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Could ‘economic peak oil’ rival the banking crisis?

By Tierney Smith

nef warns that nations’ dependence on oil could cripple their economies and prices rise (Source: Damian Gadal)

‘Economic peak oil’ could cripple the world’s economies by 2014 according to a UK-based think tank, which recommends governments take urgent action to wean their economies off fossil fuels.

In its latest report the New Economics Foundation (nef) argues that the end of cheap oil, and a new age of sustained high oil prices will bring economies to a standstill, create unemployment and deepen poverty.

The Foundation argues that the threat is as real and imminent as the banking crisis which hit the developed world in 2006.

The traditional definition for peak oil is the point at which production of cheap, conventional oil peaks, plateaus and declines relative to continuing demand.

The report suggests that the case for peak oil is economically driven. Nef defines ‘economic peak oil’ as the point when the cost of supply exceeds the price economies can pay without significantly disrupting economic activity.

In its World Energy Outlook 2012, released yesterday, the International Energy Agency (IEA) revealed fossil fuel subsides increased 30% to $523 billion in 2011, hiding the threat of high oil prices.

The IEA also warned that only one-third of current proven fossil fuel reserves can be burned before the 2°C threshold of global warming is crossed – a warning to countries that they must leave these fuels in the ground.

Nef says the looming threat of ‘economic peak oil’ – which could be reached as early as 2014 or 2015 – offers another reason for countries to reduce their reliance on fossil fuels.

With limited known new sources of cheap oil and increasing efficiency being a slow progress, nef argues that the only option for limiting oil price impacts is by transitioning to a low carbon economy.

Prepared countries would continue to prosper, but this will need political leadership driving this transition, nef warns.

Read the full nef report.

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