Our global economy is outgrowing the capacity of the earth to support it, moving our early twenty-first century civilization ever closer to decline and possible collapse. In our preoccupation with quarterly earnings reports and year-to-year economic growth, we have lost sight of how large the human enterprise has become relative to the earth’s resources. A century ago, annual growth in the world economy was measured in billions of dollars. Today it is measured in trillions.

As a result, we are consuming renewable resources faster than they can regenerate. Forests are shrinking, grasslands are deteriorating, water tables are falling, fisheries are collapsing, and soils are eroding. We are using up oil at a pace that leaves little time to plan beyond peak oil. And we are discharging greenhouse gases into the atmosphere faster than nature can absorb them, setting the stage for a rise in the earth’s temperature well above any since agriculture began.

Our twenty-first century civilization is not the first to move onto an economic path that was environmentally unsustainable. Many earlier civilizations also found themselves in environmental trouble. As Jared Diamond notes in Collapse: How Societies Choose to Fail or Succeed, some were able to change course and avoid economic decline. Others were not. We study the archeological sites of Sumerians, the Mayans, Easter Islanders, and other early civilizations that were not able to make the needed adjustments in time. 1

Fortunately, there is a consensus emerging among scientists on the broad outlines of the changes needed. If economic progress is to be sustained, we need to replace the fossil-fuel-based, automobile-centered, throwaway economy with a new economic model. Instead of being based on fossil fuels, the new economy will be powered by abundant sources of renewable energy: wind, solar, geothermal, hydropower, and biofuels.

Instead of being centered around automobiles, future transportation systems will be far more diverse, widely employing light rail, buses, and bicycles as well as cars. The goal will be to maximize mobility, not automobile ownership.

The throwaway economy will be replaced by a comprehensive reuse/recycle economy. Consumer products from cars to computers will be designed so that they can be disassembled into their component parts and completely recycled. Throwaway products such as single-use beverage containers will be phased out.

The good news is that we can already see glimpses here and there of what this new economy looks like. We have the technologies to build it—including, for example, gas-electric hybrid cars, advanced-design wind turbines, highly efficient refrigerators, and water-efficient irrigation systems.

We can see how to build the new economy brick by brick. With each wind farm, rooftop solar panel, paper recycling facility, bicycle path, and reforestation program, we move closer to an economy that can sustain economic progress.

Resources that accumulated over eons of geological time are being consumed in a single human lifespan. We are crossing natural thresholds that we cannot see and violating deadlines that we do not recognize. These deadlines, determined by nature, are not politically negotiable.

Nature has many thresholds that we discover only when it is too late. In our fast-forward world, we learn that we have crossed them only after the fact, leaving little time to adjust. For example, when we exceed the sustainable catch of a fishery, the stocks begin to shrink. Once this threshold is crossed, we have a limited time in which to back off and lighten the catch. If we fail to meet this deadline, breeding populations shrink to where the fishery is no longer viable, and it collapses.

We know from earlier civilizations that the lead indicators of economic decline were environmental, not economic. The trees went first, then the soil, and finally the civilization itself. To archeologists, the sequence is all too familiar.

Our situation today is far more challenging because in addition to shrinking forests and eroding soils, we must deal with falling water tables, more frequent crop-withering heat waves, collapsing fisheries, expanding deserts, deteriorating rangelands, dying coral reefs, melting glaciers, rising seas, more-powerful storms, disappearing species, and, soon, shrinking oil supplies. Although these ecologically destructive trends have been evident for some time, and some have been reversed at the national level, not one has been reversed at the global level.

The bottom line is that the world is in what ecologists call an “overshoot-and-collapse” mode. Demand has exceeded the sustainable yield of natural systems at the local level countless times in the past. Now, for the first time, it is doing so at the global level. Forests are shrinking for the world as a whole. Fishery collapses are widespread. Grasslands are deteriorating on every continent. Water tables are falling in many countries. Carbon dioxide (CO 2) emissions exceed CO 2 fixation everywhere.

In 2002, a team of scientists led by Mathis Wackernagel, who now heads the Global Footprint Network, concluded that humanity’s collective demands first surpassed the earth’s regenerative capacity around 1980. Their study, published by the U.S. National Academy of Sciences, estimated that global demands in 1999 exceeded that capacity by 20 percent. The gap, growing by 1 percent or so a year, is now much wider. We are meeting current demands by consuming the earth’s natural assets, setting the stage for decline and collapse. 2

In a rather ingenious approach to calculating the human physical presence on the planet, Paul MacCready, the founder and Chairman of AeroVironment and designer of the first solar-powered aircraft, has calculated the weight of all vertebrates on the land and in the air. He notes that when agriculture began, humans, their livestock, and pets together accounted for less than 0.1 percent of the total. Today, he estimates, this group accounts for 98 percent of the earth’s total vertebrate biomass, leaving only 2 percent for the wild portion, the latter including all the deer, wildebeests, elephants, great cats, birds, small mammals, and so forth. 3

Ecologists are intimately familiar with the overshoot-and-collapse phenomenon. One of their favorite examples began in 1944, when the Coast Guard introduced 29 reindeer on remote St. Matthew Island in the Bering Sea to serve as the backup food source for the 19 men operating a station there. After World War II ended a year later, the base was closed and the men left the island. When U.S. Fish and Wildlife Service biologist David Kline visited St. Matthew in 1957, he discovered a thriving population of 1,350 reindeer feeding on the four-inch-thick mat of lichen that covered the 332-square-kilometer (128-square-mile) island. In the absence of any predators, the population was exploding. By 1963, it had reached 6,000. He returned to St. Matthew in 1966 and discovered an island strewn with reindeer skeletons and not much lichen. Only 42 of the reindeer survived: 41 females and 1 not entirely healthy male. There were no fawns. By 1980 or so, the remaining reindeer had died off. 4

Like the deer on St. Matthew Island, we too are overconsuming our natural resources. Overshoot leads sometimes to decline and sometimes to a complete collapse. It is not always clear which it will be. In the former, a remnant of the population or economic activity survives in a resource-depleted environment. For example, as the environmental resource base of Easter Island in the South Pacific deteriorated, its population declined from a peak of 20,000 several centuries ago to today’s population of fewer than 4,000. In contrast, the 500-year-old Norse settlement in Greenland collapsed during the 1400s, disappearing entirely in the face of environmental adversity. 5

As of 2005, some 42 countries have populations that are stable or declining slightly in size as a result of falling birth rates. But now for the first time ever, demographers are projecting population declines in some countries because of rising death rates, among them Botswana, Lesotho, Namibia, and Swaziland. In the absence of an accelerated shift to smaller families, this list of countries is likely to grow much longer in the years immediately ahead. 6

The most recent mid-level U.N. demographic projections show world population increasing from 6.1 billion in 2000 to 9.1 billion in 2050. But such an increase seems highly unlikely, considering the deterioration in life-support systems now under way in much of the world. Will we not reach 9.1 billion because we quickly eradicate global poverty and lower birth rates? Or because we fail to do so and death rates begin to rise, as they are already doing in many African countries? We thus face two urgent major challenges: restructuring the global economy and stabilizing world population. 7

Even as the economy’s environmental support systems are deteriorating, the world is pumping oil with reckless abandon. Leading geologists now think oil production may soon peak and turn downward. This collision between the ever-growing demand for oil and the earth’s finite resources is but the latest in a long series of collisions. Although no one knows exactly when oil production will peak, supply is already lagging behind demand, driving prices upward. 8

In this new world, the price of oil begins to set the price of food, not so much because of rising fuel costs for farmers and food processors but more because almost everything we eat can be converted into fuel for cars. In this new world of high oil prices, supermarkets and service stations will compete in commodity markets for basic food commodities such as wheat, corn, soybeans, and sugarcane. Wheat going into the market can be converted into bread for supermarkets or ethanol for service stations. Soybean oil can go onto supermarket shelves or it can go to service stations to be used as diesel fuel. In effect, owners of the world’s 800 million cars will be competing for food resources with the 1.2 billion people living on less than $1 a day. 9

Faced with a seemingly insatiable demand for automotive fuel, farmers will want to clear more and more of the remaining tropical forests to produce sugarcane, oil palms, and other high-yielding fuel crops. Already, billions of dollars of private capital are moving into this effort. In effect, the rising price of oil is generating a massive new threat to the earth’s biological diversity.

As the demand for farm commodities climbs, it is shifting the focus of international trade concerns from the traditional goal of assured access to markets to one of assured access to supplies. Countries heavily dependent on imported grain for food are beginning to worry that buyers for fuel distilleries may outbid them for supplies. As oil security deteriorates, so, too, will food security.

As the role of oil recedes, the process of globalization will be reversed in fundamental ways. As the world turned to oil during the last century, the energy economy became increasingly globalized, with the world depending heavily on a handful of countries in the Middle East for energy supplies. Now as the world turns to wind, solar cells, and geothermal energy in this century, we are witnessing the localization of the world energy economy.

The globalization of the world food economy will also be reversed, as the higher price of oil raises the cost of transporting food internationally. In response, food production and consumption will become much more localized, leading to diets based more on locally produced food and seasonal availability.

The world is facing the emergence of a geopolitics of scarcity, which is already highly visible in the efforts by China, India, and other developing countries to ensure their access to oil supplies. In the future, the issue will be who gets access to not only Middle Eastern oil but also Brazilian ethanol and North American grain. Pressures on land and water resources, already excessive in most of the world, will intensify further as the demand for biofuels climbs. This geopolitics of scarcity is an early manifestation of civilization in an overshoot-and-collapse mode, much like the one that emerged among the Mayan cities competing for food in that civilization’s waning years. 10

For many years environmentalists have pointed to the United States as the world’s leading consumer, noting that 5 percent of the world’s people were consuming nearly a third of the earth’s resources. Although that was true for some time, it no longer is. China has replaced the United States as the leading consumer of basic commodities. 11

Among the five basic food, energy, and industrial commodities—grain and meat, oil and coal, and steel—consumption in China has eclipsed that of the United States in all but oil. China has opened a wide lead with grain, consuming 380 million tons in 2005 versus 260 million tons in the United States. Among the big three grains, China leads in the consumption of both wheat and rice and trails the United States only in corn. 12

Although eating hamburgers is a defining element of the U.S. lifestyle, China’s 2005 meat consumption of 67 million tons is far above the 38 million tons eaten in the United States. While U.S. meat intake is rather evenly distributed between beef, pork, and poultry, in China pork totally dominates. Indeed, half the world’s pigs are now found in China. 13

With oil, the United States was still solidly in the lead in 2004, using more than three times as much as China—20.4 million barrels per day versus 6.5 million barrels. But U.S. oil use expanded by only 15 percent between 1994 and 2004, while use in China more than doubled. Having recently eclipsed Japan as an oil consumer, China now trails only the United States. 14

Energy use in China also obviously includes coal, which supplies nearly two thirds of the country’s energy. China’s annual burning of 960 million tons easily exceeds the 560 million tons used in the United States. With this level of coal use and with oil and natural gas use also climbing fast, it is only a matter of time before China’s carbon emissions match those of the United States. Then the world will have two major countries driving climate change. 15

China’s consumption of steel, a basic indicator of industrial development, is now nearly two and a half times that of the United States: 258 million tons to 104 million tons in 2003. As China has moved into the construction phase of development, building hundreds of thousands of factories and high-rise apartment and office buildings, steel consumption has climbed to levels never seen in any country. 16

With consumer goods, China leads in the number of cell phones, television sets, and refrigerators. The United States still leads in the number of personal computers, though likely not for much longer, and in automobiles. 17

That China has overtaken the United States in consumption of basic resources gives us license to ask the next question. What if China catches up with the United States in consumption per person? If the Chinese economy continues to grow at 8 percent a year, by 2031 income per person will equal that in the United States in 2004. If we further assume that consumption patterns of China’s affluent population in 2031, by then 1.45 billion, will be roughly similar to those of Americans in 2004, we have a startling answer to our question. 18

At the current annual U.S. grain consumption of 900 kilograms per person, including industrial use, China’s grain consumption in 2031 would equal roughly two thirds of the current world grain harvest. If paper use per person in China in 2031 reaches the current U.S. level, this translates into 305 million tons of paper—double existing world production of 161 million tons. There go the world’s forests. And if oil consumption per person reaches the U.S. level by 2031, China will use 99 million barrels of oil a day. The world is currently producing 84 million barrels a day and may never produce much more. This helps explain why China’s fast-expanding use of oil is already helping to create a politics of scarcity. 19

Or consider cars. If China one day should have three cars for every four people, as the United States now does, its fleet would total 1.1 billion vehicles, well beyond the current world fleet of 800 million. Providing the roads, highways, and parking lots for such a fleet would require paving an area roughly equal to China’s land in rice, its principal food staple. 20

Our twenty-first century global civilization is not the first to face the prospect of environmentally induced economic decline. The question is how we will respond. We do have one unique asset at our command—an archeological record that shows us what happened to earlier civilizations that got into environmental trouble and failed to respond.

As Jared Diamond points out in Collapse, some of the early societies that were in environmental trouble were able to change their ways in time to avoid decline and collapse. Six centuries ago, for example, Icelanders realized that overgrazing on their grass-covered highlands was leading to extensive soil loss from the inherently thin soils of the region. Rather than lose the grasslands and face economic decline, farmers joined together to determine how many sheep the highlands could sustain and then allocated quotas among themselves, thus preserving their grasslands and avoiding what Garrett Hardin later termed the “tragedy of the commons.” 22

The Icelanders understood the consequences of overgrazing and reduced their sheep numbers to a level that could be sustained. We understand the consequences of burning fossil fuels and the resulting CO 2 buildup in the atmosphere. Unlike the Icelanders who were able to restrict their livestock numbers, we have not been able to restrict our CO 2 emissions.

Not all societies have fared as well as the Icelanders, whose economy continues to produce wool and to thrive. The early Sumerian civilization of the fourth millennium BC was an extraordinary one, advancing far beyond any that had existed before. Its carefully engineered irrigation system gave rise to a highly productive agriculture, one that enabled farmers to produce a food surplus, supporting formation of the first cities. Managing the irrigation system required a sophisticated social organization. The Sumerians had the first cities and the first written language, the cuneiform script. 23

By any measure it was an extraordinary civilization, but there was an environmental flaw in the design of its irrigation system, one that would eventually undermine its food supply. The water that backed up behind dams built across the Euphrates was diverted onto the land through a network of gravity-fed canals. Some water was used by the crops, some evaporated, and some percolated downward. In this region, where underground drainage was weak, percolation slowly raised the water table. As the water climbed to within inches of the surface, it began to evaporate into the atmosphere, leaving behind salt. Over time, the accumulation of salt on the soil surface lowered its productivity. 24

As salt accumulated and wheat yields declined, the Sumerians shifted to barley, a more salt-tolerant plant. This postponed Sumer’s decline, but it was treating the symptoms, not the cause, of falling crop yields. As salt concentrations continued to build, the yields of barley eventually declined also. The resultant shrinkage of the food supply undermined the economic foundation of this once-great civilization. As land productivity declined, so did the civilization. 25

Archeologist Robert McC. Adams has studied the site of ancient Sumer on the central floodplain of the Euphrates River, an empty, desolate area now outside the frontiers of cultivation. He describes how the “tangled dunes, long disused canal levees, and the rubble-strewn mounds of former settlement contribute only low, featureless relief. Vegetation is sparse, and in many areas it is almost wholly absent....Yet at one time, here lay the core, the heartland, the oldest urban, literate civilization in the world.” 26

The New World counterpart to Sumer is the Mayan civilization that developed in the lowlands of what is now Guatemala. It flourished from ad 250 until its collapse around AD 900. Like the Sumerians, the Mayans had developed a sophisticated, highly productive agriculture, this one based on raised plots of earth surrounded by canals that supplied water. 27

As with Sumer, the Mayan demise was apparently linked to a failing food supply. For this New World civilization, it was deforestation and soil erosion that undermined agriculture. Changes in climate may also have played a role. Food shortages apparently triggered civil conflict among the various Mayan cities as they competed for food. Today this region is covered by jungle, reclaimed by nature. 28

During the later centuries of the Mayan civilization, a new society was evolving on faraway Easter Island, some 166 square kilometers of land in the South Pacific roughly 3,200 kilometers west of South America and 2,200 kilometers from Pitcairn Island, the nearest habitation. Settled around ad 400, this civilization flourished on a volcanic island with rich soils and lush vegetation, including trees that grew 25 meters tall with trunks 2 meters in diameter. Archeological records indicate that the islanders ate mainly seafood, principally dolphins—a mammal that could only be caught by harpoon from large sea-going canoes. 29

The Easter Island society flourished for several centuries, reaching an estimated population of 20,000. As its human numbers gradually increased, tree cutting exceeded the sustainable yield of forests. Eventually the large trees that were needed to build the sturdy canoes disappeared, depriving islanders of access to the dolphins and dramatically shrinking their food supply. The archeological record shows that at some point human bones became intermingled with the dolphin bones, suggesting a desperate society that had resorted to cannibalism. Today the island has some 2,000 residents. 30

One unanswerable question about these earlier civilizations was whether they knew what was causing their decline. Did the Sumerians understand that the rising salt content in the soil from water evaporation was reducing their wheat yields? If they knew, were they simply unable to muster the political support needed to lower water tables, just as the world today is struggling unsuccessfully to lower carbon emissions?

These are just three of the many early civilizations that moved onto an economic path that nature could not sustain. We, too, are on such a path. Any one of several trends of environmental degradation could undermine civilization as we know it. Just as the irrigation system that defined the early Sumerian economy had a flaw, so too does the fossil fuel energy system that defines our modern economy. For them it was a rising water table that undermined the economy; for us it is rising CO 2 levels that threaten to disrupt economic progress. In both cases, the trend is invisible.

The first big test of the international community’s capacity to manage scarcity may come with oil or it could come with grain. If the latter is the case, this could occur when China—whose grain harvest fell by 34 million tons, or 9 percent, between 1998 and 2005—turns to the world market for massive imports of 30 million, 50 million, or possibly even 100 million tons of grain per year. Demand on this scale could quickly overwhelm world grain markets. When this happens, China will have to look to the United States, which controls the world’s grain exports of over 40 percent of some 200 million tons. 32

This will pose a fascinating geopolitical situation. More than 1.3 billion Chinese consumers, who had an estimated $160-billion trade surplus with the United States in 2004—enough to buy the entire U.S. grain harvest twice—will be competing with Americans for U.S. grain, driving up U.S. food prices. In such a situation 30 years ago, the United States simply restricted exports. But China is now banker to the United States, underwriting much of the massive U.S. fiscal deficit with monthly purchases of U.S. Treasury bonds. 33

Within the next few years, the United States may be loading one or two ships a day with grain for China. This long line of ships stretching across the Pacific, like an umbilical cord providing nourishment, will intimately link the two economies. Managing this flow of grain so as to simultaneously satisfy the food needs of consumers in both countries, at a time when ethanol fuel distilleries are taking a growing share of the U.S. grain harvest, may become one of the leading foreign policy challenges of this new century.

The way the world accommodates the vast projected needs of China, India, and other developing countries for grain, oil, and other resources will help determine how the world addresses the stresses associated with outgrowing the earth. How low-income, importing countries fare in this competition for grain will also tell us something about future political stability. And, finally, the U.S. response to China’s growing demands for grain even as they drive up food prices for U.S. consumers will tell us much about the capacity of countries to manage the emerging politics of scarcity.

The most imminent risk is that China’s entry into the world market, combined with the growing diversion of farm commodities to biofuels, will drive grain prices so high that many low-income developing countries will not be able to import enough grain. This in turn could lead to escalating food prices and political instability on a scale that will disrupt global economic progress.

Earlier civilizations that moved onto an economic path that was environmentally unsustainable did so largely in isolation. But in today’s increasingly integrated, interdependent world economy, if we are facing civilizational decline, we are facing it together. The fates of all peoples are intertwined. This interdependence can be managed to our mutual benefit only if we recognize that the term “in the national interest” is in many ways obsolete.

The question facing governments is whether they can respond quickly enough to prevent threats from becoming catastrophes. The world has precious little experience in responding to aquifer depletion, rising temperatures, expanding deserts, melting polar ice caps, and a shrinking oil supply. These new trends will fully challenge the capacity of our political institutions and leadership. In times of crisis, societies sometimes have a Nero as a leader and sometimes a Churchill.

The central challenge, the key to building the new economy, is getting the market to tell the ecological truth. The dysfunctional global economy of today has been shaped by distorted market prices that do not incorporate environmental costs. Many of our environmental travails are the result of severe market distortions.

One of these distortions became abundantly clear in the summer of 1998 when China’s Yangtze River valley, home to 400 million people, was wracked by some of the worst flooding in history. The resulting damages of $30 billion exceeded the value of the country’s annual rice harvest. 34

After several weeks of flooding, the government in Beijing announced in mid-August a ban on tree cutting in the Yangtze River basin. It justified the ban by noting that trees standing are worth three times as much as trees cut. The flood control services provided by forests were three times as valuable as the lumber in the trees. In effect, the market price was off by a factor of three! With this analysis, no one could economically justify cutting trees in the basin. 35

A similar situation exists with gasoline. In the United States, the gasoline pump price was over $2 per gallon in mid-2005. But this reflects only the cost of pumping the oil, refining it into gasoline, and delivering the gas to service stations. It does not include the costs of tax subsidies to the oil industry, such as the oil depletion allowance; the subsidies for the extraction, production, and use of petroleum; the burgeoning military costs of protecting access to oil supplies; the health care costs for treating respiratory illnesses ranging from asthma to emphysema; and, most important, the costs of climate change. 36

If these costs, which in 1998 the International Center for Technology Assessment calculated at roughly $9 per gallon of gasoline burned in the United States, were added to the $2 cost of the gasoline itself, motorists would pay about $11 a gallon for gas at the pump. Filling a 20-gallon tank would cost $220. In reality, burning gasoline is very costly, but the market tells us it is cheap, leading to gross distortions in the structure of the economy. The challenge facing governments is to incorporate such costs into market prices by systematically calculating them and incorporating them as a tax on the product to make sure its price reflects the full costs to society. 37

If we have learned anything over the last few years, it is that accounting systems that do not tell the truth can be costly.

Even given the extraordinarily challenging situation we face, there is much to be upbeat about. First, virtually all the destructive environmental trends are of our own making. All the problems we face can be dealt with using existing technologies. And almost everything we need to do to move the world economy onto an environmentally sustainable path has been done in one or more countries.

We see the components of Plan B—the alternative to business as usual—in new technologies already on the market. On the energy front, for example, an advanced-design wind turbine can produce as much energy as an oil well. Japanese engineers have designed a vacuum-sealed refrigerator that uses only one eighth as much electricity as those marketed a decade ago. Gas-electric hybrid automobiles, getting 55 miles per gallon, are easily twice as efficient as the average vehicle on the road. 38

Numerous countries are providing models of the different components of Plan B. Denmark, for example, today gets 20 percent of its electricity from wind and has plans to push this to 50 percent by 2030. Similarly, Brazil is on its way to automotive fuel self-sufficiency. With highly efficient sugarcane-based ethanol supplying 40 percent of its automotive fuel in 2005, it could phase out gasoline within a matter of years. 39

With food, India—using a small-scale dairy production model that relies almost entirely on crop residues as a feed source—has more than quadrupled its milk production since 1970, overtaking the United States to become the world’s leading milk producer. The value of India’s dairy production in 2002 exceeded that of the rice crop. 40

On another front, fish farming advances in China, centered on the use of an ecologically sophisticated carp polyculture, have made China the first country where fish farm output exceeds oceanic catch. Indeed, the 29 million tons of farmed fish produced in China in 2003 was equal to roughly 30 percent of the world’s oceanic fish catch. 41

We see what a Plan B world could look like in the reforested mountains of South Korea. Once a barren, almost treeless country, the 65 percent of South Korea now covered by forests has checked flooding and soil erosion, returning a high degree of environmental stability to the Korean countryside. 42

The United States—which retired one tenth of its cropland, most of it highly erodible, and shifted to conservation tillage practices—has reduced soil erosion by 40 percent over the last 20 years. At the same time, the nation’s farmers expanded the grain harvest by more than one fifth. 43

Some of the most innovative leadership has come at the urban level. Amsterdam has developed a diverse urban transport system; today 35 percent of all trips within the city are taken by bicycle. This bicycle-friendly transport system has greatly reduced air pollution and traffic congestion while providing daily exercise for the city’s residents. 43

Not only are new technologies becoming available, but some of these technologies can be combined to create entirely new outcomes. Gas-electric hybrid cars with a second storage battery and a plug-in capacity, combined with investment in wind farms feeding cheap electricity into the grid, could mean that much of our daily driving could be done with electricity, with the cost of off-peak wind-generated electricity at the equivalent of 50¢-a-gallon gasoline. Domestic wind energy can be substituted for imported oil. 45

The challenge is to build a new economy and to do it at wartime speed before we miss so many of nature’s deadlines that the economic system begins to unravel. This introductory chapter leads into five chapters outlining the leading environmental challenges facing our global civilization. Following these are seven chapters that outline Plan B, both describing where we want to go and offering a roadmap of how to get there.

When the price of oil climbed above $50 a barrel in late 2004, public attention began to focus on the adequacy of world oil supplies—and specifically on when production would peak and begin to decline. Analysts are far from a consensus on this issue, but several prominent ones now believe that the oil peak is imminent. 1

Oil has shaped our twenty-first century civilization, affecting every facet of the economy from the mechanization of agriculture to jet air travel. When production turns downward, it will be a seismic economic event, creating a world unlike any we have known during our lifetimes. Indeed, when historians write about this period in history, they may well distinguish between before peak oil (BPO) and after peak oil (APO).

The peaking of oil production is approaching at a time when the world is facing many challenges, such as rising temperatures, falling water tables, and numerous other damaging environmental trends. Adjusting to a shrinking oil supply is part of the economic restructuring needed to put the economy on a path that will sustain progress.

The oil prospect can be analyzed in several different ways. Oil companies, oil consulting firms, and national governments rely heavily on computer models to project future oil production and prices. The results from these models vary widely according to the quality of data and the assumptions fed into the models. Here we review several different analytical methods.

One approach—use of the reserves/production relationship to gain a sense of future production trends—was pioneered several decades ago by the legendary King Hubbert, a geologist with the U.S. Geological Survey. Given the nature of oil production, Hubbert theorized that the time lag between the peaking of new discoveries and the peaking of production was predictable. Noting that the discovery of new reserves in the United States had peaked around 1930, he predicted that U.S. oil production would peak in 1970. He hit it right on the head. As a result of this example and other more recent country experiences, his basic model is now used by many oil analysts. 2

A second approach, separating the world’s principal oil-producing countries into two groups—those where production is falling and those where it is still rising—is illuminating. Of the 23 leading oil producers, output appears to have peaked in 15 and to still be rising in eight. The post-peak countries range from the United States (the only country other than Saudi Arabia to ever pump more than 9 million barrels of oil per day) and Venezuela (where oil production peaked in 1970) to the two North Sea oil producers, the United Kingdom and Norway, where production peaked in 1999 and 2000 respectively. U.S. oil production, which peaked at 9.6 million barrels a day in 1970, dropped to 5.4 million barrels a day in 2004—a decline of 44 percent. Venezuela’s production has dropped 31 percent since 1970. 3

The eight pre-peak countries are dominated by the world’s leading oil producers, Saudi Arabia and Russia, producing roughly 11 million and 9 million barrels of oil a day in the fall of 2005. Other countries with substantial potential for increasing production are Canada, largely because of its tar sands, and Kazakh- stan, which is still developing its oil resources. The other four pre-peak countries are Algeria, Angola, China, and Mexico. 4

The biggest question mark among these eight countries is Saudi Arabia. Its production technically peaked in 1980 at 9.9 million barrels a day and output is now nearly 1 million barrels a day below that. It is included as a country with rising production only on the basis of statements by Saudi officials that the country could produce far more. However, some analysts doubt whether the Saudis can raise output much beyond its current production. Some of its older oil fields are largely depleted, and it remains to be seen whether pumping from new fields will be sufficient to more than offset the loss from the old ones. 5

This analysis comes down to whether production will actually increase enough in the eight pre-peak countries to offset the declines under way in the 15 countries where production has already peaked. In volume of output, the two groups have essentially the same total production capacity. If production begins to fall in any one of the eight, however, this may well tilt the global balance to decline. 6

A third way to consider oil production prospects is to look at the actions of the major oil companies themselves. While some CEOs sound very bullish about the growth of future production, their actions suggest a less confident outlook.

One bit of evidence of this is the decision by leading oil companies to invest heavily in buying up their own stocks. ExxonMobil, for example, with the largest quarterly profit of any company on record—$8.4 billion in the last quarter of 2004—invested nearly $10 billion in buying back its own stock. ChevronTexaco used $2.5 billion of its profits to buy back stock. With little new oil to be discovered and world oil demand growing fast, companies appear to be realizing that their reserves will become even more valuable in the future. 7

Closely related to this behavior is the lack of any substantial increases in exploration and development in 2005 even though oil prices are well above $50 a barrel. This suggests that the companies agree with petroleum geologists who say that 95 percent of all the oil in the world has already been discovered. “The whole world has now been seismically searched and picked over,” says independent geologist Colin Campbell. “Geological knowledge has improved enormously in the past 30 years and it is almost inconceivable now that major fields remain to be found.” This also implies that it may take a lot of costly exploration and drilling to find that remaining 5 percent. 8

This shrinkage of reserves is strikingly evident in the ratio between new oil discoveries and production of the major oil companies. Among those reporting that their 2004 oil production greatly exceeded new discoveries were Royal Dutch/Shell, ChevronTexaco, and Conoco-Phillips. The bottom line is that the oil reserves of major companies are shrinking yearly. On a global scale, geologist Walter Youngquist, author of GeoDestinies: The Inevitable Control of Earth Resources Over Nations and Individuals, notes that in 2004 the world produced 30.5 billion barrels of oil but discovered only 7.5 billion barrels of new oil. 9

The influence on oil production in the years immediately ahead that is most difficult to measure is the emergence of what I call a “depletion psychology.” Once oil companies or oil-exporting countries realize that output is about to peak, they will begin to think seriously about how to stretch out their remaining reserves. As it becomes clear that even a moderate cut in production may double world oil prices, the long-term value of their oil will become much clearer.

The geological evidence suggests that world oil production will be peaking sooner rather than later. Matt Simmons, head of the oil investment bank Simmons and Company International and an industry leader, says in reference to new oil fields: “We’ve run out of good projects. This is not a money issue…if these oil companies had fantastic projects, they’d be out there [developing new fields].” Kenneth Deffeyes, a highly respected geologist and former oil industry employee now at Princeton University, says in his 2005 book, Beyond Oil, “It is my opinion that the peak will occur in late 2005 or in the first few months of 2006.” Walter Youngquist and A.M. Samsan Bakhtiari of the Iranian National Oil Company both project that oil will peak in 2007. 10

Sadad al-Husseini, recently retired as head of exploration and production at Aramco, the Saudi national oil company, discussed the world oil prospect with Peter Maass for the New York Times. His basic point was that new oil output coming on-line had to be sufficient to cover both annual growth in world demand of at least 2 million barrels a day and the annual decline in production from existing fields of over 4 million barrels a day. “That’s like a whole new Saudi Arabia every couple of years,” Husseini said. “It’s not sustainable.” 11

Where are companies looking for more oil? Aside from conventional petroleum, the kind that can easily be pumped to the surface, vast amounts of oil are stored in tar sands and can be produced from oil shale. The Athabasca tar sand deposits in Alberta, Canada, may total 1.8 trillion barrels. Of this total, however, it is thought that not more than 300 billion barrels is recoverable. Venezuela also has a large deposit of extra heavy oil, estimated at 1.2 trillion barrels. Perhaps a third of it can be readily recovered. If Venezuela’s heavy oil is developed on a large enough scale, its oil production could one day exceed its 1970 historical peak. Oil shale concentrated in Colorado, Wyoming, and Utah in the United States also holds large quantities of kerogen, an organic material that can be converted into oil and gas. 12

How much oil can be economically produced from oil shale? In the late 1970s the United States launched a major effort to develop oil shale on the western slope of the Rocky Mountains in Colorado. When oil prices dropped in 1982, the oil shale industry collapsed. Exxon quickly pulled out of its $5-billion Colorado project, and the remaining companies soon followed suit. Since this process requires several barrels of water for each barrel of oil produced, water shortages in the region may limit its revival. 13

The one project that is moving ahead is the tar sands project in Canada’s Alberta Province. This initiative, which began in the early 1980s, is now producing a million barrels of oil per day, enough to supply 5 percent of current U.S. oil use. This tar sand oil is not cheap, however, and it wreaks environmental havoc on a vast scale. Heating and extracting the oil from the sands relies on the extensive use of natural gas, production of which has peaked in North America. 14

In the United States, for which reliable historical data are available, the combined use of gasoline and diesel fuel in agriculture has fallen from its historical high of 7.7 billion gallons in 1973 to 4.6 billion in 2002, a decline of 40 percent. For a broad sense of the fuel efficiency trend in U.S. agriculture, the gallons of fuel used per ton of grain produced dropped from 33 in 1973 to 13 in 2002, an impressive decrease of 59 percent. 17

One reason for this was a shift to minimum and no-till cultural practices on roughly two fifths of U.S. cropland. No-till cultural practices are now used on roughly 95 million hectares worldwide, nearly all of them concentrated in the United States, Brazil, Argentina, and Canada. The United States—with 25 million hectares of minimum or no-till—leads the field, closely followed by Brazil. 18

While U.S. agricultural use of gasoline and diesel has been declining, in many developing countries it is rising as the shift from draft animals to tractors continues. A generation ago, for example, cropland in China was tilled largely by animals. Today much of the plowing is done with tractors. 19

Fertilizer accounts for 20 percent of U.S. farm energy use. Worldwide, the figure may be slightly higher. On average, the world produces 13 tons of grain for each ton of fertilizer used. But this varies widely among countries. For example, in China a ton of fertilizer yields 9 tons of grain, in India it yields 11 tons, and in the United States, 18 tons. 20

U.S. fertilizer efficiency is high because U.S. farmers routinely test their soils to precisely determine crop nutrient needs and because the United States is also the leading producer of soybeans, a leguminous crop that fixes nitrogen in the soil. Soybeans, which rival corn for area planted in the United States, are commonly grown in rotation with corn and, to a lesser degree, with winter wheat. Since corn has a voracious appetite for nitrogen, alternating corn and soybeans in a two-year rotation substantially reduces the nitrogen fertilizer needed for the corn. 21

Urbanization increases demand for fertilizer. As rural people migrate to cities, it becomes more difficult to recycle the nutrients in human waste back into the soil. Beyond this, the growing international food trade can separate producer and consumer by thousands of miles, further disrupting the nutrient cycle. The United States, for example, exports some 80 million tons of grain per year—grain that contains large quantities of basic plant nutrients: nitrogen, phosphorus, and potassium. The ongoing export of these nutrients would slowly drain the inherent fertility from U.S. cropland if the nutrients were not replaced in chemical form. 22

Factory farms, like cities, tend to separate producer and consumer, making it difficult to recycle nutrients. Indeed, the nutrients in animal waste that are an asset to farmers become a liability in large feeding operations, often with costly disposal. As oil, and thus fertilizer, become more costly, the economics of factory farms may become less attractive.

Irrigation, another major energy claimant, is taking more and more energy worldwide. In the United States, close to 19 percent of agricultural energy use is for pumping water. In the other two large food producers—China and India—the number is undoubtedly much higher, since irrigation figures so prominently in both countries. 23

Since 1950 the world’s irrigated area has tripled, climbing from 94 million hectares to 277 million hectares in 2002. In addition, the shift from large dams with gravity-fed canal systems that dominated the last century’s third quarter to drilled wells that tap underground water resources has also boosted irrigation fuel use. 24

Some trends, such as the shift to no tillage, are making agriculture less oil-intensive. But rising fertilizer use, the spread of farm mechanization, and falling water tables are making food production more oil-dependent. This helps explain why farmers are becoming involved in the production of biofuels, both ethanol to replace gasoline and biodiesel to replace diesel. (Renewed interest in these fuels is discussed later in this chapter.)

Although attention commonly focuses on energy use on the farm, this accounts for only one fifth of total food system energy use in the United States. Transport, processing, packaging, marketing, and kitchen preparation of food account for nearly four fifths of food system energy use. Indeed, my colleague Danielle Murray notes that the U.S. food economy uses as much energy as France does in its entire economy. 25

The 14 percent of energy used in the food system to move goods from farmer to consumer is roughly equal to two thirds of the energy used to produce the food. And an estimated 16 percent of food system energy use is devoted to processing—canning, freezing, and drying food—everything from frozen orange juice concentrate to canned peas. 26

Food staples, such as wheat, have traditionally moved over long distances by ship, traveling from the United States to Europe, for example. What is new is the shipment of fresh fruits and vegetables over vast distances by air. Few economic activities are more energy-intensive. 27

Food miles—the distance food travels from producer to consumer—have risen with cheap oil. Among the longest hauls are the flights during the northern hemisphere winter that carry fresh produce, such as blueberries from New Zealand to the United Kingdom. At my local supermarket in downtown Washington, D.C., the fresh grapes in winter typically come by plane from Chile, traveling almost 5,000 miles. Occasionally they come from South Africa, in which case the distance from grape arbor to dining room table is 8,000 miles, nearly a third of the way around the earth. 28

One of the most routine long-distance movements of fresh produce is from California to the heavily populated U.S. East Coast. Most of this produce moves by refrigerated trucks. In assessing the future of long-distance produce transport, one oil analyst observed that the days of the 3,000-mile Caesar salad may be numbered. 29

Packaging is also surprisingly energy-intensive, accounting for 7 percent of food system energy use. It is not uncommon for the energy invested in packaging to exceed that of the food it contains. And worse, nearly all the packaging in a modern supermarket is designed to be discarded after one use. 30

The most energy-intensive segment of the food chain is the kitchen. Much more energy is used to refrigerate and prepare food in the home than is used to produce it in the first place. The big energy user in the food system is the kitchen refrigerator, not the farm tractor. 31

While the use of oil dominates the production end of the food system, electricity (usually produced from coal or gas) dominates the consumption end. The oil-intensive modern food system that evolved when oil was cheap will not survive as it is now structured with higher energy prices. Among the principal adjustments will be more local food production and movement down the food chain as consumers react to rising food prices by buying fewer high-cost livestock products.

While we focus on the oil used to produce food, the amount of oil that food will buy is falling precipitously. The shift in terms of trade between wheat and oil is both dramatic and ongoing. From 1950 to 1973, the prices of both wheat and oil were remarkably stable, as was the relationship between the two. At any time during the 23-year span, a bushel of wheat could be traded for a barrel of oil in the world market. (See Table 2–1.) 32

Since 1973, however, the relative values of wheat and oil have shifted dramatically. In 2005, it took 13 bushels of wheat to buy a barrel of oil. The two countries most affected by this dramatic shift are the leading exporters of these two commodities: the United States and Saudi Arabia. 33

The United States, both the largest importer of oil and the largest exporter of grain, is paying dearly for this shift in the wheat-oil exchange rate. The 13-fold shift since 1973 is contributing to the largest U.S. trade deficit in history and a record external debt. In contrast, Saudi Arabia—the world’s leading oil exporter and a leading grain importer—is benefiting handsomely. 34

While the exchange rate between grain and oil was deteriorating, U.S. oil imports were climbing. During the early 1970s, before the OPEC oil price hikes, the United States largely could pay its oil import bill with grain exports. But in 2004, grain exports covered only 13 percent of the staggering U.S. oil import bill of $132 billion. 35

The first big adjustment between oil and wheat came when OPEC tripled the price of oil at the end of 1973. During 1974–78, it took roughly three bushels of wheat to buy a barrel of oil. Then after the second OPEC oil price hike, which boosted oil from $13 per barrel in 1978 to $30 in 1980, it took eight bushels of wheat to buy a barrel of oil. 36

This steep rise in the buying power of oil led to one of the most abrupt transfers of wealth in history. The coffers of Saudi Arabia, Kuwait, Iraq, and Iran began to overflow with dollars while those of oil-importing countries were being emptied.

No one knows exactly what will happen to the wheat-oil exchange rate in the years ahead, but as the number of grain-based ethanol distilleries producing automotive fuel grows, the profitability of converting grain into fuel may stabilize the wheat-oil exchange rate.

The United States is pressing the Saudis to produce more oil. Yet the answer is not for the Saudis to produce more, even if they can, but for the United States to consume less. Unless the United States assumes a leadership role, Saudi Arabia will continue to dictate not only the exchange rate between oil and grain but also U.S. gasoline prices.

*2005 figures are author’s estimates based on January–August data.

Historically, the world’s farmers produced food, feed, and fiber. Today they are starting to produce fuel as well. Since nearly everything we eat can be converted into automotive fuel, the high price of oil is becoming the support price for farm products. It is also determining the price of food. On any given day there are now two groups of buyers in world commodity markets: one representing food processors and another representing biofuel producers. The line between the food and fuel economies has suddenly blurred as service stations compete with supermarkets for the same commodities.

First triggered by the oil shocks of the 1970s, production of biofuels—principally ethanol from sugarcane in Brazil and corn in the United States—grew rapidly for some years but then stagnated during the 1990s. After 2000, as oil prices edged upward, it began to again gain momentum. (See Figure 2–1.) Europe, meanwhile, led by Germany and France, was starting to extract biodiesel from oilseeds. 37

Production of biofuels in 2005 equaled nearly 2 percent of world gasoline use. From 2000 to 2005, ethanol production worldwide increased from 4.6 billion to 12.2 billion gallons, a jump of 165 percent. Biodiesel, starting from a small base of 251 million gallons in 2000, climbed to an estimated 790 million gallons in 2005, more than tripling. 38

Governments support biofuel production because of concerns about climate change and a possible shrinkage in the flow of imported oil. Since substituting biofuels for gasoline reduces carbon emissions, governments see this as a way to meet their carbon reduction goals. Biofuels also have a domestic economic appeal partly because locally produced fuel creates jobs and keeps money within the country.

Brazil, using sugarcane as the feedstock for ethanol, is producing some 4 billion gallons a year, satisfying 40 percent of its automotive fuel needs. The United States, using corn as the feedstock, produced 3.4 billion gallons of ethanol in 2004, supplying just under 2 percent of the fuel used by its vast automotive fleet. Forecasts for 2005 show U.S. ethanol output overtaking that of Brazil, at least temporarily. Europe ranks third in fuel ethanol output, the lion’s share from France, the United Kingdom, and Spain. Europe’s distillers use mostly sugar beets, wheat, and barley. 39

Interest in biofuels has escalated sharply since oil prices reached $40 per barrel in mid-2004. Brazil, the world’s largest sugarcane producer, is emerging as the world leader in farm fuel production. In 2004, half of its sugarcane crop was used for sugar and half for ethanol. Expanding the sugarcane area from 5.3 million hectares in 2005 to some 8 million hectares would enable it to become self-sufficient in automotive fuel within a matter of years while maintaining its sugar production and exports. 40

Even though Brazil has phased out ethanol subsidies, by mid-2005 the private sector had committed $5.1 billion to investment in sugar mills and distilleries over the next five years. Thinking beyond its currently modest exports of ethanol, Brazil is discussing ethanol supply contracts with Japan and China. Producing ethanol at 60¢ per gallon, Brazil is in a strong competitive position in a world with $60-a-barrel oil. 41

U.S. ethanol production, almost entirely from corn, benefits from a government subsidy of 51¢ per gallon. Ethanol produced from $3-a-bushel corn in the United States costs roughly $1.40 per gallon, more than twice the cost of Brazil’s cane-based ethanol. Although it took roughly a decade to develop the first billion gallons of U.S. distilling capacity and another decade for the second billion, the third billion was added in two years. The fourth billion will likely be added in even less time. In addition to corporations, U.S. farm groups are also investing heavily in ethanol distilleries. 42

India, the world’s second largest producer of sugarcane, has 10 ethanol plants in operation and expects to have 20 additional plants up and running by the end of 2005. China is projected to bring on-line four plants producing up to 360 million gallons of additional fuel ethanol by the end of 2005, mostly from corn and wheat. 43

Colombia and the Central American countries represent the other biofuel hot spot. Colombia is off to a fast start, opening one new ethanol distillery each month from August 2005 through the end of the year. The challenge is to coordinate growth in distillery construction with growth in the land in sugarcane. 44

For biofuels used in diesel engines, Europe is the leader. Germany, producing 326 million gallons of biodiesel in 2004, is now covering 3 percent of its diesel fuel needs. Relying almost entirely on rapeseed (the principal source of cooking oil in Europe), it plans to expand output by half within the next few years. 45

France, where biodiesel production totaled 150 million gallons in 2004, plans to double its output by 2007. Like Germany, it uses rapeseed as its feedstock. In both countries the impetus for biodiesel production comes from the European Union’s goal of meeting 5.75 percent of automotive fuel needs with biofuels by 2010. Biofuels in Europe are exempted from the hefty taxes levied on gasoline and diesel. 46

In the United States, a latecomer to biodiesel production, output is growing rapidly since the 2003 adoption of a $1-per-gallon subsidy that took effect in January 2005. Iowa, a leading soybean producer and a hotbed of soy-fuel enthusiasm, now has three biodiesel plants in operation, another under construction, and five more in the planning stages. State officials estimate that biodiesel plants will be extracting oil from 200 million bushels of the state’s 500-million-bushel annual harvest within a few years, producing 280 million gallons of biodiesel. The four fifths of the soybean left after the oil is extracted is a protein-rich livestock feed supplement, which is even more valuable than the oil itself. 47

Other countries either producing biodiesel or planning to do so include Malaysia, Indonesia, and Brazil. Malaysia and Indonesia, the major producers of palm oil, would likely use highly productive oil palm plantations as their feedstock source. Brazil, which has ambitious plans to ramp up biodiesel production, will also likely turn to palm oil. 48

There are two key indicators in evaluating crops for biofuel production: the fuel yield per acre and the net energy yield of the biofuels, after subtracting the energy used in both production and refining. For ethanol, the top yields per acre are 714 gallons from sugar beets in France and 662 gallons per acre for sugarcane in Brazil. (See Table 2–2.) U.S. corn comes in at 354 gallons per acre, or roughly half the beet and cane yields. 49

With biodiesel production, oil palm plantations are a strong first, with a yield of 508 gallons per acre. Next comes coconut oil, with 230 gallons per acre, and rapeseed, at 102 gallons per acre. Soybeans, grown primarily for their protein content, yield only 56 gallons per acre. 50

For net energy yield, ethanol from sugarcane in Brazil is in a class all by itself, yielding over 8 units of energy for each unit invested in cane production and ethanol distillation. Once the sugary syrup is removed from the cane, the fibrous remainder, bagasse, is burned to provide the heat needed for distillation, eliminating the need for an additional external energy source. This helps explain why Brazil can produce cane-based ethanol for 60¢ per gallon. 51

Ethanol from sugar beets in France comes in at 1.9 energy units for each unit of invested energy. Among the three principal feedstocks now used for ethanol production, U.S. corn-based ethanol, which relies largely on natural gas for distillation energy, comes in a distant third in net energy efficiency, yielding only 1.5 units of energy for each energy unit used. 52

Another perhaps more promising option for producing ethanol is to use enzymes to break down cellulosic materials, such as switchgrass, a vigorously growing perennial grass, or fast-growing trees, such as hybrid poplars. Ethanol is now being produced from cellulose in a small demonstration plant in Canada. If switchgrass turns out to be an economic source of ethanol, as some analysts think it may, it will be a major breakthrough, since it can be grown on land that is highly erodible or otherwise not suitable for annual crops. In a competitive world market for crop-based ethanol, the future belongs to sugarcane and switchgrass. 53

The ethanol yield per acre for switchgrass is calculated at 1,150 gallons, higher even than for sugarcane. The net energy yield, however, is roughly 4, far above the 1.5 for corn but less than the 8 for sugarcane. 54

Aside from the prospective use of cellulose, current and planned ethanol-producing operations use food crops such as sugarcane, sugar beets, corn, wheat, and barley. The United States, for example, in 2004 used 32 million tons of corn to produce 3.4 billion gallons of ethanol. Although this is scarcely 12 percent of the huge U.S. corn crop, it is enough to feed 100 million people at average world grain consumption levels. 55

In an oil-short world, what will be the economic and environmental effects of agriculture’s emergence as a producer of transport fuels? Agriculture’s role in the global economy clearly will be strengthened as it faces a vast, virtually unlimited market for automotive fuel. Tropical and subtropical countries that can produce sugarcane or palm oil will be able to fully exploit their year-round growing conditions, giving them a strong comparative advantage in the world market.

With biofuel production spreading, the world price for oil will, in effect, become a support price for farm products. If food and feed crop prices are weak and oil prices are high, commodities will go to fuel producers. For example, vegetable oils trading on European markets on any given day may end up in either supermarkets or service stations.

The risk is that economic pressures to clear land for expanding sugarcane production in the Brazilian cerrado and Amazon basin and for palm oil plantations in countries such as Indonesia and Malaysia will pose a major new threat to plant and animal diversity. In the absence of governmental constraints, the rising price of oil could quickly become the leading threat to biodiversity, ensuring that the wave of extinctions now under way does indeed become the sixth great extinction.

With oil prices now high enough to stimulate potentially massive investments in fuel crop production, the world farm economy—already struggling to feed 6.5 billion people—will face far greater demands. How the world manages this new incredibly complex situation will tell us a great deal about the prospect for our energy-hungry twenty-first century civilization. 56

*Author’s estimate