ASPO Ireland

‘The international community has been laboring for 10 years under the Kyoto Protocol negotiations to agree on a global reduction of energy consumption and carbon dioxide emissions of less than 10 percent by 2012. So the market has achieved within a few months what international bureaucrats - hampered by resistance from key consumer countries like the United States, China, Australia and India - have struggled to obtain in a decade.'

International Herald Tribune, 31/8/2005

‘A 4% global shortfall in daily supply results in a 177% increase in the price of oil' (from $58 to $161 per barrel)

The U.S. National Commission on Energy Policy

‘the increase in the cost of oil bought by non-oil-producing African countries since 2004 was more than the sum of debt relief and aid received over the same period'

IEA World Energy Outlook 2007

‘America is addicted to oil'

President George W Bush, State of the Union Address 2006

‘Prediction is very hard, especially about the future'

Neils Bohr, Yogi Berra

INTRODUCTION

Responses to the ‘recent' increase in oil price, it will be argued, can be viewed from a short-term and a long-term response and impact perspective. It is the authors opinion that the short-term impacts have not been ‘good news' for the environment and while the long-term impacts have the potential to be ‘good news', the spectrum of responses is wide, from the very enlightened to the catastrophic.

Let us understand ‘good news' for the environment as those actions that are consistent with Sustainable Development as conveyed in the Brundtland report (Our Common Future, 1987), and Strong Sustainability (Neumayer 2004) in the sense of non-substitutability of critical environmental services.

The news headline reads ‘Oil price nears $40 a barrel' and the caption ‘Oil prices have soared to their highest level since Iraq's invasion of Kuwait 12 years ago.' The date? February 27th 2003. By the oil industry's standards (Mike Rodgers, PFC Energy), high oil prices have been around since then, so ‘recent' indicates over the past five years.

The short-term response to the high oil price has been to augment supply, mainly through non-conventional sources as exploration fails to turn up any significant finds of conventional oil (Vielle & Viguier 2006). The impact of increases in non-conventional oil supply has not been ‘good news' for the environment. NASA's Dr. Jim Hansen outlines in a working paper (Kharecha & Hansen nd), that it is critical that we choose not to exploit these fossil resources. Long-term responses aimed at substituting away from liquid fuels or reducing demand take longer to have an impact but have the potential to be ‘good news'. However, as the ability to increase fuel supply in line with demand increasingly comes into question - arguably the underlying driver of the recent price increase - the consequences of a global recession or competition for the remaining resources will in a worst case scenario be very bad news for the environment.

A. SHORT-TERM RESPONSES & IMPACTS - SUPPLY SIDE

The high prices for oil make non-conventional oil economically viable. Figure 32 below (EIA, 2007) shows non-conventional oil production growing to over 10 million barrels per day (mbpd) by 2030 (when total forecast demand is 116 mbpd). It is argued below that this contribution of less than 10% of forecast demand will come at a very high environmental cost.

- Canadian Oil Sands

Canada has the largest reserves of oil outside the Middle East (Saudi Arabia), 1.6 trillion barrels, 10 billion currently under development - forecast production going from 1 to 3 mbpd by 2015 in the reference case (EIA, 2007). However, unlike Saudi Arabia where it flows from the ground at under $10/barrel with a very high return on energy invested (EROEI), in excess of 20, in Canada, the oil must be washed from the tar sands using high-pressure steam, requiring an oil price over $50 to be commercially viable and an EROEI arguably of only 3. The environmental damage associated with this development has been comprehensively recorded.

Established in the aftermath of Canada's largest industrial accident, the Lodgepole sour gas blowout, The Pembina Institute [www.pembina.org] in conjunction with WWF-Canada recently published a report ‘Under-Mining The Environment, The Oil Sands Report Card' - the most comprehensive comparative assessment of ten of Alberta's operating, approved or applied-for oil sands mines. The mines, for the most part, get a failing grade. The institute also runs an awareness website: www.oilsandswatch.org.

Oil sands mines were ranked on 20 different environmental indicators in five categories: environmental management, land impacts, air pollution, water use, and management of greenhouse gases. It describes the mining, extraction, and processing of tar sands as ‘among the most environmentally costly sources of transport fuel in the world'. The best score in the survey was 56%, the average 33%, and the lowest 18%.

Of note is the observation that if all projects performed as the leaders then there would be a dramatic improvement in overall performance. However, as voluntary best practices have been inconsistently applied government is called upon to play a more proactive role in protecting the environment. ‘The lack of ambition and regulatory drivers is demonstrated by the fact that the proposed expansion...scores lower than the existing operation.'

In another twist in the fate of Canada's oil sands, a clause in the US's new Energy Independence and Security Act 2007 could be interpreted in such a way as to prevent their import into the US. As reported in the FT, Section 526 of the law limits US government procurement of alternative fuels to those from which the lifecycle greenhouse gas emissions are equal to or less than those from conventional fuel from conventional petroleum sources.

- Coal-to-Liquids

Aaron Copland's ‘Fanfare for the Common Man' plays proudly in the background upon visiting the National Coal Council's website, ‘Power for America from America' reads the tagline. Their 2006 report ‘Coal: America's Energy Future' makes bold claims for the ability of America's coal industry to solve many of its countries woes regarding energy security. The rhetoric is quite compelling: ‘Application of coal-to-liquids technologies would move the US toward greater energy security and relieve cost and supply pressures on transport fuels by producing 2.6 mbpd of liquids. These steps would enhance US oil supply by 10% and utilize an additional 475 million tons of coal per year.' (NCC's emphasis) The report goes on to note that domestic oil production in the U.S. has declined 11% between 2001 and 2005 and describes ‘the inevitable peak in world oil production' and ‘Global competition from China for oil' among its arguments to back its proposal.

Coal production in the United States reached a record level in 2006 (a quarter of global production), ending the year at 1,162.8 million short tons[4] according to data from the EIA. The NCC is thus recommending an increase of nearly 50% to meet this liquids target. US coal consumption produced 2,134 million metric tons of CO2 in 2006 (of ~7,000 total).

The National Coal Council report doesn't mention production techniques such as ‘Mountain Topping' in its report. The process is very much as the name suggests, whereby a hill containing coal seems is blown up and pushed into the adjacent valley so that the coal becomes exposed and can be carried away. The environmental devastation in the Apalachian region of the US beggars belief. National Geographic did a feature article on it in March 2006 and the photographs demonstrate destruction of biblical proportions with destruction of forests and ground water pollution covering an area over 1,600 hectares.

Coal-to-liquid technology was developed by the Germans during WWII to help power their war effort with limited access to oil. It was commercialised by the South Africans (Sasol SA) as a response to the apartheid embargo. The Chinese increasingly concerned with meeting their rising demand for transport fuels and possessing large coal reserves have licensed the technology.

Although China's government and industry have proposed to build as much as 1.0 million barrels of daily coal-to-liquids capacity by 2020, considerable uncertainty and risks are associated with the emergence of such a massive coal-to-liquids industry, including potential strains on water resources and the general financial risks associated with the technological uncertainties and huge capital investments. Other industry experts worry that China's coal resources are not so rich, estimating the reserves would last only 30 years[5] (Energy Watch Group, 2007).

- Biofuels

Just last summer, in what can only be described as a very frank interview with the International Energy Agencies' (IEA) Chief Economist, Fatih Birol, he warned of the grave impact higher fuel prices are having on developing countries[6]. UN Foundation Chairman, Ted Turner, also highlighted this problem in a speech at a WTO meeting last year[7]:

‘Ten years ago, when the world agreed on debt relief for the poorest countries in Sub-Saharan Africa, the price of oil was 22 dollars a barrel. Over the last four years, the price has more than tripled. Higher oil prices now cost Ethiopia 5 times as much as they are gaining from debt relief. Other developing countries who import oil face the same burdens.

It is interesting that Mr Turner continues in this speech to advocate strongly the opportunity presented by biofuels. Just weeks prior, Lestor Brown warned in a Washington Post Op-Ed article

‘Whenever the food value of a crop drops below its fuel value, the market will convert it into fuel. Ultimately, this dynamic risks driving up world food prices, destabilizing governments in low-income nations and disrupting global economic growth.'

And only five months later the New York Times reported riots in the streets of Mexico

The current first generation biofuels are coming in for continued criticism because of competition with food and destruction of tropical rain forests and no-one is more vociferous in that criticism than George Monbiot: ‘If we want to save the planet, we need a five-year freeze on biofuels', ‘The Last Straw' The current EU target set in the Biofuels Directive 2003/30/EC comes in for particular criticism: ‘There is no way out of this: on a finite planet with tight food supplies you either compete with the hungry or clear new land.' He also refers to two new reports published in Science which state that when land clearance is taken into account, all the major biofuels cause a massive increase in emissions.

B. LONG-TERM RESPONSES & IMPACTS - DEMAND SIDE

Responses which augment supply have a speed advantage over those designed to temper demand given that the higher price alone is not sufficient. Oil demand has proven very inelastic as the figures above show.

- Reinventing Transport

Oil is the largest single source of energy used in the world today, supplying 35% of the worlds Total Primary Energy Supply (TPES), (IEA 2007). Over 55% of the worlds oil is used for transport and it supplies 95% of transport fuel. It is thus a significant contributor to greenhouse gas emissions and a key enabler of globalisation. Oil use for transport is rising faster than for other uses according to IEA data.

- increasing car fuel efficiency

The winner of the SAE Super Mileage Competition 2006 managed an impressive 3,145 miles per gallon. The US DoE www.fueleconomy.gov website shows off the competition machines.

According to the British Dept of Transport the Volkswagen Polo can get 100km on 3.8 litres of diesel and produce only 99g CO2/km making it one of the most fuel efficient commercially availably cars on the market. Toyota's Prius needs 4.3 litres of petrol for the same distance and produces 104g CO2/km. Britain's most popular car, the Ford Focus sold 145,000 in 2005[12] and requires around 4.5 litres of diesel to get you 100km (depends on engine size). According to DFT statistics there were 27.5 million cars in the UK in 2005 traveling nearly 400 billion vehicle kilometers producing 120 million tones of CO2 (average per car: 14,545 km and 4.36t per year or 300g/km). Doubling the average fuel efficiency should in theory halve the demand and emissions. There were 2.4 million new cars registered in the UK in 2005 (versus 7.5 million used car sales)[13]. If everyone converted to the most efficient car currently available it would reduce (based on the statistics) emissions to a third, and consequently consumption. However, at 2005 purchasing figures it will take at best 11.5 years to turn over the fleet. There is also the problem of rebound effects due to increased efficiency, the Jevons Paradox (Alcott 2005) which suggests that greater efficiency simply increases rate of use.

In that vein, and much more sobering is the data on car sales from India and China. If they buy cars at the rates forecast by OPEC, taking the global fleet from its current level of some 600 million cars to nearly twice that by 2030, then any gains made in efficiency will be used up by new consumers entering the market.

OPEC 2007

- transitioning from oil as a transport fuel

Dr. Fatih Birol at the IEA has made an impassioned plea to ‘leave oil before it leaves us'[14]. The recent high prices combined with growing concern about Climate Change and the threat of policy responses have refocused attention on new means of transport . The Chairman of General Motors North America was recently quoted as saying "I believe strongly that this country has to get off oil, the electrification of the automobile is inevitable."[15] Recommending the precautionary principle in the face of climate change and energy security, Gilbert and Perl (2008) have prepared an impressive study of what life the far side of the coming transport revolution could look like. Electrification features prominently.

The US DOE forecasts transport liquid demand in 2030 at about 125 Quadrillion Btu (23Gboe) or 36,500 TWh which would require about 4,000 GW of generation capacity to power to world's transport fleet. According to the International Atomic Energy Agency (IAEA) website there are currently 439 nuclear reactors in the world with a combined generation capacity of 371 GW(e) which produced 2,768 TWh in 2005 (15% of the worlds electricity) and consumed 67 ktons of uranium. Such a twelve fold increase in nuclear generation capacity would be an enormous feat of engineering and presents many challenges, from sourcing the uranium to securely managing the radioactive waste produced. Whether it could be considered ‘good' for the environment depends on your attitude to the nature of the associated risks. While James Lovelock sees nuclear as a necessary evil to avoid climate change, personally I'd prefer a return to Shank's Mare or the bicycle, surely a simpler solution.

- Reinventing Society: Switching To A Less Energy Intensive Society

As alluded to in the introduction, the long term responses to and impacts of high oil prices can go either way. On the negative side, growing concerns about the long-term availability of oil, believed by a growing number to be the underlying cause of the recent high prices[16], reflect how an economic downturn (Hirsch, 2008, figure below) or geopolitical destabilisation (Solana, 2008; Klare, 2005) will deprioritise the environment. Saudi Arabia's ability to deliver remains an open question[17]. The U.S. National Commission on Energy Policy concluded in June 2005 that ‘a 4% global shortfall in daily supply results in a 177% increase in the price of oil' (from $58 to $161 per barrel).

Although, a global recession, if Russia is a model, might be a good thing for global carbon emissions: "In 1992, the first full year after the demise of the USSR, Russian carbon dioxide emissions stood at 573.5 million tonnes, but by 1997 had fallen to 394.7 million tonnes - a 31 per cent decline in just five years. (Smith, 2006)

While it's difficult to decouple causality from concern over climate change, the high oil price has helped stimulate a significant increase in investment in clean energy technologies. A recent study (New Energy Finance, 2007) found that global clean tech investments were up 41 per cent in 2007 to $117.2bn. In a separate study by VentureSource, it reported venture capital investments in cleantech stood at $3bn last year, 59% going to companies in a product development phase. The European Investment Bank quadrupled its support last year for clean energy sources, signing loans of more than EUR 2 billion for renewable energy projects both inside and outside the European Union.

Non-technological solutions initiated by civil society premised on relocalisation are aimed at reducing energy consumption to limit climate change (Hines, 2000) based on enlightened self-imposed lifestyle changes. The Transition Town movement[18] is evidence of its appeal to certain communities.

CONCLUSION

The short-term responses to the high oil price have not been ‘good news' for the environment and we are warned not to proceed further down this path (Kharecha & Hansen, nd). The problem is the inelastic nature of the oil demand curve. Initiatives to augment supply through non-conventionals in particular, Canada's oil sands and coal-to-liquids specifically, come at a very high environmental cost.

Efforts to stem demand through increased efficiency or transfer to electric cars cannot be assumed to be good for the environment. Efficiency gains could be gobbled up by new entrants to the market and it is still unclear where the electricity will come from to power electric vehicles on the scale at which we currently use them. Gilbert and Perl (2008) envision a different future without mass private transport as we know it today.

Should the current high price be sustained further causing or exacerbating an economic slowdown as Hirsch (2008) suggests, then this might be construed as good for the environment insofar as it slows down the rate at which we pollute it. However, the other hardships an economic slowdown are likely to impose may well exacerbate the environmental problems and spell further ‘bad' news.

REFERENCES

Alcott B 2005, Jevons' paradox, Ecological Economics, Volume 54, Issue 1, 1 July 2005, Pages 9-21

Brundland Report 1987, Our Common Purpose

Energy Information Agency (EIA), U.S. Dept of Energy 2007, Key World Energy Statistics 2007

Energy Information Agency (EIA), U.S. Dept. of Energy 2007, International Energy Outlook 2007

Energy Watch Group 2007, Coal: Resources & Future Production

Gilbert R & Perl A 2008, Transport Revolutions: Moving People & Freight Without Oil, Earthscan

Hines C 2000, Localization: A Global Manifesto, Earthscan

Hirsch RL 2008, Mitigation of maximum world oil production: Shortage scenarios, Energy Policy, Volume 36, Issue 2, February 2008, Pages 881-889

International Energy Agency (IEA) 2007, Key World Energy Statistics 2007

Kharecha PA & Hansen JE nd, Implications of "peak oil" for atmospheric CO2 and climate

Klare M 2005, Blood and Oil: The Dangers and Consequences of America's Growing Dependency on Imported Petroleum, Henry Holt and Co.

Neumayer E 2004, Weak versus Strong Sustainability, 2nd Ed., Edward Elgar Publishing

New Energy Finance 2007, Global Trends in Sustainable Energy Investment

OPEC 2007, World Oil Outlook 2007

Smith, MA 2006, Russian Environmental Problems, Conflict Studies Research Centre, Russian Series; ISBN 1-905058-86-1

Solana J 2008, Climate change and international security, report to the European Commission

Vielle M & Viguier L 2007, On the climate change effects of high oil prices, Energy Policy 35 (2007) 844-849