Of course, there are government agencies and well-reputed oil geologists who say that a peak in world oil production may be three or more decades away, plenty of time to make an energy transition. But, none of them has quite the audacity of the so-called "cornucopian" economists. These economists basically make three arguments when it comes to resources, oil included:
1. Higher prices will bring about more discoveries and greater supply.
2. New technology will make a higher percentage of the resource recoverable for new and old discoveries.
3. Higher prices will bring about conservation and substitutions, some of which will ultimately take the place of a dwindling resource.
First, one must admit that there is a certain element of truth to their arguments in the short run. For example, the huge price increases for oil in the '70s provided great incentive to look for oil, and a lot was found. People began to conserve so much that oil consumption actually dropped for a few years even as economic growth rebounded. So far, so good.
But, here is where their arguments fall into what I call "faith-based economics." First, they posit wildly expanding oil reserves based on nothing other than the magic of the marketplace, while ignoring all the geological data. In other words, they ignore physical reality and rely entirely on their own theories.
Second, oil is the indispensible fuel for our age. What makes it indispensible is its "energy density" and its versatility. Energy density simply means the amount of energy available for a given volume and weight. Oil is very, very energy dense, unlike say, coal which has a lot of energy but is bulky. Coal is also not as versatile as oil and much harder to carry with you. You can power a train with coal, but not an aircraft. In addition, you can refine oil into all sorts of fuels for specific purposes, something that is difficult and costly with coal.
The point is that there is nothing on the horizon that offers us the combination of energy density and versatility that oil does. Wind power is great. In fact, it may turn out to be the very best substitute we have for generating electricity once we figure out how to store the energy it gathers for use at peak times. But, you can't run a car with a windmill. The most difficult substitution we will have to make is in the transportation area.
Aha! you say. We'll drive electric cars! Yes, that's feasible. But, we cannot fly electric planes or fight using electric tanks or build anything with electric bulldozers or pull anything with electric-powered tractor-trailers. Electric engines are just too weak for this.
So, while it's not impossible to chart out how we'd make an energy transition, it's not as easy as you might think. And, so the cornucopians argue simply that the marketplace will come up with some suitable substitute for oil. We just don't know what.
Natural gas will have its own peak in production later than oil so it doesn't seem like a long-term fix. Coal could be turned into liquid fuel. The Germans did it out of desperation in World War II. But, it takes an awful lot of energy to do that, and so you have the problem of getting very little net energy out of the bargain (something I discussed in my previous post Tar baby: Oil sands and peak oil).
Nuclear power has its own problems of waste and danger. And, as you might have guessed, the uranium used to fuel nuclear reactors will have its own peak in production later this century. Beyond this, of course, you can't fly a plane or power a car with a nuclear reactor.
Coal is quite abundant, but the quality of it will degrade further as it already has, and we may be faced with the net energy issue I mentioned before. Part of the problem is that it takes oil to find and mine coal. Also, if we ramp up coal production to substitute for say, natural gas, in the production of electricity we may be in for catastrophic global warming and air pollution. (In fact, my greatest fear is that we will simply go back to coal in a panic.)
To all of this the cornucopians respond, "Well, even if all of that is true, we'll come up with something, some new technology that will save us. Perhaps someone will figure out how to make fusion work. Or maybe there'll be some invention that makes vehicles five times as efficient that is cheap to implement and will allow us to stretch out the time we'll have for an energy transition. There's no telling what will happen when you unleash human ingenuity!"
That's all very exciting, but it's really nothing more than faith, which is why I call their approach "faith-based economics." Do we really just want to sit back and hope that everything will turn out all right? Can we really just have faith in the system with so much at stake?
[So as not to make this post too long, I've reserved another important argument against "faith-based economics" for another time.]
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