Select Committee on Environmental Audit Ninth Report


Other issues: developing economies, peak oil, and the future

Emissions from developing economies

141. Recent press headlines such as "India is on the road to a transport revolution"[202] and "Fears for environment as China plans 48 new airports"[203] highlight the upward trajectory of emissions from transport in developing economies. Indeed, the International Energy Agency (IEA) is predicting an increase in demand for oil in China and India of almost 3% per year for the next 25 years.[204] We note that while CCP 2006 cites several examples of international co-operation with developing economies, designed to help them make carbon reductions - for instance, work to accelerate the deployment of renewable energy and to improve energy efficiency in China through the Renewable Energy and Energy Efficiency Partnership (REEEP)—it does not mention any projects designed to help other countries reduce their emissions from transport. The Government must work with international partners to develop such projects on a wide scale, and for two reasons. First, this will play a part in curbing emissions from developing economies which would otherwise threaten to more than cancel out any reductions made by policies in the UK. Second, by doing so it would help to overcome the argument made within the UK that any such domestic action was futile, due to the growth in emissions elsewhere.

Future price and availability of oil

142. In assessing future demand for transport, the Department uses assumptions of future oil prices which are established, and periodically updated, by the DTI. In the 2003 Future of Aviation White Paper, the Department's assumption was that aviation fuel prices would remain at $25 dollars per barrel in real terms (2000 prices) until 2030.[205] In the 2004 Future of Transport White Paper, the Department referred to the DTI's May 2004 projections of the price of crude oil standing at $23 a barrel (2003 prices) in 2010, and rising to almost $28 a barrel by 2020.[206]

143. Since those White Papers were published, the price of oil has risen markedly; as of 11 July 2006 a barrel of brent crude stood at $74.16.[207] In our first session, Transport 2000 discussed their concerns about the Department's projections, arguing that if a higher level of oil prices were to continue it would undermine the case for an expansion in oil- and carbon-intensive transport infrastructure, such as roads and airports, and strengthen the case for investment in fuel-efficient programmes and modes of transport.[208] As the following Parliamentary Question (from 14 March 2006) illustrates, such concerns are not confined to NGOs:

Chris Grayling: To ask the Secretary of State for Transport what assumptions of (a) prices and (b) range of prices for crude oil in (i) 2010, (ii) 2015, (iii) 2020, (iv) 2025, (v) 2030 and (vi) 2050 are being used by his Department in (A) the National Transport Model, (B) the forthcoming review of the aviation White Paper and (C) the draft guidance on railway closures; when the Department last reviewed these prices; and whether these price assumptions have been subject to independent external review. [58326]

Ms Buck: The Department's National Transport Model uses fuel prices that are based upon DTI crude oil price projections. […] Their latest projections are for crude oil to fall from its current high levels to $35 (in 2004 prices) in 2010 and then remain at that level in real terms through to 2020—the end of their projection.

The Aviation White Paper published in December 2003 says that DfT will continue to update forecasts in the light of trends. Movements in the oil price since publication of the White Paper are clearly one material factor; any further forecasts would need to take into account up-to-date departmental assumptions.

The draft guidance on rail closures is not itself based on any particular assumption about crude oil prices. Prevailing and anticipated future fuel costs are one of a range of issues which we will expect to be taken into account at the time a specific proposal is made.[209]

144. The then Transport Minister's response was not quite correct. The $35 figure she cited was in fact one of three price projections given by the DTI,[210] based on different investment and world events scenarios (Figure 7).

Figure 7 - February 2006 DTI projections for oil prices up to 2020
Scenario
2010
2015
2020
High
$50
$50
$50
Central
$35
$35
$35
Low
$20
$20
$20

Indeed, in the 2006 Energy Review, published in July 2006, the DTI has updated these figures again (Figure 8): "Since the previous CO2 projections were published in February 2006, […. t]here has […] been a re-assessment of fossil fuel prices. Generally, fossil fuel prices in 2010 are assumed to be higher than previously and to rise further between 2010 and 2020. This is to reflect the signs that demand for oil appears more robust to higher prices than previously assumed and supply is still expected to remain relatively tight even after expected increases in supply in the next few years."[211]

Figure 8 - July 2006 DTI projections for oil prices up to 2020
Scenario
2010
2015
2020
High
$67
$69.5
$72
Central
$40
$42.5
$45
Low
$20
$20
$20

145. The important question is whether the recent rise in oil price is merely a temporary spike, reflecting bottlenecks in refining capacity and current political uncertainty in oil producing areas in the Middle East, Africa, Russia, and Latin America,[212] or whether it is due to continue or rise even higher. This brings us onto the "peak oil" debate. A vocal minority of oil analysts argue, against the projections of bodies such as the International Energy Agency, that the global production of oil will peak in the short-term future, and that this will create extremely profound convulsions to the global economy and to international relations. We received three submissions which discussed this theory and argued that it needed to be taken into account in the Department's policies;[213] and heard evidence from a prominent speaker on peak oil, Chris Skrebowski, editor of the Energy Institute publication, Petroleum Review. In his view, "in 2010-11 the numbers cease to add up and you start getting less oil at the end of the year than you had at the beginning on a global scale. That is when peak oil occurs. In my view, it is really quite imminent."[214] By contrast, the UK Petroleum Industries Association (UKPIA) told us: "We as an industry are seeing something like 40 to 100 years of oil supply left. If we look at the production profiles that are produced by our industry, when they look ahead they do not show a peak in global oil production up to 2030, the limit of the forecasts."[215]

146. The Government's view of this debate is given in the following Parliamentary Question and answer (to date, the only one that has been asked on this subject):

John Hemming: To ask the Secretary of State for Trade and Industry what estimate the Department has made of when global production of conventional crude oil will peak. [11302]

Malcolm Wicks: The Government's assessment of the remaining lifespan of global oil reserves is set out in the Energy White Paper 2003 "Our energy future—creating a low carbon economy" (http://www.dti.gov.uk/energy/whitepaper/index.shtml). Paragraph 6.15 of the White Paper notes that

"Globally, conventional oil reserves are sufficient to meet projected demand for around 30 years, although new discoveries will be needed to renew reserves. Together with non-conventional reserves such as oil shales and improvements in technology, there is the potential for oil reserves to last twice as long".

This is consistent with the latest assessment by the International Energy Agency (IEA) in its 2004 World Energy Outlook. The IEA concludes that

". . . global production of conventional oil will not peak before 2030 if the necessary investments are made."

The Government remain committed to working with producers, consumers and the international community to improve the conditions for investment in the international oil sector, as well as implementing policies to maximise the economic recovery of the UK's own oil (and gas) reserves and to ease the UK economy away from power supplied primarily through fossil fuel supply. We are also supporting efforts to promote greater transparency in reporting of global oil reserves.[216]

147. It should be noted that in this statement the Minister is only really citing one source rather than two: the source given in Paragraph 6.15 of the 2003 Energy White Paper is also the IEA's World Energy Outlook, albeit from 2002. In his session with us, the Secretary of State said:

Mr Alexander: Our view is that global oil production will not peak before 2030, but again that is a cross-governmental view rather than simply the view of the Department for Transport. That is contingent on sufficient investments being made. This is consistent […] with the view of the IEA, most other governments round the world and, indeed, the oil industry itself, and reflects what we have judged to be several flaws in the argument that was put to this Committee by one individual who clearly takes a very different view in terms of the timing at which peak oil will be reached.[217]

148. While, as the Secretary of State himself suggested, this could be said to represent the broad consensus of governments worldwide, it is notable that the Swedish government has announced a policy of reducing oil dependency as much as possible by 2020, and has held a public hearing on when peak oil will be reached. Meanwhile, in 2005, a report sponsored by the US Department of Energy (Peaking of World Oil Production, known as the Hirsch Report) found that, although it was difficult to predict when peak oil would occur, when it did it would result in an unprecedented transport fuels crisis that would cause protracted economic hardship. It recommended that oil depletion deserves immediate and serious attention, if the risks are to be fully understood and mitigation begun on a timely basis.[218]

149. There are conflicting views in the "peak oil" debate, and we have not examined them closely enough to take an informed view ourselves. We would observe, however, that even if the Government's projections of conventional reserves extending to 2030 are correct, this is still quite a short time, given transport's current 99% reliance on oil, and the lifetime of major infrastructure projects. While the Government also projects that improved technology and unconventional reserves could extend this period by another 30 years, we are concerned that the recovery and refining of such reserves could itself (given the extra energy required to process them) lead to higher "well-to-wheels" emissions. All this speaks of an extra imperative for the Department to make a step-change in funding and policies to wean the UK off the use of fossil fuel oil. To appraise the risks, inform priorities, and raise public awareness, the Government should commission its own equivalent to the US Hirsch Report, and study the example of the Swedish policy to reduce oil use by 2020.

Looking to the future

150. Since 2004 the Foresight project, run by the DTI's Office of Science and Innovation (OSI),[219] has been carrying out a research programme entitled "Intelligent Infrastructure Systems", which has concentrated on anticipating the future shape of transport in the UK up to 2050. Drawing on the work of more than 300 science experts and key stakeholders, the programme developed four scenariosintended to help guide current policy makingof how the future might develop, based around different projections of the availability of oil, the pace of alternative technologies, and the outcome of political debate on climate change. Despite their differences, these four visions of the future hold some consistent messages. Most of all they argue that the next 45 years are not going to see a simple continuation of trends experienced since 1960. Growing political pressures over the need to reduce carbon emissions, the possibility of a sharp and prolonged fuel shock following peak oil, the complications caused by the development and rolling out of new fuels and technologies, and the potential divergent economic outcomes that follow rapid change to transport and communications, are projected to put transport at the very heart of public policy. The Department should closely examine the findings of the Intelligent Infrastructure Systems programme, in terms of both measures that could be taken to reduce carbon emissions, and ways of winning public support for them.

151. As this report sets out, transport is both the most technically difficult sector in which to reduce carbon emissions and also the most politically difficult. Indeed, the latter is a result of the former because neither technological progress nor centralised efficiency improvements by themselves result in the same speed or scale of reductions as in other sectors. Significant cuts in emissions from transport also require widespread behavioural change. Such change challenges one of the very keystones of modern society - the deeply cherished and ever-expanding sense of personal freedom and mobility that has followed the increasing affordability of both driving and flying but which involves profligate consumption of energy.

152. Governments at home and abroad must urgently inform the public about the reality and dangers of climate change, and the measures we can all take to avert it. We do not underestimate the problem which this poses for any elected politicians. This underlines the need, as this Committee has consistently argued, for a cross-party approach to the important and difficult measures necessary to tackle climate change. In taking forward the recent Energy Review and switching the focus of transport policy, we urge the Government to show courage in challenging popular preconceptions in order to serve the people's long term interests.


202   "India is on the road to a transport revolution", The Guardian, 2 May 2006. Back

203   "Fears for environment as China plans 48 new airports", The Guardian, 10 May 2006 Back

204   International Energy Agency, World Energy Outlook 2005, November 2005, p 83 Back

205   DfT, The Future of Air Transport, Cm 6046, December 2003, p 150 Back

206   HC Deb, 23 June 2005, col 1129W Back

207   International Energy Agency figure for "NYMEX WTI", www.iea.org.  Back

208   Q54 [Mr Joseph] Back

209   HC Deb, 14 March 2006 ,col 2056W Back

210   In fact, overall DTI uses four scenarios. Its "Central" scenario is divided into two, one in which gas prices are favourable to coal, and one in which coal prices are favourable to gas. However, in both cases the oil price is the same. DTI, UK Energy and CO2 Emissions Projections: Updated Projections to 2020, February 2006. Back

211   Cm 6887, p 201 Back

212   Claude Mandil interview in Nikkei, 24 April 2006, http://www.iea.org/journalists/headlines.asp  Back

213   Ev175, Ev240, Ev370 Back

214   Q443 Back

215   Q371 [Mr Watson] Back

216   HC Deb, 18 July 2005, col 1338W Back

217   Q 668  Back

218   Robert L Hirsch, Roger Bezdek, and Robert Wendling, Peaking of World Oil Production: Impacts, Mitigation, and Risk Management, February 2005, pp 4-7 Back

219   The OSI was formed on 3 April 2006, following a merger of the DTI's Innovation Group (IG) into the Office of Science and Technology (OST). Foresight was first established in 1994, and formerly belonged within OST.

 Back


 
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