There are fundamental flaws in the argument of economists that markets will always solve resource problems, writes Emeritus Prof Ian Lowe. Peak oil is not a theory, but a sober reflection of the geological reality that oil is limited.
Peak oil is a delusion, John Parker recently assured us, so there is nothing to worry about (ODT, 13.3.08).
As an economist, he is confident that the market will solve any problem. Increasing prices will reduce demand and stimulate production of alternatives.
This thinking led a wit to observe that a busload of economists wouldn't worry if they went over a cliff. They would know their demand for parachutes would generate a supply.
The theory of peak oil was developed in 1956 by a United States geologist. He noticed that the graph of oil production was similar to the graph of discoveries, shifted by about 20 years.
It takes time after a discovery to explore the resource, raise finance and start extraction, so production reflects discoveries with a time lag.
M.K. Hubbert predicted that US oil production would peak in the early 1970s. Industry experts laughed but production did peak in 1971. US oil imports grew, changing the balance between producers and consumers.
The Organisation of Petroleum Exporting Countries increased prices and began the 1970s oil crisis. The world price jumped from $US2 a barrel in 1972 to $US30 in 1979.
With Mr Hubbert's theory verified by the US example, analysts turned to the global picture. By 1977, the consensus was that world production would peak some time between 2000 and 2020.
I gave public lectures and published articles, urging leaders to start planning for the inevitable future of scarcer and more expensive transport fuels.
When higher prices led to oil production from offshore basins, economists concluded that markets will always solve resource problems. There are three fundamental flaws in this argument.
The first is that higher fuel prices will have relatively little impact on demand in the short term.
The second is that no level of willingness to pay will produce oil if it doesn't exist. The third is that it will take decades to develop alternative fuels.
In terms of demand, the 1990s' Gulf War caused pump prices in Australia to increase 75%, but sales only fell 4%. The reason is that most people have little flexibility. Unless we are lucky and have good public transport or a safe cycling route, we drive from where we live to where we work, whether fuel costs 50c or $2 a litre.
Our shopping centres, our children's schools and our places for recreation don't move in response to higher prices. We grit our teeth, complain about the increasing price and pay it.
Higher prices make it feasible to exploit less accessible oil resources, like those under the seabed. So economists believe increasing prices will always provide new resources.
But no price will produce oil where it doesn't exist, just as no level of willingness to pay will bring back the moa. Peak oil is not a theory, but a sober reflection of the geological reality that oil is limited.
There are many alternatives to power vehicles. Global warming has ruled out some, such as oil from shales and tar sands. The most promising options are hydrogen fuel cells or electric motors. These would give cleaner air and better community health.
The electricity or hydrogen must come from renewable sources like wind, solar or geothermal energy, or the impact on the global climate will be unacceptable. If we do use renewable energy, it will take a long time to gear up the new system and fuel costs will be much higher.
Some experts think world oil production has already peaked, while optimists think the peak might be as far away as 2015. Production can't possibly be increased to meet rising demand.
Even if new transport fuels can be developed, they will inevitably be more expensive. So rather than pouring public funds into dinosaur road schemes we should be investing in public transport to keep our cities viable, as well as producing lighter and more efficient vehicles.
Most importantly, urban planning should be asking the question: what sort of cities will be viable when the effective price of transport fuels is $10 a litre?
The problems of peak oil and climate change raise a more fundamental question. The level of human consumption is depleting important resources and causing environmental problems.
We should develop a vision of a sustainable future, moving beyond the delusion that endless growth is possible.
New Zealand still has natural assets that are the envy of the world and the source of the tourist industry.
I hope this debate will stimulate New Zealanders to realise they can model a future pattern of sustainable development, based on a stable population living in balance with the natural resources.
That would set an example to the rest of the world - including Australia.
- Ian Lowe is emeritus professor of science, technology and society at Griffith University in Brisbane, and president of the Australian Conservation Foundation. He wrote this contribution while preparing to tramp the Heaphy Track.
