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Peak Oil

Volume 488: debated on Friday 27 February 2009

Motion made, and Question proposed, That this House do now adjourn.—(Helen Goodman.)

The stone age did not end because of a lack of stone, and the oil age will end long before the world runs out of oil. In fact, the oil age is clearly already coming to a close, and three things have precipitated that. First, we have either just arrived at, or, as is more likely, just passed peak oil—the point on the Hubbard curve at which the maximum rate of global production has been reached. Secondly, and directly related to that, is the challenge of climate change and the need to stabilise average global temperatures to no more than a 2° celsias rise. Although the report produced by the Intergovernmental Panel on Climate Change in 2007 equated that with a concentration of 450 parts per million of CO2 equivalent in the atmosphere, more recent research from our own Hadley centre and NASA’s Goddard institute suggests that that might be over-optimistic. That has led the European Commission, in its January communiqué on a post-2012 framework for the spring Environment Ministers Council, to suggest that a 350 ppm CO2 equivalent stabilisation target might be better.

The third factor is political risk. This is what some people call security of supply, but it is effectively the political risk to which Governments are so acutely sensitive, owing to the fact that they are unable to control a resource that is essential to their economy functioning well. Energy is the lifeblood of the economic body, and the moment it stops flowing is the point at which the economic body begins to die. Perhaps the most striking example of the effect of the convergence of those three factors came earlier this week, when Stephen Tindale, a former head of Greenpeace, announced his conversion to the need for a new generation of nuclear energy plants in the UK.

I should make it clear that I am not in any way suggesting that the world is about to run out of oil. The International Energy Agency would suggest that there are enough proven and probable reserves of conventional oil left to supply the world with oil for a further 40 years at current levels of consumption. That is about 2.4 trillion barrels over and above the 1.1 trillion barrels that the world has produced so far. Beyond that, it makes sense to account for new discoveries of fields as yet unknown and for oil sands and oil shales, along with coal to liquids and gas to liquids, which, combined with extra-heavy oil, could account for a further 9 trillion barrels, although at significantly increased production costs, ranging from $50 to $115 a barrel.

None the less, the IEA outlook predicts annual production decline from now on, at a rate of 6.7 per cent. It is important to realise that there are significant limiting factors apart from price. We do not seem to be discovering significant new fields quickly enough. Data on existing reserves are suspect, particularly in the middle east, and depletion rates may be more rapid than some Governments are prepared to admit. Unconventional resources such as ocean floor or Arctic oil shales are proving technically more difficult as well as more expensive to develop.

The oil-producing countries are less willing to export as they increase their own domestic consumption. I think it was King Abdullah of Saudi Arabia who said in 2006 of some newly discovered field:

“Leave it in the ground, Inshallah our children will need it”.

On the one hand, King Abdullah was absolutely right. As global supply is projected to fall from 80 million to 40 million barrels a day by 2030, while global demand is projected to rise to 104 million barrels a day, the shortfall of 64 million barrels is the equivalent of finding six new Saudi Arabias. No doubt in such an scenario, an oilfield or two in the cupboard might prove very profitable for the lucky children. On the other hand, King Abdullah’s children will need these resources like a hole in the head, as their release is the equivalent of injecting an extra 13 gigatonnes of greenhouse gas emissions a year into the atmosphere in 2030—at a time when to stay within our stabilisation targets, we should be achieving a 17-gigatonne-a-year abatement instead. That abatement would be required simply to achieve our 450 ppm target. The 350 ppm target would require reductions far in excess of that level.

Oil, of course, is comparatively benign in comparison with coal, and the increase in coal generation is perhaps the single most acute threat that we can predict with some certainty. It is calculated that more than a third of the total 45 per cent. expansion in world energy demands by 2030 will be supplied by coal. Unless carbon capture and storage can be put in place for all new coal-fired power stations within the next five to eight years, that expansion of coal alone would make it highly unlikely that we could prevent dangerous climate change.

The Minister knows as well as I do that the current state of CCS technology and the reluctance to invest in it make this potential sequestration route about as reliable as a derivatives banker in a bull market. In her response, I ask my hon. Friend to outline the current time scale on which UK CCS might be rolled out, according to her Department’s best estimates.

Because of the very different rates of emissions that different fuels produce per unit of electricity, I ask my hon. Friend to establish a carbon priority in UK energy policy that would give precedence to lower-carbon fuels and back that up with an appropriate structure of incentives and penalties. I understand the transport premium that oil commands, but she knows that in electricity generation, the ratio between coal, oil and gas is that for every 10 emissions from coal, there are seven from oil and only five from gas. Surely it cannot be right for Government policy to take account only of the financial costs of these different generating methods, and ignore the environmental costs.

Naturally, I am amazed that significant further investment of Government resources is not being put into the very lowest carbon and renewable technologies. The Government’s stated position is that they will not in any way subsidise the new generation of nuclear facilities that this country so desperately needs over the next 15 years simply to replace older stations coming offstream at the end of their production line. That shows a level of complacency that would have qualified any Minister for a seat on the board of RBS over the past few years.

To meet the UK’s increasing energy demands, we need not simply to replace existing power stations, but to install many more new ones. The Government rightly, but not yet adequately, incentivise renewable technologies such as wind and marine power. It is illogical to refuse to do the same for nuclear. That must change. I look forward to hearing my hon. Friend’s response on that particular point.

No Member would expect me to speak about energy and climate change without mentioning the essential role that trees and forestry can play in leading the world out of the environmental problems that it faces. Those who are familiar with the McKinsey global abatement cost curve will know that it has identified an abatement potential of 19 GT. What is extraordinary is that of that total, which includes insulation, technological efficiencies, carbon capture and storage and literally hundreds of other components, forest mitigation alone accounts for a massive 6 GT. Most of that forest mitigation comes at a very attractive average price, lower than €15 per tonne. All the forest-based opportunities will have to be taken if the world is to reach even its 450 ppm target.

The Government have a wood fuel strategy for England. I know that because I was the Minister who produced it. However, it is one thing to have a strategy and quite another to have a programme. The Minister will be aware that the biomass currently available in under-managed broadleaf and conifer woodlands in England is respectively 2.7 and 1.5 million tonnes. If even half that available biomass were incorporated in a wood fuel programme, it would save the United Kingdom the equivalent of 3.6 million barrels of crude oil every year.

According to the Government’s own cost-benefit analysis, a pump-priming investment of approximately £120 million—million, not billion—over eight years would show a return of approximately £70 million in carbon benefit during that initial pump-priming period. Thereafter, the benefits over costs would grow to an estimated £35 million each year in savings to the economy. Those figures relate to just half the biomass that we know to be currently available. They do not include the potential for plantation of new woodlands managed for biomass, or even the potential of using sawmill co-product. Significantly, they do not even include what is known as “arboricultural arisings”—the wood that comes from tree pruning and safety operations by highways authorities, 68 per cent. of which currently goes to landfill.

Given those added sources of biomass, in less than 10 years Britain could have a wood fuel industry that saved it hundreds of millions of pounds and approximately 10 million barrels of crude oil each and every year. That would also improve the biodiversity of much of the woodland in the country. If used strategically, it could also create migration corridors allowing species to adapt to the climate change that is already in the system, as well as a wonderful human resource of rest and relaxation. I ask my hon. Friend to ensure that the Department starts turning that strategy into a programme as soon as possible.

My intention in recommending a move from a global to a small-scale national programme is to make one essential point. Just as the enormous scale of the global challenge that faces us is not unitary, with peak oil, climate change, population growth to 9 billion by 2050 all combining to create the problems of unsustainability, the nature of the responses that we put into effect must not be unitary. The creation of my hon. Friend’s Department was a welcome step forward in Government, bringing together old adversaries from the Department of Trade and Industry and the Department for Environment, Food and Rural Affairs and cementing them into allies, but in my view it failed to identify the real focus of the problem that we need to tackle.

The Department is called “Energy and Climate Change”, and my hon. Friend lost her old title of Minister for biodiversity when she was transferred to it. It would have been far better for her to bring it with her. The real crisis is one of biodiversity and ecosystems failure, not of climate change. Let me emphasise that, in and of itself, climate change would not matter. The real problem is that biodiversity cannot keep pace with the rate of change, and as a result biodiversity is depleted and ecosystems break down. It is the loss of biodiversity, along with the loss of the ecosystem services that it provides, that represents the real threat to human well-being.

The economics of biodiversity and ecosystems is a new and difficult enterprise for politicians. We are struggling to identify the true nature of value as we broaden the concept of capital to include not just social capital and human capital, but natural capital. Today, most of the benefits provided to our civilisation by ecosystem services bypass the marketplace, escaping the pricing mechanism, and they are therefore lost to the political and economic process as a mere externality. This inability to capture the value of ecosystem services is the acutest market failure in our world today.

My hon. Friend the Minister would perhaps laugh if I told her that I had put off upgrading my mobile phone for the past 16 months because a little girl was stung by a jellyfish on a beach in Devon in 2007. However, it is the growing demand for the latest mobile phone that has made coltan so valuable. Mining for this resource has fuelled the conflict in the Democratic Republic of Congo and central Africa. That conflict has led to deforestation. This has seen the loss of habitat and a reduction of forest mammals. That has resulted in an increased demand for an alternative animal protein. That has seen the depletion of high-trophic fish stocks. That has resulted in fishing down the food chain. That has led to blooms of jellyfish, which have replaced fish as the dominant planktivores. And that has resulted in the beaches of south-west England being invaded by jellyfish.

If climate change teaches us anything, it is that we are interconnected, but our institutional structures have not yet begun to recognise that. Governments around the globe still have mechanisms of intervention and engagement that are segregated and compartmentalised. We have a Department for the environment and a separate Department for international development, when it is clear that it is impossible to achieve the millennium development goals without securing the ecosystem services that provide the poorest 1.4 billion people on this planet with 50 per cent. of their GDP. We have a Treasury that understands over-leveraging of companies and credit bubbles, but that cannot see a connection with a world population consuming resources that the planet takes one year and four months to renew or replace, and a Treasury that refuses to put a value on ecosystem services and sees value only in the context of financial markets.

I urge my hon. Friend to work across Government silos, to reconnect with her old title as biodiversity Minister and to stop our institutional structures limiting our responses to global problems. We need to stop thinking in fragments and break down the barriers that prevent us from arriving at comprehensive solutions. Planting woods for biofuel is in every way as important a signal that her Department is rising to this challenge as it is a positive contribution to abatement and tackling the problems of peak oil.

I congratulate my hon. Friend the Member for Brent, North (Barry Gardiner) on what was an absolutely fascinating speech. It was wide-ranging, and I can say both that I agree very much with what he said about biodiversity and that my thinking does cross all Departments. I believe that the Government are beginning to accept the imperative of looking at biodiversity and ecosystem services and that value is being placed on them. Perhaps I should also add that I, too, have resisted having a new mobile phone, and for similar reasons—although my phone is now becoming so poor that I have managed to miss a few messages from the Whips Office, so I suspect it will have to be replaced.

The objective of our Government energy policy is to deliver affordable, secure and clean energy to UK businesses and consumers. In order to ensure security of supply now and into the future, the Department of Energy and Climate Change monitors potential risks to supply. Clearly, one potential threat to UK energy security is that the global supply of oil is not sufficient to meet future demand. There is a wide range of views as to why oil supplies may become insufficient, including geological constraints, insufficient investment, political instability and resource nationalism.

Typically, the risk that oil supplies will run out due to geological constraints is characterised as peak oil. To monitor this risk, DECC looks at a wide range of academic and industry studies that analyse future world oil supplies. DECC also meets experts to discuss this and other oil market issues, including investment in and exploitation of new oil reserves. However, assessing peak oil is extremely complicated due to limited data and the importance of assumptions made about future developments in the energy sector. Consequently, risk assessments vary widely by source. We look at the different sources, but we do not estimate the timing of peak oil production ourselves. We realise that a number of factors influence the balance of supply and demand of crude oil, and that these are not limited to the amount of available recoverable conventional oil resources. They also include the global demand for oil in the future, access to and investment in the development of existing resources, and technological progress that may allow us to extract more oil from current sources.

My hon. Friend quoted the International Energy Agency and he is correct, in that its most recent report states that

“the immediate risk to supply is not one of a lack of global resources, but rather a lack of investment where it is needed”.

The IEA estimates that only about a third of all ultimately recoverable conventional and economically recoverable oil has actually been produced to date. The report also states that

“there are reserves to meet demand at least through to 2030 if the investment is there”.

This is based on a detailed analysis of, among other things, 580 of the world’s largest oil fields, but the IEA also recognises—again, as my hon. Friend has said—that decline rates in maturing fields will increase, and that large investments are needed to make up the decline at existing fields. It estimates that total investment of $6.3 trillion might be needed on oil supply infrastructure between 2007 and 2030. Thus the IEA takes the view that it is not the level of oil reserves but of investment in production that is the more serious risk to future oil supplies.

Like the IEA, the Government have always recognised that additional investment will be required to meet oil demand in the future, and that the challenge lies in bringing these resources to market in a way that ensures sustainable, timely, reliable and affordable supplies of energy. We recognise that having oil reserves is only a start, and that converting these reserves into a global energy supply is fraught with challenges.

We are aware of the increased need to reduce barriers to timely and adequate investment in the oil sector. Having recognised those barriers, the Government used the London energy meeting in December as an opportunity for consumer and producer nations to discuss these issues. In particular, the transparency of global oil markets, the need for investments in production and the impacts of the financial crisis on future energy supply were discussed. At the meeting, participants emphasised the importance of stable and transparent investment regimes and agreed to work collaboratively to reduce barriers to investment. Participants also discussed the potential for innovative technologies to enable more efficient and effective use of energy resources. So we are not complacent about energy security.

The Prime Minister has asked my right hon. Friend the Member for Croydon, North (Malcolm Wicks) to review international energy security, and he may wish to include within his review consideration of supply and demand in the oil markets. Secondly, we are already putting in place policies that will reduce the energy intensity of the UK economy and help to increase its resilience to shocks in energy supplies. It is a fact that the UK is one of the least energy intensive countries in the G7.

My hon. Friend raised with me, quite properly, the threat of climate change from continuing use of fossil fuels, so let me address alternative technologies and energy efficiency. Tackling climate change and ensuring a secure supply of affordable energy are the key goals of our energy policy. Increasing our use of renewable energy is an essential part of our strategy for meeting those goals.

The UK’s policies on climate change, our incentives for the development of renewable energy and our policies for moving to a low-carbon economy are consistent with the need to diversify our energy sources and ultimately increase our resilience to shocks in energy supplies. The Department of Energy and Climate Change will publish a new UK renewable energy strategy later this year, and it will set out the path to meet the UK’s share of the EU renewables 2020 target.

The heat and energy saving strategy consultation, published on 12 February, sets out the Government’s long-term vision for dramatically improving the energy efficiency of our homes and businesses and expanding the provision of low-carbon heat. The measures set out in the consultation could reduce oil consumption in 2020 by 6 per cent.

We already have a raft of incentives and constraints in place to tackle the move to a low-carbon economy. We have the EU emissions trading scheme, we are introducing the carbon reduction commitment and we have the renewables obligation certificates and, of course, the feed-in tariffs. They will all increase our potential to employ renewable energy.

On the issue of ROCs, has my hon. Friend had the opportunity to consider the disparity between the five ROCs for marine renewables that the Scottish Administration have and the two that we have in England? Has she considered our urgent need to put more investment into marine renewables, as it is one of Britain’s leading renewables sectors?

I thank my hon. Friend for that important question, on which I regret that I am not briefed. As it falls outside my immediate portfolio, I shall have to take advice and I undertake to write to him on that point.

Let me turn for a moment to transport, which is the biggest consumer of oil in the UK economy, accounting for about 70 per cent. of total oil consumption. The Government are therefore working towards improving efficiency in the transport sector and within the 2020 EU package to achieve a target of 10 per cent. renewable transport fuels by 2020. The Government are also keen to promote the uptake of new technologies when they arrive and, as part of the recent announcements on transport strategy, we made a commitment of £250 million to deliver consumer incentives to promote electric vehicles.

My hon. Friend asked in particular about carbon capture and storage. The timetable is that we expect to have a demonstration project operational by 2014 and that we want to see commercially viable CCS in this country by 2020. Indeed, a European programme will assist with that. We are also considering additional policies that will take us from demonstration to deployment.

My hon. Friend asked about wood fuel and whether the strategy has become a programme. First, let me congratulate him on the development of the wood fuel strategy, which is an incredibly important part of our move from the most energy-intensive uses of energy. Much work is going on around government and I hope that in due course he will be satisfied that we have moved from strategies to programmes.

On my hon. Friend’s point about nuclear, I think that he is very aware, as he suggested, that the legislation has been designed and passed in such a way that it does not create a Government subsidy for the industry. That has obviously been done because the Government believe that the industry will progress and that it will do so on a commercial basis. Of course, that is the assurance that the companies have given over time.

My hon. Friend spoke of the difficulties of exploiting more difficult oil fields, and the Government and industry are pursuing initiatives to stimulate North sea investment and activity. We are also working to ensure that there is a stable regulatory framework that helps market participants to have the confidence to make necessary investments in the UK continental shelf.

We know that additional investment will be required in all elements of energy policy to meet demand and to ensure that the lights stay on in this country, but we have to move from a high-carbon economy to a low-carbon economy. The Climate Change Act 2008 gives us the framework we need, with its target of an 80 per cent. reduction in greenhouse gas emissions by 2050, consistent with the science whereby developed countries such as ours have to make that effort, if we are to remain within the 2° Celsius limit for temperature increase. I recognise that, even as we continue to exploit our oil reserves, we must prepare for decarbonisation of our energy supply and our homes and make progress in transport. The challenge is huge, but we believe that we have the frameworks and will have the policies we need to tackle it effectively.

Question put and agreed to.

House adjourned.