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Quest for energy is race against time

There are two reasons why society has to get out of oil, and at first sight, they seem contradictory. Firstly, oil is running out. Secondly, we cannot afford to burn it all.

Oil is running out because it is a finite resource. Optimists, like the US Department of Energy and the oil companies, estimate that around 2,600bn barrels are left in known deposits and predictable future discoveries. Pessimists, like the Association for the Study of Peak Oil and Gas, reckon on more like 1,000bn barrels.

In a society that has allowed its economies to become geared almost inextricably to growing supplies of cheap oil, the difference is seismic. If there are 2,600bn barrels left, the topping out point - or the so-called peak of depletion - lies far away in the 2030s.

The "growing" and "cheap" parts of the oil-supply equation are feasible until then, at least in principle, and we have enough time to get ready for the hydrogen age that must follow the hydrocarbon age. If there are 1,000bn barrels left, the peak of depletion may be as soon as 2007.

The "growing" and "cheap" parts of the equation become impossible, and there is not enough time to make the transition from oil to hydrogen. Economies cannot run without energy and global depression lurks around the corner.

This way of looking at oil, of course, assumes that we can afford to go on burning it for as long as we can find and pump it. Most economists and financial analysts live in a culture that assumes this. But they are wrong. We can not. The reason is global warming.

If we do nothing about our use of fuels, in particular the burning of oil, gas and coal, global warming is also quite capable of sparking the next depression, as well as adversely affecting ecosystems.

This can happen various ways. One involves the $2,000bn (£1,200bn) insurance industry which, as many of its own practitioners admit, faces bankruptcy in a world continuing to pump billions of tonnes of heat-trapping gases into its thin atmosphere each year.

Massive storms, drought-related wildfires, and floods will become more frequent and hence more likely to hit cities. Just a few big hits on major cities would be enough. The effect on Wall Street's balance sheets would be catastrophic. A global insurance collapse would probably take the capital markets with it. This has been backed up by the world's biggest reinsurance company, Munich Re.

If we want to abate this threat, and the other horrors of global warming, we have to stop burning oil, or more exactly back out of it and the other fossil fuels, and move into hydrogen fuel and other renewable forms of energy such as wind and solar power.

This is the point at which the peak-depletion and global-warming imperatives for the big retreat from oil meet. The core question boils down to this: can we progressively replace oil and the other fossil fuels quickly enough to avoid economic calamity as a result of oil shock, climate shock, or both? Oil provides 40% of world energy and 90% of world transport fuel today.

The more optimistic practitioners in the embryonic clean energy industries, believe our technologies could probably power and fuel the world completely within 10 to 20 years. Given the political will directed at the war against terrorism, this should be very possible.

As the British government's chief scientist, Professor Sir David King said, global warming is the greatest threat we face. We may not be able to plug the gap within four years.

So, if the oil depletion pessimists are correct and the peak of depletion is indeed as soon as 2007, we are in big trouble, whether there is global warming or not. Realisation that growing supplies of cheap oil are no longer available will dawn at some point this decade, the alternatives will not be ready in sufficient volume, and the economic dominoes will begin to fall.

So are the pessimists correct? Before the Shell reserves scandal I considered it unlikely. Certainly there were things to be worried about, especially the deeply suspicious increase of quoted reserves by leading Opec nations in the 1980s soon after an Opec agreement to tie national production quotas to national reserves.

But, in an increasingly transparent corporate environment, I could not believe that the oil companies would stoop to inflating their reserves. I was wrong. Earlier this year, Shell, the Anglo-Dutch giant, admitted to a 20% overstatement of reserves. Then the company downgraded its supplies four more times, admitting overstating reserves by 4.5bn barrels.

At current rates, that is equivalent to two months worth of global oil use. If sober Shell can cause such ignominy, then which other companies are doing the same? While we are asking this question, let us ask another equally pertinent one. How serious have the oil companies been about their own renewable energy and hydrogen programmes to date?

Have they applied anything like the entrepreneurial zeal they have shown for 100 years on the frontiers of the hydrocarbon age? If they have been falsely encouraging the view that peak depletion is distant, while holding back the development of the alternatives, then that would be a crime indeed against society.

Whatever the answer, at $40 a barrel and rising and with profits measured well above $1m per company per hour, windfall taxes on Big Oil would be a great place for finance ministers to start bankrolling a war on oil dependence.

·Jeremy Leggett is chief executive of Solarcentury, the UK's largest independent solar electric company, and a member of the government's Renewables Advisory Board.

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