Speech at Pio Manzu Conference in Rimini, Italy.

Saturday 29 October 2005.

1.  The scale of change required in the world economy in the next few decades, following the passing of Peak Oil within the next few years, is nothing less than apocalyptic.  Since our whole civilisation and our whole economy is based overwhelmingly on oil – namely industry, agriculture, transportation, and military capability – the dislocation caused by the growing shortfall in availability is likely to be on a scale unprecedented in human history.

Fewer and fewer new oilfields are being found.  Already four fifths of the world’s oil supply comes from fields discovered before 1970, and even finding a field as large as Ghawar in Saudi Arabia – which is anyway almost inconceivable given the huge improvements in geological knowledge in the last 30 years – it would only meet world demand for another 10 years.

2.  So what is to be done?

(i)  Market forces will undoubtedly exert strong signals, but are unlikely to be able to prevent abrupt dislocations without powerful accompanying strategies ruthlessly enforced in the face of vested interests – can we trust politicians to do this?  Oil industry consultants predict that the likely supply shortfall will be some 9 million barrels per day by 2010 and that the oil price needed to reduce demand will be around $100 per barrel, and of course thereafter figures steadily rise further.  With oil price at $100 per barrel, economies of heavily oil-dependent countries (the great majority in the world) will be forced into a tailspin of decline, likely leading to violent uprisings, revolutions, and mass migration on a scale we have never seen.  So what else needs to be done to prevent this?

(ii)  Colin Campbell’s proposal is the so-called Rimini Protocol, providing that importing countries cut imports to match world depletion rate (i.e. annual production as a percentage of what oil is left) now running at about 2 ½ % a year.  This is an ingenious suggestion, and deserves to be taken seriously.  It means that poorer developing countries would be able to afford their minimal needs, and profiteering from the shortage by the Middle East and OPEC would be avoided, and consumers would be forced to avoid waste by improving energy efficiency, and governments would have a bit more leeway to switch to renewables.  I think this is a brilliant idea whose time has come, a large chunk of obvious practical common sense which should commend itself to every government in the world.

But like all great visions of the way forward, it will be resisted.  Let me deal with two of the likely objections.  One, which is all too predictable from the oil industry lobby, is – ‘We don’t need this: we’ve got plenty of oil left to meet any likely increase in demand for the foreseeable future.’  Well, they would say that, wouldn’t they?  But even a cursory look at the facts shows that that is nonsense. 

It is nonsense because we are using 84 million barrels per day at present, and maybe at the absolute extreme we could push that to 95 million barrels per day, but that is still far short of the 120-130 million barrels per day the world will need by 2020 if China and India continue to increase their demand for oil at current rates.  (Chinese oil consumption grew by 11% in 2003 and by a staggering 18% in 2004).

It is nonsense because global spare production capacity is virtually gone – 85% of it is located in Saudi, which had a mere 2 million barrels per day spare capacity back in 2002.

It is nonsense because global spare refining capacity has, in the last six years, all but disappeared.

So, welcome to the Age of Energy Insecurity.  The world badly needs the Rimini Protocol, and it needs complacency about future oil supplies like a hole in the head.

How is it to be enforced?  Enforcing the Kyoto Protocol has proved enormously difficult, and after 13 years since Rio in 1992 only some 30 countries have committed to targets (although enough with Russia to secure ratification), but excluding the United States, with 5% world population and 25% greenhouse gas emissions, and excluding all developing countries, especially China and India, whose greenhouse gas emissions will exceed those of the West within some 10 years.

The problem is that since US political power derives from its economy, and given that US economical strength depends entirely on rapid growth and ready access to cheap energy, why should Bush sign up to Rimini any more than Kyoto?  This is not an argument for not pressing for a Rimini Protocol (indeed US opinion on climate change and energy is changing).   It is an argument for building a world campaign to get momentum behind this Protocol.  But other measures are also needed.  What are they?

(iii)  I do not believe there is a technological magic bullet solution (which the US hankers after), but I do think we can construct instruments to effect the switch to a transitional economy – not nuclear.

(A)  A bridge economy is more likely to switch to gas in the first instance rather than directly to renewables.  Gas could be refined directly into synthetic petrol and diesel for transportation, although this is probably not a major fuel source until after 2010.  Again, one important use of gas would be as a transitional feedstock to make hydrogen for fuel cells.  Fuel cells would slowly but steadily penetrate vehicle markets and stationary power markets and lay the groundwork for the eventual emergence of a hydrogen economy, once technologies to make hydrogen from renewables (solar or wind or clean-coal) became cost-competitive.
(B)  A carbon penalty needs to be developed as a market mechanism (eg. In UK – the climate change levy).  A government (e.g. US) could create a carbon budget for each industrial sector (like National Allocation Plans in the EU), starting with the worst offender (power generation), and set up a carbon-trading system.
(C)  A no holds-barred multi-faceted campaign needs to be launched to cut Americans’ high consumption of oil and other energy.
One mechanism could be a ‘feebate’; i.e. consumers buying a vehicle (SUV) that gets 20 miles per gallon or less would have to pay a stiff fee (e.g. $5,000), while if the consumer chooses a car getting 40 miles per gallon, they would get a rebate at the same amount.
A second mechanism, regarding US research and development, - heavy government investment in basic fuel cell research could speed development of fuel cells cars by resolving critical engineering obstacles like reliability, material costs (especially platinum catalysts) and fuel storage issues.
(D)  Potential for conservation is enormous since the volume of energy we waste is prodigious, e.g.
US power plants discard more energy in waste heat than is needed to run the entire Japanese economy.
Only 15% of energy in a gallon of petrol ever reaches the wheels of a car.
Less than a quarter of the energy used in a standard oven reaches the food.
It has even been established that a mere three mile per gallon improvement in the fuel economy of US cars and light vehicles would be enough to forego oil imports from the Middle East entirely – a better solution than launching an unprovoked, illegal war in Iraq.
If we could reduce energy intensity by just 3% per year, we could meet world demand in 2100 with only a quarter of the energy used today.
(E)  Potential for huge global shift to renewables is greatly under-estimated.
The US Department of Energy estimates that three states, North and South Dakota and Texas, have enough harnessable wind energy to meet the entire US electricity requirements.
Similarly, it is estimated that Europe’s off-shore wind potential in waters of 100 feet depth or less could supply all of the continent’s power.
China has so much wind energy that it could double its national electricity generation by harnessing it.
The UK has 40 times the wind capacity as the whole of the rest of Europe, and three to four times what is necessary for electricity generation.
To look further to the future, there is solar power, where the price has already fallen 10-fold since 1980.  A recent study (by accountants KPMG) estimated that construction of a 500 mega watt plant (at a cost of only $0.7 billion) would bring the wholesale price down to that of conventional energy.
As for fuel cells, even the Ford Motor Company believes that hydrogen fuel cells will become the main power source for transport within 25 years.

I conclude therefore that the energy economy of 2030 will be a hybrid of sorts, meeting demand with alternative fuels and improved energy efficiency, yet still heavily reliant on hydrocarbons.

However, maybe a cheaper vehicle fuel cell, for example, or a dramatically more efficient solar panel could completely change the path of our energy future.  But none of this will happen without strong government intervention to propel research and innovate production.  As always, the question for politicians is: are we ready to take risks and to give the lead that the world craves?

But those are imponderable.  What we can do, and must do, is launch this Rimini Protocol as a wake-up call to the world to change course to a new global energy order which for the first time in the history of the world is genuinely sustainable.