Conflict

Explanation: Who owns the oil, the state or its constituent nation(s)? Throughout the 20th Century, the international order was defined by the Nation-State system that developed out of the Peace of Westphalia. As Philip Bobbitt explained in his seminal work, The Shield of Achilles, the constitutional basis of the modern Nation-State is that the State provides for its constituent Nation. For this system to work, there must be close overlap between the State and the Nation.

This, of course, has always been a fiction to some degree as States have generally cobbled together numerous national and affinity groups with less than total exclusivity and attempted to mold a "national character" out of them that is contiguous with the boundaries of the State. Today, for a variety of reasons, this order is rapidly falling apart. As a result, nations and states are increasingly in conflict over self-determination and, critically, resource control.

When a Nation (or any other non-state group such as a religion, issue group, or affinity group--I am using the broad term "Nation" here only for simplicity) has a dispute with a controlling state over control or use of a resource such as oil, gas, etc., the importance and motivation to escalate to violence in pursuit of resource control is, at least partially, a function of the value of the resource in dispute. Because these conflicts have the tendency to increase the scarcity, and therefore value, of the resource, this type of conflict forms a positive feedback loop. In addition to this positive feedback nature, this process also expands in scope as it intensifies: resource ownership that was minimally relevant a few decades ago (e.g the Arctic, or Canada's tar sands) is now becoming an important source of conflict (this tendency towards scope-expansion also runs though many of the feedback loops identified below).

In the interest of brevity, for a more in-depth look at the fundamentals behind this feedback loop see my paper The New Map. I list this feedback loop first because I think it may be the least understood, and has the potential to mushroom into one of the largest sources of supply disruption within a decade or two. It serves as the foundation of the concept of resource ownership disputes illustrated in the headline graphic. As with all the opposing pairs illustrated above, when the two overlap perfectly (e.g. "nation" and "state" or "legal owner" and "moral owner") there is no problem, but as these opposing notions begin to diverge the foundation for sustained conflict is created.

Examples (Oil & Gas): Nigeria (Ijaw/Igbo/etc.), Iraq (Kurd, Shia, Sunni), Canada (First Nations), Iran (Awhaz, Baloch), Angola (Cabinda), Mexico (Zapatistas/EPR), Saudi Arabia (Islamists), Yemen (al-Qa'ida, tribes), Sudan/Chad (SLA, Darfur), Ethiopia (Ogaden), UK (Scotland). Other resources: Morocco (Sahrawi Rebels - Rock Phosphate), Indonesia (Iriyan Jaya - various metals), Democratic Republic of Congo (LRA - diamonds & other minerals), Israel/Palestine (aquifers & surface water), American West (surface water compacts).

GFL2: Production Conservation

Explanation: Who has moral ownership of oil and other resources, today's population, or posterity? Among oil exporting countries, the realization that oil supplies (and quite possibly overall energy supplies) will soon peak and begin to decline forces them to weigh maximizing production (and, generally, also revenue) today against maximizing revenue over the long term by consciously producing at less than maximum capacity. There are numerous political, economic, and social considerations involved here, but in general this is a positive feedback loop because reducing production now increases scarcity and price today, which in turn increases revenue from the remaining production and makes it more politically viable today for the same nation, and other nations, to reduce production today in order to maximize long-term revenue. If Saudi Arabia can make $800 million exporting 8 million barrels of $100 oil per day, and a billion dollars exporting 7 million barrels of $150 oil each day, it isn't a very difficult political choice to both make more money now AND save more oil for future generations.

Example: Saudi Arabia, United States

GFL3: The "New Mercantilism"

Explanation: Before the era of globalization and "free trade," the dominant global economic paradigm was mercantilism--the belief that the size of the global wealth pie was effectively fixed, and the only way to increase one's share was to take some away from someone else. In an environment where it is increasingly clear that production of energy and many other resources are severely constrained, mercantilism is making a comeback. Under a mercantilist paradigm, if China decides that it needs 10 million barrels of oil per day to improve the standard of living of its population, it needs to take the additional 2.5 million barrels per day from someone else. This is done by developing long term relationships with exporting countries facilitating long-term bilateral supply contracts, by fixing infrastructure (such as pipelines) to deliver oil to one consumer over another, etc. Mercantilism raises this question: if "my" share is to grow, whose share will I take?

Mercantilism becomes a positive feedback loop for at least two reasons: first, because one country engaging in mercantilist practices pressures others to follow suit to protect their share of the pie or lose out; second, because mercantilism is a less optimal allocation of energy resources than market allocation, effectively removing oil from the open export marketplace, thereby increasing the price on that market and further pressuring countries (and firms, and individuals) to resort to mercantilism to lock in their share of the energy pie. Additionally, as the energy pie shrinks, these forces will increasingly intensify.

Example: United States, EU, China (and here), Russia, and India

GFL4: Privateering

Explanation: Does the "legal" ownership of the rich few or the self-defined "moral" ownership of the impovershed masses (or justification as such by greedy criminals) control? High oil prices increases the incentive to bunker oil, to extort oil producers, and to otherwise leverage violence or the threat of violence against oil producers for personal gain. This forms a positive feedback loop for two reasons. First, privateering physically shuts in some oil production, as it may take an example attack to demonstrate capability, and kidnappings often remove critical personnel from a project resulting in delays or production shut downs. Second, whether producers pay off privateers or pay security to protect themselves from privateers, privateers impose a significant cost on production operations. In both cases the result is greater scarcity and higher prices, both of which create more motivation for new or expanded privateering operations.

Example: Nigeria seems to be the only clear cut example of the privateering feedback loop currently in place with regard to oil. Arguably it is also in place in Colombia and possibly Ecuador where the militas that attack oil infrastructure are often as motivated by profit and extortion as they are by ideology. Privateering is also commonplace in the broader resources sector (e.g. organized copper theft rings).

GFL5: Resource Insecurity Driving Military Adventurism

Explanation: Why is the oil we "need" under their sand? As the price of energy and resources increase, many nations realize that their dependence on once cheap imports is a strategic Achilles heel. As this problem grows worse, they are increasingly willing to embark on military adventurism to secure their energy and resource needs. This can manifest itself in strategic partnerships where importing nations sell arms to energy exporters, or it can go to the extreme of invading a resource rich country to improve future control of resource flows. Either way, these actions increase resource insecurity, may increase scarcity (such as the lengthy drop in production following the US invasion of Iraq), and form a positive feedback loop as they increase the motivation for other resource-insecure countries to take drastic steps to improve their own strategic situation.

Example: Iraq (US), Iran (US?), Venezuela (US?), Arctic (Russia, US, Canada, Denmark, Norway), Georgia (Russia, US, EU), Chad (Sudan), China/Japan, Spratly Islands (China, Vietnam, Philippines).

GFL6: Corrupt Governance

Explanation: If someone else can get rich of this oil, why not me? High oil and resource prices increase the incentive for everything from low-level graft and corruption to a military coup with the intent of expropriating as much personal wealth as possible from the country's resources. Corruption and rotating dictatorships reduce oil production for several reasons: they present a less efficient and more costly business environment, they undermine property rights protections that often facilitate resource production, and they are likely to spawn armed conflicts, civil wars, etc. that are likely to destroy infrastructure or shut in production capacity. This, in turn, increases the scarcity and value of the oil in dispute and forms a positive feedback loop.

Example: Mauritania, Nigeria, Sudan, and Equitorial Guniea.

GFL7: Targeting by ROI

Explanation: I've listed this feedback loop second to last as it doesn't really fit within the "ownership dispute" framework of the above feedback loops. Scarce energy, and more expensive energy, increase the return on investment for an attack on energy infrastructure. An attack that effectively shuts in 100,000 barrels of oil per day has roughly double the financial impact when oil costs $100/barrel compared to when oil costs $50/barrel. Therefore, when targets are being selected (whether by state actors such as Russia targeting the Georgian port of Poti or rebels in Mexico, etc.), higher energy costs make energy targets more rewarding, and more likely to be selected. When energy infrastructure is successfully attacked, it increases the scarcity of oil, increases the price of oil, and makes this a positive feedback loop by further increasing the attractiveness of energy infrastructure targets.

Example: Iraq, Nigeria, Mexico, Saudi Arabia, Philippines, Thailand, Turkey

GFL8: Export Land Model (ELM)

Explanation: Rising oil prices increase revenues for oil exporting countries. These rising revenues generally drive consumption in exporting countries (e.g. more wealth means more people can drive larger cars, more food security means rising populations, etc.), which in turn reduces exports. In some circumstances (generally where the exporter is a major player such as Saudi Arabia or Russia) declining exports may increase price enough to keep net export revenues rising--in these situations this forms a positive feedback loop. In other cases, where rising consumption results in lower overall export revenues, a negative feedback loop is created. Westexas, Khebab, and others have already done outstanding work on this topic--I have included this feedback loop at the end of this list not because it is least important (it is probably most important, at least in the near term), but because it has been most exhaustively covered previously.

Example: Real world examples of ELM in action include Indonesia, Egypt, Malaysia, and Mexico. In the near future, its impact in major exporting states like Saudi Arabia and Russia may be most significant. Here is a graphic of this process in action in Indonesia:

Quantifiable Disruptions in Nigeria & Iraq

The EIA estimates that, as of April 2007, Nigeria had 587,000 barrles per day of production shut in by violence--primarily the Nation/State, Priavateering, Corruption, and Targeting/ROI feedback loops. However, the EIA also estimates that Nigeria has 3.2 million barrels per day of production capacity. A single attack has shut in as much as 345,000 barrels per day for a brief period, and the amount shut in at any given time is highly variable. Recently, Nigerian production has been hovering just below 2 million barrels per day, and has even dropped briefly below 1 million barrels per day, suggesting the actual shut-in figure is far higher.

In Iraq, oil production is just now nearing pre-war production levels of 2.6+ mbpd. While some officials claim Iraq could surpass 3 mbpd in 2008, critical political compromises splitting resource ownership between the federal governments and Iraq's three main ethnic/sectarian groups have not been reached. The oil shut in since the invasion (and the oil that future violence may shut in) can be attributed to various feedback loops: military adventurism driven by resource insecurity, nation/state violence, corruption, and targeting/ROI.

Conclusion

Here, I've listed the examples that I can think of for each feedback loop. If readers have additions, changes, etc., please add these in the comments. The links are not intended to be definitive sources of information about each feedback loop in action, but rather a jumping-off point for research and discussion.

The next and final post in this series will discuss the interrelationships between these feedback loops and prospects for solving, or at least mitigating, their impact.