Peak oil and climate change

Given the multiple lines of evidence demonstrating that humanity is causing the climate to change in potentially dangerous ways, climate change has to be part of medium- to long-term planning for almost everybody, and part of the policy development processes of government. At the same time, there is a plausible case that global production of oil will peak at some point in the relatively near future, with potentially important economic, political, and geopolitical effects.

How will these two phenomena interact? I can think of lots of possibilities. These are not ranked in any way, and are not equally plausible.

1) Worries about peak oil prove premature or overblown. Liquid fuels stay cheap for the foreseable future, causing more climate change than there would have been in a scenario where they became more costly.

2) Natural reserves of petroleum cannot keep pace with rising demand, initially driving liquid fuel prices through the roof. Some combination of biofuels and coal-to-liquids (CTL) technology counteracts that, also worsening climate change. (Coal-to-liquids and fuels like palm oil grown in rainforest have huge climate impact per unit of energy)

3) Peak oil proves serious, and biofuel and CTL alternatives prove very costly. This has potentially large social and economic consequences, but makes climate change mitigation easier. For many people, the world gets a whole lot smaller.

4) Climate change occurs much more quickly than expected, perhaps because of major positive feedbacks like melting permafrost or burning rainforest. Governments sense their increased vulnerability and abandon attempts to cooperate internationally, seeking to make themselves as robust as possible in the face of the chaos ahead.

5) Climate change occurs much more quickly than expected, perhaps because of major positive feedbacks like melting permafrost or burning rainforest. Governments finally get the picture and introduce harsh policies restricting fossil fuel production domestically. Powerful states now profoundly concerned about climate change (the US, EU, China, Japan, etc) force petrostates like Canada and Kuwait to shut down production.

6) Not only does oil production peak, but so does gas and coal production. Dealing with climate change becomes much easier politically, given that there is no longer any real alternatives to switching to renewables and nuclear as principal sources of energy.

7) Peak oil proves serious, but cellulosic and algae-based biofuels finally emerge as commercially viable alternatives.

Personally, I think peak oil is a much less serious problem than climate change. For one thing, it is just the sort of phenomenon that markets deal with relatively automatically – something gets scarce and people find ways to use less, while developing alternatives. For another, it doesn’t include the same dangerous lag times. It is quite possible that we could emit enough to cause catastrophic warming, but only see concrete proof of that decades later. Peak oil, by contrast, seems likely to unfold with fewer surprises. Finally, there aren’t really any positive natural feedbacks that would further constrain the availability of oil, as it began to get scarce (though falling energy return on investment (EROI) is an issue). By contrast, warming is likely to beget more warming as ice vanishes, forests dry out an burn, permafrost and methane clathrates melt, etc.

Surely there are many other possibilities, aside from those listed above. Please post some below, and comment on those listed above. How do the different possible scenarios effect how we ought to be hedging our bets, both climatically and in terms of energy sources?

Author: Milan

In the spring of 2005, I graduated from the University of British Columbia with a degree in International Relations and a general focus in the area of environmental politics. In the fall of 2005, I began reading for an M.Phil in IR at Wadham College, Oxford. Outside school, I am very interested in photography, writing, and the outdoors. I am writing this blog to keep in touch with friends and family around the world, provide a more personal view of graduate student life in Oxford, and pass on some lessons I've learned here.

24 thoughts on “Peak oil and climate change”

  1. Thanks for filling out more of your thoughts on peak oil. As you know, I’m a little more pessimistic about it than you and I suspect that is because the two mitigating factors you mention (lags and feedbacks) are actually present with peak oil.

    Peaking of oil production isn’t simply about geological limitations, but just as crucially, infrastructure limitations. And here is where the lag occurs. Most major oil projects can take a decade or more to bring online. So even if a higher oil price signal sends developers into new projects, these won’t come on stream to affect oil prices for many years. Where the price is volatile (see events in 2008, or any likely future oil price spike), then projects get planned, then canned, increasing the infrastructure lag.

    And it is not just oil infrastructure. Constructing alternative energy regimes is not something that can happen overnight. The 2005 Hirsch Report warned that even the most aggressive mitigation efforts would likely take about 20 years (and this is just for the US), meaning that waiting for a price signal from the onset of peak oil would leave a two decade liquid shortfall. Depending on the severity of the post-peak decline, this could be damaging through to catastrophic for the global economy.

    And as for feedbacks, have you heard about the export land model? Wiki summarises it like this: “As world oil exports approach (or pass) a global peak, the price of exported oil increases and further stimulates domestic economic growth and oil consumption in Export-Land countries, creating a positive feedback process between declining exports and higher prices. Eventually, however, the level of export decline outpaces the increasing oil price, slowing domestic growth. In some cases, an Export Land eventually becomes a net importer. It is unlikely that an Export Land would constrain domestic consumption to help importing countries. In fact, many oil exporting countries subsidize domestic consumption below price levels defined by the world market.”

    As you point out, peak oil is only made more complex by climate change, since some of the most obvious low hanging fruit the market would reach for in an oil crisis are not good news for the climate. Some peak oil analysts claim that there is simply not enough fossil fuels in the ground to worry about the worst case IPCC scenarios. Yet even if that is true, it still leaves some horrible outcomes on the table unless you lowball climate sensitivity. And as you well know, there is plenty of coal to mess things up pretty thoroughly.

  2. I wonder how important the Athabasca oil sands are to all of this.

    People say they contain another Saudi Arabia worth of oil, though it is obviously a lot more difficult and energy-intensive to produce. That said, if greenhouse gas emissions remain unconstrained and natural gas remains cheap and available, perhaps they could substantially offset declining production elsewhere.

    Nuclear reactors producing steam to upgrade bitumen could also change the economics of oil sands production.

  3. In fact, many oil exporting countries subsidize domestic consumption below price levels defined by the world market.

    This is certainly true. States in the Middle East tend to have absurdly low domestic hydrocarbon prices and, as a consequence, some of them are burned in very inefficient ways.

  4. Yes, and the inefficiency of the current practices is multiplied by the fact that some of these inefficiencies are built into the infrastructure as massive sunk costs that assume ongoing access to cheap oil.

  5. Almost the only country I know that seems to have generally handled its oil discoveries well is Norway, which has used the profits from its nationalised industry in the North Sea to set up a huge future fund to bankroll the development of renewables (amongst other things). Now that is smart thinking.

  6. Isn’t the issue here the interaction of these two important phenomena, you explore some of the possibilities in your scenarios, and I agree that the overall problem is climate change, but the key point is that peak oil has the potential to influence how climate change is dealt with.

    I remember a presentation by Thomas Homer Dixon among others at an Ottawa writers festival event on the book he edited “Carbon Shift: How the Twin Crises of Oil Depletion and Climate Change Will Define the Future”, and that was my key takeway, that the important thing is the interaction and combination of the two that presented the biggest challenges.

    In the end I suppose I agree mostly with what you wrote, particularly that we can’t necessarily expect high oil prices due to peak oil to put enough pressure on governments to respond to climate change.

    One question, has there been much thinking about the impact of renewables on the price of oil? It’s possible, that if they reduce demand for oil, they will lower it’s price and extend the production and use of oil.

  7. Oil and renewables are generally used in different spheres – oil for transport fuels and renewables for electricity.

    That may change somewhat if electric vehicles become common.

  8. One question, has there been much thinking about the impact of renewables on the price of oil? It’s possible, that if they reduce demand for oil, they will lower it’s price and extend the production and use of oil.

    There are a lot of overlapping dynamics here. In the medium- to long-term, the emergence of renewables might decrease fossil fuel prices, by reducing demand. That being said, major increases in the use of renewables probably depend on either the creation of a strong carbon price, or the regulation of greenhouse gas emissions by other means. Those things could icnrease the price of fossil fuels.

    Certainly, a scenario in which decreased demand makes fossil fuels even cheaper is a potentially challenging one, from a climate change perspective.

  9. If the numbers being thrown around by fairly conservative organisations are in the right ball park, I seriously doubt that even the most aggressive roll out of renewables is going to cover the liquids shortfall in the next few decades. Or if they do, it is going to be touch and go. I don’t think we’re going to see the real price of oil dropping to a consistently low level (unless there is a seriously major and sustained economic depression, which is not outside the realms of possibility, in which case the nominal price of oil may be low, but the real price is still likely to be high due to deflation).

  10. With so many variables (economic growth, climate and energy policies, oil depletion rates, renewable deployment rates, unexpected impacts from climate change), I think it is impossible to make a single credible prediction.

    The best approach is probably to develop resilience, in the face of a wide range of possible future situations.

  11. Yes, I agree with that, though with the proviso that imagining various scenarios that are within the realms of possibility helps us to understand what resilience might mean.

  12. It’s impossible to make a credible prediction because the data is not politically neutral. Given appropriate action to shut down extractive industry, peak oil could arrive much sooner than it would if it remains politically possible to extract tar sands oil and coal-to-oil. Such action is not outside the political mainstream – Al Gore has already called for actions which would likely be labelled as terrorism to stop the construction of new coal fired power plants.(

  13. Big picture uncertainty
    March 4, 2008

    “Climate change policy focuses on constant attempts to make guesses about the future: about economic development in rich states and poor, about patterns of technological evolution, about climatic responses to radiative forcing caused by changes in the gas mixture of the atmosphere. One cannot always evade the feeling that too many uncertainties are being layered. Consider, for instance, the possibility that hydrocarbon fuels will peak in world output within the next few decades. If that happened, most of our ‘business as usual’ economic projections would be badly wrong…”

  14. My worry is that leaving the development of alternatives till the crisis hits of climate change, or oil extraction not meeting demand, then where will the surplus energy come from to make the wind turbines and PV arrays that we will be dependent on to power the electrified world that could replace a major part of our transport system, it is just possible! but not likely. People would still waste the energy on personal transport like SUV’s and consider it there right.

    We saw what happened to the world in 2007 and 2008 when oil prices were high, which was it? the housing marked or oil that crashed the financial markets, it still resulted in the same thing no banks had the money to loan out, it makes me think the only countries that can survive would be the ones that can use draconian methods, we in New Zealand have politicians that follow the easy road, to do any thing else gets them kicked out at the next election so nothing gets done, and when you have skeptics always with the ear of the people then people power can work against common sense. We should have a higher price on oil to make alternatives better able to compete but try bringing that in with a population obsessed with the car.

    Just been checking the resent research from the East Siberian Sea and the methane that’s escaping from 2 million square kilometers of seafloor in the Arctic Ocean lets hope we haven’t left it to late.

    After feeling I’ve been banging my head against the wall for the last 30 to 40 years, lets hope your generation has more sense than mine.

  15. “In part this is because oil is getting harder to find, for geological and political reasons. Global oil production will peak within a few decades, if not before. And the remaining “easy oil”—which can be extracted without fuss or expense—is increasingly out of bounds for Western firms. Almost 90% of it is in the hands of national oil companies which have, with few exceptions, blocked Western giants from their riches. This is forcing Big Oil into trickier and pricier areas, notably deepwater fields, such as those in the Gulf of Mexico and off Africa’s west coast, and unconventional reserves, such as Canada’s tar sands. Hence the appeal of gas, and a string of deals in Australia and America.”

  16. Global oil supplies will come close to a peak by 2035 when oil prices will exceed US$200 a barrel, the International Energy Agency said on Tuesday, as China and other emerging economies drive demand higher.

    The IEA, in its 2010 World Energy Outlook, said it expected conventional crude oil output to flatten out in the next 10 years.

    “Production in total does not peak before 2035, though it comes close to doing so,” the Paris-based IEA said in the executive summary of the report. That projection was according to the central scenario of the report.

    The agency, which advises 28 industrialised countries, also raised its mid- and long-term oil price forecasts, despite slashing oil demand estimates by 2035, citing growing supply uncertainty.

    Oil prices would rise even further if governments did not act to curb consumption, the IEA’s chief economist and lead author of the report, Fatih Birol, told Reuters in an interview.

    “The message is clear, the price will go up, especially if consuming countries do not make changes in the way they consume oil, especially in the transport sector,” Mr. Birol said.

  17. There is enough oil in the ground to deep-fry the lot of us, and no obvious means to prevail upon governments and industry to leave it in the ground. Twenty years of efforts to prevent climate breakdown through moral persuasion have failed, with the collapse of the multilateral process at Rio de Janeiro last month. The world’s most powerful nation is again becoming an oil state, and if the political transformation of its northern neighbour is anything to go by, the results will not be pretty.

  18. In 1999 North Dakota’s rig-count stood at zero after small pockets of conventional oil had run out. Now the Bakken oilfield is pumping out more than 550,000 b/d of shale oil, and Williston, the town at the centre of the field, is booming. It used to take five minutes to cross town; now the weight of oil traffic means it takes 20, according to one resident of this remote corner of a thinly populated state. At Walmart, crowds of shoppers have pressed all the trolleys into service; and its vast car park, like many other similar sites in town, provides a temporary home for fleets of camper vans housing workers flooding to the region’s oilfields. New homes, hotels and “man camps”—row upon row of workers’ huts—are springing up all around.

    This year shale oil should contribute some 720,000 b/d to America’s total production. And shale-oil deposits in Texas, Ohio, Nebraska, Colorado and Kansas could eventually contribute as much as 5m b/d, according to the most optimistic forecasts. The Bakken field may well hold more than people think, and Ohio’s Utica shale has barely been tapped.

    America is the world’s third-largest oil producer. The deep waters of the Gulf of Mexico could yield substantially more oil (perhaps 1m-2m b/d on top of the 1.3m b/d currently produced). America has plenty of other places where it might look if unfettered drilling were allowed, such as the east and west coasts and restricted parts of the Gulf of Mexico. Oil production in Alaska could also be expanded. America now imports 9m b/d; by “going back onshore” and exploiting all its options, optimists think it could produce 7m more b/d in a decade or so. Daily net imports of crude oil this year are the lowest since 1995, and will probably keep falling in the coming years (see chart 3).

    Not so long ago, terminals were still being built in America to import liquefied natural gas (LNG). Now the country is enjoying a bonanza of domestic gas. Americans pay less than $3 for 1m British thermal units, where Europeans and Asians often pay more than $10. Accordingly, America is now planning to send the stuff abroad. Michael Levi of the Council on Foreign Relations thinks that exports of 60 billion cubic metres a year would yield revenue of $20 billion, though higher imports of other goods would offset the benefit to the trade balance.

  19. In U.S. energy renaissance, flares of fear for Alberta’s oil patch – The Globe and Mail

    Oil is pouring out of North Dakota. In September, some 728,000 barrels a day flowed, up a startling 57 per cent from the year before. And it’s not just here: Similar fields in Texas and elsewhere are seeing similarly fast rises in oil output, prompting a near-euphoric re-examination of what’s ahead for a country that has long relied heavily on imported oil to fill its gas tanks and keep its economic engine running.

    a belief in unfettered access to an insatiably oil-hungry U.S. market has been a central underlying assumption of the great energy expansion under way in Alberta.

    The greatest vulnerability, he said, lies in the northeastern corner of Alberta, the Fort McMurray area that not long ago looked a lot like North Dakota, a nascent boom town that stoked – and continues to stoke – great economic hopes for Canada. But, Mr. Monaco warned, “if you’re in the oil sands and you are the marginal production because you’re the highest cost, this is a big factor. These are big issues.” He is not, however, worried. Enbridge believes it can be the solution by building new pipelines to bring Canadian oil to new markets, both abroad and in U.S. states not served by current pipelines. But it’s hard to find a new pipeline proposal – to the West Coast, to the Gulf Coast, to the East Coast – that is not wrangling with severe political and social skepticism.

    And if opponents succeed in stopping or slowing those projects, the outlook is grim: Prices for Canadian oil “will get pushed down to the point that production stops growing,” says Chris Micsak, an oil analyst with Bentek, an international energy forecasting and analysis firm.

  20. And then there is oil. Roughly two-thirds of oil consumption in America is on the roads, and a fair amount of the rest uses up the by-products of refining crude oil to make petrol and diesel. The oil industry is divided about when to expect peak demand; Royal Dutch Shell says that it could be little more than a decade away. The prospect will weigh on prices long before then. Because nobody wants to be left with useless oil in the ground, there will be a dearth of new investment, especially in new, high-cost areas such as the Arctic. By contrast, producers such as Saudi Arabia, with vast reserves that can be tapped cheaply, will be under pressure to get pumping before it is too late: the Middle East will still matter, but a lot less than it did. Although there will still be a market for natural gas, which will help generate power for all those electric cars, volatile oil prices will strain countries that depend on hydrocarbon revenues to fill the national coffers. When volumes fall, the adjustment will be fraught, particularly where the struggle for power has long been about controlling oil wealth. In countries such as Angola and Nigeria where oil has often been a curse, the diffusion of economic clout may bring immense benefits.

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