I am glad that Owen McShane agrees with the Greens that we are not about to run out of oil – he confirms our view that at this stage we are facing only the end of cheap oil.
He then argues that higher prices will encourage more exploration, more efficient cars will allow demand to keep growing, and the market will provide replacement energy sources when the price of oil gets high enough. There is no evidence for these claims, other than market theory.
It is more than a year since oil prices doubled, but what are the oil companies doing? Some exploration continues but little net increase in refining capacity is planned and most of their effort seems to be going into mergers and takeovers. What do they know that they haven’t told us?
More oil fields will, of course, be found. But we will need a lot of large ones to outweigh the declining production from nearly all the existing fields – the ones that were easy to find and cheap to exploit – and to provide for the rapid growth in demand that is occurring and predicted.
High-cost oil is usually high-cost because it takes a great deal of energy to extract and refine it. Deep-ocean wells, tar sands and shale oil are all there, but some of them require the use of nine barrels of oil to drill, mine, process and transport 10 barrels of product. Which is why most of them will stay right where they are.
Higher prices and a growing economy can do nothing about the problem of net energy yield. The input costs will rise as fast as the output value.
While improvements in car efficiency are happening, Mr McShane is wrong in believing that they are improving the efficiency of the fleet. The fuel economy of the average new American passenger vehicle peaked in 1988. With the explosion of four-wheel-drive and light-truck sales, it is now less than it was 10 years ago. Meanwhile, total vehicle kilometres driven have doubled since 1980.
Fuel-efficiency standards for all vehicles entering New Zealand would take 10 years to work their way through the fleet – which is why we shouldn’t delay them any longer.
So we are left with the argument that there are other sources of energy, and the market will provide, albeit at higher prices. To test that assumption you have to address the questions of scale and growth rates.
Oil replaced coal because it was more convenient and cheaper. The “incredibly cheap oil” that Mr McShane refers to has enabled the world’s population to grow from 2 billion to more than 6 billion and the global economy to keep doubling in size.
Unlike whale oil, copper wiring and even coal, oil is the foundation of everything we do: farming, fishing, manufacturing, transport, trade. None of the alternatives Mr McShane thinks the market will provide can do what oil does, and all are much more expensive.
Nuclear power depends on uranium, which is also a finite resource. It produces electricity, which will not run our cars, ships, aircraft or combine harvesters unless we lose even more energy turning it into an expensive portable fuel.
Coal can be turned into oil at a huge price, both to the pocket and the environment. Climate change would be unstoppable if we relied on coal to replace oil, and after it had wrecked the climate irreversibly it would also become scarce. Research on capturing and storing the carbon from burning coal will not produce results before oil is depleted – if, in fact, it ever does.
Solar, wind and biomass are our best hope, as the Greens have been saying for decades, and we should get on with it.
Biomass, however, has to compete for land with food production. Of course, the market will sort that out – fuel for people with cars will be more profitable to grow than food for the poor, who will go without both cars and food.
Whether we can make the transition to a world much less reliant on oil and survive with some kind of civilisation depends on both time and political will. If we really have got 30 years, as the Government thinks, we could plan a reasonable future provided we start right now. But there is no sign that anyone other than the Greens wants to start right now.
If the petroleum geologists such as Collin Campbell, who have spent their lives in the oil exploration industry, and the energy bankers and financial analysts such as Matthew Simmons and all their colleagues in the Association for the Study of Peak Oil are right, we have much less time – probably less than 10 years, maybe less than five.
If we believe them, with all their expertise, and they are wrong, all we lose is the cost of making the changes a few years too soon. If they are right and we ignore them, delay steals our only chance.
Markets are good ways of making choices in a world of few surprises and perfect information. In other circumstances, they need help from governments and policy-makers.
* Jeanette Fitzsimons is the Green Party of New Zealand co-leader.