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Energy Policy and the Rule of 72

May 24, 2005

About 10 years ago, I made an ill-considered foray into insurance sales as a way to supplement my family's income.

Nothing much came of the brief venture. But one of the things I learned in a company class for fledgling salesmen has stuck with me ever since -- the Rule of 72.

The Rule of 72 is an easy way to grasp the power of exponential growth. To find out how large something can get, all you need to do is divide 72 by the growth rate. The answer will tell you how often that something will double.

For example, how long would it take for your money to double if you invested $1,000 in an account yielding 5 percent? Simple. Divide 72 by 5. Your money will double in 14.4 years. And double again in another 14.4 years. And double again in another 14.4 years. After slightly more than 43 years, your investment's value would total $8,000.

But what happens if you put your money into an investment that pays twice as much, 10 percent? Applying the Rule of 72, your money doubles every 7.2 years. After slightly more than 43 years, your investment has grown to $64,000 – the 10 percent account has become 8 times bigger than the 5 percent account. That's the power of exponential growth.

Every high school math class ought to teach the Rule of 72. Every congressman and senator ought to learn it.

Which brings us to a series of remarkable speeches that Congressman Roscoe Bartlett, a Maryland Republican, has been making about peak oil and the energy train wreck heading our way. You can find the speeches on Congressman Bartlett's web site.

Peak oil refers to the tendency of oil production from any given field to follow a bell-shaped curve. Production rises, peaks, then declines. For the U.S. as a whole, production peaked in the early 1970s and we've been on the downhill slope ever since. But demand has continued rising, so imports have increased to close the gap. As demand continues going up, we will have to import more oil. There is no way to close the gap through increased domestic oil production.

Which is why opening protected areas in this country to oil drilling doesn't do much to solve our foreign oil dependence problem. As Congressman Bartlett said, drilling for oil in the Arctic National Wildlife Refuge won't make much difference.

If we tie our future to oil and do nothing to curb demand, we'll have to write larger checks to oppressive and terrorist-friendly Middle Eastern regimes to buy their oil – the dirty little secret that proponents of Arctic Refuge drilling never want to talk about.

But even if Middle Eastern regimes were paragons of virtue, we would still have a problem. Worldwide, the amount of oil we're pumping from old fields exceeds the amount we're finding in new fields. Just as the U.S. reached peak oil in the early 1970s, there are signs that the world has reached peak oil or is getting close.

Right now, global consumption totals some 82 million barrels of oil per day. Since 2000, global demand has risen by an average of about 1.8 percent per year. If demand growth continues at that rate, the Rule of 72 dictates that production will have to reach 164 million barrels per day in just 40 years. If consumption is outpacing discoveries, how will this demand be met?

True, there are other, oil-like resources available for producing liquid fuels. Tar sands, heavy oil, and oil shale abound. But it takes a lot more energy to produce usable fuel from those sources than it does to pump conventional crude oil.

For example, making Alberta tar sands into something usable requires a lot of natural gas, to produce the steam necessary for making the gooey tar flow more easily and to produce the hydrogen that you have to add in order to refine the goop into motor fuel. For every four barrels of tar sands oil that are produced, the equivalent of one barrel is consumed. Putting more energy into a production process means more greenhouse gas emissions at the end of the process. Not good.

What about coal? There are ways to make liquid fuel out of coal. We have about a 250-year supply, at present use rates. That's the key qualifier – present use rates. Go back to the Rule of 72. If demand for coal increases by 5 percent per year, our consumption would double in 14.4 years and double again in another 14.4 years.

In less than 30 years, we would have quadrupled our annual coal consumption. Suddenly, the 250-year supply doesn't seem so abundant, even if we can figure out where to stick all the carbon dioxide that would be generated as a result.

The remorseless math tells us that energy policies focused only on boosting supply of fossil fuels aren't adequate. A complete package must focus on using energy more efficiently and diversifying our supply portfolio, with a healthy share for renewable resources.

A few years ago, a retired Arizona State University math professor wrote a New York Times op-ed illuminating vividly how the Rule of 72 shreds the faulty premises of policies that try to drill and dig our way to a clean energy cornucopia. If the U.S. had enough oil or coal to last 1,000 years – at present consumption rates – how long would those resources last if consumption rises 5 percent per year? Less than 80 years, by the professor's calculation.

We have a supply-and-demand problem with energy. There are ways to solve it that make sense economically and environmentally. Focusing only on supply and only on squeezing more supply from depletable resources, however, doesn't solve the problem. That's the take-home lesson of the Rule of 72.