Ed Ellingson's Blog

1. An Overview of Our Energy Situation

About a year ago my daughter gave me some library books about “peak oil” that have greatly affected me.  I have since studied this area extensively and come to my own conclusions, and have developed a presentation that I give to groups in the local area (these are typically service clubs).  I grew up on a family dairy farm in Kenosha County, Wisconsin, so actually lived at a time when a person’s physical output was important.  I became an engineer, so have worked with energy my entire working life.

Historical Perspective

For my presentation, I start by going back to a time before fossil fuels were significant, about 1750-1830, a time that is quite well documented so we can develop a pretty good understanding of what life was like.  I try to get people thinking about what life was like when no water was moved, no stone or brick was placed, no dirt was dug, without the work being performed by a person.  This is with the exception of animal power, water power, and wind power.  We harnessed the animals to do some of the toughest jobs, wind power mostly for moving ships, but a few windmills, and water power to run machines, like grinders, saws, pumps, looms, and drop-forge hammers.  It’s hard, maybe impossible, for us to really come to terms with what it was like to live in those times.  Life was hard, and people lived closed to the edge.

Life changed dramatically with the use of steel rails, steam engines, and coal to create a train and railroad system that criss-crossed most of the country by 1850.  As much as “everything” changed, I focus on the mass production of goods, vs. craft production in local communities.  Railroads could transport raw materials to a factory for efficient manufacture into products, then distribute the products around the country.  A young blacksmith named John Deere could perfect his steel plow design in his shop, and then start manufacturing it in a factory in Moline, IL  and sell it around the world.

Another major advance was the use of steam engines in agriculture.  My Great Uncles were big in this, and reportedly had the first steam threshing rig in Kenosha County, WI.

Higgins family steam engine and threshing rig, about 1905

Again, it’s hard to imagine just what a difference this made to the farmers.  I was in a neighbor’s barn when I was a kid and noticed that the gap between the floorboards on the main floor was about 1″ and this seemed wide to me.  I asked about it, and it was explained to me that at the time the barn was built, that was part of the threshing process; the wheat bundles were spread out on the main floor and people and horses walked on it and worked it.  The grain fell through to the floor below to be shoveled up, and the straw was saved in the barn mows for use in the winter.  Think what a tremendous advantage it was to have a machine do this work!

In fact, the family story handed down was that a threshing rig like this could pay for itself in two years!  Without any more detail, think of it as a 50% return on investment!  This was the makings of a huge economic engine.  A huge up-front investment is required, but a machine that can save labor can have a huge profit potential.  The profits can be reinvested in more machines, or anything else, like travel, one of those new-fangled horseless carriages, or exotic foods from far away, like oranges.  Less farm workers were needed, but there were lots of jobs created in the factory centers where people were needed to make the steam engines, threshers, cars, and the other goods and services that people could now afford.

Our Economic Model

This is essentially the economic system as we know it.  There’s always potential for a new and better product.  There are financial systems in place to help provide the up-front investment, and the eventual returns can repay loans and pay dividends to the owners/shareholders.  If you’re not making enough money, then just get bigger, expand your market so that you can sell more, and take advantage of the efficiency of mass production to make it cheaper.

We Seem to have a Problem

Of course, there are limits.  You can only expand to the whole planet, nothing beyond.  Continuation of the systems relies on un-ending resources, like energy (fossil fuels), ores, and water, something we know is impossible, although we might not understand just what the limits are.

In my reviewing information regarding peak oil (and if you’re reading this, I’m pretty sure you’ve searched on “peak oil” and are familiar with at least some of the sites that come up under that topic) I try to focus on the marginal cost of the “next” energy source that we’ll be using.  The existing Canada tar-sands projects seems to pay out at $50/bbl. oil, but the next stages seem to need about $85/bbl.   The discoveries off of Brazil likewise will take a huge investment to get started, and seem to need oil at that price (~$85) in order to make sense.  Wind power and bio-alcohol likewise don’t pay off at today’s prices

So basically, people are being asked to invest in some of these next energy projects, even though they don’t make economic sense, at today’s prices.  They’re being asked to build wind turbines, but given tax breaks so that it can make sense.  They’re being asked to convert food (corn) to fuel, using tax breaks so that it makes economic sense.  They’re being asked to drill and process/transport oil where it only makes sense if you assume that the price of oil will be higher when the project is finally completed.  The oil companies are being asked to spend more money on exploration, even though in recent years only about 1$ of oil is discovered for every $2 spent on exploration, again, at current prices.  Add to this, that if oil prices go up, then the entire world economy collapses, oil consumption drops, and oil prices drop until things even out again.

Understanding What’s Happening

What are we to make of this?  How do we plan?  What steps do we take to take care of ourselves, maybe even benefit from the changes?

Everything’s Changed

My take on this is that our economic model has changed.  Any rules that you’ve developed over the years to guide you are probably wrong now.  “Housing a stock prices will continually rise”.  Not likely, unless there’s a lot of inflation.  “Real wages will continually improve.”  Wrong!  “Things will get worse before they get better.”  Wrong; now it’s “things will continually get worse!”  And by “worse” I mean leading us back to lifestyles that were common around 1800, before the use of fossil fuels.  (Not that that’s necessarily bad or good, but it’s certainly different).  It’s not even “invest so you can make a return” anymore, now it’s “invest so the economy doesn’t tank” or “invest so that you’ll have heat when everyone else doesn’t” or “invest in energy saving items, or we’ll have to invest in a new power plant, and you’re not going to like that.”

How do we deal with an economy that continually shrinks?  Is it even possible?  If not, what do we have to do?

Some Thoughts

The reason for writing this down is that we need to understand what’s happening before we can begin to take advantage of those changes, or re-direct it in some way.

The scope of these changes that we’re in is extremely broad, and that makes it complex.  This is sort of an overview, and I’ll try to write up more detail about individual topics over time.  Any comments the reader has will help to identify other issues and viewpoints, and will be appreciated.


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