<a href="http://www.gmagazine.com.au/blogs/leon#">The Business of Green</a>

The Business of Green

Money matters in the green world, by Leon Gettler.

Peak oil and climate change

Oil Rig

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We are approaching peak oil and it’s absolutely connected to climate change. They can only be solved together, requiring a shift away from a reliance on fossil fuels into what’s now called the “post-carbon economy.”

According to a recent Australia Institute report, peak oil and climate change need to be tackled together, and the first thing we need is a carbon price. The Australia Institute says we need a carbon tax. A trading system would not work as well because permit prices fluctuate. That creates uncertainty, making it impossible to build a business case for investment in energy alternatives.

“Ultimately, these issues can only be only be addressed by the introduction of a comprehensive carbon-pricing mechanism that delivers an internationally consistent carbon price,’’ the paper says. “This can be achieved either by international trade in carbon permits or, the best and simplest option, an internationally harmonized carbon tax.”

To that end, we should be pleased that BHP chief Marius Kloppers this week put pressure on the government by calling for a carbon price and a tax to “protect Australia’s long term interests.

Business now sees the link between peak oil and climate change. All economies are dependent on oil and peak oil would cause a lot of economic damage. According to a piece published in Der Spiegel magazine this month, a German military think tank report strategically leaked online warns that there is some probability that peak oil will occur soon “and that the impact on security is expected to be felt 15 to 30 years later.” The report warns of market failures, colossal tax hikes, food shortages and widespread rationing. Oil is used in the production of 95% of industrial goods so the report predicts price shocks right through the supply chain. “In the medium term the global economic system and every market-oriented national economy would collapse,’’ it says.

The strategic importance of oil is impossible to underestimate. As Anita McGahan, a professor at the University of Toronto explains, it’s part of our everyday lives. “Look around the room and name everything made out of petroleum: the paint on the walls; the fillings in your teeth; your pacemaker; the clothes you wear; your eyeglasses; your computer and your cell phone. Modern firefighting technology is completely dependent on petroleum. Agriculture is completely dependent on petroleum—fertilizer, harvesting, storage, processing, packaging and transportation. What about sewage, sanitation and water systems? The PVC piping in modern sanitation systems is essential to our water quality. Without petroleum, there is no air conditioning, which means that our hospitals cannot be cooled to a disease-combating temperature. Everything in health care depends on petroleum. Without plastics, we have to rethink everything that makes modern life modern … Many forget how reliant we are on fossil fuels for food production and transportation. Additionally, many oil sources are in areas of the world that are politically unstable. Yet there doesn’t seem to be a big impetus for change. Of course, the issue of cost becomes a factor. Who should pay for the massive changes and shifts in production and technology that are needed? And how can we get a coordinated effort on the part of business, government, academia, and international organizations to work for a long-term solution to our energy needs?”

Similarly, a report from Lloyds of London says peak oil and climate change are closely connected.

Clearly we need action on them both. Perhaps peak oil will provide governments with the externality they need to make the hard decisions on climate change. Starting with a carbon price and maybe even a carbon tax.