Peak oil and energy policy--a critique

Energy policy has frequently been based upon assumptions about future oil prices. At the end of the 1970s it was assumed oil prices would continue to rise. Now a similar assumption pervades policy design. This article critiques the peak oil hypotheses which lie behind these forecasts and policy beliefs, and considers that, from a climate change perspective, the challenge is too much not too little fossil fuel reserves. The coming of shale gas, its fungibility with oil via the electrification of transport, along with technological advances in increasing the depletion rates of existing wells and new reserves, together undermine that assumption that rising oil prices will rapidly make renewable and other low-carbon technologies cost competitive without subsidies. The paper suggests indexing carbon prices to the oil price, infrastructure investment, strategic storage, and a focus on market failures provides a superior approach to energy policy rather than relying on forecasts of oil prices and picking winners. Copyright 2011, Oxford University Press.