May 29, 2009
Welcome to the first installment of the National Post’s non-fiction book club, Speaking Volumes, an ongoing series that features National Post writers and expert guests. In this edition, we examine Jeff Rubin’s new book, Why Your World is About to Get a Whole Lot Smaller (Random House Canada) on peak oil and the end of globalization.
Adam McDowell: To get us started: Do you buy Jeff Rubin’s premise that (a) the world’s supply of easily accessed oil is running out, and (b) notwithstanding some cyclical fluctuation, we’re stuck with high gas prices from now on?
Lawrence Solomon: I don’t buy either premise. Access to oil and the price of gasoline are determined by government policy, not by physical constraints. The planet and its people can provide us with affordable oil and gasoline for the foreseeable future, as long as governments don’t turn off the spigots.
Daniel Goldbloom: I’m in for both. Rising oil prices may make previously unattractive oil deposits profitable to extract, but even the laws of supply and demand are not powerful enough to put more oil into the ground. And peak oil theory isn’t the reserve of environmental fundamentalist; even French oil giant Total S. A. has predicted that the world’s oil supply will “plateau” at 95 million barrels per day by 2020. If we’re running out of gasoline’s main ingredient then gasoline prices have nowhere to go in the long run but up.
Morag Carter: I’m in for both as well. There is clearly a finite supply of light sweet crude that can be cost-effectively extracted. But I’m not sure that “cyclical fluctuations” is really what Rubin is talking about. What Rubin seems to be arguing is that surging demand for oil has stripped away the global cushion of relatively cheap oil and has now produced the first of what is likely to be several dislocating shocks to the economy. He argues that the oil shocks of the 1970s were political and therefore artificial. But I think that Rubin lays out a persuasive argument that peak oil is a geological phenomenon that will cause progressively deeper economic dislocations and therefore will have more profound consequences.
Solomon: Rubin is persuasive only in the sense that all the other pessimists over all the other decades have been persuasive while wrong. The U. S. Geological Survey in 1920 estimated the world’s total endowment of oil at 60 billion barrels. By 1950, the estimate rose 10-fold, to 600 billion, and now it’s about three trillion. Last year, the Geological Survey estimated over four billion barrels of technically recoverable oil in North Dakota and Montana’s Bakken Formation alone — that’s 25 times the estimate of a decade earlier.
The only clear trend is up. Over the last two decades of unprecedented globalization, oil reserves grew in the Americas, Europe, Eurasia, Africa, the Middle East and even the Asia Pacific region that includes voracious China and India. All told, world oil reserves increased by a staggering 36%, and that doesn’t include the 152 billion barrels in oil reserves obtainable from Canada’s tar sands. Never before in human history has energy been accessible in greater abundance in every major region of the world; never before has mankind faced a brighter energy future.
McDowell: I was ready to take a coming oil shortage as axiomatic and move on from there to the repercussions. The book spent too long establishing the coming scarcity of oil and not enough time on how this might unfold. Whatever the reality might be regarding how much oil is under the ground, Why Your World would have made a more enjoyable read with some detailed doomsday scenarios.
Instead, when Rubin finally does speculate, he digresses, uninterestingly, about coffee. My favourite part of this book was the introduction because that was the part with the best lore. Lore really matters in an our-civilization-is-doomed book. Charts matter, too. Why couldn’t they give us one measly graph to pore over?
Solomon: OK, let’s switch from the implausible (that we’re going to run out of oil anytime soon) to the impossible (that high oil prices will decimate shipping). And let’s use Rubin’s coffee industry example, and his warning that “your grandchildren may never know what a barista is” because of the exorbitant cost in future of shipping coffee from the Third World.
Rubin provides a little history of the coffee industry, showing its extensive trade throughout the world. He seems to have missed the fact that the robust coffee trade of the 17th and 18th centuries that fed the coffee houses of Europe preceded the era of oil-powered freighters, and so could not have depended on the availability of oil.
How would we transport merchandise across the oceans without oil? We would use natural gas, which is in immense supply in the Third World. We would use uranium, also in immense supply. And we would use wind-powered vessels, updated versions of the Flettner craft, invented in the 1920s. These unusually stable commercial ships plied the Atlantic until the Great Depression and the Second World War, followed by the rise of aircraft, made them uncompetitive.
To end shipping, we would not only need to run out of fossil fuels, we’d need to close our minds to new solutions that met new problems. We’d need to stop being human.
Goldbloom: Rubin exaggerates to make his point at times, but his argument that expensive oil will make existing global trade uneconomic still holds.
Seventeenth-century coffee importers didn’t need massive oil-powered container ships because they weren’t transporting that much coffee by today’s standards. In order to move the enormous amount of stuff required for globalization to work, you need to do it cheaply and quickly.
The low wages paid in far-off factories don’t save you money if the cost of shipping is more than the amount you save by using cheap labour. Without cheap oil, we’d still be able to get things around the globe, but the distance between factories and markets would suddenly matter again, making local production more attractive.
Carter: Bypassing entirely the debate about coffee and concentrating on the point that needs to be made here; in planning for an oil-constrained future, we need to be making investments in modes of transportation and goods movement that are the most energy efficient and therefore least vulnerable to oil price shocks. Ultimately, those countries that invest wisely in rail and shipping will have the most resilient and competitive economies.
The losers will be economies that are too dependent on truck and air transportation. This has huge consequences for Canada.
The last oil shock could be a wake up call. We should be joining other governments around the world who together have invested US$430-billion in upgrading and greening infrastructure.
Goldbloom: If we don’t decouple our economy from oil, Rubin argues, peak oil may soon become peak GDP. He says we need to find a new source with which to fuel GDP growth, although he leaves it up to future thinkers and doers to figure out what will work. The question remains: If we can find a fabulous new way to fuel our economy, why wouldn’t it be able to power global trade as we know it today? What is this magical non-fossil-fuel energy source that can power GDP growth but not globalization?
Solomon: Until recently, science unambiguously held CO2 to be a beneficial gas, fundamental to the well-being of the planet. Only recently have some scientists come to question the benefits of CO2. Based on my discussions with scores of scientists over the last few years, I believe that the majority of them continue to believe that CO2 is beneficial. The premise that we need to revamp our society to cut back on CO2 emissions is likely wrong.
Right or wrong, politicians are fully capable of outlawing CO2. If they do, the global economy would run on alternatives that are now available in limitless supply: e. g., nuclear power, wind power and solar power. While all three technologies have cost and environmental drawbacks, they would and should power the economies and the globalization of the future.
You have astutely highlighted the nonsense in Rubin’s reasoning.
Carter: Countries that have put in place carbon pricing are already decoupling from fossil fuels while continuing to grow their economies. There are many existing technologies and the potential for even more in the future that will assist us to maintain a robust clean energy economy.
Goldbloom: Energy efficiency is one of the most touted goals of the environmental movement. But as Rubin reminds us, energy efficiency is not energy conservation. It leads, paradoxically, to higher total energy use.
In what is known as the “rebound effect,” improving efficiency lowers your energy costs, which in turn allows you to use more energy for the same price.
Rubin’s solution? “If efficiency is to lead to actual conservation, consumers must ultimately be kept from reaping the benefits of [efficiency] initiatives in the form of ever greater energy consumption. In short, energy prices can’t be allowed to fall…” In other words, the government must put a price on carbon.
Will citizens support government action that raises energy prices, then exhorts them to become more energy efficient, just so they can go back to paying the same prices as before?
Carter: Doing more with less energy is necessary and will help cushion the blow in an oil constrained future –it makes great economic sense.
The rebound effect is a product of artificially low and steady oil prices. But this is not the world that we are living in. Peak oil and the need to address global warming are already resulting in the increased costs of fossil fuels.
As Rubin points out, the oscillations in oil prices do not provide clear signals to the market about the long-term trend toward rising oil prices. But a price on carbon provides a clear long-term economic signal that increases the costs of polluting energy sources and makes clean energy solutions more affordable. This can guide effective market responses. Responses that not only benefit the bottom line, but help safeguard the future of the planet.
However, care needs to be taken to ensure that the most vulnerable households are protected and can participate in energy-efficiency initiatives. These are often the very people who are stuck with the least efficient, most energy-intensive and therefore most expensive energy options.
Your question, Daniel, about whether Canadians will support innovative policy measures such as a carbon price was answered in this month’s election in B. C. The province introduced a carbon tax last year, which actually took effect at the very moment that gas prices hit an all time high. Doomsayers predicted that the government would feel the effects at the polls. They were returned with a majority.
Solomon: There’s nothing inherently wrong in consuming energy — wrongs only arise from pollution that might result. Controlling harmless behaviour, on the other hand, certainly is abhorrent.
Polling and electoral results show the public punishes governments that raise energy costs. In Canada, we had the Liberals’ historic collapse after they tried to sell us on the Green Shift. The B. C. Liberals didn’t collapse, but only because their opponents joined them in advocating energy hikes.
Goldbloom: Rubin’s expensive-oil future is a lot like the pre-globalization past, especially when it comes to free trade. There will be high transportation costs and Rubin believes countries using a carbon tax or a cap-and-trade system should place a “carbon tariff ” on countries that don’t price their emissions.
Won’t creating barriers to global trade have a disastrous effect on world economies?
Carter: Economist and former head of the World Bank Sir Nicholas (now Lord) Stern called climate change “the greatest and widest ranging market failure ever seen.” The real cost of greenhouse gas emissions is not counted in the production cost of goods and services.
Carbon tariffs could be an interim solution that encourages countries to incorporate the real price of emissions into production costs through a cap-and-trade and/or carbon-tax system.
Stern estimated back in 2006 that the costs for not taking action to address global warming would likely be in the range of 5-20% of global GDP, while the costs of taking action would amount to approximately 1% of global GDP by 2050.
The cost of doing nothing far outweighs the cost of taking action.
Solomon: Rubin’s prescriptions would do more than harm global trade; they would harm the global environment. The more efficient our economies become, the less polluting they become. The rise of globalization has led to higher environmental standards worldwide.
McDowell: Do you think Rubin’s book makes a suitable introduction to the first-time reader on the oil supply issue? Do you have another book to suggest?
I’d read a bunch of articles before but this was the first time I’ve really been up to my eyeballs in oil. Despite hungering for harder data and more concrete examples, I found Why Your World left me keen to read onward — the peak of my curiosity has yet to be reached.
Carter: Rubin’s book is a great read. It makes links between energy prices and the current state of the economy. We should take heed of his warnings and listen to his advice. I’d definitely recommend the book!
Solomon: Rubin’s book will befog any reader. For a clear-eyed look at resources, I recommend Julian Simon’s The Ultimate Resource. Or, try Wired’s article on him, “The Doomslayer,” available at tinyurl.com/doomslayer
Goldbloom: As someone in a similar position to Adam, I found the book an enjoyable entrance to long-form energy writing. As far as other starters go, I’d recommend Carbon Shift: How the Twin Crises of Oil Depletion and Climate Change Will Define the Future edited by Thomas Homer-Dixon.