Saturation means more of a given ingredient cannot be added to a given volume or fabric of activity, without spilling over, and being wasted. The fossil fuels market is saturated, in the sense that it cannot effectively capitalize on major new production investment without major new construction of productive facilities. The industry has effectively pushed prices higher and cannot reduce them without seeing a dropoff in profits. Most people can no longer afford the fuel they used to consume.
This raises the question of scalability. Scalability refers to the notion that as activity of a given kind expands, as the benefits and efficiencies of size, reinforced by growing market share, which means a greater ability to determine outcomes, an economy of scale arises: a thing begins to cost less per unit or per usage, because a scalable activity has made the unit or the usage cost less without reducing overall revenues.
Scalability depends on many other features of the marketplace, however. One of these is the value of investment. Another is the availability of that investment. When a market has already gone global, and is controlled by a handful of megaconglomerates and governments, and is saturated, and is pricing reliant consumers out, investment slows down. In a credit-scarce economy where no one is as rich as the oil interests, even moreso.
The ability to rapidly scale up production, and to create a potent and escalating visible return on investment for consumers, is hampered by justifiable skepticism about where this globalized, saturated and entrenched market sector can hope to go. Add to that this problem of a business model whereby one consumes a finite fossil resource that cannot be reproduced, burning one’s assets as one goes, and you have a model that does not shape up favorably for the 21st century.
The S&P 500 are now sitting on over $1 trillion in accumulated cash reserves. This money could, and normally would, be invested in future economic development. But sclerosis in the top-heavy oil sector, a serious lack of capital in the hands of consumers, and the real vulnerability of banks and even governments, are all conspiring to hold that money back. Wise investors understand that when the marketplace for risk and investment fails, a rainy-day fund is the best option.
In stark contrast to the fossil fuels sector, the clean renewables sector:
- is far from saturated,
- produces an ever-increasing rate of return for investors,
- is primed to produce economies of scale,
- can offer more jobs at better wages over a longer term,
- and lends itself to accelerating efficiency gains.
So, why are so many smart people still saying they favor the economics of oil? Two reasons:
- They are invested in the fossil-burning-for-profits model and so don’t accurately perceive the saturation problem;
- They don’t understand the paradigm shift and so view clean energy not as a rapidly expanding market but as a feeble one.
It’s not presumptuous to make these assertions about the anti-clean-energy crowd; it’s giving the benefit of the doubt to people who are not seeing the lay of the land as it is, but rather as they are accustomed to hoping it is. It is wishful thinking to hold that oil will always be king and no better option will replace it, wishful, that is, if you profit from oil’s dominance. The same with coal.
We are running out of ways to extract coal cheaply without literally blowing mountains apart, wiping them off them map, which carries very significant costs. Coal is an 18th-century technology not optimized for our 21st century needs. While employment from coal steadily declines, the risks and costs of its production mount, and coal-rich communities continue to experience chronic endemic poverty which the industry has been unable to solve.
We are running out of easy access to oil; the remaining reserves are trapped in undeveloped remote wilderness, behind high-risk, low-yield extraction processes that require major new dirty energy infrastructure to be built. Their development will impede investment in and development of better, cleaner, more efficient alternatives. We can do much better.
The fossil fuel saturation problem, known to states like Texas as an ongoing “energy emergency”, means we need to be actively searching not only for alternative fuels, but also for investment opportunities where we can build in drivers of more generalized prosperity, i.e. a restored and strengthened middle class, and accelerating returns in productive capacity.
The only way to achieve that is by building a smart-grid-based distributed clean renewable-energy market.
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Originally published Sept. 13, 2011, at TheHotSpring.net