What goes down: Stein’s Law and the cost of energy

Carey King, BURN Contributor

Stein’s Law states: “If something cannot go on forever, it will stop.”

For nearly 60 years after World War II, the percent of U.S. household income spent on food and energy – or personal consumption expenditures (PCE) – declined.

But then things started to change. Again. Between 1998 and 2002, PCE for food and energy stopped declining and started increasing. The PCE for “food + energy” reached a minimum of 18% in 2002. Whether or not this will be the minimum percentage PCE for “food + energy” for the US for all time is a good question.

But this percentage cannot decrease forever because energy and food will never be free – back to Stein’s Law. As we’ll see shortly, the reversal of these trends could be an indicator of a fundamental transformation for our economy and society.

Carey King - Food_Energy chart

Figure 1. Personal consumption expenditures of US households expressed as a percentage of total expenditures. Data are from the US Bureau of Economic Analysis Table 2.3.5. Food = “Food and beverages purchased for off-premises consumption” and “Food services and accommodations.” Energy = “gasoline and other energy goods and of electricity and gas.”

The reason to consider both the PCE for energy and food is because food was fundamentally an energy source of pre-industrial power from humans and animals. Before fossil fuels and significant industrialization using wind, wood, and water power in the early 1800s, food was the major energy resource for prime movers.

The food that animals and people ate was the fuel that powered them, and therefore the machines and tools they operated. Thus, the quantity of food and fodder produced from the land had a major influence on the amount of power for agriculture and a little industry.

In a large sense, fossil fuels and subsequent technologies drove down the relative cost of food and energy. Those energy-dense resources enabled the technical change that generated economic growth. Fossil fuels also meant fewer and fewer workers were needed to grow food and mine energy sources.

Since 2002, we have been spending an increasingly higher proportion of our personal income on food and energy, due to resource scarcity. Thus, there has been an increased demand for more investment (capital and labor) in these basic needs.

In other words, food and energy have become increasingly scarce – and therefore, more expensive – because of the rising demands for each around the world.

As a result, an increasing proportion of workers and other resources may be needed to produce the same quantity of food and energy (fossil and renewable), possibly with declining per capita consumption. This is the exact opposite trend of fossil-fueled industrialization!

The truth is that constraints in food and energy supplies, together with consumption patterns (and demographics, too, but that’s another subject) have caught up with much of the ‘advanced’ economies (e.g. EU, US, Japan). Unconventional oil alternatives – oil sands, deepwater, oil shale, biofuels – don’t have the same level of pure energetic value as energy sources of the past.

In considering the ongoing debate about American jobs and decreasing unemployment rates, note how the oil and gas commercials tout the jobs they create. Then, remember the figure in this article. Historically, the economy has grown the most when we’re moving jobs out of the energy sectors.

The rising cost of energy is a primary cause of our slow economy, and there is a limited rate at which we can adjust to this new reality. The sooner citizens, businesses, and politicians accept this fact, the better we will be in the future.

Carey King is a research associate in the University of Texas at Austin’s Center for International Energy and Environmental Policy. King researches energy systems and how they work together and within the environment. King contributes blog posts for Environmental Research Web, under Energy – The Nexus of Everything.

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Tar sands in the US? It’s not just about the Keystone Pipeline

Alex Chadwick, BURN Host

This just in: the Obama Administration continues trying to walk the very fine line that will least anger his many critics in the energy industry and among environmental groups.

 The latest is an announcement last week from the outgoing Secretary of Interior, Ken Salazar. It’s about development of potentially huge hydrocarbon reserves in Colorado, Wyoming and Utah.

The DOI agency that manages federal lands – aptly named the Bureau of Land Management (BLM) – has formulated new rules about how to exploit these reserves in a way that it says is environmentally sound, and a good financial deal for the feds and, ultimately, taxpayers.

From comments by Mr. Salazar: “This plan maintains a strong focus on research and development to promote new technologies that may eventually lead to safe and responsible commercial development of these domestic energy resources. It will help ensure that we acquire critically important information about these technologies and their potential effects on the landscape, especially our scarce water resources in the West.” 

But it’s a good bet that no one will be happy with this. There are oil shale and tar sands operations already set to get underway this summer in Utah – operating on state and private lands, and thus not subject to BLM rules. The tar sands operation would be the first of its kind in this country. The oil shale facility would be the first US site for that development in thirty years.

Both hydrocarbons are solids in their natural state, and must be treated, and often heated, to be transformed into petroleum. The estimated recoverable reserves of these hydrocarbons are enormous – perhaps three times the size of the oil holdings in Saudi Arabia. The world’s easy-to-get petroleum reserves are dwindling, but the industry sees huge potential payoffs in these ‘unconventional’ fuels.

And the Greens see a disaster. The climate numbers keep getting worse. Much worse. More hydrocarbons = more devastation for our children and grandchildren, the Greens say. We have to leave some hydrocarbons in the ground, and these are the ones to start with. It takes more energy to make them usable, which means their carbon consequences are even greater than normal petroleum.

Oh, by the way: jobs, jobs, jobs, jobs, jobs, jobs. And jobs.

This new BLM proposed rule is now open for 60 days of comment. It’s just another small tick for the time bomb of energy and climate. And why now? An act of grace by Mr. Salazar. His replacement, the new Secretary of Interior, Sally Jewell, CEO of Recreational Equipment, Inc., is about to get a confirmation vote by the full US Senate. She’ll be glad this isn’t waiting for her. But those 60 days will pass soon enough.

The ticking doesn’t ever stop. There’s a tremendous political fight in this country right now about the Keystone XL Pipeline meant to carry Canadian tar sands to US Gulf Coast refineries. As US land continues to be developed for tar sand exploitation, the fight won’t just be about resources coming in from Canada. The battle will be here, too.
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