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Running on empty ? The peak oil debate
Posted by Big Gav on September 2, 2010 - 7:39am in The Oil Drum: Australia/New Zealand
The Australia Institute has released a paper - Running on empty ? The peak oil debate (pdf) - looking at peak oil and suggesting the best way of spurring early adaptation is to adopt a carbon tax, thus encouraging faster uptake of renewables and energy efficiency measures.
From the introduction :
Like climate change, the possibility of peak oil poses an uncomfortable challenge to citizens and governments alike in the 21st century. 'Peak oil' is the term first used by M K Hubbert in the 1950s to describe the point in time at which the worldwide production of crude oil extraction will be maximised. But while it is inevitable that production will peak at some point, it is uncertain when that point will be reached.
Peak oil concerns exploded during the rapid escalation of oil prices prior to the 2007 global financial crisis (GFC), and resurfaced recently when oil prices appeared to resume their upward trend. These concerns have been underscored by official bodies such as the International Energy Agency (IEA) warning of a possible 'supply crunch' brought about by a lack of new investment following the GFC.
The paper suggests that a carbon tax rather than a trading system is the optimal method for pricing carbon, but ultimately the method is not as important as the existence of a price that is relatively uniform across countries and is sufficiently high to materially affect production and consumption decisions, particularly the decision as to whether or not to pursue the development of emission-intensive alternatives to oil. In the medium term, the circumstances created by a price on carbon will likely expand the use of natural gas, both for power generation and transport; in the long term, it is likely to expand the role of electric vehicles and non-fossil forms of power generation.
As with climate change, the most cost-effective response to the inevitable but uncertain timing of peak oil is to invest in early adaptation. It will be impossible to redesign cities, switch the vehicle fleet to new forms of fuel and transform the location decisions of producers in a timely manner after the oil supply has peaked. Early investment in adaptation measures will pay high dividends in the future, whether in response to peak oil, climate change or simply better city design and reduced congestion on roads.
The paper concludes by suggesting that the peak-oil issue is sufficiently important for regular official re-assessments of the situation to be designed and implemented. If mitigation actions are not planned in advance, the alternative may be for a future where periodic price spikes and shortages affect the nation's ability to manage the economic cycle by causing the re-emergence of 'stop-start' economic conditions such as those experienced in the 1970s.
Crikey has some commentary on the paper - The dirty topic of peak oil: get ready to reduce your reliance.
Wouldn’t it be funny if we spent so long arguing about what to do about climate change that we ran out of cheap oil first? No, it wouldn’t really, it would be catastrophic.
But given the government’s delay in producing an Energy White Paper and the steady backsliding on the need to actually reduce our greenhouse gas emissions in Australia, it is not beyond the realms of possibility. Even the usually optimistic International Energy Agency (IEA) is starting to sound a little nervous.
No one can say with certainty how much oil is left in the ground nor how much it will cost to take it out. As with climate change, the search for certainty in relation to oil supply is a fool’s errand. But while no-one can say with certainty how much is left, virtually no economists or oil industry analysts disagree with the statement that oil production cannot keep growing forever. The notion that oil production must one day peak is now referred to as ‘peak oil’.
While there is virtually no debate that oil production must one day peak, there is much debate about the timing and significance of such a peak. For those who have become accustomed to talking about emission reduction targets for 2020 and 2050 it may come as some surprise to learn that the mid-range forecasts for the peak in global oil production are 10-15 years. This does not mean that there will be no oil in 10 or 15 years time, but it means oil is going to get a LOT more expensive. Put simply, if demand continues to rise and supply starts to fall the days of the average Australian driving their Landcruiser to work will be over.
Cross-posted from Peak Energy.
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We have effectively had a carbon tax on petrol for many years called excise currenlty about $0.56 AUD per litre. It is usually the first thing attacked when petrol prices get the electorate a bit jumpy and John Howard succumbed to this pressure by dropping indexation of the excise rate in 2002 (I think). Excise needs to be reframed as the carbon and peak oil tax on petroleum with a differentiated regime (from electricity) that accounts for both climate change and 'weaning ourselves off it' reasons. This could include long telegraphed increases in the excise rate that give consumers and suppliers time to make rational decisions on long time purchases such as cars and houses. Aviation fuel also needs to be brought into the tax regime a soon as possible.
Putting a carbon tax on electricty however requires a different approach as this is a multi fuel powered grid. It needs to be taxed at source rather than at point of consumption based purely on the GHG content released, not the electricity produced. At the same time, consumers need to be able to make a choice to buy certified green electricity that is tax free, thereby driving the investment in renewables.
In terms of affecting behaviour, the essential thing about a tax or subsidy is that it changes. If it stays the same for years, people adjust, and the behaviour stops changing. If the tax or subsidy rises or falls, the behaviour changes in response.
For example, the GST caused a drop in consumption of goods and services, but a year later consumption was on its way back again. If it went up by 1-5% each year, consumption would continue to drop; if it dropped by 1-5% a year, consumption would rise faster.
Likewise, a carbon tax, or fuel excise, or whatever. When it's first brought in, consumption of that fuel or carbon-emitting thing will drop; then people will adjust to the new prices, and consumption will continue to rise.
To get consumption of carbon-emitting things to keep dropping, we'd have to keep increasing the carbon tax. It seems unlikely governments, which rely on public support to continue in government (especially in times of hung parliaments), will consistently raise taxes... including a carbon tax.
As well, when taxes are high, people evade them. For example, there's a strong trade in chop chop, untaxed unregulated tobacco. We can expect that if we put on a large carbon tax, we'd get the same thing with fossil fuels, timber and so on.
On the other hand, a carbon market seems less than ideal. We didn't eliminate slavery by setting up slave markets. But reducing carbon permits each year seems to be more politically palatable than increasing carbon taxes every year. However, you'd still get the illegal trading of carbon-intensive goods as we do with tobacco. But then, when you set up an ETS, all the lobby groups pop up to ensure they get handouts. And then the government wants to shield consumers from the price increase, which if they succeed means the consumer has no incentive to change behaviour...
I hate to agree with Bob Katter on anything, but he's quite right that since free trade destroyed Australian manufacturing and is slowly destroying Australian agriculture, a carbon tax or trade with continued free trade would destroy our remaining export industry of mining - which is mostly coal, iron and aluminium, all very carbon-intensive industries. We have to produce something. So if we want a carbon tax or trade, we had best do away with free trade, either by erecting tariff barriers, or by heavy subsidies to renewables, agriculture, etc.
It's a difficult issue.
I think that you demonstrate why calling it a "carbon" tax is fraught. Putting a blanket, one size fits all carbon tax across the economy won't achieve much as people will adapt to the small extent of the tax and get on with it, grumbling all the way to the next poll. Thats why I think we need a differential response across sectors and markets that address all the issues associated with using depleting fossil fuels.
The transport sector will need a different plan to the electricity sector simply becasue of the rising import bill of oil into Australia and the long term vulnerabilities that arise from that. The electricity secotr is in a completly different situation as we have stacks of good quality coal which is economically advanatageous but has a large carbon cost attached to it. The aluminium and cement industries have different issues again, not the least of which is the export trade issue.
Difficult issues indeed.
I think fuel tax cuts are more likely than increases. Conservatives have a deep seated belief that setbacks like Peak Oil are temporary after which it will be onwards ever onwards. Hence no need to spoil things.
I'd question the AI's conclusion that a carbon tax is superior to emissions trading. I think we can confidently predict that dodgy carbon credits under the ETS will become dodgy deductions under a carbon tax. Plus the usual exempt groups. The carbon tax rate is also likely to be pathetic, nothing like the $23 per tonne of CO2 the Greens want and have already dropped from their deal with Gillard.
A strange result I've found playing with the numbers is that a carbon tax won't necessarily favour EVs over petrol guzzlers. Assuming EVs are charged with coal fired electricity it appears the more efficient drive train is in inverse ratio to the higher energy density of petrol compared to coal. The Greens would carbon tax petrol about 6c per litre and black coal fired electricity 2-3c a kilowatt hour. Under the current energy mix all motorised mobility would then get more expensive.
I think the problem is, the more decoupled a 'solution' is, the worse it actually works.
ETS can actually go backwards, as it shuffles paper, and can easily defer action.
Once you cross borders, the rort-risk multiplies, and any public goodwill evaporates.
'Carbon tax' can mean many things, but what works best internationally, is a closely coupled small-loop system, NOT blanket reflex taxes.
Small-loop systems are quantifiable, have reduced rort-exposure, and much better good-will.
It is important to target BOTH, as Oil exposure may well bite ahead of emissions.
For example, you add an excise on Fuel, and THEN apply that revenue, to accelerate the fleet move to lower emissions / Lower Oil exposure, via incentives & price breaks.
Also, you add a tariff to Electricity, and apply that revenue, to give better feed-in tariff's for renewables, and power savings.
Notice both these do NOT cross borders, and they target the most mobile customers : Those early adopters that can actually make a difference.
The 'keep it simple', is vital, and gives an auditable change for the money spent.
Politicians are one of the more dangerous groups to give the decision power to, as they love new taxes, and are proven inept at the details.
This is why it is very important to ensure any 'Climate Change' action, ALSO moves in the right direction to lower Oil dependence.
Also note, that any finite oil scenario, will prove very effective at Lowering Emissions - so again, making it important not to get distracted.
Blanket taxes, and shuffling paper trading systems, need extreme caution, as they risk being the illusion of action responses, that are worse than useless.
They vacuum money that could have been spent on real Oil mitigation, and so delay a solution.
Worse, companies buy-in, pass-on-the-price, and then simply sit back: Real action is not needed, as 'we already gave' kicks in.
In Australia, the move to Dual Fuel should be given priority, as should fleet moves to lowest-practical-emissions choices.
This mitigates Oil use, reduces emissions, and buys valuable time to further reduce fleet emissions.
Go carbon tax!!
( and then again, maybe not.)
The advantages of a carbon tax.
1.It is simple.
2.The taxman has more teeth than a two headed great white.
(Ask Hoags)
Don't believe me? Go on, have a go ya mug.
3. No bureaucrats are involved to interpret obtuse and subtle regulations with holes designed to drive a bus through. (Carbon trading)
4 If we grovel in front of the taxman, perhaps he might subtract a portion of the tax he gets from carbon from GST and income tax. (I know, I know . Humour an old man's fantasies. I get so few these days.)
In which case Muggins down the street will pay my taxes for me, just as he does with his gambling and smoking and beer drinking.
(Strewth. I must get out more often).
On the other hand If you tax oil in a sophisticated systems model You will see that the feedback is negative into population. The present feedback loop without tax is also negative.
Now I happen to know from instrumentation that this is going to make the system unstable. It will oscillate wildly and surprisingly.
So what is to be done?
Time to really think. Scrap your ego based assumptions, stretch your imagination and go here and here..
"When all probable solutions fail, you are left with the improbable"
You can quote me.
I'm not sure you were entirely serious, but re
There WILL be plenty bureaucrats involved, as the Taxman has no means to calculate Carbon.
The TaxMan is configured purely as a revenue based collector, you report income, he clips the ticket.
Now, you CAN add excise duties on fuel, and power, very much like is done now.
- but that is not actually Taxing ALL Carbon at, all - just the easy to get at flows.
It is also CRITICAL, that this revenue does not flow into General Tax Coffers,
it needs to be ring-fenced, so it IS used for Oil/emissions mitigation, and in an auditable way.
Price is such a poor consumption driver that last detail is VERY important, yet one the politicians are keen to overlook or 'get to that later'.
Actually I think it can be rort proof. It needs to be done at the well or pit head, or on import according to a rate calculated by the CSIRO per type of oil, coal or gas, but based on a uniform price for average CO2 emissions for the type of oil, coal or gas. Any problems with the type result in a default highest taxed category. Collection will be cheap and certain. Contraband coal, oil and gas? Unlikely - leakage will be tiny.
Problem is, what you have described, would tax exports, and it misses any replacement plans.
So it is simply huge revenue churn, that does not REDUCE emissions at all.
Simple example: China orders twice as much coal?; The company supplying gets a little less, because the Government has applied an adder, and emissions double.
Not only that, but local goods have gone up in price too, for no effect.
If you REALLY want to lower emissions, you focus on building alternatives, not reflex taxes. Blanket taxes simply fail to deliver a result, but they give Politician some great sound bites, and illusion of action fluff.
Altering the price will impact volumes, everything else remaining equal. I am not in favour of governments picking winners - I am in favour of transitioning taxes away from income to "bads". So a simultaneous dollar for dollar reduction in income taxes would allow people to have a real choice because it would effectively capture externalities associated with FF currently unpriced, thereby levelling the playing field with FF. I am also in favour of taxing exports - I do not want to sell our natural gas - we need it; and LNG is deeply unsustainable. I do not want to sell our coal because it must stay in the ground (Climate Change). Resource based forex value of the Aussie dollar has destroyed our manufacturing industry. I think resource export income is at best neutral (ie neither good or bad) for Australia. Overall though the argument is irrelevant. It will never happen.
So many claim, but the recent Fuel Price spike proves just how BAD price is, as a volume control. You merely need to look at the numbers :
The Price can DOUBLE, and the volumes reduce maybe 5%, meanwhile you have shifted VAST amounts of money, for very little benefit.
That fails for a number of reasons:
a) Politicians very rarely offer ANY income tax cuts; At best corrections for bracket creep
b) Incomes are very poorly related to Fuel usage, so there is no such thing, as 'dollar for dollar'.
It is quite asymmetric in impact: Worst hit, will be those with the highest % spend on Fuel aka the poorest.
Costs WILL increase, on most consumer items to cover the imposts.
I was trying to inject humour into a lethal situation.
It is no all about how much fuel costs.
It is all about not being able to run civilisation without oil. And not being able to burn carbon, regardless.
Lethal? You betcha.
It is civilisation that keeps us fed, clothed and medicated.
The key idea in my post is that neither a carbon tax nor carbon caps are viable.
I thought that a carbon tax was an obvious answer to our woes.
It is not.
As soon as I saw a carbon tax in a simple systems model it was clear that it would lead to system instability. The whole edifice will become chaotic. And when per capita food drops below zero in a chaotic system, it is game over.
Hence I suggested that we needed a fresh approach.
Ah yes, Cold Fusion.
Interesting that it refuses to die, and the numbers suggest reproducible Excess Power above noise floor values.
That's the good news.
The bad news, is it's over-the-horizon stuff, still in the labs, and much work is still needed before it hits commercial use.