Of all the "hard" sectors that drive the economy - energy production, resource extraction, food production, manufacturing - energy is perhaps the one whose limits are most clearly a topic of concern these days.
The immediate constraint: Climate change
The problem, in a nutshell, is that most of our current energy sources are based on extracting and burning carbon-based fuels that were formed and buried tens or hundreds of millions of years ago. In so doing, we release into the atmosphere billions of tons of carbon that had been sequestered, out of circulation, since prehistoric times. And the Earth's atmosphere is actually quite thin, so when we add enormous quantities of carbon dioxide – quantities comparable to the total carbon dioxide in the atmosphere before we started using fossil fuels – our actions have a significant effect on the overall composition of the atmosphere.
Carbon dioxide is transparent to the visible and near infrared light from the Sun, but blocks the longer, far infrared wavelengths at which the Earth radiates its surplus heat back into space. Increasing carbon dioxide levels, then, must increase the average temperature at the planet's surface.
What happens next is the subject of an awful lot of measurement, calculation and simulation by thousands of scientists. The Earth's climate is an incredibly complicated system, and our ability to make specific predictions about its future is very limited. What we do know for sure is that the average surface temperature is rising. Oceans are becoming more acidic as they absorb carbon dioxide from the air. Sea levels are also rising as the water expands from the higher temperatures and as glaciers and ice caps melt. Higher average surface temperatures mean more (and stronger) storms and more dramatic swings in weather, longer droughts, and, eventualy, dramatic changes in established climate patterns.
All of this is common knowledge by now. I repeat it here to emphasize that the real cap on growth in the energy sector, as it is currently structured, is the changes in climate that are induced by the end products of fossil fuel consumption. We've already created irreversible, but survivable, changes. Growing the world's fossil fuel industries any further would make those changes dramatically worse and destroy our ability to provide food, water and shelter for a large fraction of the world's population.
How close are we?
We can attempt to quantify these changes and to summarize the likelihood and probable consequences of various effects, and a blue-ribbon international commission - the Intergovernmental Panel on Climate Change - exists for precisely that purpose. The short form of their most recent report, the Summary for Policymakers, is likely the best currently available summary of the combined knowledge of the world's climate scientists.
Those who care about such details are invited to read the complete IPCC report. For our present purposes, we simply want to answer the question: "How much of a change (relative to pre-industrial conditions) can we tolerate?"
We've already created a 0.85°C average global increase and are irreversibly locked in to at least another half-degree. Changes in ocean levels are measurable but not yet problematic. We're already seeing more and stronger storms, more droughts, and unsuitable growing conditions in what used to be fertile agricultural areas. And, as perhaps the most visible consequence, glaciers and ice caps are melting fast enough that we can watch it happen; in many polar regions, there is now open water in summer where for all of recorded history there had been year-round ice.
Predictions about the future are more difficult. Models in which we completely wind down the fossil fuel sector right now, devoting tremendous effort to replacing all our current energy sources with clean ones, suggest that the global average temperatures in the year 2100 will be 0.3°C to 1.7°C higher than they were at the end of the 20th century. We'll still lose half of the Arctic ice and coastal areas within 0.4 m of the current sea level will be in trouble, but the necessary support mechanisms for human civilization – reliable fresh water, climates capable of supporting agriculture in the populated regions – will survive.
In models where we keep drilling up and burning every fossil fuel we can find, though, the year 2100 is 2.6°C to 4.8°C hotter than now. The oceans will have risen 0.45 to 0.82 m higher and become more acidic by an average of 0.2 pH units, the Arctic will be completely ice-free in summer, and many of the world's most productive food-growing regions will be barren, drought-ridden dustbowls. Stronger storms and more dramatic swings in temperature and weather would tax our ability to build and maintain infrastructure. The insurance sector is particularly worried about these scenarios, as a substantial fraction of the world's wealth would have to be devoted to disaster recovery and regular rebuilding.
To summarize, then: Our energy sector is already as big as it can safely get while being based on fossil fuels. Indeed, it's probably too big. We cannot sustain any further growth in fossil fuel consumption, and should be making firm plans to begin winding down this sector.
That necessity brings with it an economic opportunity, in that a massive re-allocation of resources from the fossil fuel sector to cleaner forms of energy will be essential. But we can no longer externalize the true costs of the energy sector; the age of unchecked consumption growth is - for now - over.
A temporary reprieve?
Once the transition to non-polluting sources is complete, we will be able to grow our energy sector once again. Even so, that growth will not go on forever.
After we have made the transition to completely clean energy sources, there's another, harder limit awaiting us. Almost all energy we use (currently about 17 TW globally) ends up as heat, and Earth has only one way to get rid of excess heat - radiating it out into space.
In the current climate change crisis, our actual heat release is negligible; the problem is with the changes we're making in the atmosphere's heat transfer properties. Our greenhouse gas emissions to date have caused a total radiative forcing of about 2.3 watts per square metre, compared to about 0.03 watts per square metre of heat created directly by our activities. Using the same amount of energy (or even many multiples thereof), but from non-polluting sources, would be perfectly OK.
If our energy sector reached a size where our net heat production was non-negligible relative to the heat we receive from the Sun, we'd have a much bigger problem. The only ways to keep the surface temperature in a safe range in that scenario would be to cut back on energy use, to engineer the composition of the atmosphere on a global scale, to change the albedo and/or emissivity of country-sized land masses, or to put enormous structures in orbit to reflect some of the Sun's light and heat. We're still a long way off from that scenario, but if we maintain continuous growth in the energy sector, it'll become a concern when energy use grows by a factor of ten and a serious problem at 100 times today's consumption. In other words, it is inevitable within a few centuries of steady growth, even if we transition entirely to "clean" sources.
Solutions for today
At an individual level, there is a lot we can do today to start winding down the fossil fuel sector. Most of it is easy stuff that we've been told to do for years: carpool or take transit to work, choose more efficient cars, fix the insulation in the house, and generally be a bit less wasteful with heat and electricity. These easy things also have the advantage of saving money right away.
There are also plenty of more complex, but very effective, things we can do as individuals. Using solar collectors instead of gas-fired heaters to provide hot water, for example. Insisting that new houses be built to modern codes such as R2000 or Passivhaus, and taking advantage of passive solar heating so that we don't have to run furnaces as often. Helping to re-structure the food supply system so that as much food as possible is grown locally, rather than shipped thousands of kilometres.
On a society-wide level, our choices can have a much bigger effect, but they are also much harder to make. A good example is Ontario's decision to eliminate coal-fired electrical generation – an expensive move, to be sure, but a necessary one. Rejecting any new fossil fuel extraction and transportation projects is also an essential step; those resources need to be directed at developing alternatives, such as the algae-based biofuels that are all the rage these days.
If we expect economic forces to solve the problem, we have to let them work. That means pricing in all externalities – the cost of the lives lost due to air pollution from coal burning, the cost of mitigating the climate changes caused by carbon emissions, and the cost of cleaning up the polluted rivers and devastated landscapes that are left behind after a tar sands project. If the energy sector had to include all of these effects in their economic calculations, the necessary reallocation of resources to clean energy development would be all but inevitable.
We may not have much room for growth left in the energy sector as a whole, but there are nevertheless plenty of opportunities for economic activity as we make the transition.