With 8 billion people and counting, energy is needed for developing and industrialized nations. How can companies fill these demands and make these goods and services affordable?
What are the drivers to make energy affordable? In economic terms, there are only two items that drive price. There is supply and demand. Is affordability that simple? The answer is no. When you involve governments, simple supply, and demand do not equate to affordability.
In her article, “The Global Energy Squeeze is Risker than we thought.” There are three initial thoughts in the article that help explain affordability:
- Energy shortages could significantly impact the economy more than originally anticipated.
- When energy per capita falls, it becomes increasingly difficult to maintain the complexity that has been put in place.
- Without enough energy products to go around, conflict tends to rise, and economic growth slows and turns to economic contraction, creating huge strains for the financial system.
When people forecast ever-rising energy prices, they miss that market fossil fuel prices consider both oil producers and consumers. From the producer’s point of view, the price for oil needs to be high enough that new oil fields can be profitably developed. From the consumer’s point of view, the price of oil needs to be sufficiently low that food and other goods manufactured using oil products are affordable. In practice, oil prices tend to rise and fall and rise again. On average, they don’t satisfy the oil producers or the consumers. This dynamic tends to push the economy downward.
There are many other changes, as well, as fossil fuel energy per capita falls. Without enough energy products to go around, conflict tends to rise. Economic growth slows and becomes economic contraction, creating enormous strains on the financial system. In this post, I will try to explain a few of the issues involved.
If you go to Nate Hagens and Joseph Tainter’s presentation, you will learn about complexity and how energy and complexity grow simultaneously. Tanny calls it the Energy-Complexity Spiral. A simplified explanation of complexity when dealing with energy is that societies evolve and become more complex. An urban zone is more complex than a rural area since it may have paved roads, industry everywhere, and grocery stores abound. All of these items add to the complexity of their society. In Nate Hagens and Joseph Tainter’s theory, this complexity and energy go hand in hand. When you introduce simplification, then the cost of energy goes up rather than down.
Now that we have learned about some of the factors in affordability within energy now, let’s go over data and how that can also be a problem.