May 19, 2011, Ottawa, ON – Are the current high prices for gasoline and other petroleum products evidence that the world's oil production has peaked (so-called "peak oil theory"), and that the world faces a grim future of declining supply and steadily rising prices? And are rising prices for other commodities similarly evidence that the world is running out of natural resources as some others have claimed, including a recent report by the United Nations?
According to MLI's Managing Director, Brian Lee Crowley, the answer to these questions is a resounding "No." His reasoning is contained in a new MLI Commentary released today, entitled Are We Running out of Natural Resources?
Yet a great deal of current public policy debate is based on this very notion that natural resources are not merely in short supply, but will be exhausted in the relatively near future. Not only is this view mistaken, but it is the direct opposite of the truth. Similar predictions, such as the imminent exhaustion of our oil and gas supplies, were being made in the 1970s. Instead, after 40 years of rising consumption, we now have known petroleum reserves that exceed those that existed in that earlier era.
Understanding this counter-intuitive result is vital if we are to understand where natural resources come from and why the supply is far greater than most people imagine. The supply of oil and gas, for example, is not limited primarily by the amount of these resources in the Earth's crust, but rather by the human and financial capital we invest in finding and producing them. It is when we mix nature and human intelligence that we greatly increase the bounty of nature. Our greatest wealth comes in our ability to invent new ways to sustain, supplement or replace natural capital (i.e. natural resources) as it becomes scarce.
Climate change might suggest a different reason for restraining our consumption of fossil fuels, and Crowley is sympathetic to this view that the current price of such resources does not fully reflect the environmental damage they cause. He also points out, however, that the consensus of those who have attempted to quantify the value of the ecological damage caused by consumption of fossil fuels place the figure at roughly $20 per tonne of carbon – not enough to change behaviour very significantly if it were imposed on consumers through either a carbon tax or a cap and trade system.
The most effective approach to dealing with climate change is the same one that ensures us a continuous supply of natural resources, namely technological innovation in response to rising prices and economic growth, not heavy-handed attempts to discourage consumption.
Crowley concludes that the pessimists, "... are not wrong in having identified challenges facing the human race at specific moments in our history – they have simply misunderstood how the right human institutions, such as private property, the rule of law, contract, incentives and human intelligence all work together reliably to solve those problems, even when we cannot foresee with precision what the solution will look like."
This Commentary is based on a presentation at a panel convened as part of a Queen's University program on "Clean Energy Superpower and Environmental Assessment: Canada's Ambitions and Choices". The conference was held in Kingston, Ontario on April 14-15, 2011.
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