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Why oil at $200 a barrel is good for the climate

August 11, 2010

This is an extended version of an article that appeared in the Guardian, and is reposted here.

Could peak oil lever politicians out from between the rock of the electorate and the hard place that is climate change mitigation? As Daniel Gros wrote in the Guardian: “the climate-change bill, for which President Barack Obama had pushed so hard, will not even be presented to the US Senate, because it stands no chance of passage”. His analysis ends with a fatalistic statement:

“Determined action at the global level will become possible only when climate change is no longer some scientific prediction, but a reality that people feel … A world incapable of preventing climate change will have to live with it.”

Isn’t that the trouble? Climate change is a stealthy foe, hard to feel, see or identify. Unlike peak oil. So here’s another question: did western administrations know that the International Energy Agency (IEA) had been consistently concealing the imminence of peak oil? One might hope our leaders would know about something as serious as this. But if they did, why is it that renewable energy replacements haven’t been far higher on the agenda, for much longer and addressed with rather more conviction? This is the question George Monbiot put in a freedom of information request sent to the Department for Business in February 2008, asking for details of the government’s peak oil contingency planning. 

“The answer I received astonished me,” he wrote in the Guardian. Hardly surprising, considering what that answer was:

“The government does not feel the need to hold contingency plans specifically for the eventuality of crude oil supplies peaking between now and 2020.”

Eighteen months later, the Guardian published the IEA whistleblower story and the 2020 cover was blown. Were the government really taken in by the duplicity of the IEA? Or were they in on the act, making it difficult to appear sanguine about an imminent and permanent disruption to energy supplies? 

Outside of the fossil fuel industry, it is hard to know to what extent commerce is aware of the impending crisis or the speed at which it would envelop us. Either way, industries appear to have woken up with a start, at least if the white paper, Sustainable energy security: strategic risks and opportunities for business, is a guide. Produced by Lloyd’s of London and Chatham House, their assessment is sobering. They identify opportunities for the quick witted, as well as risks to the somnambulant. One statement by professor Paul Stevens in particular caught my eye:

“A supply crunch appears likely around 2013 … given recent price experience, a spike in excess of $200 per barrel is not infeasible”. 

What effect would a barrel price of $200 have on industrial economies, should that spike be sustained for any length of time? We would witness endemic global market disruption, reductions in agricultural yield, increased transport costs for both finished goods and raw materials (true pessimists would add an oil war or two for good measure). The shockwaves would be felt everywhere, although as ever, the poor will take the brunt of it.

And yet when the price of oil shoots up, we use less – meaning we output less CO2. So let me rephrase my question: what effect would a barrel price of $200 have on the CO2 output of nations? It would certainly force a substantial reduction. It would be violent change, but that is the price of hubris. The longer we wait, the greater the cost when we finally act, when everything is rushed because the public furore can no longer be ignored. Remember the fuel protests? The UK ground to a halt in a matter of days at the behest of a few thousand protestors. Scale that up by an order of magnitude and you can see what a $200-an-oil-barrel world might look like, at least until we got used to it – adaptation by any other name, of course.

Since peak oil will happen far sooner than any of the more serious impacts of climate change, we should abandon attempts to stop fossil fuel use because of climate change and concentrate on reducing fuel use, controlling energy prices and keeping national economies reasonably stable. That’s a sell the public will buy into: the price of petrol or heating oil, the security of their jobs, the scarcity of resources – these are things the public can feel and see, and that contrarians cannot obfuscate out of ideological opposition.

Peak oil is inevitable. Something has to give, and it’s consumerism. Governments know this perfectly well. What they really need is some externality, something abstract they can blame – deflecting the public wrath from the ballot box. Western governments need a villain. Oil at $200 a barrel fits the bill perfectly.

*************************

So perhaps democratic governments may secretly welcome peak oil, hoping it’s going to solve a big problem for them, and deflect hostility that might otherwise lose elections.

The big problem is how to reduce CO2. Obviously, any drastic tax instruments will be onerous as ever. Worst still, all climate change mitigation will be perceived as an assault on our standard of living, and no government could survive the wrath of an electorate convinced they have been robbed of what is rightfully theirs. So it is that democratic leaders – Obama in particular – find themselves leaders in name only, without power to effect great change, even when that change is desperately needed.

To compound their troubles, centrist and conservative governments are coming under pressure from the political right. It was always going to be the case that when climate change started to threaten profits, industry would desert their ideological opposition to mitigation: follow the money, right? If the board officers cannot bring themselves to accept the realities, those who wield the greater influence are going to make themselves heard, and already are. Institutional investors like pension funds have long-term interests, and climate change threatens those interests in far too many ways. As does peak oil. The political right is waking up: they may not like the manifest  leverage of scientific discovery, the big government/tax implications, the way climate change makes national borders and sovereignty redundant, nor the ideological implications of trans-national mitigation efforts. But they dislike losing money much, much more.

In 2009 there were a number of high-level resignations from the US Chamber of Commerce, with Apple and Nike among them. The reason? The chamber’s ‘obstructionist’ attitude to climate change legislation – Obama’s legislation. The Confederation of British Industries, the UK industry lobby group, sports a comprehensive environmental website linked off the front page of their main site, and nowhere is the theory of anthropogenic climate change disputed for a moment. Insurance companies are convinced: the Lloyd’s of London/Chatham House call to arms  white paper Sustainable Energy Security: Strategic risks and opportunities for business, demanded clear and consistent legislative agendas, funding and, implicitly, leadership from government, so that industry and commerce can plan, survive and even prosper.

But things change: consider business planning. In 1980, five year plans were commonplace in small and medium sized businesses – longer for large enterprises. Yet as the temperature of the earth started rising rapidly, so did the speed of change, driven by computers and the telecoms revolution they catalysed – a change that affected the consumers as much as the manufacturers. For business, investment and economic strategists, the entire global trade paradigm has become so volatile, it might appear comical to draft a plan that encompasses more than a year or two.

Except if you are an institutional investor like a pension fund. Or a government contemplating energy supplies, infrastructure and investment, now the cat is out of the IEA bag. Peak oil is nearly on us, and the developed countries are hopelessly unprepared. Strange then to think our lack of preparedness may yet save the government of the day from a nearly intractable problem: how to mitigate climate change effectively without losing the next election.

There is a conflict between electoral cycles and long term business planning. Where commerce wants some kind of predictability, some assurance about energy and infrastructure development would be welcome. Commercial investment is risky enough without having to weather turbulent volte-face politics shaped by focus groups and partisan media while the oil is running out and the planet warming up.

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7 Comments leave one →
  1. The King In Yellow permalink
    August 4, 2010 3:57 pm

    An interesting idea (somewhat ironic given the google ad: “Oil Trading Commodities”) but peak oil will probably be the turning point when industry and consumer alike realise the cheap energy is over.

    This fits in with the studies by the USMC that warn about peak oil, as they are extremely reliant on oil for their military operations.

    All the best.

  2. August 5, 2010 2:09 am

    Excellent piece Graham (I’ve tweeted it)
    It is a compelling case and I totally agree with you – the longer we try to keep our head in the sand, the more expensive and disruptive the eventual (and very necessary) change will be.
    It seems so mindless that the bulk of ecological services and natural resources reserves are ignored; something that can only be titled as the arrogance of our recent prosperity.
    Like a rabbit dazzled by the headlights, we seem stupefied by what we have and the system that we’ve built as impending change drives towards us.

  3. Graham Wayne permalink*
    August 5, 2010 7:21 am

    Cheers chaps…(can’t think of anything else to say – and that’s a first!)

  4. August 9, 2010 4:55 pm

    Professor Paul Stevens speaks of a “spike” above US$200/barrel, and you then ask “What effect would a sustained barrel price of $200 have on industrial economies?”

    A spike isn’t sustained. And if the spike is caused by long-term supply and demand, then it ends when there has been enough demand destruction through damage to the global economy. At that point, all governments are looking at political survival and the long term issue of climate change takes a back seat. Anything that can be thrown at the energy problem will be, including tar sands, shale oil, biofuels and a host of other carbon intensive options. Peak oil may rule out some of the worse IPCC emissions scenarios though limiting the long term growth of the global economy, but it may well still stimulate enough fossil fuel burning to make peak-oil-as-climate-saviour a major disappointment.

  5. August 9, 2010 4:57 pm

    PS You’re right to be wondering exactly what governments have been thinking behind closed doors about peak oil, though I do think that “relatively little” may sum it up.

  6. Graham Wayne permalink*
    August 11, 2010 3:44 pm

    Better late than never then – I wrote that badly Byron, so in the version that appeared in the Guardian I qualified that. Thanks for the helpful criticism.

    And you could be right in your latter point – it looks like a race to see if we hit the buffers of peak oil full speed, or slow down a bit first.

  7. August 11, 2010 4:03 pm

    Yeah. *Sigh*

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