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.

8 comments

  • good points Marc, the one I have an issue with, is the repressive nature of peak oil. As you state governments will have to do something to address such scenarios as $200 oil and its effects on low income families.

    Funny really how people revolt against a carbon tax that was rather paltry, but when a private interest comes in a jacks oil through the roof to $147, not much in the ways of organized resistance even makes an appearance. In many ways, I view oil as a public good, yet we have private interests hiding behind their walls of silence, speculating and trading making unimagined fortunes.

    But not a peep from the public. It just does not make any sense to me. How can the dimensions of such illusion be so unqualified. I mean on the one hand the purpose of the BC policy was to help mitigate climate change, and on the other we have sheer speculation and greed. Its a good thing we have private interests looking out over the oil, as I am sure their would be a whole lot more unrest.

    Makes you think very much about the future of climate change. Methane is now one of the clear threats we face ahead of CO2. A lot of it coming from the melting tundras on the poles. And then we have the nitrate problems N04-, mainly from being released into the atmosphere at furious speed.

    Equilibrium is very robust but when it is lost how fast does change occur until the next equilibruim. If chemistry at the molecular level is any indication then we could be in for some surprises.

    Action is so far from leaders vocabulary. Is it a matter of bureaucracy, costs, leadership, tech change and diffusion hurdles. MAkes one wonder why we are so slow in seeing much in the way of actions.

  • And then there is all that coal which can be converted to gas / diesel. And there is lots of coal out there. I think you will find the market mechanism will work very well at bringing new sources CO2 online. We probably should legislate.

  • Thanks, Marc.

    I had been meaning to write a post on this book for the past couple of months, but never quite got around to it.

    For me, the highpoint is Rubin’s cogent and wholehearted support for carbon tariffs.

  • Travis, I agree that there is enough coal in the ground to put the final nails in our collective coffin. But I think it is mostly due to burning coal for electricity. There may be some enterprise that converts coal into gas for our cars but I imagine it would be fairly energy intensive, ie requiring other fuels that are going to be increasingly expensive.

    That said, we should never underestimate our capacity to destroy the planet in ever more innovative ways.

    Clearly, we need to address coal from a climate perspective not a peak oil one. And in doing so, that is where carbon tariffs will need to come into effect.

  • just a quick point on coal, will the truth of carbon capture ever make it out the politics. Amazing how science, when it promotes profits, is held up with a religious zeal, but when it comes out with some kind of challenge to the private for profit interests of modernity based “progress”, it is so quickly thrown on a stake and burned.

    Is coal based carbon capture actually an economically feasible option. From some reports it is classed as but more smoke and mirrors. Delay, deflect, diffuse, disrupt, but definitely do not deal with the issue.

    This is precisely where we need a lot more linkages formalized within the progressive environmental-economic- climate science camps.

    I am sure there are many linkages already out there but it is definitely something to think about for next years presentations.

  • Marc,

    Maybe you should go back and read Amartya Sen on the economic factors behind famines. Decoupling from oil may indeed be a very good thing. But relying on the price mechanism to do it for us may be a very, very bad thing.

    On the topic of climate change and peak oil, you never followed up on this blog on your impressions from Peter Victor’s presentation at the CEA conference last May.

  • This doesn’t answer the question of how much we oil we would use if we allow peak oil to run it’s coarse without any carbon controls. Is it little enough to prevent climate change?

    My recent thoughts on this: Carbon Tax: an Epic Defense. I argue that if the revenue from a carbon tax is returned directly to individuals it might be more widely supported, especially compared to the messy details of a cap and trade system.

  • Marc,

    South Africa has been producing gas from coal for a long time. In fact they lifted the tech from the Nazis after the second world war and ramped up industrial scale production both for foreign exchange reasons and then later as a massive sanction busting effort. This is not my area of speciality but if you have abundant coal deposits the real issue is water. Apparently there have been significant refinements in the process in the order of 30 – 60 %. In any case 200$ a barrel makes a lot of things competitive–including regional labour!

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