The end of the oil world as we know it

Jeffrey Simpson

The Globe and Mail

Published Wednesday, Nov. 21 2012, 7:00 AM EST

Last updated Tuesday, Nov. 20 2012, 7:02 PM EST

The International Energy Agency’s report ricocheted around the world last week, and nowhere more so than in Canada.

The United States will become the world’s largest producer of oil by 2020, predicted the IEA, and North America will become a net oil exporter by 2030. So much for foolishness about the end of oil. So much for the comfortable assumption in Canada that the U.S. would always soak up every drop of oil we could export to them.

Hidden in the report, however, are two other implicit assumptions of immense importance for the future. First, for the first time since president Franklin D. Roosevelt made cozy with the Saud dynasty, the United States will not need, let alone be beholden to, oil-producing countries in the Middle East. Second, the international target of holding the increase in global temperatures to two degrees Celsius is a forlorn hope.

It would be simplistic to say that oil alone has driven U.S. interests in the Middle East, but it would also be simplistic to ignore that oil imports from that region have been critical for the U.S. economy. And with economic realities have gone geopolitical interests.

Oil helped to link the interests of sheikdoms and autocracies to the consumers of the United States – and through them to their democratically elected government. U.S. administrations have been keen to promote human rights where it suits, as President Barack Obama has just done in Myanmar and Cambodia, but they have also remained largely silent about abuses in oil-producing countries of the Middle East.

Instead, as the decades unfold, it would appear that the oil producers will be forging links with oil-hungry places such as China, whose own respect for human rights mirrors their own. No longer needing Middle East oil will likely cause the U.S. to lose a little of its interest in the region, although the resolute defence of Israel, right or wrong, and concerns about terrorism will keep the U.S. involved.

As for climate change, countries negotiating under the aegis of the United Nations agreed to aim for a maximum increase of two degrees Celsius in global temperatures. Anything more, they understood, would lead to serious disruptions in climate patterns beyond those already experienced.

Instead, the IEA predicts that even if the oil consumption of OECD countries barely rises, global demand for energy will rise by a third by 2035, with China, India and the Middle East accounting for about 60 per cent of that increase. The resulting emissions will drive the long-term average global temperature increase to 3.6 degrees Celsius.

“The climate goal of limiting warming to two degrees Celsius is becoming more difficult and more costly with each year that passes,” observed the IEA. Most ominously, four-fifths of all carbon emissions that are supposed to be allowed by 2035 to keep warming below two degrees Celsius are already locked into power plants, factories and buildings. If strong action is not taken by 2017, all the emissions necessary to keep warming below that level will be locked in.

As Fatih Birol, chief economist of the IEA, said a while ago: “We are seeing the door for a two degree Celsius target about to be closed and closed forever.”

One helpful step would be to expand carbon capture and storage (CCS) operations at coal-fired plants. CCS operations, however, are costly and uncertain. Four were planned for Alberta, for example, but one has already been cancelled. The others are dependent on large government subsidies at a very high per-tonne cost.

A price on carbon, set either by a tax or a cap-and-trade system, is the best tool for reducing emissions (as The Economist noted yet again this week). North America (except British Columbia and Alberta, with its intensity tax) refuses to move in that direction. And many countries, especially in the Middle East, heavily subsidize oil consumption.

The next time someone grouses about subsidies for renewables, remind them that, according to the IEA, worldwide fossil fuel subsidies in 2011 were $523-billion – six times more than for renewable energy supplies.



Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s