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Page added on January 28, 2012

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Oil prices, exhaustible resources, and economic growth

General Ideas

Abstract

This chapter explores details behind the phenomenal increase in global crude oil production over the last century and a half and the implications if that trend should be reversed.

I document that a key feature of the growth in production has been exploitation of new geographic areas rather than application of better technology to existing sources, and suggest that the end of that era could come soon. The economic dislocations that historically followed temporary oil supply disruptions are reviewed, and the possible implications of that experience for what the transition era could look like are explored.


… Knowing what the future will bring in terms of adaptation of both the supply and demand for petroleum is inherently difficult. However, it is not nearly as hard to summarize the past. Coping with a final peak in world oil production could look pretty similar to what we observed as the economy adapted to the production plateau encountered over 2005-2009. That experience appeared to have much in common with previous historical episodes that resulted from temporary geopolitical conflict, being associated with significant declines in employment and output. If the future decades look like the last 5 years, we are in for a rough time.

Most economists view the economic growth of the last century and a half as being fueled by ongoing technological progress. Without question, that progress has been most impressive. But there may also have been an important component of luck in terms of finding and exploiting a resource that was extremely valuable and useful but ultimately finite and exhaustible. It is not clear how easy it will be to adapt to the end of that era of good fortune.

Let me close with a few observations on the implications for climate change. Clearly reduced consumption of petroleum by itself would mean lower greenhouse gas emissions. Moreover, since GDP growth has historically been the single biggest factor influencing the growth of emissions (Hamilton and Turton, 2002), the prospects for potentially rocky economic growth explored above would be another factor slowing growth of emissions. But the key question in terms of climate impact is what we might do instead, since many of the alternative sources of transportation fuel have a significantly bigger carbon footprint than those we relied on in the past.

Link to full report
Prepared for “Handbook of Energy and Climate Change”.



One Comment on "Oil prices, exhaustible resources, and economic growth"

  1. BillT on Sat, 28th Jan 2012 2:03 am 

    Still nothing real. Dodging the issue just like every other ‘report’. The world agrees that oil peaked about 2006. We saw what our future is in the years that followed. Why do we need another long winded report full of ifs and maybes? All we need is headlines in big print in every newspaper in the world stating reality.

    “OIL PEAKS – GROWTH IS OVER – ADJUST!”

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