Commentary By Ron Beasley
The IEA report on Peak Oil that Steve discusses below is overly optimistic because it makes a number of assumptions that are probably wrong.
1. Net Energy. The WEO assumes all energy resources are equal, without considering "Net Energy" or "Energy Return on Energy Invested." Society needs a certain level of energy to maintain its current state of development. The resources we are talking about using now are of lower and lower net energy (oil sands, oil shale, arctic oil, very deep oil, coal-to-liquids; also many of the "renewables"). It is not at all clear that all of the resources being examined in the WEO are really of value in solving our energy problems.
2. Quality of Energy. One cannot simply substitute one type of energy for another. Even if we have a temporary surplus of natural gas, the vast majority of our cars cannot run on natural gas. Ethanol can be substituted for a small share of the gasoline in today's cars (10% for cars made prior to 2007 and 15% for those made since then), but if the amount of gasoline declines, so will the amount of ethanol that can be used for substitution--this is a major reason that work today is being done on "drop-in" fuels. Electricity is not substitutable for liquid fuels, without major changes in the machines now using liquid fuels--for example, a semi-truck or bulldozer will generally not run on electricity, and of course electricity does nothing to replace the many non-fuel uses for oil such as medicines, synthetic fabrics, herbicides and pesticides. Variable electricity, such as from wind and solar PV, reduces the fuel needed for electric generation, but it is not otherwise a replacement for fossil fuels.
If one wishes to have substitutability across qualities of energy, there are long term changes that can be undertaken to make this happen (for example, replace cars of one type with another type), but such changes are neither quick nor cheap.
3. Recession from High Prices (Low Net Energy). If we try to use lower and lower quality energy resources, prices can be expected to rise higher, because low net energy and high cost pretty much go hand in hand. There are strong indications that oil above $85 a barrel (in 2009$) sends the US economy into recession. (See this post by Dave Murphy. Others have come to a similar conclusion.) The recessionary impact may be the signal that the amount of net energy that the economy is receiving is too low. The IEA assumes that OECD economies can continue to grow, regardless of oil price or of alternative energy price, even though this is very questionable.
As I have noted before peak oil is not the problem it's peak cheap oil. Our civilization and economy is built on cheap oil and the price will not gradually increase over several years but suddenly. It will be like running into a brick wall.
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