It’s a small world after all

As someone deeply focused on climate change and the vast potential for bad things to happen in the future, the idea of peak oil strikes me a blessing. For the most part I have paid little attention to the nuances of peak oil arguments on the grounds that there is still so much of the black stuff in the ground that if we were to burn it all, it would be game over. George Monbiot makes this case in a recent post (references in original):

[T]wo papers … published by Nature in April … measured … the total volume of carbon dioxide we can produce and still stand a good chance of avoiding more than two degrees of warming. One paper, by a team led by Myles Allen, shows that preventing more than two degrees means producing a maximum of half a trillion tonnes of carbon (1830 billion tonnes of carbon dioxide) between now and 2500 – and probably much less. The other paper, written by a team led by Malte Meinshausen, proposes that producing 1000 billion tonnes of CO2 between 2000 and 2050 would deliver a 25% chance of exceeding two degrees of warming. … At current rates of use, we will burn the ration that Allen set aside for the next 500 years in four decades. Meinshausen’s carbon budget between now and 2050 will have been exhausted before 2030.

There’s another way of expressing these limits. The World Energy Council (WEC) publishes figures for global reserves of fossil fuels. A reserve means the minerals that have been identified, quantified and are cost-effective to exploit; in other words those that are more or less ready to be extracted. (The total amount of a mineral found in the earth’s crust is called the resource). The WEC says that 848 billion tonnes of coal, 177,000 billion cubic metres of natural gas and 162 billion tonnes of crude oil are good to go.

… This means that current reserves of fossil fuel, even when we ignore unconventional sources such as tar sands and oil shale, would produce 3000 billion tonnes of carbon dioxide if they were burnt. In other words, if we don’t want to exceed two degrees of global warming, we can burn, according to Allen’s paper, a maximum of 60% of current fossil fuel reserves by 2500. Meinshausen says we’ve already used one third of his 2050 budget since 2000, which suggests that we can afford to burn only 22% of current reserves between now and 2050. If you counted unconventional sources (the carbon content is much harder to calculate), the proportion would be even smaller.

With this backdrop in my head I picked up Jeff Rubin’s new book, Why Your World Is About To Get A Whole Lot Smaller. Rubin’s book is lesser treatise on peak oil, a relatively short book written in popular style, not a table or graph to be seen. But I like that he is an economist formerly deeply engaged in the financial markets (who got turfed from his job over this book), and also brings a Canadian perspective to the issue.

Rubin starts with the obvious: our world economy, and the dynamics of globalization in recent decades, have been powered by cheap fossil fuels. And those days are now over. We may be seeing a respite from the super-high prices of 2008 due to the recession, but once there is a recovery the boost in demand will drive oil prices back up in short order. The next economic cycle is likely to see $200 a barrel oil before that new high makes the global economy lurch back into recession. Subsequent cycles will push that price even higher.

Rubin gives a nice overview of the trends in supply and demand for fossil fuels. On the supply side, he notes the standard peak oil arguments that annual production is at or near its peak, as new discoveries no longer keep up with depletion of existing reserves. And it gets increasingly more expensive to get the lesser grade stuff to market. The gushers of oil that are cheap to tap are on the way out, and new reserves are increasingly from tar sands like Alberta’s that are much more expensive to process into usable product.

New for me were the dynamics on the demand side. Sure, global demand for fossil fuels has increased, here in gluttonous North America and in the developing world (and China, India, Brazil and some others are not going back to consumption levels of a decade ago). But there is a split in the market, as many oil-producing companies like Saudi Arabia and Venezuela are providing oil to their domestic market at way below world market prices, with predictable effects on demand (hello, ski hill in a Dubai shopping mall).

The upshot is that for all of the efforts to put a price on carbon emissions, the market is going to lead to price hikes way beyond any carbon tax ever could politically. Even BC’s modest carbon tax turned into a major liability for the Liberal government, and I doubt we are likely to see any other jurisdictions bring in carbon taxes because of their toxic politics. If Rubin is right, we need not really worry about those politics (at least for oil; the coal that powers much of North American electricity generation is a different matter). But we should be concerned about distributional consequences. With a carbon tax, some of the revenue can flow back to low-income households to offset the regressive impact of the tax. Governments will need to find some kind of mechanism to address a growing gap that will result from much higher oil prices arising from market forces.

An overarching theme of the book is that economic activity is tightly linked to supplies of cheap energy. When prices rise we get recessions, and Rubin makes the case that the current recession is as much about the rising price of oil as it is about housing bubbles, subprime mortgages and collateralized debt obligations. Future high prices of oil inevitably mean a major slowdown in economic growth.

Given the paralysis of action on climate change, I hope Rubin is right and that the timing of oil price hikes comes in time to avert the worst scenarios of global climate change. Interestingly, Rubin posits a future world that many environmentalists  would like to see us end up in, though as a result of deliberate climate policies: the resurgence of local food, the return of manufacturing to North America, denser communities, the death of car-dependent suburbs. Rubin also envisages the rise of carbon tariffs to ensure that domestic companies are on a level-playing field with carbon-intensive production in China and elsewhere (this is where coal enters the picture).

Unlike a lot of peak oil boosters, Rubin finishes upbeat. Decoupling from oil may be the end of life as we know it, but there is a lot of good that can come out of this transition. The challenge will be to have governments get out of denial and make proactive investments and planning frameworks that make the transition smooth, hardly an easy task even for a government that gets it.

The recent stimulus packages federally and provincially have been a massive disappointment in this regard. We at the CCPA have argued strongly for green stimulus packages that create jobs and lay out the infrastructure for a low carbon economy, but little of that has made its way into the public domain. Here in BC, the government has dropped its green facade and has its sights set on a $3-5 billion bridge to ease single-occupant congestion to and from the outer Vancouver suburbs, in spite of evidence that this never works (more cars just overwhelm the new infrastructure in a few years time). Meanwhile, a major proposed rapid transit project has been put on the shelf.

Back to the climate file, there is still a lot of temperature increase locked just due to the current stock of emissions in the atmosphere. That will continue to grow even if Rubin is right about steeper prices for oil. But pondering the end of oil gives me a sense of optimism that our addiction to oil will be broken sooner rather than later.