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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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  • Shawn Aune

    Please read the full report. It is filled with amazing information and ways to think about resource depletion.

    It is hilarious that it quotes Daniel Yergin at the beginning. :)

  • RJ

    “Currently energy only features as a minor component in orthodox theories of
    economic growth, if at all. Most macroeconomic models seem to be blind to energy
    constraints. Yet there is a growing body of evidence that demonstrates exergy plays
    a dominant role in the economic prosperity of industrial economies”- from the report

    This just proves my theory that all economists should be shot. Even the most rudimentary understanding of science would make them realize that net energy is the entire basis for anything to do work and grow

  • John Wood

    Hallelujah! I know next to nothing about economics (I’m a design professor) but it has seemed pretty obvious to me (since 1974) that orthodox ‘efficiency’/growth-centred models are equivalent to treading water without bothering to look for land….

  • fereydoun barkeshli

    Mr.Smith has written an excellent article on the the issue of peak oil.I fully subscribe with the Mr.Smith’s notion that in less than five years the world will face a very difficult situation in so far as energy supply is concened.Diversifying sources of energy and increasing investment in new and renewable sources of energy is inevitable but increasing investment in crude oil production is important too.Now a little bit of politics:United States has used oil and gas sanctions against unfriendly countries for about four decades now.Libya,Iraq,Venezuela,Nigeria,Angola and Iran have undergone US sanctions from time to time and have lost the opportunity to invest and develop their energy resources.This can lead the world into a total disaster.A situation pehaps much worst than 2008 housing melt down in the US.

  • ginny

    i have just been reading a book,Life Without Oil,–worth reading.

  • fereydoun barkeshli

    Its now eight decades since we first heard of Hotelling and his exhaustible resource theory where oil would be depleted within twenty years.Later Dr.Schbert added weight to and exclaimed that world will be without oil before the turn of century.However currently there is still excess of supply over demand while some 2.5 M/B/D of Iranian crude oil is out of market and probably part of Russian crude will be sanctioned by the United States and Europe.Having said the above I believe that technology factor is often undermined and that innovations in exploraton and development provides great opportunities for more oil.