Luxury Connect
Meet the Luxury Leaders | October 19-20 | Beverly Hills

Part 1: Energy

“Our situation is perilous, but we still rocket upward, almost blindly tethered to the indescribable creations of our dreams, speculating on extinction, yet hoping for our promised future.”


Eco Ali: “How Dependent Upon Technology Do You Believe Human Beings To Be?” 

One of the key phrases associated with the real estate industry is “location, location, location.” In many ways, it’s the defining characteristic of the home purchasing process, and the one all real estate professionals are best known for understanding. For most, it defines the core feature we all begin with, and for others, where the dreaming stops, price. These two things combined — location and price — characterize life for all of us today in the developed world, and are critical to the success of any economy.

Where things come from, the transportation costs associated with bringing them to you in a convenient way, and the distance you live from the things that you need, are crucial to understanding the domestic economics of not only goods you’d purchase at the store, but also the future of housing itself.

Many focus conversations surrounding the fragility of our dependence on nonrenewable resources upon transportation (about 60 percent of all oil consumed in America is for transportation, most of it on passenger cars), but housing is also at the center of this discussion, and the next series of posts will reframe and explore this idea in depth in three different ways: from the perspective of our housing needs’ dependence upon oil; how technology is improving energy consumption and decision-making, sustainability and community; and finally how that same technology has created a disruptive dependence and behavioral shift within us all, which might avert, or at least slow, a critical set of very severe and highly imminent economic problems on a global scale.

I propose to question if we’re capable of making these kinds of decisions ourselves, or if we should succumb to technology to implement our digital decision-making.

We’ll begin with an exploration of how housing and the current decline in energy resources are connected.

“No matter how sophisticated our machines get, change is not a triumph of technology. It’s a triumph of humanity.”

Biz Stone (co-founder of Twitter): South by Southwest Conference, 2012 (Business Insider)

Many modern economists, ecologists and cultural commentators believe that the current global environment of unsustainable energy production and aggressive, erratic fiscal policies will lead to an inevitable modern industrial collapse within the next 30 years. Simply put, our growing population, coupled with the chronic interdependence upon oil production and nonrenewable energy sources, has already depleted more than half of the world’s known resources of oil. This is a cultural economic moment referred to as “peak oil”, which describes the point in time when the maximum rate of global petroleum extraction is reached, after which production goes into rapid and terminal decline.

Peak oil is a term developed by Shell Oil geoscientist M. King Hubbert in the 1950s, to determine how much sustainability the Earth had, based on current population and production behaviors. Petroleum experts predict that this kind of activity, essentially describing the moment where there’s less oil in the ground than has already been extracted, will have widespread negative economic implications, based on increasing oil prices and the high dependence of most modern industrial transportation systems, agricultural infrastructures and production techniques — and the home is the primary consumer of all three aspects. As many would like to believe, it isn’t something we can spend our way out of either; it simply isn’t resolved through greater financial investment. We can’t buy our way out of this one.

“A Crude Awakening: The Oil Crash” (2006)

“No amount of technology, and no amount of human ingenuity, can possibly overturn the laws of physics.”

Michael Ruppert: “Collapse,” a documentary by Chris Smith, 2009

As the fascinating Michael Ruppert  (an ex-officer of the Los Angeles Police Department who now runs CollapseNet, a worldwide network of people looking to become more self-sufficient) explains in the 2009 documentary “Collapse”, the International Energy Agency has been consistently reporting a gradual decline in the world’s oil production, year over year, culminating in a 9 percent drop in global oil production in 2009 at the time of the documentary.

At this rate, it is almost impossible to offset a 9 percent rate of decline, either through alternative energy sources (such as continued use of fossil fuels, solar, wind, hydrogen or otherwise), or by extracting yet more oil out of the ground from newly discovered oil fields. What’s happening is that the main source of energy, oil, is being used faster than it can be replaced, by a growing dependence upon it by a rapidly expanding population. And while the global population continues to increase to almost 7 billion (we’re currently at 6.8 billion, more than twice as many people as there were in 1960), the rate of discovery and extraction of oil is slowing. The two are on a collision course that threatens to cause some very serious and widespread socio-economic changes … soon.

When you have an explosion in population growth, essentially since the 1850s, powered by the Industrial Revolution, which allowed greater production and mobility, as well as increased standards of living (refrigeration, heating, plumbing, etc.), it creates enormous strain upon the natural resources required to even sustain such changes. As population increases, that means more people are spending more money than ever before, which exerts an exponential strain upon the world’s finances.

As population grows, so does the complexity of the world’s economy. But while the financial paradigm requires infinite growth, there simply isn’t such a thing as infinite energy. As Ruppert explains in apocalyptic terms, when the infinite growth paradigm collides with the concept of finite energy depletion, energy becomes more valuable than money, and the result is that we’re already beginning to see economies all around the world collapse much faster than ever before, even faster than the rate at which our domestic policy struggles to wrestle with its own recovery.

“So we in Congress have a very clear choice. We can take largely symbolic action and sit back and fiddle while Americans burn more gasoline. Or we can pass concrete, effective legislation that will save consumers money while significantly reducing U.S. oil consumption.”

Sherwood Boehlert: House of Representatives (New York); in office Jan. 3, 2003, to Jan. 3, 2007

“How Many People Can Live On Planet Earth” (BBC Horizon)

Almost everything we use today is somehow dependent upon oil extraction. Plastic, paints, pesticides, packaging and almost everything you have in your home is reliant upon oil production. A startling metric is that there’s 7 gallons of oil in every car tire. Most of us have five of them, if not more if you have a larger family. Ninety-eight percent of all transportation energy comes from oil, and the construction of a car requires (depending on which report you read), around 27-54 barrels of oil, just for one. Seventy percent of every barrel of oil gets refined into transportation fuels.

By contrast, a microchip consumes 630 times its weight in nonrenewable fossil fuels, something that continues with aggressive pace in an era of mass-industrialized technological adoption (there are 925 iPhones sold every 60 seconds).

But the problem of moving from an era of abundant energy to one of scarce energy (where it becomes a luxury product) is that oil isn’t like wheat or other crops. It’s not grown. It’s finite, and inherently perishable and nonrenewable. Once we use it, that’s it. The main point of comparison is that what has taken millions of years to form will be used up in less than 200 years, and without a viable set of alternatives, we’re facing down some very real problems.

As explored in the 2006 documentary “A Crude Awakening: The Oil Crash,” OPEC (the Organization of Petroleum Exporting Countries) is relentlessly criticized for misrepresenting existing oil reserves for political reasons, with varying estimates that at times include known, probable and even possible oil fields. Why do this?

Simply put, an overreporting of reserves allows production to not only be sustained, but to also increase, leading to higher revenues. This is clearly an unsustainable model, as M. King Hubbert accurately predicted that oil discovery had peaked in the 1930s (there have been only a handful of notable discoveries since, such as the fields in the North Sea off the eastern coast of Scotland).

You can’t have increased production year on year without an increase in known or discovered oil reserves. And most importantly, the more effective you become at exporting that oil and gas, the sooner it’s gone.

We’re now reaching such a pace of depletion that it’s beginning to cost more to extract a barrel of oil out of the ground than that same barrel produces in energy itself. Similarly, alternative energy sources such as ethanol fare no better — there’s an overall loss of energy from burning ethanol as opposed to making it. The return on investment simply isn’t there. The increased production of offshore drilling fields requires incredibly high investment, with severely diminishing return.

The key illustration Ruppert points to is how Saudi Arabia, one of the world’s largest oil producers, currently accounting for more than 25 percent of the world’s oil reserves, is beginning to drill offshore, having almost exhausted its internal reserves.

While many are calling for greater transparency and clarification on just how much oil is predicted to be left in the world (so that at the very least contingency plans can be prepared), the reliance of modern culture for sustainability through oil is a very real problem. Ruppert argues that if Saudi Arabia admits to post-peak oil data, it causes local instability, economic instability and ultimately global market instability. It prompts the very serious question at the heart of the data: Where else does the oil come from?

“What A Way to Go: Life at the End of Empire (Peak Oil)”

“I think OPEC is about maxed out. When people talk about spare capacity in OPEC, I don’t see it. I just don’t see it coming through and I’m not sure it’s there. And it’s not just that they’re greedy, but they’re really producing what they can produce.”

John Hofmeister, former president of Shell Oil, interviewed on CNBC, February 2012 

With more than 800 million vehicles on the planet at the moment, transportation and distribution is a large part of the conversation regarding how oil gets used. It gets everything from A to B. Almost all of these millions of vehicles run on oil, are dependent upon oil, and are made from oil. Ruppert continues by exploring, but ultimately dismissing, all of the proposed energy sources currently on the table for oil replacements.

Ruppert argues that Canadian tar sands are too oil-intensive to sustainably produce. Hydrogen-based cars still carry the problem of the 7 gallons of oil in each tire. Electricity isn’t an energy source — it’s generated by burning something else, usually a fossil fuel, and while it’s most certainly the key to modern life, powering almost everything we need to exist (again, centered around the home), there is no viable, long-term model of sustainability to keep electricity intact.

It’s been well documented that there is no such thing as “clean coal,” and even if there were it’s too energy and financially expensive to create. You lose more than you gain. Nuclear power plants are not only inherently risky, as we recently saw in Japan as a consequence of their 2011 earthquake, but also require a tremendous investment of energy just to get built. Many argue that solar and wind are the most efficient forms of energy currently being discussed, but our current reliance on them is almost invisible, and they still require large investments of energy in order to transport that same energy away from the wind and solar farms to where it would be used. Again, it’s the same issue of how far away the home or need is from the source of the energy required to power it.

Similarly with agriculture, and the idea of how food reaches our table, modern, industrialized farming, powered by oil, is aggressively reducing the world’s soil to an unusable husk. Pesticide-driven methods not only suck nutrients out of the soil under the guise of putting them into our food instead, but they also artificially replace those same needed nutrients with synthetic ones (anyone wishing to take a deeper dive into the practices of modern agriculture should watch “Food Inc.,” an incredible documentary that will make you think twice about what you’re eating).

Not allowing the soil to compost and replenish itself, even by the most primitive rotation methods established in the Middle Ages, produces what Ruppert terms “a worthless sponge of chemicals.” And again, modern farming is almost entirely predicated upon nonrenewable forms of energy. Electricity and oil power the farms; fertilizers come from natural gas; and the methods by which the produce leaves the farm and gets distributed (trucks) is, of course, dependent on the exclusive use of oil.

“A finite world can support only a finite population; therefore, population growth must eventually equal zero.”

Garrett Hardin: “The Tragedy Of The Commons”: Science Magazine, 1968 

To return to the idea of how population growth fuels not only demand, but the chronic and aggressive depletion of energy, and to further illustrate Ruppert’s premise of how it’s an issue closely associated with population growth, all we need to do is look at how the world’s population has grown over the past 1,000 years.

From speculative estimates of around 275 million in A.D. 1000, we’re now at 6.8 billion in 2012, and since the 1850s, this has experienced hockey stick-shaped growth. Industrialization, fueled by oil, has caused the population to explode at a seismic rate. However, if you buy into the idea that population growth and the use of oil are closely connected, what happens when the oil begins to run out? If you take away the oil, what happens to the population growth? The rate of growth in the world’s population is already beginning to slow, keeping pace consistently with the decline in oil production, but what’s important to keep in mind here is the price of oil itself. The point where economies and countries begin to collapse is when oil prices spike beyond what people can afford. As a consequence, Ruppert predicts starvation, dislocation, bankruptcy and economic collapse at frightening scale based on these decisions and ultimate lack of action.

“Few will doubt that humankind has created a planet-sized problem for itself. No one wished it so, but we are the first species to become a geophysical force, altering Earth’s climate, a role previously reserved for tectonics, sun flares and glacial cycles. We are also the greatest destroyer of life since the 10-kilometer-wide meteorite that landed near Yucatan and ended the Age of Reptiles 65 million years ago. Through overpopulation we have put ourselves in danger of running out of food and water. So a very Faustian choice is upon us: whether to accept our corrosive and risky behavior as the unavoidable price of population and economic growth, or to take stock of ourselves and search for a new environmental ethic.”

E.O. Wilson: “Consilience: The Unity of Knowledge,” 1998 

Similarly, environmentalist Stuart Staniford, writing on The Oil Drum, explores this issue from a different perspective, arguing that population growth isn’t always quite as exponential as Ruppert suggests. The rate of population growth can vary over time, and frames the conversation as one of growth rates rather than overall population figures.

Growth rate is calculated by comparing the crude birth rate (the number of people alive) with the crude death rate each year. The site argues that this figure is the key indication of not only a country’s development, but more importantly, its overall stability.

In more developed countries, the capacity to have a negative growth rate (a shrinking population) is actually a signifier of an increased standard of living. There’s an enormous demographic transition happening in underdeveloped countries, however, fueled by oil and industrialization, which is taking hold far faster than it caused current developed countries to get to where they are today. Simply put, countries are evolving at a pace never seen before, and these are usually countries, such as India and China, which have the world’s largest and most densely populated areas. These least-developed countries not only have the largest population growth rates (fewer deaths versus substantially more babies born), but this is being coupled with a concern over the rate at which they are becoming developed at the same time (their rate of oil consumption). Whereas population growth is often a measure of affluence, the challenges of peak oil pose the problem of reducing the chances of these same countries in becoming developed at all.

If we look at data from the United Nations for predicted and current growth statistics, we can determine how this trend of what’s happening in developing countries impacts the volume of oil needed to keep pace with such growth. Ultimately, it’s a simplistic analogy, but the key metric the United Nations looks at is the amount of barrels of oil a person consumes each year. Essentially, the conclusions of most world oil and population experts is that current oil production doesn’t even begin to keep pace with the most conservative population growth predictions.

“Community is what will save us.”

Michael Ruppert: “Collapse,” a documentary by Chris Smith, 2009

For many, this will be a tough set of discussions to have, but the problems of oil production sustainability are very real, and here right now. While there’s much disagreement upon when peak oil will happen (or if it already has, the consensus seems to favor 2005), Ruppert proposes that the one thing that will save us is what real estate professionals have sold homes on for years: community.

In order to increase sustainability and reduce reliance upon an oil-centric culture, Ruppert advocates the aggressive insulation and energy conservancy of homes, something many of us do as a matter of course, but that a glaring volume of our homes don’t currently do. As well as the restoration and return to the reliance of a culture of growing your own food, something that appears to be disappearing in modern culture. It’s a return to Jeffersonian agrarian self-sufficiency. The simple ability to grow food where you live, free of dependence upon transportation or energy, begins to counter the notion of widespread industrialized collapse, but it has to happen at scale, and that’s the problematic aspect of this, especially for those who live in more urbanized environments.

So as problematic as it might be to scale such an idea into actual widespread action, there’s a far bigger issue at play here: the fact that the idea of community itself is also being aggressively eroded in an era of increased technological communication. Many argue that we not only speak to our neighbors less, but we also speak to each other less, as a direct result of mobile, social and electronic communication. So what we’re left with is a conundrum. If community, pooled resources, and a return to the widespread working of the land to sustain and grow the areas in which we live are the key to weaning ourselves off the reliance upon oil, how does that contrast with the aggressive disintermediation of conversation and community in an era of “always on” technology? As I’ve explored elsewhere, the sense of community we currently have is increasingly electronic, and ultimately synthetic.

Donald Sadoway, professor of materials chemistry at the Massachusetts Institute of Technology (MIT) who recently spoke at the TED conference, is currently working on the problem at the heart of many of these discussions: how to harness and store power so that it can be delivered to the energy grid all the time. This allows energy sources such as wind and sun to become more sustainable, and begin to counteract the diminishing return in transporting electrical energy to remote places.

Our efforts and labors under the illusion of progress to increase standards of living are isolating us from each other, in a way that has the capacity to cause catastrophic changes in how (and where) we live. Energy consumption at home is the key to this discussion (and then by consequence transportation), and that’s where technology has a genuinely helpful role to play. Technology has the capacity to optimize our energy consumption in ways that are clearly beyond our means. It might be eroding community, but it can make decisions on our behalf that we critically need.

And that’s what we’ll explore next.

Further Reading:

Eco Ali: “How Dependent Upon Technology Do You Believe Human Beings To Be?” 

David Allan: “Demographic Transition: An Historical Sociological Perspective” (University Of Michigan)

BBC News: “Countries ‘Hoarding’ Crude Oil, Say Analysts”

BBC News: “Petrol Prices Hit Another Record High”

Christopher Califf: “Is Internet Dependence Helping Us Evolve Or Devolve?” (Technorati)

William Catton: “Overshoot: The Ecological Basis Of Revolutionary Change”

Joel E. Cohen: “How Many People Can The Earth Support?”

ConsumerReports.org (Unattributed): “Housing Crisis And Energy Factor In President Obama’s State of the Union”

Keith Montgomery: “The Demographic Transition” (University Of Wisconsin)

Donald Sadoway: “The Missing Link to Renewable Energy” (TED Talk)

Rita Solomon: “Society’s Dependence Upon Technology A Concern” (Washington Square News)

Alyson Shontell: “Biz Stone: My One Big Takeaway From Co-Founding Twitter” (Business Insider)

Stuart Staniford: “So Let’s Talk About Population” (The Oil Drum)

United Nations: “World Population Prospects: The 2004 Revision”

United States Census Bureau: “Growth of Human Population, 1900 To Present”

Wikipedia: Collapse (Film)

Wikipedia: Dependency Theory 

Wikipedia:Peak Oil