Feedback Loops, why fossil fuels are financial candy

One of my favorite thought experiments involves the oil industry.

Supply Side Feedback Loop:  Even though fossil fuels are a finite trust fund of stored up solar energy, unlike most other resources, when harvested, it provides energy to harvest more of itself.  Fossil energy is one big positive feedback loop.  Estimates suggest that its energy return on investment (EROI) is a 5:1 ratio.  That is, it takes 1 unit of energy to pull up 5 units, for a net of 4 units.  One can pay back the first unit and combust those 4 harvested units to mine 20 new units. The oil industry has exponential growth written all over it.  This densely-rich fuel source is a no-brainer for any business person.

Demand Side Feedback Loop:  Mining oil, has many co-products.  The most valuable are for synthesis of organic compounds – the long carbon-chains in fossil resources are a chemical engineer’s wet dream. Then there is jet fuel, and diesel fuel and petroleum.  It’s a long list, including a processing ‘waste product’ we now call tar.  So Ford invents the business plan to get every person a car.  The cars start driving, slowly, on bumpy roads.  As more cars drive slowly on bumpy roads, a co-product of petroleum starts to amass – tar.  So some resourceful supply chain engineer says, Wo-ah, lets make asphalt.  We essentially landfill this asphalt on our highways resulting in smoother driving and better gas mileage bc the friction has gone down. In these more pleasant conditions, citizens drive faster to more places and longer distances.  We learn the American cliche of “Freedom” and “Power” and “Speed”. Every doubling of speed results in a quadroupling in air resistance which lowers gas mileage.  Citizens use more fuel, and generate more tar, creating more roads to drive more miles.

Now here’s the kicker.  I’m no economist, but applying the supply and demand charts to oil just screams cash cow.  First, there is an increase in supply (remember, oil is internally accountable to itself, it is the source of energy to mine more of itself, generating oodles of cheap energy), which society relentlessly entertains itself with.  This results in an increase in demand.  Sure the price fluctuates, but an oil baron doesn’t care, bc implicitly the oil company already has a 5:1 return on investment just within the system of fuel extraction, say nothing of mark up.  Cheap or expensive to the end-user, the company is in the clear.  Now, add scarcity, or the perception of scarcity to a society that has grown dependent on oil (to boil the water, get kids to school, power the computer, cool the refrigerator, run the A/C, and light the bathroom).  The oil company doesn’t care, bc the demand is so high, scarcity makes the price go up and they’ll mine until it’s no longer profitable and the trust fund runs out.  They’re going to milk that cow until it’s bone dry.

Sure, alternative energy can’t compete w cheap oil; oil is trust-fund privilege and renewable energy is blue collar hard work.  So how do we convert over to a more efficient energy-society with renewable fuels?  Like any venture, we invest in it.