Portland’s history is rooted in its location at the confluence of two major rivers and ready access to the ocean and a great agricultural valley. Because of its location, Portland also became the hub of significant rail service. This network allowed Portland to develop as a production and shipping center for heavy and bulk products that can be transported by boat or rail. Portland also enjoys a head start on many other urban areas in terms of energy efficiency, renewable energy, alternative fuels, sustainable design and green building, all of which promise to be growth industries post-peak oil.
The economy serves to produce and distribute goods and services and to provide people with the income to afford these products and services. Portland’s economy faces two big questions with respect to peak oil:
1) How will businesses remain viable in the face of constricted oil supplies?
2) How can Portland citizens remain employed in high quality jobs?
It is important to emphasize that Portland will not experience peak oil in a vacuum, and local changes will be felt relative to those taking place regionally, nationally and globally. Portland differs in important ways from other cities and regions and holds certain competitive strengths and weaknesses. In examining vulnerabilities in the local economy, Portland’s economy must be considered together with the regional economy, which includes the greater Portland-Vancouver Metropolitan Statistical Area. Major export-oriented sectors of the economy include high technology, nursery stock, metals manufacturing and fabrication, transportation equipment and sports apparel. Other important sectors include construction and real estate, health care, retail and government.
Peak oil will affect the economy both directly and indirectly. Direct impacts are experienced in the actual operations of a business or industry. This includes fossil fuels used in building energy use, the transportation of goods, and in manufacturing, such as for process heat or as a raw material for chemical or plastic products. Indirect impacts, by contrast, occur upstream with suppliers of raw materials or semi-processed goods, or downstream in consumer demand for products and services. These impacts are more difficult to measure and forecast. While transportation and energy represent only a small portion of many businesses’ costs, indirect impacts stemming from upstream supply problems or consumer demand may often be more significant.
The Task Force considered four key questions for various industry clusters:
1) How will peak oil affect production costs?
2) How will demand for the product or service be affected?
3) How will upstream suppliers of raw materials or semi-processed goods be affected?
4) What reasonable substitutes or alternatives are available to mitigate these effects?
The Task Force also considered the possibility that large shifts in international financial and currency markets could undermine the U.S. economy as a whole, including serious impacts in Portland. The recent decline in the value of the dollar, the possible shift away from the dollar in international oil transactions, and the complex interrelationships among these and related macro-economic issues merit close attention and further study, which is beyond the scope of the current report. <!--[endif]-->
Below are potential major impacts the Portland economy may experience.
Improvements in energy efficiency will enable businesses partially to buffer themselves from the impacts of peak oil, but the direct and indirect effects of rising energy prices will result in economic disruptions and dislocations, adversely affecting businesses and employment. <!--[endif]-->
To the extent that energy prices rise while the aggregate size of the population (i.e., the supply of labor) increases, the cost of labor relative to the cost of energy will fall. This shift will provide new opportunities for skilled and manual labor as well as for efficient alternatives to existing technologies, materials, processes and services.
In general, rising production costs will lead to higher prices for goods and services, and both consumer purchasing power and consumption are likely to decline, as they did in the 1970s. In many industries, production may also take place on a smaller scale in decentralized locations, thereby sacrificing current efficiencies of scale that are largely the result of access to inexpensive fossil fuels.
The combination of increased production costs and decreased consumer purchasing power likely will increase the number of businesses that fail each year. To the extent that increased unemployment accompanies business closures, more people may try to create their own businesses. On a larger scale, this increase in the number of business start-ups and failures per year will increase the risks and uncertainties about economic downturns and what goods and services are provided, how and by whom.
Businesses will be affected by increases in the direct costs of producing and transporting their products or inputs. Businesses will also be affected indirectly, however, by significant changes in demand for some products. Every economic sector is likely to produce both winners and losers.
Manufacturers of products that are energy-intensive to produce will likely be among the first businesses to experience the adverse impacts of peak oil. In particular, suppliers of inexpensive raw materials that require high amounts of energy to extract or harvest and imported semi-processed components that are energy-intensive to manufacture may be some of the first to face increasing costs.
In addition to changes in the way that inputs are shipped, distribution of finished goods to consumers may change as well. Fewer non-essential or low-value products may be distributed to retail outlets and consumers by air and long-haul truck. Proximity to transportation hubs may also become a more important factor in the location of production facilities in order to limit exposure to rising freight costs. Similarly, proximity to employees and customers will become a more important factor in business decisions about where to locate.
Businesses that are located farther from population centers or that depend on the willingness of consumers to drive significant distances to shop may experience a sharper decline in sales than centrally located businesses. Neighborhood retail and other consumer services may gain customers as larger, more distant stores become less economic. At the same time, however, while local businesses may experience increased sales, they also may experience a disproportionate increase in the transportation cost of supplying such retailers as a result of the inability to carry large inventories.
Businesses that depend heavily on discretionary consumer spending are at risk, especially those goods and services for which there are readily available substitutes, that are considered luxuries, or whose purchase can be put off. Industries that may experience a particularly strong decline in sales include restaurants, tourism, personal services, recreation, home furnishings and consumer electronics. Additionally, there may also be disproportionately less demand for consumer products that require oil or natural gas to operate.
Overall, the effects are difficult to predict. Policy makers should be aware that the challenges faced by businesses will be large and that the risk of business failure is great.
Unemployment is likely to increase, at least initially, as businesses struggle to adjust to higher energy prices by changing business models or closing their doors. The middle class may shrink as people fall into lower income brackets and purchasing power is reduced. Increased numbers of unemployed workers will add stress to social services systems, including the Oregon Food Bank, the Oregon Health Plan, Low-Income Home Energy Assistance Program, Section 8 Housing and others.
It is unclear how severe or permanent this impact will be. If the decline in oil and natural gas production is rapid or unsteady, the unemployment problem will be more serious. Over time opportunities in renewable energy, goods and services that increase energy efficiency and other fields that may experience growth in the post-peak environment could offset job losses in other sectors, although the extent of this is uncertain.
Portland has a significant high-technology sector, and energy comprises a relatively small proportion of delivered high-tech product costs, despite using commercial aviation as the primary delivery mode. Although chip production is energy-intensive, electricity still accounts for a small proportion of producers’ overall cost structure. Even as the cost of air freight increases, customers in the high-tech sector likely will be willing to pay more for the chips because chips are a high-value commodity. Peak oil’s greater impact on the high-tech sector will be through the possibility of declining demand for some of its products as peak oil negatively impacts its customers and decreases demand. These negative impacts may be partially offset or even balanced by increasing demand for high-tech components in devices that increase energy efficiency. In general, the high-tech sector is probably less vulnerable than many to increased oil prices and has many opportunities to benefit.
Portland is home to several major transportation equipment manufacturers. Any shift from long-haul trucking and aviation shipping modes to rail and ocean shipping clearly will have significant impacts on these industries. The effect on individual firms is unclear but would likely represent a significant departure from current business plans, and some manufacturers would fare better than others.
Similarly, the Portland region includes several major employers in the highly globalized apparel industry that will likely experience the impact of peak oil in a variety of ways. The first is a decline in retail sales as consumer discretionary spending shifts away from luxury items to essential goods. Second, distribution costs may increase dramatically because these companies rely heavily on trucking for national distribution of their products. Third, because petroleum products are used in the manufacture of many synthetic fibers, current raw materials will become more expensive. Business models are likely to undergo significant change, with uncertain impact on the various design, marketing, financial and other functions that provide employment in the Portland area.
The metals industry in Portland focuses mostly on steel manufacture and the fabrication of special products. Production costs of metal fabrication may not be hit hard, although electricity prices may increase as natural gas prices rise. However, to the extent that consumer demand shifts as a result of higher fuel prices, sales may be impacted depending on the type of products in which these manufacturers’ goods are used.
Much of Oregon’s nursery product is currently shipped long distances. As transportation costs rise, demand for low-value nursery products such as spruce trees likely will decrease. However, high-value products such as hazelnuts can withstand a rise in transportation costs. To the extent that nursery production declines, production and employment likely will shift from growing nursery stock to food crops.
The construction industry will be significantly impacted. Demand for new homes may decline as incomes are stretched to provide food, heat, transportation and clothing. In addition, production, processing, and transportation of construction materials will increase costs. The decline in the housing market will have ripple effects on the mortgage finance industry and real estate.
For many employees in the service sector, such as health care and retail, it will no longer be economical to commute long distances by car to reach low-paying jobs. Unemployment in these sectors could rise.
The public and non-profit sectors may also experience job cuts, as revenues from conventional sources will likely decline. The arts and creative sectors may be especially hard hit, as their products and services may be perceived as non-essential.
The Portland metropolitan area may experience significant population growth as a result of peak oil. Oregon has long been heralded for its environmental ethic and livability, and Portland is a national leader in sustainable development. In addition, Portland offers a temperate climate with ample fresh water in the midst of some of the most productive and diverse agricultural land in the world. As a result, Portland is seen as better prepared than most areas to adapt to the impacts of peak oil and could attract people from other areas.[6] Population may also shift within the metro area, with greater concentrations of people in areas with better transportation options.
However, population growth will put added pressure on the very systems that make Portland attractive. For example, population growth could lead to increased conflict between urban development and agricultural land, which will be increasingly valuable post-peak as rising fertilizer costs reduce agricultural yields throughout the U.S. food system.