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November 4, 2009

Is there life after oil?

The Canadian Charger

Oil extractionThe days of cheap oil will soon be behind us and when they are gone our world will change in ways few of us have probably considered and most would rather not.

If the warnings from geologists and more recently economist Jeff Rubin are true, and there is no reason to believe they aren’t, we can expect to pay more for oil that we use to fuel our cars, heat our homes and drive our factories.

We can forget about hopping on planes for a cheap winter getaway and the cost of shipping lettuce from California and apples from China will be prohibitive.

The problem stems from what geologists call “peak oil.” Simply put, peak oil is the point in time when the maximum rate of global petroleum extraction is reached, after which the rate of production enters terminal decline.

A growing number of voices say we are either near, at, or past the peak.

Since the industrial revolution, developed countries around the world have based their economic development on the availability of cheap oil. We’ve used it to heat are homes, fuel are cars, run our factories and in the process pollute our skies.

The high cost of oil will manifest itself in many ways, some good and some bad.

In a nutshell, says Jeff Rubin, who until recently was the chief economist for the Canadian Imperial Bank of Commerce, your world is about shrink.

Rubin published a book earlier this year titled Why Your World Is About to Get a Lot Smaller - Oil and the End of Globalization.

We are not running out of oil, but we are running out of cheap oil and it is cheap oil that has supported our high lifestyle.

What’s left is hard to get at and expensive to pump and process.

Cheap oil has made it possible for Wal-Mart stores in Canada and the United States to line their shelves with cheap goods produced in the factories of China where labor costs are a fraction of what they are here.

An alarming share of our food in Ontario is imported from California, China and other parts of the world. Cheap oil has made all of this possible.

With oil projected to soon go as high as $200 a barrel and gasoline selling at $2 a litre, we can expect fewer cars on the road and those that are to travel shorter distances.

And when it comes to the goods lining Wal-Mart shelves, high transportation costs will offset the advantage of cheap labor making the production goods in North American factories a better deal.

Commuting long distances to work will be a thing of the past and air travel will be reserved for the elite, says Rubin.

A standard flight from New York to London burns about 112 gallons per passenger or the same amount that a mid-sized car American car burns in three months.

“Higher transportation costs will make commuting from the suburbs to cities a thing of the past. Soaring costs of travel will depopulate the suburbs and the farther they are from where people work the emptier they’ll get,” Rubin says.

Higher transport costs will mean, for instance, that is no longer feasible to import lamb from New Zealand and blueberries from California.

The high cost of importing food will put pressure on local farmers to replace costly imports, and that, says Rubin, is a good thing.

As the price of lamb and berries soar ever higher, more local farmers will start growing berries and raising lamb reversing the trend over the last couple decades. In 1988, Ontario imported less than 25 per cent of its food and now that’s over 40 per cent.

To meet the growing demand for local food, acres of farmland that was lost to production will be reclaimed, says Rubin, adding that trend would benefit consumers on a number of levels.

For starters, the food would be fresher, healthier and tastier. Buying locally would pump money into local communities, support local farmers and dramatically reduce carbon emissions thus helping in the fight against climate change. Less travel means less air pollution and less air pollution means healthier communities.

You should plan on eating at home more than you do now because traveling to and eating at restaurants is about to get more expensive.

Dire warnings about the end of cheap oil aren’t new.  But as each new voice joins the choir, the message is becoming more urgent and the need for action more acute.

Rubin warns that continued dependence on oil will lead to a never-ending series of recessions and periods of recovery.

This is what could happen. The price of oil climbs to a point where industry no longer can afford to manufacture goods, factories close, people are laid off, the economy tanks and the price of oil collapses just as it did last year.

On the other hand, we could change, decouple our economy from oil and use less energy. Rubin draws a picture of the future where there are fewer cars, cleaner cars, more efficient mass transit systems and tighter knit communities with less urban sprawl.

Taking gas guzzling cars off the road would go a long way toward to cutting carbon emissions. “Don’t be surprised if the new smaller world that emerges isn’t a lot more livable than the one we about to leave behind,” he says.

Rubin sees a time in the not to distant future when closed factories in Canada and the United States are reopened breathing new life into communities that lost jobs and saw business collapse.

“From industrial pump parts to lawnmower batteries to home furniture shipping costs are driving production back to North America from cheap labor markets in China and other places.

“With transport and logistics costs soon to become more important, padlocks will be taken off mothballed factories and machinery that hasn’t run for years will be getting a new greasing.”

Rubin says now is the time to wean ourselves off of oil and lessen our dependence on a fuel that is rapidly becoming in short supply.

Auto companies have improved fuel efficiency for cars and trucks, but, says Rubin, this has only led to people driving further and in bigger vehicles.

Tax cuts, government spending aimed at stimulating the economy and bailouts to banks and auto companies can ease the pain temporarily, but the huge deficits will need to be dealt with and the pain that brings will be severe, he argues.

“There is only one way to avoid a future of much slower economic growth in a world of depleting oil supply. And that’s to lessen the economy’s dependence on oil.”

And that isn’t a job that governments can do. “The key to downsizing the role of oil in the economy is micro decisions made by householders and consumers every day.

“What the record plunge in oil prices from $147 per barrel to $40 per barrel over the recession clearly shows is that oil consumption and economic growth go hand in hand. As long as every new unit of GDP requires someone somewhere in the world to burn more oil, the ability to grow the economy will be constrained by the ability to grow the oil supply.”

Rubin says we need to change the equation that ties the size of the economy to how much oil we burn.

“That’s certainly not going to happen with economic stimulus packages that are giving life support to dying oil-sucking industries like autos and allocating billions of dollars of new spending to road infrastructure.

“If we are going to go big time into hock with record-size government deficits, let’s at least spend the money on our future, not our past. Our future is public transit, not more freeways for gas-guzzling private vehicles.”

And if we are going to invest in autos, invest in those that aren’t dependent on oil, he says.

Bob Burtt is a Cambridge, Ont. based freelance writer with an interest in environmental issues.

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Dotan Rousso. Holds a Ph.D. in Law—a former criminal prosecutor in Israel. Currently working as a college professor in Canada.

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