Although petrol prices 'at the pump' are temporarily low, long-term energy costs are on the rise. According to the Worldwatch Institute's 'State of the World 2015'* the world's nations are papering over those costs by taking on more debt. Higher energy costs are leading to continued recessions, excess claims on future natural resources, and more-severe social inequality and poverty. This analysis has been carried out by WI contributing author Nathan John Hagens, a former hedge fund manager who teaches human macro-ecology at the University of Minnesota.
The relatively low cost of energy extraction compared to the benefits obtained from fossil fuels has been perhaps the most important factor in the industrialised world's economic success. Large quantities of inexpensive fuels were available even after accounting for the energy lost to extract and process them. But, as remaining fuels become less accessible, higher energy costs will have ripple effects through economies built around continued large energy-input requirements. Rising costs will endanger highly energy--- intensive industries and practices-including the energy sector itself, and increase the width and depth of poverty as everything becomes more expensive.
"Despite having 'plenty of energy,' higher physical costs [of extraction] suggest that energy is likely to rise from a historical average of 5 % of GDP to 10-15% or more" writes Hagens.
In the short term, nations are taking on growing debt to avoid losses in GDP. Since 2008, the Group of Seven nations (Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States) have added about $1 trillion per year in nominal GDP, but only by increasing their debt by over $18 trillion.
But, says Hagens, continued use of credit to mask the declining productivity of energy extraction is unsustainable. For each additional debt dollar, less and less GDP is generated, and, at the same time, the highest-energy-gain fuels are being depleted. Energy is becoming more expensive for the creditor in the future than for the debtor in the present.
"We have entered a period of unknown duration where things are going to be tough," states Hagens. "But humanity in the past has responded in creative, unexpected ways with new inventions and aspirations." While policy choices such as banking reform, a carbon and consumption tax, and moving away from GDP as a proxy for well-being are good long-term ideas, "we urgently need institutions and populations to begin to prepare ... for a world with the same or less each year instead of more."
*Worldwatch's State of the World 2015 investigates hidden threats to sustainability, including economic, political, and environmental challenges that are often under-reported in the media. For more information visit http://www.worldwatch.org/state-world-2015-confronting-hidden-threats-sustainability-0
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