Discusses the role of engineers as society enters an Age of Limits — particularly with oil supplies.
This post is a continuation in the discussion to do with externalities — the costs of industrial activities that are borne by society and ecosystems as a whole; costs for which no one is responsible for addressing directly and which are not directly borne by the activity that created them. In this series we suggest that process safety professionals, many of whom have a good grasp of systems analysis, can make a useful contribution in addressing these issues.
It may be thought that the “virtual world” in which we live reduces our externalities. However, as this post to do with “The Cloud” shows, these virtual systems are very physical, they require resources and they impact our world’s ecosystems.
In our last post — APEC Blue — to do with engineering in an Age of Limits we discussed the topic of “externalities”, the costs associated with all human activities that are not charged to that activity directly but that are dumped on society and on the world’s ecosystems. We will keep on raising this topic in future posts because it is so integral to the systems thinking — an area in which process safety professionals can provide leadership. The title of that post referred to the blue skies that “magically” appeared during the few days that the international APEC Conference was being held in Beijing. In order to cut back on air pollution heavy industry in the area was shut down and motor traffic was severely restricted. Once the conference was finished industry and traffic returned to normal and the people returned to their air masks.
The following is from a newspaper report published after the conference.
Beijing issued its first yellow pollution alert since the Apec summit when the capital was choked in thick smog today.
The Air Quality Index reading for Beijing was 316 – meaning the air quality was “heavily polluted”. The reading from the US embassy stood at 346.
The pictures illustrate the transformation to Business as Usual
But now it appears as if an increasing number of Beijing citizens are wondering why they ‘APEC Blue’ cannot be a permanent part of their lives. These people understand that there is a cost associated with externalities.
The basic idea behind externalities, sometimes referred to as the “Tragedy of the Commons”, is that our financial and management systems do not include all the costs associated with our activities. In the case of air pollution in China the owners of the factories that make steel and chemicals account for the direct costs associated with their business (labor, raw materials, electricity, and so on) but they do not consider the costs associated with the pollution that they produce. For example, if a citizen has to purchase an air mask she cannot charge the cost of that mask to the factory owners in their area. If fishermen lose their livelihood because the rivers are polluted then they have to bear that cost.
I must stress that I am not singling out China as being a special case of ignoring externalities. The true situation is more subtle. Companies in Europe and the north America are required to address at least some of the costs of their externalities in the form of relatively strict environmental rules. One “solution” to the cost of meeting these rules is to transfer manufacturing activities to parts of the world where the rules are not so stringent. But that means that, if someone in Europe or the United States purchases a product made in China then that person is, to some extent, responsible for the air pollution created in making that product.
The second example of externalities that I gave last week was to do with exhaust emissions — all vehicles, including “green” electric cars and including the car I personally drive, dump CO2 and other gases into the atmosphere. The fact that those gases are slowly but surely messing up the planet is someone else’s problem — it’s an externality. Once the exhaust gases have left the end of my tail pipe they have “gone away”. We prefer not to think about the meaning of the word “away”.
Another example of dumping our problems into externalities cropped up last week. In response to the collapse in oil prices those drilling for oil in North Dakota are proposing that the safe limit for radioactive waste be increased by a factor of ten. This proposal is based on “the absolutely best science available”, which makes one wonder what type of science they were using when oil prices were $110 per barrel. In other words, in order to minimize short-term private losses these businesses proposed to create an externality of increased cancer risks among the citizens of North Dakota. (The topic of NORM — Naturally Occurring Radioactive Materials — is discussed in Chapter 7 of Plant Design and Operations and in out post on the same topic)
This discussion to do with externalities was prompted by John Michael Greer who writes at his blog The Archdruid Report. He summarizes the issues to do with externalities as follows:
a) Every increase in technological complexity tends also to increase the opportunities for externalizing the costs of economic activity;
b) Market forces make the externalization of costs mandatory rather than optional, since economic actors that fail to externalize costs will tend to be outcompeted by those that do;
c) In a market economy, as all economic actors attempt to externalize as many costs as possible, externalized costs will tend to be passed on preferentially and progressively to whole systems such as the economy, society, and the biosphere, which provide necessary support for economic activity but have no voice in economic decisions;
d) Given unlimited increases in technological complexity, there is no necessary limit to the loading of externalized costs onto whole systems short of systemic collapse;
e) Unlimited increases in technological complexity in a market economy thus necessarily lead to the progressive degradation of the whole systems that support economic activity;
f) Technological progress in a market economy is therefore self-terminating, and ends in collapse.
These six points open up a lot of areas for discussion; I will attempt to tackle some of them in future posts. I have highlighted the third item for consideration in this week’s post. What Greer means is that the people who create the externalities (steel producers in China, drillers in North Dakota, banks everywhere, automobile drivers everywhere) have a strong incentive to dump the problems that they create. But the “environment” (where that word is used in the broadest sense) has very little voice in the final decision. And everyone will have to make a payment eventually — including those who created the externalities. The piper must be paid.
The costs of externalities are real, even though they do not appear on anyone’s income statement. Those costs are paid by us all, including those who created the externalities. If the process of creating unaccounted for externalities is allowed to continue indefinitely the system will collapse.
It should be stressed that externalities are not just environmental problems. For example, government subsidies are an externality. If a business needs a government subsidy in order to be “profitable” then that business is relying on an externality: a cost that it is not paying for directly. It is being supported by society as a whole. And if the government in question has to borrow the money to pay the subsidy then those costs are being borne by our children and grand children.
Externalization covers resource issues also. For example, as we use up the easy to extract oil from fields such as Al Ghawar in Saudi Arabia and the Alaska North Slope we are forced to look for oil in more challenging — and hence more expensive — locations such as ultra-deepwater pre-salt formations, bitumen sands and shale. The costs associated with these efforts are passed on to society as a whole in the form of higher prices for a commodity that used to be quite cheap. (The same can be said for farmers who are taking water out of the ground faster than it is being replaced.)
The chart below shows that, over the last ten years, the price of oil has risen at about 6-8% per annum — well in excess of the growth rates of economies or of most people’s paychecks. (As time permits I may write a post discussing some of the factors surrounding the recent drop in the price of oil and what caused it. A key point is that, although the price of oil that has already been discovered has fallen, the cost of finding and extracting the next incremental barrel continues to rise – see our post Nine Pounds of Gold.)
We also need to recognize that externalities can be subtle — even invisible. For example, I write this post sitting quietly in an air-conditioned room with just a computer, monitor, keyboard and wireless connection to the Internet. No smokestacks, no smog, no polluted rivers. I am in a cloud.
Yet this apparently simple technology is supported by an enormous range of industrial facilities, including power plants (coal, gas, nuclear), server farms, container ships and rare earth mining. Hence my writing of this blog is creating all kinds externalities that are invisible to me. For example, the picture below shows the nearly-complete server facility (along with the associated solar panel farm) built by Apple in North Carolina to provide its cloud services. It is obvious from this picture that the cloud is not some wispy abstraction; it is very real, very physical, very large and it creates many externalities.
This Forbes article discusses some of the other hidden costs associated with the cloud. It states,
Not only is the physical cloud invisible to most of us, it creates costs that may be invisible to the companies that rely on it. CIOs . . . are concerned about a range of hidden costs that may only surface after things are up and running — such as poor performance, or issues with service availability. What happens when the service runs slow, and transactions back up? What happens when end-user customers get frustrated at slow Website performance?
This comment spoke to me. I am a gardener. Last year I spent quite a bit of time filling out an order form at a certain seed company’s web-based catalog. After I had finished entering my order the web page froze up. I called the company’s telephone number but the person who answered the phone was trained only on how to fill orders — he had no idea as to how to handle a call to do with a frozen web site. So I hung up, abandoned the web site and placed my order with a competing company; it is unlikely that I will ever bother with the first company again.
There are two points to this simple story.
- By outsourcing/externalizing its business to “the cloud” the company lost a customer. They may have thought that their efficiency had increased — in fact it had crashed to zero.
- The managers never knew that they had had a problem. Far from improving communications with their customers externalization had destroyed communications.
If we are to come to terms with the many problems that we face, we badly need to understand systems thinking. And that is where process safety professionals can help.
How we do this is, of course, a wide-open question. But we can probably start by considering the three ‘E’s when working on a project or when trying to analyze a system. The three ‘E’s, which are well described by Chris Martenson, are:
- The Economy;
- Energy; and
- The Environment
Martenson builds on these three ‘E’s to say,
The story that I am going to weave for you cuts across all three “E”s and will make the claim that our very economic system is badly out of step with reality and will suffer severe instability and possibly collapse as a result.
It is fair to say that this particular constellation of issues, problems if you will, has never been faced before at these levels. Not in your country’s history. And not even in human history – at least, not on such a global scale.
Whether you find this terrifying or exhilarating is simply a matter of your mindset.
What he does not say is that any attempt to resolve these apparently intractable problems is going to require systems thinking.