Tuesday, July 11, 2006

Peak Oil in Australia

ABC’s Four Corners program had an excellent story last night on Peak Oil: what flows from the fact that world oil production is peaking and that the ‘low hanging fruit’ of cheap and easily accessible oil is running out?

The main messages I took away:

  • Global oil production will inevitably peak and start declining in the coming years or few decades at the most;
  • There is still plenty of oil but what remains is getting more and more expensive to extract;
    Some of that increased expense will be offset by improving technologies as higher oil prices encourage investment in oil production;
  • Oil consumption is rising;
  • Oil prices will rise;
  • Rising oil prices will make alternatives commercially viable. These alternatives include biofuels, tar shales and coal liquefaction (renewable energy and nuclear didn’t get much of a mention). These alternatives all have disadvantages, including serious environmental impacts.
  • There is a substantial lead time in developing alternative liquid energy sources. This leads many analysts to fear that we won’t respond quickly enough to the peak oil problem, possibly leading to large and sudden price hikes, shortages and economic dislocations like those seen in the 1970s oil shocks, but potentially on a larger scale.
  • Working on the demand side of the issue – ie, reducing our need for oil consumption through more efficient technologies and urban planning – is necessary to reduce the likelihood and severity of economic shocks.
After seeing some of the alternatives to oil such as oil sands / tar shales and coal liquefactions, and their destructive environmental impacts, I take David Roberts’ point that peak oil is not a silver bullet that will save us from global warming via reduced oil consumption. It’s probably more a crossroads, where we can choose a renewable-energy-dominated or a coal-dominated energy future. My guess is that we’ll muddle through with a bit of both – things won’t be as bad as we fear but nor will we grasp the opportunity to make much of a transition out of fossil fuels and into renewables.

Nevertheless, there’s certainly a lot of commonality to the peak oil and global warming issues. And I think that a carbon tax – which will encourage investment in energy efficiency and renewable energies – and discourage consumption of fossil fuels and greenhouse gas emissions – is looking more and more sensible from an energy security perspective as well as an environmental one. The single most effective way to position ourselves for a future where energy is more expensive must be to price it more appropriately now.


pedaller said...

Although I favour a carbon tax in order to highlight the greenhouse gas emissions issue, I've never considered it to be a panacea for all our environmental ills.
Any form of taxation simply increases the cost of living and results in inflation. Salary/wage increases over time will compensate people for the increase in inflation, so within a relatively short period of time we will be no better off (environmentally) than we are now.
As I see it, the solution(s) will not lie in Government policy/actions because the oil and related industry lobby groups are far too influential, and consequently the solutions will not be economic ones either. Rather the solutions, when they come, will be driven by social change agents.

David Jeffery said...

No pedaller, taxing different things at different amounts has a real and substantial effect. People respond to changes in prices and alter their behaviour accordingly: it's that simple.

(Consider whether a tax on cycling of $1 per kilometre would affect people's cycling habits!)

Quite frankly, if you're an electricity supplier trying to make a profit and the cost of electricity from coal goes up by 20% while the cost of electricity from renewable sources stays the same, buying electricity from renewable resources becomes much more attractive. Ditto cycling, walking or taking public transport when the cost of petrol rises significantly.

pedaller said...

Yes people will change their behaviour to accomodate price changes, especially if the price changes are sudden and dramatic, but different people will respond in different ways, refer to today's story in the Daily Telegraph. http://www.dailytelegraph.news.com.au/story/0,20281,19757832-5001022,00.html
Ofcourse, most law-abiding people will simply adjust their spending patterns to accomodate the price rise until their disposable income rises again. We saw that in the 1970/80's with increases in the sale of 4 cylinder cars, then a bounce back to 4WD's in the 1990's, and now an increase in motorbike and scooter sales (even small increases in bicycle sales).

However, what you are suggesting is a carbon tax. If the tax is set at 20%, then petrol prices will be expected to rise around 20% adding mere cents to the price of petrol, not adding dollars to the price. Inflation will rise at something less than 20%, wages and salaries will gradually be adjusted over time. In the same way the imposition of a GST was expected to be inflationary, there were small changes in spending patterns initially, until wage/salary movements absorbed the impact and now no-one gives the GST a second thought. You could go even further back and see a similar, but smaller response to the imposition of the medicare levy. Ditto import tariffs.

I'm assuming that a carbon tax would be made palatable to the tax-paying public on the basis of providing revenue for investment in renewable energy technology development and implementation. Which leads us to the other issue, that Government can change or ammend Acts. I'd refer you to the Road Improvement (Special Funding) Act, No. 95 of 1989 which imposed a 3cent per litre levy on fuel in order to fund road works (3 x 3 tax). The Road Improvement (Special Funding) Amendment Act 1995 watered that down considerably by allowing the tax money raised to be spent on things other than road works, eg, bus shelters, public transport operational technology, commuter parking etc. The same thing will happen to a carbon tax, over time the type of things the money can be spent on will change.

And that's without considering the implication of rebate schemes that I'm sure would be en-acted along with the carbon tax legislation.

With respect to encouraging an increased supply of electricty from renewable sources, refer to http://www.theage.com.au/news/business/state-energy-plan-blows-in-the-wind/2006/07/09/1152383611122.html
What is obvious is that the fossil fuel lobby is very powerful and Governments bow under pressure. In the case of electricity generation this is entirely understandable. We have large coal deposits suitable for power generation, why should the Government insist on investment on expensive renewable energy sources? It doesn't make political or economic sense. BUT it does make social sense, so the driving force must be social change.

hc said...

David, Good post, I also enjoyed the show.

If a carbon tax is introduced then the viability of some of the backstops (coal, tar sands, shale) may reduce. This will mean that we are forced to stretch out our oil reserves longer and allso means current oil prices will rise further.

seadog said...

Peak Oil is happening right now. Production has remained static at 84m barrels per day since October 2004.

3/4 of all olil producing countries oil production is in decline and the number of countries expanding production are only managing to match the declines elsewhere. There are reall concerns that production will now never ramp up to match demand at lower prices.

Expect petrol prices to go up and up. If you have a big car, aspecially an SUV, sell it, even if you make a "loss". If you must have a car get the smallest car you can. Spend a little more on a diesel or hybrid version if you can. The lighter grades of crude oil are the ones that are in short supply, so theoretically diesel will be more available as things get tighter.

The UK is considering a carbon smart card. Every citizen will be allocated so many carbon credits per month or year which they can use or sell. Those without cars can sell their credits on the open market. The government will adjust the carbon credits to national goals and the number of people. Seems like a good idea to me........