This article examines the relationship between fossil fuels and world economies. It asserts that as fossil fuels become scarce toward the end of the 21st century, world economies will face collapse. Let’s begin by discussing world currencies.
All currencies today are “fiat money,” meaning they are not backed by a commodity or anything of intrinsic value. Instead, governments back fiat currency by declaring it a “legal tender.” This means the money has no intrinsic value, but depends on the trust people place in the nation’s economy and their implicit agreement that the nation’s “money” is valuable.
Let us examine the concept of “value.” It is obvious that if confidence is lost in a nation’s economy (i.e., its ability to produce valuable products and services), the value of it fiat current decreases. This is generally measure against some internationally agreed to “standard,” such as gold. Interestingly, gold is also a fiat currency, since its intrinsic value, mainly industrial and commercial uses, is marginal relative to its universal appeal. Gold is valuable because historically we have all agreed it is valuable.
If a nation is unable to produce or procure the fossil fuels it requires, its economy will decline. This means its “gross domestic product,” the amount of goods and services with intrinsic value, will decline. Concurrently, the nation’s fiat currency will decline, which is termed “inflation.” In some cases, as demonstrated in post-World War I Germany, a nation’s fiat currency can experience hyperinflation and completely collapse.
During dire times, such as world wars, people have traded suitcases filled with gold and silver for suitcases filled with meat and potatoes. The point is that the “value” of fiat currencies, including precious metals, depends on “trust,” not intrinsic value.
Let’s examine how humanity will likely react to fiat currencies during the critical energy crisis, a point in time when fossil fuels become scarce. Let’s begin by discussing the world’s oil, coal, and natural gas reserves?
BP, one of the seven “supermajor” oil and gas companies, predicts that the world has only about 50 years of oil left. Often, such predictions come from an alarmist environmental group. This prediction comes from the highly respected BP, the sixth largest company in the 2015 Fortune Global 500. Some experts argue our large natural gas and coal reserves will address the oil shortage. However, the remaining petroleum resources, natural gas and coal, are also limited resources. The United States Energy Information Agency (EIA) estimates at our current use rate, recoverable reserves of natural gas should last 84 years and coal 261 years. These projections may provide a degree of comfort, but note the important phase “at our current use rate.” Unfortunately, our use rate of fossil fuels has been increasing since 1970, with the exception of the “The Great Recession (December 2007 – June 2009).” For example, in 2013, the EIA projected energy consumption would rise by 56% by 2040. Based on the CIA World Fact Book, when natural gas and coal shoulder the burden to supplement the diminishing oil reserves, they too will become scarce within just decades. The preponderance of scientific estimates argues humanity will face a severe shortage of all fossil fuels toward the end of 21st century, which by definition is the critical energy crisis.
Currently, modern civilizations run on fossil fuels. Alternative energy sources, like nuclear, wind, geothermal, hydro, and solar, only account for about 20% of the energy consumed. Without fossil fuels, almost everything stops. If we continue our reliance on fossil fuels, the outlook is bleak. By the end of the 21st century, the severe energy shortage will make it extremely difficult to mine natural resources, build factories, produce products, or provide sufficient food for the estimated 11 billion-world population.
Unfortunately, the critical energy crisis garners little prime time media coverage. With regard to energy, the media focuses its attention on OPEC (Organization of the Petroleum Exporting Countries) and our involvement in the Middle East, marked by “gulf wars” and counter insurgency. Experts, including their numerous books and articles, focus their attention on the post-peak oil challenges that the world will face within a decade or two. I agree that post-peak oil challenges will be exceptionally difficult, in the early stages similar to the “1973 oil embargo.” Initially, the average person will again experience long lines at the pump, gas prices doubling, inflation in double digits, and unemployment nearing 10%. Although, many will judge these issues severe, they will pale in comparison to the critical energy crisis.
As serious as the critical energy crisis threatens to be, its inevitable existence seems relegated to a footnote. Media coverage of it is thin to non-existent. We do not have a concerted worldwide effort to address it. Our best scientists are not working the problem. There is literally no master plan, let alone a “plan B.”
On our current course, during the fourth quarter of the 21st century the cost of the scant remaining fossil fuels will rise to unprecedented highs, which in turn will:
- Usher in a depression that will surpass the “Great Depression”
- Cause hyperinflation, since the cost of almost everything is tied to the price of fossil fuels
- Cause severe product and food shortages
Factually, our global efforts to phase out fossil fuels and switch to alternative energy sources have us on a critical energy crisis collision course. Despite the evidence of a looming critical energy crisis, there is no worldwide initiative to address it. Even the United States, the strongest world economy, lacks a plan. Although, many fossil fuel phase-out initiatives are taking place at the state and local levels, in reality, we are a nation unprepared for the inevitable. Some nations, like Sweden, do have a plan to fade out fossil fuels. Most, though, ignore the risks, like China and Japan. However, we all share the same planet. When the fossil fuels are gone, they will be gone for everyone.
Given this understanding, let us fast-forward about 50 years. If BP is correct, the world oil supply is nearly gone. The price of oil in United States dollars will reach unprecedented highs. Even “hard currencies,” like gold and silver, will depreciate relative to oil. The reason is that dollars, gold, and silver do not have an intrinsic value. Oil does. The intrinsic value of oil, and other fossil fuels, lies in their use as an energy source. Based on this line of reasoning, one can argue that the only real currency is energy.
The end of the Petroleum Age is now within the lifetime of many, approximately half a century out. The end of coal and gas will follow within decades. Modern humans, as a species, have walked the Earth for 200,000 years. A half century, in the scheme of human civilization, is like a “blink of the eye.” As discussed above, there is a fundamental relationship between fossil fuels and national economies. For Earth’s civilizations to continue, we urgently need a worldwide plan, combined with an international effort, to phase out fossil fuels in favor of alternative, clean energy sources. It saddens me to say, it’s now a political issue and it is not clear world leaders understand the problem.