Curing the Peak Oil Disease

A Heavy Government Hand and the Future of Innovation

By David Alexander, Founder & CEO

AFTER READING THIS issue’s feature article, it should be clear now the very real challenges the coming age of Peak Oil will present.  In all, Peak Oil is a disease, one that will infect the modern world, cause a great amount of disruption and, if nothing is done about it, can lead to the gradual disintegration of society as we know it.  We saw a glimpse of this when on April 12^th, 2008, the government of Haiti collapsed due to wide-scale riots brought upon by skyrocketing food prices, caused by the skyrocketing cost of gas.

So what can the world do (especially industrialized nations) to try and avoid this same fate?  Here a holistic approach is needed.  Peak Oil will affect—directly and indirectly—every aspect of society; thus, the solutions acted upon must be many and work in unison toward the aim of reducing our energy consumption (and in turn, our carbon footprint, which is great for the environment as well).  The following are suggestions that, in this writer’s opinion, need to be enacted by the government to produce an environment that will allow the private sector to lead us out of this Peak Oil mess.

The Basics

To start they can get serious about limiting the amount of carbon that industry consumes (either through oil-derived electricity usage or direct oil consumption through transport of goods or the production of petroleum-based goods, i.e. plastics), possibly through a cap and trade program or outright caps on emissions that will get progressively tougher bi-annually.  This will have the side benefits of reduced CO2 emissions that damage the environment, will produce green jobs by retrofitting the old infrastructure of industrial buildings and make each participating company more competitive by forcing them to use their energy resources more cost effectively (thus reducing their operating costs).

[pullquote]Overall, the best way to fight against peak oil is to invest in innovation, in human ingenuity, that will create the technologies humanity needs to break out of our dependency on petroleum[/pullquote]

Similar initiatives can be implemented in domestic buildings and their construction.  First, the government can enact stricter and greener building standards that reduce energy usage in every new house or building that is built.  This will have the secondary benefits of increasing the demand for green building materials, forcing its suppliers to increase the capacity of their plants, which will eventually bring down the cost of green materials and in turn make building greener homes cheaper.  As well, since (initially) these new standards will mean that all new homes will cost more (due to the more expensive building materials used), most new home owners will opt to purchase their next homes closer to the city, inside more affordable apartment buildings instead of stand-alone homes (reducing the expansion of economically unsustainable sprawl).  As well, all new buildings can be required to equip their parking spaces with electricity outlets to more seamlessly accommodate the coming reality of plug-in electric vehicles.  And for the homes that already exist, subsidies can be offered to homeowners to retrofit their homes with energy efficient appliances, lighting, furnaces, insulation, etc.

As for the transportation industry (which uses nearly 70% of the petroleum produced), governments must enact legislation that forces car companies to produce zero-carbon emitting vehicles (electric cars) by a certain date and thereafter, annually increase the total percentage of those vehicle’s production until all vehicles in production become zero-carbon emitting.  And while this may be a more impossible requirement to ask of transport trucks, cargo ships and airlines, the government can enact subsidies into research of energy saving designs and technology that can increase the efficiency of these transport mediums.  Together, such legislation can substantially reduce the amount of petroleum used on an annual basis, while at the same time, work to reduce man-made global warming.

With respect to energy production, just like the governments did with the first national railroads, highways and satellites, they must take the lead by investing in the wide scale implementation of alternative energies (eventually encouraging the private sector to follow).  Recent studies have revealed that the existing technologies of solar, wind, hydro, wave and especially geothermal can easily satisfy the full energy needs of the planet if only their use were scaled up.  Doing this will eliminate our need on relying on energy from burning petroleum, coal (which uses large amounts petroleum to transport coal from the mines to the plant) and nuclear (which also uses huge amounts of petroleum energy to mine uranium), as the cost of these sources of energy will only increase the further into the peak oil age we enter.  As well, this new energy transition will generate millions of jobs that will alleviate the unemployment peak oil will bring.

And as for food production, the government will need to enact policies to ensure that all food is grown organically, i.e. without the use of petroleum based fertilizers and pesticides.  As well, further regulation will be required forcing grocery stores to buy their packaged food, meats and produce locally (as much as possible), instead of importing them from across the country or internationally.  Implementing both these measures will make sure that less petroleum is used in the production and transportation of food and will have the added benefit of producing healthier food for the masses while providing struggling farmers with an increased income.

The Gravy

All these actions and more can be implemented (especially in the support of the Third World), but overall, the best way to fight against peak oil is to invest in innovation, in human ingenuity, that will create the technologies humanity needs to break out of our dependency on petroleum.  As of now, present patent laws do a good job of protecting the interests of inventors and the companies that support them.  They have also played a large role in the process of wealth creation across the world.  But though my research, I have found many commentators saying that the world is approaching a gridlock in the advance of innovation.  Specifically, there is a drag on the speed of progress in innovation and that drag comes from the patents themselves.

 

For example, let us assume that today a scientist has found the cure for aids or cancer or Parkinson’s, but the production of that cure is dependant on ten ingredients that come from medical patents owed by ten different pharmaceutical companies.  Will that scientist ever be able to convince each of those ten, competitive pharmaceutical companies to allow him to use their patents, even with a small cut of the profits?  Not likely.  The result is that this cure will be shelved and that many years of additional research and resources will have to be expended in order to find another cure that doesn’t use those ten patents.  Such an example is not unimaginable and in fact, occurs quite regularly.  For example, electric car battery technology could be much farther along than it is today if not for the oil companies’ (who bought many innovative car battery patents for their own reasons) unwillingness to license out their patents.

In response to this current state of affairs, governments should consider making all patents or at least a certain portion of them ‘open source.’  What this would entail is that any individual or company can use any patent they wish without need for permission or fear of being sued for patent infringement.  Of course the danger of this would be that larger corporations may take advantage of this reform by taking patents from their smaller competitors and then selling the same products as their competitors but at a lower cost, thereby driving these smaller businesses out of business and creating a monopoly.  To combat this possibility, only two simple limitations need be placed on this reform: (1) patents of others can only be used to develop new products that do not compete (directly or indirectly) with the products produced by the patent of the original owner; (2) if a patent is used, then a royalty must be paid to the owner of the patent, the size of which will be relative to the unit sale price of the new product and the centrality of the patent within the new product’s design (further research would need to be done to find the exact ratios of these royalty payment requirements).

Implementing this simple reform would unchain the hands of innovation that were previously confined by overprotective patent holders.  Moreover, such legislation is not new; in fact, during WWI, the US created a patent pool within the airline industry that allowed airplane makers to swap technology and share profits without the threat of being sued.  This led to rapid advances in airplane engine and design technology that helped the Allies eventually win the war against the Germans.  The same can be done today, at the very least within the fields of green energy, that may just spur the rapid development of new technologies that can help the world enter the new carbon age.

As for what individuals can do about the coming reality of peak oil, they can start by educating themselves, their family, loved ones and neighbours about the reality they will all in time share.  They can make active choices to reduce their carbon footprint by choosing to live in the city instead of the suburban sprawl, choosing public transit instead of owning a car, renovating their homes to be more energy efficient and purchasing energy efficient and locally produced goods and foods.  They can learn to recycle, compost their own organic waste (if possible) and if they live in a house, learn how to turn their backyards into miniature farms that produce edible food (saving on food bills in the process).  And if people are willing, they can even take some basic survival training courses and most extreme of all, actually build relationships with ones neighbours and community so that they can rely on them when times get rough.

In conclusion, there are no quick fixes to the problem of peak oil.  Any solution will take time and the economic turmoil that will occur in the interim will be shared by all.  As stated earlier, by taking steps now to address this issue, through legislative and technological innovativeness, the world may just have a chance at avoiding the worst that peak oil may unleash.

By David Alexander, Founder & CEO

In association with:

The ARB Team
Arbitrage Magazine
Business News with BITE

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