Pitfalls of coal peak prediction

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Richard Heinberg and David Fridley argue that coal reserves may be exhausted within decades (Nature 468, 367369; 2010), basing much of their analysis on fits of cumulative coal production to logistic functions in the style of M. King Hubbert, who famously predicted peak oil supply. But this method is problematic — for example, fitting the decline in production of LP records to a logistic curve would incorrectly indicate that vinyl is a limited resource.

If scarcity were an important determinant of US coal-production history, prices should have increased. Yet they have stayed around US$34 per tonne for the past 50 years, irrespective of production trends. Alternative explanations could include changes in electricity demand and market structure. There would then be no justification for calculating the limit of coal resources from a logistic graph of production history.

The logistic fits that drive forecasts of coal exhaustion depend on which years are included in the analysis. Logistic fits using data up to 1989, 1999 or 2009 forecast an ultimate coal reserve of 52, 71 or 96 gigatonnes, respectively, and predict that production should have peaked in 1951, 1967 or 1986. In fact, coal production has increased since 1986 — highlighting the weakness of the scarcity-driven Hubbert model in explaining production.

An exponential fit explains as much of the variation in US production data as does a logistic fit. Yet the interpretation of the two models is different: the logistic model predicts the end of coal; the exponential fit predicts an infinite supply. Supply is obviously not infinite, but without a theoretical framework to support the choice of a logistic fit, its prediction may be just as wrong.

The end of easy oil is driving a shift towards carbon-intensive options, such as oil-sands mining or converting coal to liquid fuel. We must rely on policy changes to ensure a less carbon-intensive future, not the end of cheap coal.

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  1. University of Calgary, Alberta, Canada.

    • David Keith &
    • Juan Moreno-Cruz

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  1. Report this comment #17736

    Mason Inman said:

    I think David Keith is a great scientist. But at the same time, it should go on the record here that he has a financial stake in carbon capture and storage. His website says: "Since 2009 David has led Carbon Engineering Ltd., a start-up company developing technology to capture CO2 from ambient air at an industrial scale."

    To be fair, that's geared toward capturing CO2 from the ambient air, and not from the smokestacks of coal-fired power plants. But if the technologies he is working on for capturing CO2 pan out, I imagine they would also have use in coal-fired power plants. And if technologies on the storage side are ramped up to deal with power plant exhausts, it would certainly benefit attempts to store CO2 captured from ambient air as well.

    But moving on to Keith and Moreno-Cruz's letter, it seems to me their argument about prices is very weak. They argue, "If scarcity were an important determinant of US coal-production history, prices should have increased." This is known as "Hotelling's rule," published in 1931. However, as many economists have noted since then, this rule does not seem to apply very well to real life.

    One major problem with Hotelling's rule is that it is based on the idea that we have a good idea of how much of a resource is left. If it is getting scarce—and people know it—then they have an incentive to slow down production and hang on to their reserves. That way, they can sell the resource later, when presumably the price will be higher.

    However, as the economist James Hamilton put it , in real life, it seems that people have acted as though "resource exhaustion was judged to be sufficiently far off as to be ignored." But, as Hamilton argues, just because people ignore something, that doesn't mean it's not real.

    The problem, to reiterate, is that don't have perfect information about the future. We don't even have particularly good information. As Keith and Moreno-Cruz point out, a simple application of the logistic function to US coal production can give misleading answers, predicting a premature peak. And if we apply another popular type of fit called "Hubbert linearization" to US coal production so far, it predicts that in the long run, the production will be infinite—clearly another wrong answer, in the overly optimistic direction.

    So these methods have to be used with some care, as in Patzek and Croft attempted to in their study (reference 1 in Heinberg and Fridley). If Keith and Moreno-Cruz had critiqued studies such as Patzek and Croft's, or used examples of essential resources rather than the decline in production of LPs, then their argument would be more convincing.

    The point of these attempts using logistic functions is to try to give the world better information about where we're headed, and whether we can expect peaks in production in the foreseeable future. That would give us the information that we would need in order for market prices to reflect where we're headed, at least somewhat accurately.

    If most everyone is in denial, though, then it seems market forces aren't going to be a very useful signal. Instead of gradually rising to reflect increasing scarcity, prices may stay low, and then suddenly skyrocket—as happened with crude oil from 2000 to 2008. There's still debate over why that happened, but it seems that an increasing number of people say that conventional crude oil production has peaked, reaching a plateau around 2005 to 2010, and that it will start declining soon. If that's so, then rising prices didn't give us much of an early warning.

    Going back to Hubbert, for what it's worth, he took a dim view of methods that use price as a key indicator. In testifying to Congress in 1974, he said, "money is a system of bookkeeping. It is in effect paper, and therefore it doesn't have the constraints on exponential growth which apply to a physical system."

    When we're talking about scarcity of physical things, then it seems like a good idea to not take prices too seriously. Prices are of course something we have to contend with in the short run for getting by. But I don't think prices will ever be a particularly good indication of overall trends, or where we're headed in the long run. When we ignore other methods of trying to get a sense of where we're headed in the future, then prices will be an especially bad indicator.

  2. Report this comment #17777

    Michael Lardelli said:

    Economists may get all excited over the fact that, in the USA "coal production has increased since 1986" but scientists will be more interested in the statement by Heinberg and Fridley that "In terms of energy output, US coal production peaked in the late 1990s (volume continued to increase, but the coal was of lower energy content)." For information on this see the 2009 paper in the International Journal of Coal Geology (vol 78, pages 201-216) by Hook and Aleklett available at:
    See, in particular, Figure 13.

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