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Sigh... Of all the things to worry about, this isn't one of them. Eleven years is plenty of time.

Of course that wouldn't be much time at all if we needed to switch over 100% to some other energy source on January 1, 2020. But that's not the way reality works. A plateau in oil production means a steady decline from then on, but not necessarily a drop as though off a table. The post-plateau decline will put upward pressure on prices, and consumers of oil will push for alternatives, including other sources and other technologies. The higher prices will force big changes, and some of them will be inconvenient, even painful. But there's no reason to believe they'll be catastrophic.

As for oil projects getting shelved now, I would hope it's clear that this is because most of those projects require high oil prices to generate profits. Albertan oil sands don't make sense if oil is at $50. As well, the recession and low prices are squeezing profits and hence research and exploration budgets.

But high prices will return. Potential global demand is too big, and after 2020 apparently, global supply will tighten even more. The rising prices will spur significant changes, just as they always have in the past.

We're much better off focusing on the "green" issues that we really do need to worry about, such as climate change, desertification, overfishing, air quality, etc. Energy prices will take care of themselves.

Here's my previous jeremiad on this over-hyped issue.

Andrew,
I don't think this is an over-hyped issue, just one that is very complicated for the lay person to understand and which has areas that can and should be addressed by market forces and other areas that will not respond to market forces in the way we hope or expect. On top of that, it's hard to tease out what exactly the causes of our economic troubles are or will be. Even now we've got a whole cast of characters for the current recession; will peak oil just be another character in an economic crisis 10 years from now?

The first challenge we face in addressing this is defining "catastrophe" and "crisis", which are very subjective terms and get bandied about quite often. Does that mean a 10 percent or more official unemployment rate? Civil unrest? Recurring shortages? Resource wars? What exactly?

We also don't know if we will experience a multi-year plateau or if it will be aggravated for political or economic reasons. For all we know, we could be looking at neither a plateau nor a drop off. If we see a year over year decline will we be able to drop our consumption lock step with that? It's clear that the IEA finally did its homework versus just taking folks' word for it. So what else do we not know?

Last, the market does not seem to be functionally properly now (blame some of that on government interference) and many "experts" predicted for years that the housing bubble would burst and so on. If capital could be distributed so inefficiently and wastefully in the past decade why should we trust that it will be distributed efficiently and wisely during an oil supply crunch?

1. It's actually not complicated: when prices go up, consumption goes down. It's happened again and again (including this year!), and there's no reason to think that it won't happen once more when we reach peak oil production.

The other thing that happens when prices rise is that businesses act on the incentive to develop alternatives. It's happened again and again (including this year!), and there's no reason to think that it won't happen once more when we reach peak oil production.

2. There's really no basis for claiming that the oil market isn't working properly. It's an easy thing to say, but so are many things that aren't true. Just because a market doesn't yield nice results doesn't mean it's not working as it should. When new oil demand in the BRIC economies (Brazil, Russia, India, China) drives prices up, of course it's bad news for American oil consumers. But that doesn't mean the market didn't do its job.

3. The housing market is a great example, but not in the way you think. Capital flows are directed by economic incentives, and during the housing boom, the incentives created by faulty and insufficient regulation led to overinvestment in housing. When the subject is oil, the concern is the opposite: underinvestment in alternative energy sources and technologies. But those who have this concern tend to blame amorphous villains like "capitalism" or "the market," rather than doing the hard work of identifying specific market failures or specific examples of bad public policy.

And there's a reason they don't do it--there are no such examples. Of course every industry has to deal with crazy policies, but it's a question of degree. In broad outlines, public policy gets out of the way and allows high and rising oil prices to generate precisely the right incentives to for investments in alternatives to oil. To be sure, some projects were put on hold once the recession hit in a big way this fall, but that's only temporary. Recessions end, and when this one does, oil demand will revive. Lest we forget, oil prices fell 44% during the 2001 recession, and immediately after the recession ended they resumed their upward trend. Rather than spread fear about peaking oil production, the peak-oilers might consider applauding rising prices as the mechanism by which society will escape the catastrophe that haunt their dreams.

4. I think you and I are the only ones who care to write about this.

Andrew,

I don't think most lay people, including many peak oil believers, care about the market working perfectly. They care about the results and how exposed they are to negative outcomes. When people go to the gas station during an actual or perceived shortage and gas costs $5 per gallon, they don't think to themselves, "Well, that's the market working; prices shoot up and that discourages me from consuming gasoline." No they have an emotional reaction first, moan and groan and in some cases accuse the gas station owners of "price gouging."

Moreover, as I've mentioned before to you, the market is shaped by cultural, social and political rules, policies, taboos, etc. One city may have been designed in such a way that rising gas prices have a minimum effect on the residents' lifestyles. For example, the leadership may have required mixed-use neighborhoods that accommodate as many modes of transportation as possible. Thus, the market shifts to respond to those policies. But the average consumer doesn't think about that; they just think "oh, well I don't have to drive the three blocks to the drug store. I can just walk."

Another city may have been designed with isolated subdivisions separated from commerce such that the residents depend a lot more on their vehicles. The market will work there too, but the citizens may be more frustrated.

While some peak oil believers (and many environmentalists in general) complain about "the free market," I think what they are really complaining about is a society that has been designed to depend so much on fossil fuels just because it has been profitable to do so in the past. Now one of the defining challenges of the 21st century is transitioning away from them; obviously some locales will do better than others.

I think talking about catastrophe and crisis can turn into straw man arguments because they evoke an emotional response without being well defined.

However, I think you have a sound argument in that the market is best in allocating resources when a future outcome somewhat unpredictable. Perhaps what the citizenry and public leaders can do is encourage lifestyles and building infrastructure that can accommodate as many future scenarios as possible.

By the way, here is a good discussion about peak oil between two professors that was featured in the Wall Street Journal in 2005.

http://online.wsj.com/public/resources/documents/econoblog08032005.htm

While some peak oil believers (and many environmentalists in general) complain about "the free market," I think what they are really complaining about is a society that chooses to buy and sell in a way different from what they want.