Wednesday, January 27, 2010

Peak Oil, Climate, and Compact Living

Recent global and local political events suggest a fairly high probability that government efforts to restrict greenhouse gas emissions could turn out to be modest at best. After the chaos at Copenhagen and struggles over cap and trade in the U.S. Senate, optimism about tackling global warming head on seems to be waning. What if next to nothing of substance is done to unhook us globally from fossil fuels as our primary source of energy? If this were the case, then climate will ultimately warm by anywhere from 5 to 6 degrees Celsius according to the Intergovernmental Panel on Climate Change (IPCC). If “peak oil” theory turns out to be true, beyond about 2040 we will be on the downward slope of fossil fuel supplies in the face of continuing global growth in energy demand. This will mean accelerating increases in the price of energy and a huge income transfer from the world as a whole to the already wealthy owners of fossil fuel reserves. As energy prices accelerate because of growing fossil fuel scarcity, we will ultimately be forced to shift to green energy and a compact form of life as described in previous posts, but only after we have been shaken down by Arab oil sheiks for trillions of dollars. We can avoid this and give a huge boost to our domestic economy by unhooking ourselves from the tyranny of fossil fuels sooner rather than later. Doing nothing to move to clean energy now is a collectively brainless thing to do, not only because of the consequences for climate change, but because of immediate harm to our own narrow economic self-interest. Let me now explain.

The IPCC in its latest report, “Climate Change 2007” sets out a range of scenarios for addressing global warming. The most aggressive strategy calls for reducing global emissions 50 to 85 percent below 2000 levels by 2050. If we are able to do so, warming will be limited to 2-2.4 degrees Celsius. Under the least aggressive strategy emissions could grow to as much as 140 percent of 2000 levels by 2050, and the climate could ultimately warm as much as 6 degrees Celsius (11 degrees or so Fahrenheit). Under the most aggressive strategy, a carbon equivalent emission allowance price somewhere near $100 per metric ton range will be required by 2030 to dampen emissions sufficiently to hold climate change in check, while under the least aggressive the carbon price will need to be no more than $20. A concrete commitment by the U.S. to unhook itself from fossil fuels by 2050 would do the world a huge good turn by getting the ball rolling on climate stabilization.

Although good turns are morally uplifting, we can instead look to our own immediate self-interest as justification for moving quickly as possible to a clean energy, carbon emission-free economy. For starters, we will have little choice but to make this move eventually according to the concept of “peak oil”. The logic of peak oil is impeccable. The earth’s crust necessarily contains a finite amount of fossil fuel deposits; with exploitation of these deposits, at some point in historical time the rate of feasible production will reach its maximum and begin a slide downward. The essential question for us is when? This idea was controversial for many years after being introduced in the 1950s by Shell Oil petroleum geologist, M. King Hubbert, who argued that worldwide peak oil would be reached by the year 2000. While that prediction proved inaccurate, today experts agree that the global peak will arrive by 2040. This is the central conclusion of a 2007 U.S. General Accounting Office study on the need for a public response to the inevitability of peak oil. With continued rapid growth in energy demand, the economic effects of declining oil production are not hard to predict—accelerating petroleum prices. Imported crude oil prices facing the U.S. between 2008 and 2035 are already projected by the U.S. Department of Energy to grow by 1 percent a year above the annual rate of inflation. As the production peak is reached, this rate of price growth will undoubtedly accelerate without a concerted movement to get unhooked from fossil fuels. Shifting to natural gas and coal will be a partial but temporary solution to a scarcity in crude petroleum. A global peak in both natural gas and coal production will not be far behind oil according to the experts. Simply put, beyond 2040, rising fossil fuel prices will force us to shift to alternative energy sources even if we do nothing beforehand to limit greenhouse gas emissions by reducing fossil fuel consumption.

The obvious question to ask is this: why not unhook ourselves from fossil fuels and turn to compact living sooner rather than later? As of 2006 we were spending $330 billion on petroleum imports annually. The Department of Energy projects a rough stability in the volume of these imports through 2035 but rising real petroleum import prices (inflation adjusted) to the tune of 1 percent a year. If these trends prevail beyond 2035, then by 2050 we will be spending more than $500 billion a year on petroleum imports in today’s dollars. Over the entire period from 2006 through 2050 our import spending will amount to a bit more than $18 trillion. Perhaps 25 percent of this figure will return to our shores as U.S. export purchases leaving some 14 trillion in the hands of oil sheiks and others to be disposed of elsewhere. In short, our spending on energy currently benefits relatively well-to-do owners of petroleum reserves outside the U.S. Fortunately for us, this need not be the case. Instead of a huge income transfer to wealthy foreigners lucky enough to own oil reserves, we could instead direct that income to our own citizens in return for the creation of clean energy. In the end, after such a transition our average household energy bill in today’s dollars will increase only modestly, if at all, according to U.S. Department of Energy cost projections. About 5 million jobs will be permanently created as because of a shift to clean energy, many of which will be well paying and located in economically stressed central cities and rural areas (see my post, 9/9/2009). In short, instead of adding to the wealth and power of Arab sheiks and oil-supported dictators, we could create a domestic clean energy economy that brings growing economic prosperity for many of our fellow citizens and increasing economic security for everyone.

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