The Oil Drum

Great post Phil.

I hope you submit it to Rudds Australia 2020 Summit planning meeting.

Here is a submission I prepared. I would be very grateteful for some review and comment:

There is no separate section for submissions on oil supply vulnerability. There is thus an implicit assumption by government that there will always be sufficient crude oil for our needs, and in particular for actions arising out of this summit. Despite this omission it is the most important consideration for the summit as all the other matters under consideration are dependencies of the continued availability of affordable crude oil. This is a key component of sustainability.

This submission is based on the rapidly advancing energy crisis, a crisis that is based both on the use of energy (coal) and the procurement of energy (oil).

Climate change
This topic is already well advanced in public discussion and no more needs to be said here. Oil is an important, but minor component of climate change. Coal is the major contributor and action is required that addresses coal use on its own.

The risk of oil shortage.
Despite 10 years of increasing oil prices, (during which time oil prices have increased 10 fold) and 3 years of stagnant global oil production (IEA Monthly Oil Market Reports, sch 3 2000-2008), there is very little public discussion about the security of supply of oil. Both the IEA and Shell have warned of a supply crunch occurring within 5 years. I also refer the committee to the Queensland government Oil Vulnerability Task Force led by the Queensland Government Minister for Sustainability, Mr McNamara.

Of particular concern is the fact that 3 of the 4 most important exporting countries from which Australia procures its oil are experiencing declining oil production (Vietnam, Papua New Guinea and Malaysia). The amount of oil available for export from these countries is suffering doubled exponential reduction through rapidly increasing domestic consumption coupled with declining oil production (Theoildrum.com 2008) In addition, oil available for export generally is reducing. The 3 biggest oil exporters, Russia, Saudi Arabia and Norway all reduced oil exports in 2006 compared to 2005. The trend is set to increase in 2007.

As a wealthy country, Australia can no doubt out bid other countries for oil for a number of years. Even so, the impact of higher oil prices may severely impact the Australian economy. If and when actual shortages occur the impact on the economy is likely to be devastating.

It should be noted that there is a high probability that Australia, along with the rest of the world, will be suffering a major, multi-faceted energy crisis well before 2020. Therefore this issue needs sophisticated analysis and an equally sophisticated risk management response. Some sectors of the economy are particularly vulnerable:
• Access to affordable food is critical and agriculture is extremely vulnerable to higher energy prices for fertilizers (made from natural gas), farm production using diesel driven machines, transport and processing. Food security has sharply declined in recent years and this is due in large part to the oil supply situation.
• Transport, especially aviation, road transport and the motor manufacturing industry
• Healthcare

Responses and Actions
Policies and programmes are urgently needed to help reduce energy use.

1.) A major programme of public dialogue and education so that an informed public discussion can take place about how to best respond to this impending crisis. This programme needs leadership and direction from government that is open and honest.

2.) To set up a federal oil vulnerability task force. Government has yet to respond to Australia’s Senate Rural and Regional Affairs and Transport Committee report on future oil supply and alternative transport fuels finished last year. An oil vulnerability task force can use this report as a valuable starting point.

3.) Some possible shifts in policy are visible now:

a. A fiscal response: Shift some of the burden of taxation from income to carbon. Introduce a tax on carbon based on the grade of coal, oil or gas and its associated carbon emissions, to be implemented at the pit or well head or on import. This tax will be cheap and easy to implement. At the same time reduce the burden of income tax. As increasing energy prices will impact lower income socio-economic groups more, the tax raised could be used to lower taxes for lower income households at the same time as incentivising the move to renewable energy supplies.

b. Call an immediate moratorium on further expansion of the road and air transport systems pending the outcome of the oil vulnerability taskforce.

c. Commence a major programme of expansion in Australia’s rail transport system that will concentrate on 4 factors:
i. Commuter transport in major urban areas. Consider making commuter rail journeys free to use.
ii. Increasing the capacity and speed of intercity rail transport
iii. Ensure that rural areas are adequately served by rail networks
iv. Moving freight off the roads and on to rail, if possible onto a separate rail system.

d. To introduce policies that will help safeguard access to affordable food

References