The Environment and Economy with a Delayed Energy Crisis

Delta Force

Banned
World energy consumption had been consistently increasing at a rate of around 5% to 8% per year prior to the energy crises, after which the demand curve shifted to a much slower rate of growth. Even in the mid-1970s, after the first energy crisis, it was thought that the world would consume 75 million barrels of oil per day in 1985, a level that historically wasn't reached until 2000. Clearly a significant amount of energy was saved due to the transition to a new demand curve following the crises. However, assume that the old energy demand curve had continued for a few more years, avoiding artificial shocks such as embargoes.

What kind of impact would such rampant energy consumption have had on pollution and climate change science, especially with so much additional petroleum consumption, as well as a likely increase in coal consumption?

Also, what about the economy? It's now known that significant savings were achievable at a fairly low cost with simple behavioral, mechanical, and technological changes, and at least as early as the 1980s. What would happen to the economy when demand finally became incapable of keeping up with supply, especially for electricity? Would large numbers of power plants become surplus once people reduced their energy consumption patterns, leading to a large utility crisis? Or might people only make minor changes, since supply and consumption would be starting from a higher level before the onset of an energy crisis?
 
Inflation was already increasing in the 1970s, due to the Vietnam War and the kicking the can down the road efforts of Nixon in 1971 with the Wage and Price control efforts. The collapse of Brenton woods system was inevitable though it severely disabled the World currency system. The rise of inflation since the 1960s would likely continue into the mid 70s without the energy crises. This is due to a number of reasons, partially the after affects of the Vietnam war, the shortage of feed and the failure of the soviet grain harvest which increased food prices, and the inefficiencies of much of the American Economy. Considering this it is likely that inflate wold continue, unless there is a recession in 74-75.
 

Delta Force

Banned
Inflation was already increasing in the 1970s, due to the Vietnam War and the kicking the can down the road efforts of Nixon in 1971 with the Wage and Price control efforts. The collapse of Brenton woods system was inevitable though it severely disabled the World currency system. The rise of inflation since the 1960s would likely continue into the mid 70s without the energy crises. This is due to a number of reasons, partially the after affects of the Vietnam war, the shortage of feed and the failure of the soviet grain harvest which increased food prices, and the inefficiencies of much of the American Economy. Considering this it is likely that inflate wold continue, unless there is a recession in 74-75.

It's been argued that the United States Dollar effectively became backed by petroleum after it was officially removed from the gold standard. The USD is important because of its presence in international trade, but it is also the de facto currency of international petroleum trades. There are other commodities that are purchased in USD, but petroleum is the most widespread and important. Because the energy sector makes up a large percentage of international trade and domestic economies and has knock-on effects on every other sector due to being a near-universal input, that could drive inflation, deflation, etc.
 
In 1970(?) the Club of Rome published "Limits to Growth" to a luke-warm audience.
People were grumbling about inflation.
The 1972 Arab-Israeli war sparked the oil embargo and sharp rise of oil prices.
Bottom line, the American economy was suffering, but it needed an Arab-Israeli war and oil embargo to push it over the edge.
American auto-makers were ridiculously slow to respond to consumer demands for more fuel-efficient cars. That allowed Japanese auto-makers to sell millions of small cars. Japanese cars may not have been more fuel-efficient, but their lighter weight allowed them to burn less gas.
Even today, North American factories struggle to build decent small cars. Most of the small cares sold with American labels are still built in the Orient (e.g. my Pontiac Vibe which is really a Toyota Matrix sitting under a Pontiac label).
 

Delta Force

Banned
The jump in energy prices certainly didn't help things, and may have led to the 1970s and early 1980s becoming a period of stagflation. Energy prices are the most prominent and perhaps infamously excluded component in inflation calculations, and they surged throughout the 1970s.

How the 1970s would play out without the artifical crisis is interesting, but the question is more of when the system would become vulnerable to shocks of its own, and what kind of impact there would be as a result of the increased consumption. If energy consumption had continued to rise for only a few more years at the historical rates, it wouldn't have been long before it would have been higher than even contemporary consumption levels.

There would likely be some significant surplus electrical capacity, especially if nuclear power continued to grow as it had been. Between the first energy crisis and 1977 one hundred nuclear power plants and 88 coal fired power plants with a combined capacity of 200,000 MW were canceled. That could open up some interesting possibilities for electrification of transportation, and perhaps even producing hydrogen for fuel cells.

There's still the question of what would happen to the environment. Would acid rain, air pollution, and climate change become prominent issues earlier on?
 

Delta Force

Banned
This is an interesting graph. I can't one with total petroleum consumption, but a clear trend can be seen. Namely, in 1960 total consumption was around 8 million barrels per day, in 1965 total consumption was around 9 million barrels per day, in 1970 total consumption was around 11 million barrels per day, and around 1973 total consumption was around 14.75 million barrels. I think around 2 million barrels of petroleum was being used for power generation prior to the First Energy Crisis (because of its relative price to coal at the time), a surging demand that had not really existed prior to 1965. That still leaves a large amount of non-utility growth, but there are certainly some interesting implications if the supply shock doesn't happen until later.

Ironically enough, it could end up being a situation in which the 1970s is remembered as a Great Bandwagon Market for petroleum instead of for nuclear power, because all those petroleum plants would have to be converted to coal or natural gas, imposing both capital and variable costs (that's a lot of surging coal/natural gas production, especially since the United States historically had constrained gas supplies).

US_Crude_Oil_Production_and_Imports.png
 

Delta Force

Banned
It has occurred to me that I didn't actually put a question on the last post, just a lot of facts and figures. :p

So essentially, the time between 1965 and 1973 was a big one for the use of petroleum by utilities. If there had not been a 1973 Crisis, and utilities had kept investing in new power facilities, what happens when a price and/or supply shock hits petroleum? Not only would utilities (and thus electricity prices) be hit harder than historically, in addition to transportation, but coal prices in general would skyrocket even more than after the 1973 crisis. In addition to the high costs of plant conversion and the likely increase in bond yields due to the crisis (which would pay for conversion), might a later crisis leave nuclear power as the hero of sorts, with everyone writing about how the utilities were foolish to have created a Great Bandwagon Market in petroleum power?
 
With a later oil crisis, North Americans would drive large, gas-guzzling cars longer and Japanese manufacturers would have to wait a few more years before they could penetrate the market.
 
With a later oil crisis, North Americans would drive large, gas-guzzling cars longer and Japanese manufacturers would have to wait a few more years before they could penetrate the market.

This would be a boon to the RUst Belt. Short term that is.


A bigger impact, IMO, would be to the THird World.

A lot of recently independent states were trying to industrialize with borrowed money in the late 60s and though out the 70s.

But with skyrocketing oil prices, that money was diverted from investment to consumption.


(at least Iv'e read some analysis of THird World debt that has claimed that)
 

Delta Force

Banned
This would be a boon to the RUst Belt. Short term that is.


A bigger impact, IMO, would be to the THird World.

A lot of recently independent states were trying to industrialize with borrowed money in the late 60s and though out the 70s.

But with skyrocketing oil prices, that money was diverted from investment to consumption.


(at least Iv'e read some analysis of THird World debt that has claimed that)

I've read that the DPRK took out billions of dollars in loans in the 1970s to purchase equipment to produce goods for export, but had its plans derailed by rising petroleum prices which impacted production and transportation costs, in addition to reducing foreign markets.
 
This would be a boon to the RUst Belt. Short term that is.


A bigger impact, IMO, would be to the THird World.

A lot of recently independent states were trying to industrialize with borrowed money in the late 60s and though out the 70s.

But with skyrocketing oil prices, that money was diverted from investment to consumption.


(at least Iv'e read some analysis of THird World debt that has claimed that)

That's the Dutch Disease in a nutshell. With high demand for their oil, their currencies appreciate so their non-oil exports quickly become uncompetitive. Investment ceases to make economic sense and consumption starts to make more sense since their currency can now buy more imports. US debts weren't as high during that era so they couldn't go the East Asian treasury bond repression route.
 
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