Article: Oil will run out so we have to embrace new energy sources

[Jon Bryant]

PETER HARTCHER
August 8, 2009
Brisbane Times

As ships get lost in fog and socks vanish into the wash, so clarity disappears in Canberra.

Next week will be a prime illustration. Our national capital will be convulsed by argument over the Government's plan to address climate change. It will sound complex. Politicians will become angry. Arguments will become convoluted.

But don't be put off. Despite all appearances, the reasons that Australia must - and will - adopt the plan are very simple. You don't even need to believe in climate change to see the logic.

First, the world is running out of oil, the source of 80 per cent of all world energy. Smart countries will start preparing for this now. Dumb countries will keep postponing the adjustment.

We can't foresee the precise day and the hour when we squeeze the final drop out of the planet.

But we have some educated guesses. The International Energy Agency, a specialist research body set up by 28 of the governments of the world's rich countries, calculates that the known reserves of oil will run dry in about 40 years at current rates of consumption.

More speculatively, it might be possible to extract another 60 years' supply from oil reserves which are not fully proven or yet discovered, the agency estimates.

These estimates are not realistic. They are based on current rates of consumption, when we can see that the long-run rate of consumption is actually going up.

The big oil cartel OPEC predicts that world demand for oil will rise by about 40 per cent over the next 20 years in the absence of major policy change. This, of course, would bring forward the day of reckoning.

So there is plenty of room for error and uncertainty in forecasting. There is only one certainty:

"One day, we will run out of oil, it is not today or tomorrow, but one day we will run out of oil and we have to leave oil before oil leaves us," the IEA's chief economist and formerly an economist with OPEC, Dr Fatih Birol, said this week.

"The earlier we start, the better, because all our economic and social system is based on oil, so to change from that will take a lot of time and money," he told a British newspaper, The Independent. This is simple common sense.

Smart countries will start the adjustment now. There are a number of ways to do this.

Rudd's climate change bill contains two. One is to require that all power companies get at least 20 per cent of their energy from renewable sources - solar, wind or tide - by 2020. The Opposition supports Rudd in this aim.

The other is the controversial one - an emissions trading scheme. This is simply a way of rationing carbon output. It would it raise the price of carbon-based energy, encouraging Australia to use less oil and coal and more renewable energy. The great weaning will have begun.

The Government's goal is to cut Australia's overall carbon emissions by 5 per cent from the 2000 level by 2020. Or, if there is a global agreement to go further than this, the Government has reserved the option of increasing the size of the cut to a maximum of 25 per cent by 2020.

But won't this wreak havoc in the economy? The answer may come as a shock - no, it won't.

Despite all the bleating and scaremongering you've heard about how it's economic suicide to cut our carbon output unilaterally, it's a lobbyist's lie. The economic adjustment required is actually pretty ordinary and Australia has managed many, much bigger, adjustments.

Consider this recent event for perspective. The world oil price trebled from 2000 to 2008, from an annual average of $US27 a barrel in 2000 to $US91 last year. It peaked in July last year at $US147 a barrel. You remember - you felt it through the petrol pump.

What happened? To the amazement of many, the world economy boomed all through this time - indeed, in it enjoyed the strongest growth in the modern era - until the US housing and financial sectors combusted in a great conflagration in September that gutted the global economy.

In other words, the world economy, including the Australian economy, adjusted quite smoothly to a trebling of the world oil price.

How would Rudd's carbon plan compare? Under the proposed emissions trading scheme, the cost of emitting a tonne of carbon would be between $25 and $35 in the years to 2020, according to the Treasury, if Rudd set the target at the minimum, 5 per cent. At a maximum, if Rudd set the target at 25 per cent, the cost of emitting would be $60 a tonne.

This is the equivalent of increasing the price of oil from $US10 a barrel to $US20 a barrel.

In sum, in the past few years we have lived through a global energy price upheaval three times the size of the one that Rudd's scheme proposes. So much for Armageddon.

Certainly, there will need to be some difficult adjustments, and some companies will suffer disproportionately. That's why Rudd proposes compensation for the most exposed industries of up to 94.5 per cent.

This is the second reason why Australia must, and will, adopt the Rudd climate change plan. Because, despite the posturing by the Opposition and the self-serving whining from industry, it imposes a gentle and judicious start to the great weaning.

Third, there are likely to be costs to being an early mover in creating a low-carbon economy, but there will also be benefits.

The International Energy Agency estimates that investors will put $US26 trillion into new energy infrastructure worldwide by 2030. For scale, that's equivalent to about 30 times Australia's GDP, or half the total world economic output.

The countries that set a future-minded policy framework will get the most forward-looking investment. As Barack Obama's chief climate negotiator, Todd Stern, told the Herald:

"The more you delay, the more you say we aren't going to do it until those guys do it, the more you keep building high-carbon infrastructure that's going to last for 30 and 40 years, the more you're going to dig yourselves into a hole. We don't think that's good for us."

The move from burning wood to burning coal helped fuel the industrial revolution.

Now, the world confronts the next great fuel transition. Once again, there are likely to be enormous consequences. It is an inevitability. Australia's choice is to embrace change or to hide from it.

So even without believing in the reality of climate change, these are three powerful points in favour of Rudd's plan - the great transition away from a carbon-intensive economy is inevitable, even desirable, and Rudd's plan gives Australia a manageable beginning.

Of course, the Rudd scheme is far from perfect. But it's the only plan on offer. Realistically, it's Australia's chance to move to the smart side of history.

It looks set to be defeated in the Senate next week. The Greens oppose it because it isn't green enough, and the Opposition opposes it because they're the Opposition. But it will pass eventually.

The only question is how much pain Malcolm Turnbull's Opposition and the Greens want to suffer on the way through.

If the Opposition and the Greens frustrate it in the Senate next week and then again when Rudd tries a second time after a three-month pause, Rudd is likely to call a double dissolution election.

On all current indications, the Coalition and the Greens would be smashed.

The Government's standing is high, it can claim climate change as a mandate issue, and polled support for Rudd's emissions trading system is at a decisive 65 per cent, according to a June Nielsen poll.

Strikingly, public support has remained rock-solid throughout the economic downturn and despite the concerted scaremongering of the mineral lobby and the Opposition.

So Rudd's scheme will pass, one way or another. The question for the Opposition and the Greens is whether they hand Rudd the trigger with which he can arm the electoral gun to blow their brains out before getting his way in the Senate.

Of course, Australia is one of the world's carbon-fuel superpowers. It is entirely natural that there should be serious resistance to change. But the Australian public has seen beyond the vested interests to the national and international interest.

The Opposition will stand in the way at its peril. And that's about as clear as it gets in Canberra.

Peter Hartcher is the Herald's political editor.