Peak oil and the Hubbert curve are simple ideas, but raise a critical economic question: How will oil prices move after the peak? Some argue that oil prices will be still determined through the market mechanisms, and there will be no volatility of oil prices as demand decreases along with supply. This may be true in the long term. However, the problem is the decreasing supply. According to the Hubbert curve, the declining production slope is getting sharper, and it means that persistent price shocks are unavoidable; there will always be extra demand. According to some observers, energy price shocks caused by supply disruption threaten not only economies but also civilization itself (Hall, Tharakan, Hallock, Cleveland, & Jefferson, 2003). It requires policy efforts to mitigate adverse effects of peak oil. Rising oil prices and efforts to mitigate climate change are two major pressures on the world’s economies to reduce fossil fuel consumption. Now we face the problem of reducing our energy use to mitigate climate change and peak oil, while maintaining our living standard.
Development of alternative energy sources can be the ultimate solution of climate change and peak oil. However, alternative sources seem not to be available in the near future. It means that for now, the only plausible policy option we have is to adjust the structure of our economies to reduce fossil fuel use.
References Cited Hall, C., Tharakan, P., Hallock, J., Cleveland, C., & Jefferson, M. (2003). Hydrocarbons and the evolution of human culture. Nature, 426, 318-322.
*This series of posts is excerpted from my dissertation. I hope these posts help my visitors understand this critical matter better.*
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