A senior economist listens to a junior colleague’s proposal, frowns, and says: “That’s all very well in practice, young man, but does it work in theory?” Readers of the Daily Sceptic are about to see what happens when two economists debate.
I’m grateful to Tilak Doshi for a review that is generous, careful and, in places, right. He read the book closely, he quoted it at length, and he took its argument seriously enough to attack it properly. That is the best thing a reviewer can do for an author. We agree that oil is finite; we disagree about how soon that matters and what to do about it.
What we agree on
Start with the common ground. Unless you believe that oil is continually replenished from deep in the Earth’s mantle (a theory with few followers in the industry either of us worked in), oil is finite. Tilak accepts this. He writes: “This is not to argue that we can never run out of any particular resource.”
Anything finite that we use at an expanding rate every year must one day run short.
He also accepts the stakes. Modern life runs on hydrocarbons: steel, cement, ammonia and plastics “cannot simply be electrified away”, and he agrees that abandoning fossil fuels abruptly would be catastrophic. So if the cheap oil is going, when it goes matters a great deal.
Where we part company
So the question between us is not whether we will have to adapt to less and dearer oil. It is when, and whether it pays to prepare before the price tells us to.
Tilak’s answer is that the day keeps receding. Price and ingenuity have made oil cheaper over time, measured in hours of work: as cheap oil runs down, higher prices bring forth new supply and new technology. I agree that ingenuity has pushed the day back. But pushing it back is not abolishing it, and it changes what happens when the day comes, in two ways.
First, the cheap part of any resource goes first, so (other things being equal) each push costs more than the last.
Second, for a given volume of oil, holding output up for longer leaves less in the ground when it finally falls, so the fall is steeper. Studies of the world’s giant fields find that technology can hold a field at its peak for longer, “but at the expense of more pronounced declines in later years” (Höök, Hirsch and Aleklett, Energy Policy, 2009). The later the day, the harder it lands.
That is the book’s case on oil, and most of this reply is about how far and how fast the day can still be pushed.
