World-wide Lack of Insight into Decline in Oil Supply

In the previous posting I commented on the report of the Climate Commission (“Klimakommissionen”) that were appointed by the Danish Government in 2008. These eminent experts have been working for two years on their report that was published this week, and have, unfortunately, completely missed the important consequences of the decline in the global oil supply for economic growth. This decline is likely to start in the next few years and will be caused by the upcoming global peak in oil production, often referred to as  “Peak Oil.” In its report this commission does not even mention the correlation between the global energy supply and economic growth, the reliance on oil in the global transportation sector, or the difficult situation the global economy will face when we no longer can look forward to a steady increase in the oil supply to fuel increased activity in our global production and transportation systems.

This lack of insight is not a only a Danish issue. We certainly have the same problem in Sweden, and in the EU as a whole, with even more detrimental consequences than in Denmark, the country in Europe that is now heading into a large scale development of electric car systems. Throughout the communication from the EU, climate change is quoted as the critical problem that needs to be dealt with in the next two decades, and the goal of transforming energy systems before 2050 as the Danish climate commission suggests is in line with EU goals.

A similar lack of insight permeates a large share of the US debate about energy. In the newsletter “American Interest,” the scholar Walter Russel Mead of Bard College writes an otherwise erudite and insightful column in polemic against the idea of making electric cars the centrepiece of US industrial development over the next decade. Mead argues, based on an analysis of historic economic development that the development of electric cars is not going to revive the US car industry or create a lead for the United States in the face of Chinese investments into technology development and implementation.

Due to the lack of insight into the consequences for an oil dependent society of a decline in the raw material (oil) that fuels global economic growth and that creates the platform for all other economic developments in our globalized economy, the argument of Mead becomes largely irrelevant. It is true, from a historical perspective, that the Chinese growth is a result of this country’s large scale investments in many different areas. The point that is completely missed by Mead is that electric cars is a growth area that will provide the American economy, and subsequently the global economy, with an oil-independent transportation system, that can gradually replace chunks of the US and global car and truck fleets as the oil supply is reduced.

Mead argues that the solutions and systems developed by the innovative company Better Place, with its CEO Shai Agassi do not offer the route forward for US economic development. Without the insight that a decline in the global oil supply, and the lack of a replacement for oil that will soon be available on a large scale will cause a decline in global economic growth if we don’t plan and manage the Global Energy Transformation so that we gradually reduce our dependence on oil and implement renewable energy sources in the areas where these can make the largest impact on future economic growth. When we take into account the risks of a declining global oil supply we realize that the SMART grid systems and the electric car electronic applications of the Better Place offerings are probably the most promising and necessary technologies that are in development on this planet at present.

Sorry, Mr. Mead, this isn’t perhaps primarily about the cars in themselves, or about the American middle class – it is about the development of renewable energy systems, new vehicle technologies, ICT, smart grid technologies, and a host of other technologies that put together into the systems of Better Place can offer the global economy an alternative to fossil fuels that will soon be in decline. Sorry, Mr. Mead, the US will not have the opportunity to decrease the gas prices to even lower future levels, because of the upcoming event of “Peak Oil” and the ensuing decline in the global oil supply.

Incidentally, Denmark is one of the pilot markets of Better Place and Denmark is perhaps the country that, since the 1970’s, has taken the most insightful strategic route forward into the area of renewable energy, and that is pursuing this development even further as they focus on the large scale implementation of electric car systems, partnering with Better Place to drive this development forward. In this respect Denmark is clearly ahead of the rest of the EU, and the rest of the world. With the added insight that the global economy will not have the amounts of oil that we need in order to drive economic growth into the future, Denmark may want to speed up its implementation of electric car systems even further. For most of the rest of the world this insight will create the need for a dramatic change in direction of economic development.