How to Avoid Oil Wars, Terrorism, and Economic Collapse
Page 2: Questions and Answers

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Discussion of the Protocol

The Protocol may at first look like merely a good idea with no real chance of implementation. However, closer inspection suggests that its implementation will benefit nearly all important global stakeholders and that objections likely to be raised to it are easily countered.

What if forecasts of a near-term peak in global oil production are wrong? Won't there be a cost to preparing for the oil peak too early? In practical terms, won't this mean voluntarily choking off economic growth?

Because so much is at stake, it is important that these vital questions be addressed not just by partisan participants in the debate over the timing of the oil-production peak (the so-called "oil optimists" and the "oil pessimists"); some independent assessment is required of the costs of preparing too soon versus the costs of preparing too late.

Fortunately, such an assessment has already been undertaken - "Peaking of World Oil Production: Impacts, Mitigation, & Risk Management," a Report prepared by Science Applications International Corporation (SAIC) for the US Department of Energy, released in February 2005, and authored principally by Robert L. Hirsch (hereinafter referred to as "the SAIC Report").

The SAIC Report concludes that substantial mitigation of the economic, social, and political impacts of Peak Oil can come only from efforts both to increase energy supplies from alternative sources and to reduce demand for oil. With regard to the claim that efficiency measures will be enough to forestall dire impacts, Hirsch et al. note that, "While greater end-use efficiency is essential, increased efficiency alone will be neither sufficient nor timely enough to solve the problem. Production of large amounts of substitute liquid fuels will be required." Further, "Mitigation will require a minimum of a decade of intense, expensive effort, because the scale of liquid fuels mitigation is inherently extremely large." Hirsch, et al., also point out that "The problems associated with world oil production peaking will not be temporary, and past 'energy crisis' experience will provide relatively little guidance."

The SAIC Report agrees that mitigation efforts undertaken too soon would exact a cost on society. However, it concludes that, "If peaking is imminent, failure to initiate timely mitigation could be extremely damaging. Prudent risk management requires the planning and implementation of mitigation well before peaking. Early mitigation will almost certainly be less expensive than delayed mitigation."

What if the pessimists are right and the world is at its peak of oil production now? In that case, is it too late to implement the Depletion Protocol?

If the world reaches the peak of production within the next two years there will be too little time to undertake major mitigation efforts prior to the event, and therefore there are likely to be severe economic, social, and political impacts, as outlined in the SAIC Report.

However, in that case the need for the Protocol should quickly and widely become apparent. While all nations will suffer from higher prices and shortages, only a cooperative system of national and international quotas will avert the even more extreme economic and geopolitical crises that would otherwise ensue.

Why can't the market take care of the problem? Won't high prices stimulate more exploration and the development of alternatives? Wouldn't interference with market mechanisms be harmful?

The SAIC Report's authors dismiss the claim that the market will solve any shortage problems arising from global oil production peak, with higher oil prices stimulating investments in alternative energy sources, more efficient cars, and so on. Price signals warn only of immediate scarcity. However, the mitigation efforts needed in order to prepare for the global oil production peak and thus to head off shortages and price spikes must be undertaken many years in advance of the event. Hirsch, et al., maintain that, "Intervention by governments will be required, because the economic and social implications of oil peaking would otherwise be chaotic. The experiences of the 1970s and 1980s offer important guides as to government actions that are desirable and those that are undesirable, but the process will not be easy."

Historically, oil production has often been managed by governments or by cartels. In petroleum's early days, free-market boom-and-bust cycles bankrupted many players (including the "father" of the oil industry, Edwin Drake). Soon John D. Rockefeller brought a certain order to the situation through the creation of the Standard Oil Trust (in doing so he squeezed out many competitors and personally profited to an extraordinary degree). This regime came to an end in 1911, when the US Government broke up Standard Oil after prosecution for violation of anti-trust laws. Starting in the 1930s, with the US in position to control global oil prices, the Texas Railroad Commission capped production levels in order to stabilize the market. After US oil production peaked in 1971 and that nation lost its ability to control global prices, petroleum's center of gravity shifted to the Middle East, and OPEC began mandating production quotas for its members in order to keep prices within a desirable band.

While the management of oil prices globally thus has precedents, the situation in the future will be fundamentally different than heretofore, in that previously the problem was too much oil and collapsing prices that offered little incentive for exploration. The situation the world will soon face is that of insufficient supply leading to extreme price shocks, price volatility, and acute shortages. Thus a new kind of management scheme will be required.


How will adoption of the Protocol affect importers and exporters differently?

Importers: No one doubts that industrial nations will find it difficult to sustain economic growth while using less oil on a yearly basis. Thus the voluntary adoption of the Protocol by importers would seem disadvantageous - a "tough sell."

However, it must be recognized that a decline in the availability of oil is inevitable in any case; only the timing of the onset of decline is uncertain. Without a structured agreement in place to limit imports, nations will be inclined to put off preparations for the energy transition until prices soar, at which time such a transition will become far more difficult because of the ensuing chaotic economic conditions. With the Protocol in place, importers will be able to count on stable prices and can then more easily undertake the difficult but necessary process of planning for a future with less oil.

Poor importing countries may object that by using less petroleum they will have to forego conventional economic development. However, further development that is based on the use of petroleum will merely create structural dependency on a depleting resource. Without the Protocol, these nations will be financially bled by high and volatile prices. With the Protocol in place and with prices stabilized, these nations will be able to afford to import the oil they absolutely need; meanwhile they will have every incentive to develop their economies in a way that is not petroleum-dependent.

Exporters: Economies that are based primarily on income from the extraction and export of natural resources often tend to give rise to governments that are more responsive to the interests of powerful foreign resource buyers than they are to the needs of their own citizens. Thus it is in the interest of resource-exporting countries to develop indigenous industries in order to diversify their economies.

Countries that depend primarily on income from oil exports will need to wean themselves from this dependence eventually in any case, as their oilfields are depleted; the Protocol provides them a means of making the transition in a way that will allow for long-term planning.

Without the Protocol, smaller exporting nations will likely be at the mercy of militarily powerful importers. The Protocol will provide a means of minimizing external political interference in these nations' affairs. As a result, much international tension and conflict, including the threat of terrorism, can be minimized - which will be a help also to the wealthy importers.


How will the oil companies be affected?

Without the Protocol, the oil companies may enjoy record revenues - for a time. But they will be demonized for profiting from the misery of the rest of society; meanwhile, they will be hampered in their operations by the destabilization of national economies resulting from wildly gyrating oil prices. As noted earlier, the Standard Oil Trust, the Texas Railroad Commission, and OPEC all provided production-rationing mechanisms that brought order out of what would otherwise have been chaotic situations. The oil companies (sometimes reluctantly) accepted these mechanisms, recognizing that a stable economic environment was more important to them in the long run than the opportunity to make momentary windfall profits.

With the Protocol, the oil companies will remain profitable, they will have the incentive to undertake further exploration, and they will be able to plan for decades ahead. They will also be motivated to become more generalized energy companies (rather than remaining merely oil companies) and thus to invest in the development of alternative energy sources.

There is already evidence that the oil companies are concerned about a public backlash as gasoline prices soar: ChevronTexaco has initiated an expensive public-relations campaign titled "Will You Join Us?", featuring a web site (www.willyoujoinus.com) and expensive newspaper ads informing readers that "the era of easy oil is over" and asking for public discussion on the issue. The Oil Depletion Protocol will provide more long-term security for the petroleum industry than any PR campaign ever could, and at no cost.


Won't both importers and exporters be tempted to cheat? How would the Protocol be enforced?

The Protocol will require a system for monitoring production, exports, and imports - which cannot be hidden to a large degree in any case. Enforcement will require the establishment of a Secretariat for adjudication of disputes and claims, and a system of economic penalties to be negotiated by the agreeing nations.


How can nations adjust internally to having less oil?

Withdrawal from oil dependency will be an immense challenge that will require cooperation and compromise on everyone's part. Efforts will be needed both to create supplies of alternative fuels and to reduce the demand for oil.

The latter task will be much easier if systems are designed to make it in individuals' interest not only to reduce their own oil dependency but also to persuade others to reduce theirs. One such system for creating collective motivation and cooperation consists of Domestic Tradable Quotas, or DTQs.

DTQs can be used to ration all hydrocarbon energy sources (in order to reduce greenhouse gas emissions) or specific fuels such as oil. For the sake of discussion, let us assume the use of DTQs for petroleum only, as a way of implementing the Depletion Protocol within nations.

First, a national Petroleum Budget would be drawn up, based on the nation's indigenous production and oil imports as mandated by the Oil Depletion Protocol. A segment of the Petroleum Budget would then be issued as an unconditional entitlement to all adults and divided equally among them; the remainder would be auctioned to industry, commercial users, and government. The units could then be bought and sold, so that users unable to cope with their ration could increase it, while others who kept their fuel consumption low could sell and trade their Petro-units on the national market. All transactions would be carried out electronically, using technologies and systems already in place for direct debit systems and credit cards.

When consumers (citizens, businesses, or the government) made purchases of fuel, they would surrender their quota to the energy retailer, accessing their quota account by (for instance) using their Petro-card or direct debit. The retailer would then surrender the carbon units when buying energy from the wholesaler. Finally, the primary energy provider would surrender units back to the National Register when the company pumped or imported the oil. This closes the loop.

All purchases of petroleum would be made with Petro-units, whether the oil were used as fuel or as feedstock for plastics or chemicals. So long as the petroleum remained fuel, Petro-units would have to be passed back up the line, starting with the end user. However, if the petroleum were incorporated as feedstock into the manufacturing of a product (e.g., plastics), the manufacturer would simply add the cost of the Petro-units into the cost of the product. Thus, in the case of feedstocks, the manufacturer of goods would be the presumed end user.

Purchasers not having any Petro-units to offer at point of sale - foreign visitors, people who had forgotten their card or cashed-in all their quota as soon as they received it - would buy a quota at point of purchase, then immediately surrender it in exchange for fuel, but would pay a cost penalty for this (i.e., the bid-and-offer spread quoted by the market).

DTQs place everyone in the same boat: households, industry, and government would have to work together, facing the same Petroleum Budget, and trading on the same market for Petro-units. Everyone would have a stake in the system. All would have the sense that their own efforts at conservation were not being wasted by the energy profligacy of others, and that the system was fair.

Moreover, DTQs are guaranteed to be effective, because the only fuel that could be purchased would be fuel within the Budget. The Budget would set a long time-horizon so that people would have the motivation and information they needed to take action in the present to achieve drastic reductions in oil use over a 20-year timeframe.


What if only a few nations sign on? Won't the Protocol be ineffectual if a few large exporters or importers refuse to do so?

At first it might seem that those nations not adopting the Protocol would achieve an advantage. However, any temporary benefit would be purchased at the expense of later economic calamity. As discussed in the SAIC Report, nations that embark on the energy transition sooner will be much better off than those procrastinating.


What about natural gas and coal - should there be similar protocols for these? Might countries simply burn more coal to make up for having less oil?

The Oil Depletion Protocol will not preclude other agreements aimed at reducing fossil fuel usage in order to avoid impacts to the global climate, but it will be more ambitious in its reduction trajectory than the Kyoto Protocol or the Asia Pacific Partnership on Clean Development and Climate. If nations' experience with the Oil Depletion Protocol is positive, this will provide motivation for the forging of similar agreements covering these other fossil fuels.


How can the process of adopting the Oil Depletion Protocol begin?

A program to win implementation of the Protocol must focus on educating both the general public and top-level decision-makers.

Adoption of the Protocol will require that a few policy makers champion it and bring it before their national parliament or congress. If even one country adopts the Protocol, this will help to open a global discussion.

At the same time, it is important that citizens understand the issues and what is at stake, as pressure on elected officials from below will help focus the latter's attention on the matter.

In the near future, a program will be underway to obtain endorsements of the Protocol from prominent organizations and individuals. This article is part of a preliminary effort to inform the public of both the Peak Oil issue and the Oil Depletion Protocol. Please help by copying this article and sending it to family, friends, colleagues, the media, and elected officials. This may be our last, best opportunity to avert resource wars, terrorism, and economic collapse as we enter the second half of the Age of Oil.


THE OIL DEPLETION PROTOCOL

WHEREAS the passage of history has recorded an increasing pace of change, such that the demand for energy has grown rapidly in parallel with the world population over the past two hundred years since the Industrial Revolution;

WHEREAS the energy supply required by the population has come mainly from coal and petroleum, having been formed but rarely in the geological past, such resources being inevitably subject to depletion;

WHEREAS oil provides ninety percent of transport fuel, essential to trade, and plays a critical role in agriculture, needed to feed the expanding population;

WHEREAS oil is unevenly distributed on the Planet for well-understood geological reasons, with much being concentrated in five countries, bordering the Persian Gulf;

WHEREAS all the major productive provinces of the World have been identified with the help of advanced technology and growing geological knowledge, it being now evident that discovery reached a peak in the 1960s, despite technological progress, and a diligent search;

WHEREAS the past peak of discovery inevitably leads to a corresponding peak in production during the first decade of the 21st Century, assuming no radical decline in demand;

WHEREAS the onset of the decline of this critical resource affects all aspects of modern life, such having grave political and geopolitical implications;

WHEREAS it is expedient to plan an orderly transition to the new World environment of reduced energy supply, making early provisions to avoid the waste of energy, stimulate the entry of substitute energies, and extend the life of the remaining oil;

WHEREAS it is desirable to meet the challenges so arising in a co-operative and equitable manner, such to address related climate change concerns, economic and financial stability and the threats of conflicts for access to critical resources.


 NOW IT IS PROPOSED THAT

1. A convention of nations shall be called to consider the issue with a view to agreeing an Accord with the following objectives:
    a     to avoid profiteering from shortage, such that oil prices may remain in reasonable relationship with production cost;
    b     to allow poor countries to afford their imports;
    c     to avoid destabilising financial flows arising from excessive oil prices;
    d     to encourage consumers to avoid waste;
    e     to stimulate the development of alternative energies.

2. Such an Accord shall have the following outline provisions:
    a     No country shall produce oil at above its current Depletion Rate, such being defined as annual production as a percentage of the estimated amount left to produce;
    b     Each importing country shall reduce its imports to match the current World Depletion Rate, deducting any indigenous production.

3. Detailed provisions shall cover the definition of the several categories of oil, exemptions and qualifications, and the scientific procedures for the estimation of Depletion Rate.

4. The signatory countries shall cooperate in providing information on their reserves, allowing full technical audit, such that the Depletion Rate may be accurately determined.

5. The signatory countries shall have the right to appeal their assessed Depletion Rate in the event of changed circumstances.


 (Note: the Oil Depletion Protocol has elsewhere been published as "The Rimini Protocol" and "The Uppsala Protocol." All of these documents are essentially identical.)



Sources of further information

On Oil Depletion:
    •     www.globalpublicmedia.com
    •     www.energybulletin.net
    •     www.peakoil.net
    •     www.odac-info.org


On Domestic Tradable Quotas (DTQs):
    •     www.dtqs.org


On the SAIC Report:
    •     www.cge.uevora.pt/aspo2005/ abscom/Abstract_Lisbon_Hirsch.pdf
    •     www.hilltoplancers.org/stories/hirsch0502.pdf


Richard Heinberg is the author of "Powerdown - Options and Actions for a Post-Carbon World". He is a journalist, educator, editor, and lecturer, and a Core Faculty member of New College of California, where he teaches courses on "Energy and Society" and "Culture, Ecology and Sustainable Community." Richard publishes a valuable monthly "MuseLetter".

MuseLetter's purpose is to offer a continuing critique of corporate-capitalist industrial civilization and a re-visioning of humanity's prospects for the next millennium. Subjects range from global economics to religion to the origin of humanity's antipathy toward nature. All essays are informed by a wide-ranging, interdisciplinary study of history and culture. You can reach Richard at rheinberg@igc.org.