Sweden and Oil

"Sweden surprised the world by announcing its intention to get off oil," Tam Hunt informed the readers of EnergyPulse in a May 2006 article.

The world doesn’t include me though, because I have learned to expect all sorts of moonshine from Swedish governments. “Nuclear energy is obsolete,” the present Swedish prime minister once told his constituents, although he knows as well as you and I that a renaissance is in the cards for nuclear energy, and probably sooner rather than later. Someone who accepted Mr Prime Minister’s statement at face value though was his energy minister, who knows as much about energy as I do about brain surgery. I suspect, however, that she knows more than the European Union energy minister, since that gentleman thinks that talk about peak oil is idle chatter.

Some elaboration is in order. Mr Hunt and his colleagues want Santa Barbara (California) to ‘be off’ oil by 2033, as indicated in his article “If Sweden can do it, can’t Santa Barbara?” One of the best things about EnergyPulse is the comments on the articles published in that forum: these are superior to any comments that I have heard at any energy conference or seminar anywhere in the world, and as to be expected, many strenuous objections to Mr Hunt’s outlook were published. These included my own humble remarks, however I’m not certain any longer that he is completely wrong. The key thing here is that there is a great deal of difference between the 2020 date set by Ms Energy Minister and 2033, because (ceteris paribus) by 2033 it might be wise to have as little to do with the buy side of the oil market as possible, especially if you take the peak oil hypothesis seriously, and despite the pedagogically valuable counter-arguments by Somsel (2006), Giegler (2006) Rawlingson (2006) and Gould (2006).

I’ll put it as follows. Even if the logic in Mr Hunt’s presentation and subsequent rejoinders are faulty, the price of oil might be such by 2033 that it would be best for every motorist in Santa Barbara if he or she had access to something other than an oil-based fuel for their vehicles. Accordingly, figuring out some way to abandon oil by 2033 – or even well before – might turn out to be a rational economic decision, even if it is grounded in the kind of irrational devotion to economically suboptimal environmental scenarios in which Mr Hunt and his colleagues specialize.

THE REAL DEAL

If you believe in ‘peak oil’, and I have some difficulty understanding how anyone could fail to believe in it, then it certainly is not impossible that global oil production could reach a maximum before 2020, and so getting Sweden “off” oil might be interpreted as a brilliant move. Actually however, when the peak arrives, a previous Swedish departure from oil would be due to luck rather than strategy, because to my knowledge no prominent Swedish politician has publicly demonstrated any sympathy for the ‘peak oil’ concept, and in addition the so-called ‘Oil Commission’ as well as the Swedish Energy Authority have both turned thumbs down on this kind of phenomenon.

Of course, as with Ms Energy Minister, the persons involved with these important establishments could hardly be described as possessing star quality where energy matters are concerned. In fact where this subject is concerned it might be appropriate to paraphrase a celebrated remark by Upton Sinclair: “It is difficult to get someone to understand energy economics when their salary depends on not understanding it.” The Energy Authority’s pseudo-experts and tagalongs have decided that oil price and production are “cyclical”, which is only a hair’s-breath from the harebrained belief by the Cambridge Energy Research Associates (CERA) that oil production will eventually display an undulating plateau. As for the ‘Commission’, Professor Azar gave his principals the crank assurance that in reality there is a hundred years of oil left. For what it is worth there is considerably more, however what counts is the production peak, and the possibility exists that delaying this to e.g. 2020 or perhaps slightly beyond will only be possible if the people who buy large amounts of oil pointed guns at the people who sell it, and perhaps not even then.

On a somewhat more exalted plane, the International Energy Agency (IEA) and the U.S. Department of Energy (USDOE) seem to be thinking in terms of 2030 as the date for peaking. Their arguments as to why this will be so strike me as being completely without any scientific value, and so I think we can say that if Mr Hunt appears in Sweden this autumn with the intention to flaunt his ambitions for a 2033 demise of oil, he should face up to the prospect that well before this somewhat remote date, he could find himself having to contemplate oil selling for the $324 a barrel predicted by Patrick Artus – a highly productive and well known French academic who is now with an investment bank. Everything is relative in this old world of ours, and so if the time has arrived to kiss oil goodbye, then on at least one level 2020 or thereabout makes a great deal of sense.

An interesting topic that will not be examined in detail at the present time is how the energy minister and her associates arrived at 2020 instead of e.g. 2025 or 2015, but here I recall a conference in Paris where I was told by a certain gentleman that when he and his colleagues predicted the price of various metals, they did not bother with nuisances like logic, models or empiricism, but at some point after a ‘working dinner’ that featured copious quantities of expensive wine, simply pulled the numbers that they provided their naive clients out of the smoke filled air. Accordingly, if there were any serious calculations attempted on the subject of Sweden’s energy future, I suspect that they mostly concerned how many votes would be won by announcing a 2020 date for closing and nailing shut the oil window. A sufficient number of votes would eventually be transformed into more plane tickets for Ms Energy Minister and her crew, which in turn meant more opportunities to bask in the presence of the high-and-mighty in Brussels and Strasbourg. If making this most precious of all outcomes take place required a bogus announcement about “going off oil” by such-and-such a date, then so be it.

Let’s see what we’ve got so far. To begin, testimonials by Tam Hunt and Ms Energy Minister declaring that the time has arrived to kick the addiction to oil. While agreeing that the oil situation is a problem, I’ve made it my business to call the ambitions of Ms Energy Minister loony-tune because she doesn’t have the slightest idea as to how they can be realized. Tam Hunt conceded that “even if she isn’t the (Albert) Einstein of energy, her aspirations and her ability to promote visionary goals are marvellous”, but I’m afraid that he missed the point. In the Swedish context she is both the Einstein and the Newton of energy, while the engineers and managers who shake their heads when they hear her sounding off have been reduced to know-nothings.

In both the paper being referred to here, as well as other contributions, Mr Hunt has demonstrated that he is in the mood for a comprehensive environmental makeover of Santa Barbara, based on what he interprets as Swedish experiences, and in some ways similar to the copycat ambitions of Ireland, as described by Bjorn Lindahl (2006). Please let me mention something that I told some students in Milan: no country has gotten so little from its explicit environmental investments as Sweden, even if to a considerable extent this is balanced by the economic and environmental significance of nuclear energy. As to be expected, any positive reference to nuclear is ignored by Mr Hunt and his friends, because what they desperately want is for efficient nuclear assets to be summarily replaced by economically suboptimal window-dressing. What about ‘peaking’, which must always be mentioned when oil is the subject. Well, the global discovery of oil peaked about 1965, and l980 was the last time that the amount of oil discovered was larger than its consumption. I’ve decided that this tells me almost everything I need to know about that subject. Of course, even if this observation wasn’t relevant, you can be sure that at least some of the major oil exporters – and definitely Saudi Arabia – are not going to export as much oil as the IEA and USDOE say that they will. Why should they? Would you if you were in their place?

CONCLUSION

I suspect that Ms Energy Minister is being led to believe that in the course of going off oil, ethanol has a lot to offer, and perhaps wood-based ethanol. There is a great deal of wood in this country, and so this might be worth considering, but as yet the details are unclear. However even if it is found that the economics makes sense, a country as energy intensive as Sweden would be foolish to launch experiments involving a mass adoption of unconventional energy sources unless they were in a hurry to ride into the welfare sunset.

According to Earl Cook (1976), “There is no reason to expect the transition from a low energy society to a high energy society to be irreversible. If the energy support of a high energy society fails, it must again become a low energy society. The great difficulty is that the low energy phase can be regained only at the expense of a degeneration in living standards and life-styles”.

A degeneration in living standards and life-styles! Sounds pretty grim doesn’t it, although many of the young party-goers to whom I had the pleasure of teaching economics and finance in Stockholm and Uppsala would feel proud to inform anyone who inquired that they were willing and able to reduce their use of energy. On the same occasion though most of them – and especially the finance students – would make it clear that they wanted and expected full employment, pensions, high quality health care and education for themselves and their families, ‘summer houses’ near a beach, a very great deal of leisure that involved extensive foreign travel, public order, and interior temperatures high enough so that ‘pile caps’ and padded dinner jackets did not displace Armani and Boetang creations in the more fashionable restaurants and discos. Defence was also occasionally mentioned, however with the end of the cold war this is not so important, and in any event the Swedish military has been gutted in order to scrape together a few battalions for service somewhere on the rim of the Kalihari.

I also have the impression that the good Tam Hunt was greatly impressed by energy innovations in Malmö, especially the closing of two of the most efficient reactors in the world that were located near that fine city. As bad luck would have it though, if things continue in the present mode, it’s not inconceivable that Malmö will be a shambles by the date when he dreams that his own lovely Santa Barbara is an oil-free paradise.

Let me conclude by saying that Tam Hunt is a very articulate and indefatigable student of energy issues, even if I can’t agree with his conclusions; and “If Sweden can do it, can’t Santa Barbara?” is a fair question. So fair that it can perhaps be improved on: “If Sweden can do it, can’t California”, where by “it” I am not referring to the waffle about oil launched by persons like Ms Energy Minister, but a future in which that great state, like Sweden, generates 45 percent of its electricity in nuclear facilities that have a world-class economy and reliability.

REFERENCES

Banks, Ferdinand E. (2007).The Political Economy of World Energy. An Iintroductory Textbook. London and Singapore: World Scientific.

Cook, Earl (1976). Man, Energy, Society. San Francisco: W.H. Freeman and Company. Giegler, Don (2006). Comment on Hunt. EnergyPulse. (www.energypulse.net).

Gould, Len (2006). Comment on Hunt. EnergyPulse (www.energypulse.net).

Hunt, Tam (2006). ‘If California can do it, can’t Santa Barbara’. EnergyPulse (www.energypulse.net)

Lindahl, Björn (2006). ’Oljeslukande Irland valjer Sverige som sin förebild’. Svenska Dagbladet (Monday, 10 April).

Rawlingson, Malcolm (2006). Comment on Hunt. EnergyPulse (www.energypulse.net).

Somsel, Joseph (2006). Comment on Hunt. EnergyPulse (www.energypulse.net).

Readers Comments

Date

Comment

Glenn Andersen
9.5.06

Mr. Banks' condescending attitude towards Swedes does not to my mind make his arguments stronger. It would be better to dispassionately look at the facts. Swedes and all Scandinavians have for many years attempted to lead the world in making moral choices. While America's role in WW II and in the Cold War is remembered, the U.S. has made many questionable decisions in both world politics and economics. Furthermore, the U.S. is the only industrialised nation on the planet without a medical program for its citizens. Therefore, a haughty, condescending attitude towards other nations is out of place.

Ferdinand E. Banks
9.5.06

This is an interesting comment Mr Andersen, and it very definitely deserves a short reply.

For political reasons, the prime minister of Sweden has declared nuclear energy obsolete, and has hastened the closure of two nuclear reactors. Let's use some economics here: the health services in Sweden are slowly deteriorating, and the same is true of the schools. If those two (nuclear) facilities had been kept open, and the profits from them earmarked for hospitals and schools in this country, this would be a much better country to live in. Note that I said "in this country", and not the stone age countries that have received and wasted billions in Swedish 'aid' in order that Sweden can appear as a moral icon to persons like your good self.

I can remember when Sweden led the world in medical services, had some of the safest streets, the best students - according to UN statistics Finland and Sweden were at the top for years, and perhaps decades - and in addition provided work for just about anyone who wanted it, and high quality welfare for anyone who needed it. Everything is relative in this old world of ours, and so as far as I'm concerned they still do pretty well - much better than most Swedes think that they do, in fact. The problem for me however - as one of the best economics teachers in the world - is that they could do a great deal better if they dispensed with know-nothing, celebrity politicians like Ms Energy Minister and a few others of that ilk.

Bruce Cavender
9.5.06

Personally I think it is about time for the USA to worry less about who is offended and begin concentrating on getting things done right again.

Socialized energy would be as effective as Socialized Medicine... an excerpt from a recent study:

--------------------------- According to a Populus survey, 98 percent of Britons want to reduce the time between diagnosis and treatment. Unlike America's imperfect but more market-driven health-care industry, nationalized systems usually divide patients and caregivers. In America, patients and doctors often make medical decisions and thus demand the best-available diagnostic tools, procedures and drugs. Affordability obviously plays its part, but the fact that most Americans either pay for themselves or carry various levels of insurance guarantees a market whose profits reward medical innovators. Under socialized medicine, public officials administer a single budget and usually ration care among a population whose sole choice is to take whatever therapies the state monopoly provides.

Medicrats often distribute resources based on politics rather than science. Government doctors and nurses frequently are unionized. Without incentives, such structures eventually breed mediocrity.

Emily Morely, 57, of Meath Park, Saskatchewan, discovered that cancer had invaded her liver, lungs, pancreas and spine. She also learned she had to wait at least three months to see an oncologist. In Canada, where private medicine is illegal, this could have meant death. However, Morely saw a doctor after one month -- once her children alerted Canada's legislature and mounted an international publicity campaign.

James Tyndale, 54, of Cambridge, England, wanted Velcade to stop his bone-marrow cancer. However, the government's so-called "postcode lottery" supplied this drug to some cities, but not Cambridge.

The British health service finally relented after complaints from the Tories' shadow health secretary, MP Andrew Lansley.

Edward Atkinson, 75, of Norfolk, England, was deleted from a government hospital's hip-replacement-surgery waiting list after he mailed graphic anti-abortion literature to hospital employees. "We exercised our right to decline treatment to him for anything other than life-threatening conditions," said administrator Ruth May. She claimed her employees objected to Atkinson's materials. Despite a member of Parliament's pleas, Atkinson still awaits surgery.

For all its problems, America's more market-friendly health system offers patients better care and would deliver greater advancements if government adopted liability reform, interstate medical insurance sales, unhindered health savings accounts and other pro-market improvements.

As for importing universal care, author P.J. O'Rourke said it best: "If you think health care is expensive now, just wait until it's free."

-------------------------------

'Choice to Vote with our Dollars' is a basic freedom. Just as importantly, it is a negative feedback system that cleanses our system of mediocre products or performance just by the fact no one has to pay for a crappy product.

Remove that negative feedback and the system is out of control.

Our Federal, State and Local governments would do well to have an equally strong negative feedback system personally impacting unelected bureaucrats responsible for massive waste of taxpayers' dollars.

My Daughter told me a story from her local high school where teachers (of all people) were suggesting the dropping of economics classes in favor of more civics classes. She said the students were incredulous and protested the change. With a little publicity the anti-economics, NEA teachers scurried off with their self-serving agenda exposed.

If you are not doing your job effectively in the eyes of the customer....you need to be history.

Malcolm Rawlingson
9.5.06

Thank you Mr. Banks for a very entertaining and useful commentary.

The date 2020 fits the bill admirably for those political folks that are not tasked with actually making things reality or whose political careers will be ended long before any results are due in. It is a number in the air. Meaningless without a plan to get there. It might as well be 3010. That is a good number too if you are a Star Treck fan where the world is powered by an abundance of tri-lithium crystals. Unfortunately we have not discovered tri-lithium crystals yet so, like Star Treck it is just an illusion a dream. Gene Roddenberry dreamed Star Treck - he did not make it reality.

It is akin to saying to a construction engineer that you want to build the worlds tallest skyscraper and you want it to be twice as high as the highest ever built. But you have no drawing, no plan, no site, no budget - nothing except the height of the building. Nothing wrong with having a dream but you better have a plan if you want the dream to become reality. Without a plan dreams are nothing.

And therein lies the problem. In order to make an off oil dream for any jurisdiction become a reality you need people working on it, research engineers and scientists, infrastructure engineers, Universities, Governments and the private sector and of course piles and piles and piles of money. Thousands of people - billions of dollars investment.

In Iceland I do see the elements of such a plan and a realistic target but this is for a small population of just 250,000 people on a small island. Even they are not finding it too easy but I give them great credit for their efforts.

For Sweden or California or anywhere else in the world with a significant population the scale of the problem is orders of magnitude larger. Califiornia has about 30 million people (my guess - someone correct me if wrong) and a standard of living amongst the highest in the world. A much more difficult problem than Iceland or Sweden.

Without a detailed, realistic and executable plan "off oil" can only be a dream for California or Sweden. Of course much to the dismay of many what will happen - as Ferdinand Banks so rightly says - oil will simply be SO expensive that its routine use will decline anyway - proving the politicians right without then actually having to do anything. It will be substituted by cheaper forms of energy that can be produced on a large scale without impact on the environment - that of course is nuclear. Any one that bothers to work through a "get off oil" plan must reach the inescapable conclusion that if you do not want your standard of living to drop to that of a "Third World" country then nuclear power is the only sustainable energy source that can meet the demand. Other supplies are just too small. If you cannot meet the demand then your standard of living - however you choose to measure it will drop. Maybe that is a good thing - LA will have to stop producing all the mindless garbage it puts forth in abandance over the airwaves. Actors and actressess will have to stop supporting charities for the needy in their $20,000 designer outfits....maybe reality will start to set in. But I doubt any of that will happen. People will not want to give any of that up. They will choose the next most readily available large scale option and it is nuclear power.

I would remind all readers that the only difference between a third world country living in poverty and a modern industrial nation living the high life is energy. Lots and lots of cheap energy. That used to be oil. Now it has to be nuclear.

There is NO other option....unless you want to live in a mud hut and get your water from a well with a bucket. I know which option Californians and Swedes will choose.

Sipping a cool (electrically refrigerated) drink in your air conditioned (electrically driven) cottage by the lake which you got to in your fuel cell operated vehicle (the product of decades of energy intensive research and development).....

Getting your water from a well three miles away (no electricity - no pumps) that you have to walk to (no energy no transport) and walk back followed by back breaking hard work trying to grow your family a little food.

There is a reason why people from poor countires want to come to the wealthy nations that we all take for granted.

Don't take it for granted. I saw on a gravestone once the words.

"As you are now - so once was I. As I am now so shall you be"

That is what the future holds for the west. Unless we start talking reality instead of fiction, real plans instead of meaningless platitudes - we will be third world countires sooner than you might think.

Malcolm

Ferdinand E. Banks
9.5.06

Mr Cavender, one of your favorite philosophers, P.J. O'Rourke, wrote in his book 'Eat the Rich', "We don't need to know math to understand economics."

Too much math has very definitely found its way into academic economics, but that opinion by the lovely O'Rourke is the height of ignorance. Another beauty is the one you named: "If you think that health care is expensive, just wait until it's free." I hope you don't believe that the (nearly) free health care offered by many countries is, ON THE AVERAGE, inferior to that available to citizens of the United States, and that the (nearly) free university education in e.g. Scandinavia is inferior to that in the United States.

This thing about health care though is interesting, and what it comes down to for many countries, to include those which are rich and have highly intelligent populations, is that it's extremely difficult to convince people when they are healthy that someday they mightl need high quality health care, and need it right away. I haven't thought about this problem lately, but I sincerely doubt whether, in the aggregate, it can be solved by what you call 'voting with dollars'. The best way to solve it is the way that they once solved it in Sweden: declare good health care a basic human right, and make sure that taxes finance a large number of high quality doctors and nurses and hospitals.

What went wrong in Sweden was that the health care became so good that the voters thought that they could continue to enjoy it while sending billions to Brussels and to stone age countries. This was a very bad mistake, but in point of truth it can be corrected. ..perhaps.

Arvid Hallén
9.5.06

Mr Andersen,

I wouldn't say Prof. Banks has a condecending attitude against Swedes, and I'm a Swede.

Sweden is a great country which could be even greater, if people like Ms Energy minister were deported to Mongolia.

Hard on the Mongolians though.

Maybe Prof. Banks will feel a little better by reading this piece of news: http://sr.se/ekot/artikel.asp?artikel=931282

[Majority of Swedes support continued use of nuclear power, and 30 % want to expand nuclear power]

Len Gould
9.6.06

Mr. Cavender posts a lot of unsupported nonsense comparing medical care systems. In evaluation of a nation's overall mediacal care quality, a recent study of national systems ranked the US system the lowest quality of any in the first world, even worse than Britain, whose system is also a mess.

The bottom line is, what is your nation's Infant Mortality rate, and what is the average life expectancy of your population. On both counts, Canadians are a LOT better off than Americans.

BTW, the study was done by a university in Tennessee though I can't find it any more. You might try , quote

USA Canada UK

Infant Mortality Rate 10.4 7.9 9.4

Death Rate age 1-4 101.5 82.1 82.2 Life Expectancy Male 71.6 73.4 72.7

Life Expectancy Female 78.6 80.3 78.2

(UK is known to have a very messed up national system, comparable to US) Or read

Len Gould
9.6.06

Comparison between the US and Other Rich Nations

Physicians For a National Health Care Program

Waste Conversion Congress East Coast

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