Summary of Impacts

A key charge of the Task Force was to assess the local impacts of peak oil and natural gas. Recommendations can then be developed to respond to the anticipated impacts. In turn, the severity of the impacts depends on how well the community prepares

Carrying Capacity

The human carrying capacity of the planet has been dramatically increased by the use of fossil fuels. Fossil fuels meant humans no longer had to rely on animal power or “current” solar energy in the form of wind, hydro and biomass energy. Instead, humans harnessed the stored solar energy captured by plants and converted to fossil fuels by geologic pressures over millions of years. Fossil fuels allowed a dramatic increase in humans’ ability to provide shelter and produce and transport food and other products to spur a growing economy and population.

What will happen to that carrying capacity when its underlying driver is no longer available? Fossil fuels are the most productive resources known, and any combination of alternatives will be less productive. All known alternatives have a lower “energy return on energy invested” than oil and natural gas—i.e., producing alternatives requires more energy than producing oil and natural gas, leaving less net energy gain with which to do other work. As a result, it is unlikely that alternatives will fully replace oil and natural gas in the quantities they are currently used. This will have wide-ranging impacts and force broad changes in Portland’s future.

Historical Experience

The energy crises of the 1970s offer insight into the kind of effects that may occur when production of oil and natural gas peak. The Arab oil embargo of 1973 cut world oil production by 6 to 7 percent. Prices rose 50 percent in October 1973 and doubled in January 1974. As a result, annual U.S. gross national product growth fell from 4 percent in 1960-73 to 1.8 percent in 1973-82;  productivity growth dropped from 2.5 percent in 1966 to less than 1 percent in 1979; unemployment rose from 4.8 percent in 1972 to 8.3 percent by 1975; inflation was 8.8 percent for the 1970s; and inflation-adjusted take-home pay declined 6 percent from 1973 to 1979. The impacts defied conventional economic theories which assumed an inverse relationship between inflation and unemployment.  In the 1970s the two rose in tandem, giving rise to the term “stagflation.”

Cuba experienced an event similar to peak oil when it lost half its oil imports after the collapse of the Soviet Union in 1990. Imports and exports both fell by about 80 percent, and gross domestic product dropped by more than one third.  Transportation, industry and electricity production experienced major disruptions. Agricultural production dropped drastically, and because of the U.S. embargo and reduced production and trade, Cuba was unable to import enough food. As a result, the average daily caloric intake in Cuba dropped by one-third. In response, Cubans strengthened community networks to find alternative ways of growing food and providing essential services. While instructive of the potential impacts that withdrawal of a critical resource like oil can have on a society, Cuba’s level of energy use was much lower to begin with and its mix of business and industry was very different from Portland’s, as is their political structure.

Direct and Indirect Effects

The three main functions that will be directly affected by peak oil and natural gas are transportation, heating of buildings and industrial activities that use oil or natural gas. These direct effects produce indirect or ripple effects throughout the economy. For example, the availability and cost of food could be significantly affected because of increased costs for transportation, processing and fertilizer, all of which depend on oil or natural gas. As production and transportation of industrial goods become more costly, employment, wages and purchasing power may all be adversely impacted; this, in turn, will have feedback effects on what goods and services are provided, as well as the number of people needing public assistance of some type. In many cases these indirect impacts can be more significant than direct impacts. Understanding the impacts on Portland requires an examination of these interdependencies.

Structure of Impact Analysis

As noted above, the Task Force identified four broad areas that would capture the majority of impacts: Economic Change, Transportation and Land Use, Food and Agriculture, and Public and Social Services. Housing was also identified as a major area, but it had individual components that could be addressed within several of the other categories.

For each of the four categories, the Task Force first identified how direct provision of products and services would be affected. To capture the indirect impacts as well, the Task Force explored how demand for the product or service would be affected and how upstream suppliers of materials or other services would be affected. In many cases a business may not use much energy directly and may therefore appear to be relatively insulated against even dramatic energy cost increases.  However, getting material from suppliers who do depend more on oil or natural gas to produce or transport their product could be problematic. Moreover, consumer demand for most products and services will weaken if and purchasing power erodes due to rising unemployment rises or declining income.

The Task Force identified three possible scenarios associated with peak oil and natural gas.

Scenario 1—Long-Term Transition: The impacts of peak oil are potentially severe, but the decline in supplies and the rise in prices will occur at a fairly gradual pace, allowing time to plan for and potentially mitigate some impacts of peak oil. To provide a sense of scale, this scenario contemplates that the U.S. reduces its fossil fuel use by 50 percent over the 20 years following the peak, even as population continues to increase. While other fuel sources will be developed, they will not be sufficient to meet current levels of demand, particularly for transportation fuels.

Oil and natural gas prices would trend upward, though with significant price rises and dips. Price drops may last for as much as a year or more at a time and may give the impression that there is no problem or that the problem has been addressed. However, dips are to be expected, in part because previous price increases dampened consumption, whether by energy users conserving, substituting other inputs, going out of business, or moving their facilities. However, supply will continue to fall and consumption may increase because of temporarily lower prices, forcing prices to climb again. Each time prices drop they will not drop as low as the previous cycle, and when they rise they typically will rise higher than the previous cycle, producing a gradual upwards ratchet on prices.

Scenario 2—Oil Shocks: The long-term decline of world oil and natural gas supplies is punctuated by sudden disruptions and price hikes, triggering periodic sustained emergencies. Long-term impacts would be similar to the Long-Term Transition described above, but would require additional preparations to deal with the sudden dislocations that could persist for months or years.

Scenario 3—Disintegration:  Whether sudden or gradual, the impacts become so severe that the social fabric begins to disintegrate. Unemployment, hunger, crime and violence are rampant, with socially catastrophic competition for scarce resources, including food, shelter and energy. A Disintegration Scenario could arise from failure of multiple global systems—financial, currency or trade, for example—and would force governments to dedicate an overwhelming share of their resources to basic human needs.

The scenarios are not mutually exclusive but are distinguished by the speed and the severity of the impacts. The Task Force focused its efforts on the Long-Term Transition scenario with the intent that its recommendations would reduce the likelihood of the severe disruption of the Disintegration scenario.

Impacts may manifest as economic problems

Impacts stemming from peak oil and natural gas may be difficult to recognize. The impacts will strongly resemble current economic and social problems, though they will be deeper and more persistent, and the tendency will be to treat them similarly to more traditional economic problems. However, since the source of the problem is rooted not just in economic policies but in physical constraints on a fundamental input into economic productivity, the problems will be more systemic and less susceptible to conventional economic analysis and remedies.