"The report of my death was an exaggeration" - Mark Twain
The stimulus for this post is this interesting talk by Tony Seba, and predictions about peak oil that I heard at recent workshop on transportation. I don’t have any materials to share from the workshop but this WSJ article presents similar points. Seba’s talk is mainly about the confluence of five major innovations - four technological - solar PV systems, battery technology, electric vehicles, autonomous vehicles and a fifth that is more institutional (academic jargon for business model), which is the ride-hailing industry (lyft, uber etc.) In fact, I had similar and optimistic yet different take on the combination of EV, AV and ride-hailing a year back.
Predicting peak oil, on the other hand, is a different proposition altogether. It has been a topic of intense analysis and debate for several decades now. Beginning with King Hubbert in 1950s, many geologists have been pessimistic about the long term prospects for cheap oil supply. Here is a link to a fascinating article in the magazine Scientific American from 1998. Peak oil claims rests on assumptions about depletion of reserves of "conventional" oil and the increasing amounts of energy (and therefore, cost) associated with extracting from depleted wells. Interestingly, economists were more optimistic and in any case the peak is not important in and of itself as we would innovate our way out of the problem as oil price, the true indicator of scarcity, rises. And, of course, all the while climate scientists and environmentalists have been shouting (unforuntately, in vain so far) for absitnence, (ofcourse, from oil for the most part but not exclusively). But the peak oil prognostications of today are about an impending peak in the demand for (or more precisely consumption of) oil as opposed to peak due to depletion. The reason for this is exactly the kind of breakthroughs mentioned above.
If your day is made, then I recommend you read no further for I am going to spoil it. Sorry, but it is my job to call it as I see it. Don’t get me wrong. I would love nothing more than to solve externalities (jargon for pollution problems) and produce public goods (jargon for things like knowledge) with a business as usual approach. But I know enough to not bet on it. In other words, I am not sure which among the two — peak oil supply or peak oil demand is better for the environment.
A peak due to scarcity would mean that oil prices rise which would provide an impetus for renewables (which are costlier today because we do not see the full cost of oil) and at the same time make us more efficient in energy use. The flip side is that higher oil prices would also lead to innovation in finding more oil or converting coal and gas to liquid oil which is a very dirty process. It is a question of which of these two forces will win out. A peak in oil demand while it sounds good might be the proverbial Torjan horse. It might lull us into a sense of lazy optimism only for oil to strike back with vengeance. Here is why.
1. Peak oil demand means that the price of oil keeps falling. At today’s price of $50 per barrel, we are all not exactly rushing to buy electric cars (of course, a few have plonked down $1000 to reserve a Tesla Model 3). As if life was not hard enough at $50/bbl, these technologies will now have to compete with ever cheaper oil. Likewise, solar and wind have to compete with ever cheaper coal and natural gas as we move to a renewable electric grid.
2. Some contend that we did not stop getting around in horses because we ran out of them but that we discovered a superior alternative in oil and motorized transport. Other somewhat more trivial analogies might be that we did not run out of Kodak cameras, telephone lines, postal mail. In each case the product that displaced these were clearly superior and it did not take a government regulation to phase them out. There was also the famous Ehrlich-Simon wager about scarcity of important metals we know how that was settled. In any case, I am not convinced that batteries, solar electricity and electric cars are relatively as superior to today’s oil + internal combustion engines as oil was to horse drawn carriages. Agreed, an EV might be a smoother ride and range is unlikey to be an issue but is that nearly enough? Also autonomous and ride-hailing work is indifferent to propulsion technology.
3. Now, let me get off my smart horse and concede for a moment that EV’s and solar electricity are such a superior alternative that we will voluntarily stop buying internal combustion engine automobiles and combusting coal and gas. But that doesn’t mean the fossil fuel industry will shut shop and things will be hunky-dory. A bit of history would come in handy here. Before the 1970s, a substantial amount of oil was used for electric power generation and mind you burning oil for electricity is quite bad for both human health and climate change. This wasteful use of oil has since declined only because oil became scarce enough to justify it’s use only for transportation and as a source of back up and peak electric power and remote locations with little access to other energy sources. That said, in oil rich countries like Saudi Arabia oil is used profligately for baseload electricity. My spreadsheet tells me that at $20-$25 oil, oil-fired generation could come back in a big way especially in places where gas is scarce and coal is considered as dirty. What’s more at these prices we oil-fired generators might be able to afford $40 to $50 per tonne for either a carbon tax or carbon di oxide capture and sequestration.
I will conclude on a constructive if not entirely cheerful note. The solution is simple. Basically, we are faced with a leaky bucket and as we begin to fill it with cleaner water, it is all the more important that we also fix the leak. In technical terms, we need to put a price on pollution and make it not worthwhile to consume dirty fuels even as they become cheap. One way to do this is for the world to agree on capping global greenhouse gas emissions. I am optimistic that we will achieve this someday but will it be soon enough is anybody’s guess. In the meantime, there is no reason to not be excited about the coming technological disruptions.