EVEN WHEN CRUDE oil hits US$100 a barrel, it will still be the bargain of the century. At that price, you will get about 159 litres of magic black goo. In it lies an unmatchable source of concentrated solar energy, patiently collected by pre-historic flora over tens of millions of years and condensed into a rich variety of hydrocarbons by tectonic pressure, gentle geothermic warming and time. That goo can be burned to produce (in theory) 6.1 billion joules of usable energy. Or you can refine it into an astonishing array of plastics, petrochemicals and pharmaceuticals. There are other sources of energy, but none offers the sheer convenience of oil. Nature left us vast pools of the stuff to be extracted cheaply and easily. Alas, these reserves are petering out. Global crude production will peak within a decade or so. Last week, Goldman Sachs predicted the world will see oil at US$105 a barrel within two years. Using the most gluttonous consumer of oil as an example - the United States - each US$5 rise in crude prices translates into a 0.4 percentage point decline in GDP. That is because as consumers spend more on energy, they spend less on disposable cameras and big-screen televisions. In an ideal world, humanity could switch to alternative sources of energy over time that, while not nearly as cheap as oil used to be, would power our buildings and public transport systems. Never mind that firms are forecasting that solar and wind energy will satisfy less than 0.5 per cent of global energy demand by 2020. When coal, oil and natural gas become too expensive to use, that figure will rise in a hurry. Our proclivity for technological improvement works in our favour. Since the mid-1840s, the quantity of energy needed to generate a given amount of GDP has steadily fallen by about 1 per cent a year. Unfortunately, there is another factor at work that will make things far worse. Oil may have seemed cheap for all those years, but it was a cruel illusion. The true costs are only now apparent. For centuries, billions of tonnes of carbon, sequestered in Earth over the eons, has been spewed into the atmosphere as carbon dioxide, changing the planetary balance in dangerous and expensive ways. The amount of energy required to grow food could triple as previously arable land alternatively dries up or is flooded by the rising seas, necessitating huge energy inputs to raise farm yields elsewhere. There is no denying now that terrestrial ice caps are shrinking and temperatures rising. London may still see the occasional snow in April, but the Greenland glaciers are melting, the Arctic permafrost is warming into a treacherous muck and come July the North Pole is a chilly but unfrozen brine. In the March issue of Scientific American, meteorologist David Ruddiman presents paleo-atmospheric evidence that humans have been changing the climate for at least 8,000 years. Even the relatively tiny amounts of surplus greenhouse gases produced by ancient clearing of forests left the earth four degrees warmer than natural planetary cycles would have dictated. Carbon dioxide levels are already at levels not seen for 120,000 years, and rising fast. Mr Ruddiman forecasts an unprecedented jump in global temperatures that will not fall until thousands of years after fossil fuels are depleted - and that is assuming a runaway planetary greenhouse effect does not leave Earth a lifeless, Venus-like globule of semi-molten rock. Market optimists scoff at such notions of inevitable dystopia and despair. As long as price signals remain clear and are allowed to filter through the economy, humanity will respond to challenges and pull through, in the words of historian Kenneth Clark, 'by the skin of our teeth'. Perhaps so. But it will not be possible to escape a painful transition to a new energy system far less forgiving than the one we enjoy now. The longer we pretend that the true cost of burning petroleum is only US$100 a barrel, the more painful that transition will be. Jake van der Kamp is on holiday
