24Smith School of Enterprise and the EnvironmentSmith Global Fossil Fuel Supply CapabilityEnergy and climate change are inextricably linked through CO2 emissions from fossil fuels. However, it is worth noting at this point that even were there not strong environmental reasons for switching away from fossil fuels to renewable forms of energy, analyses of oil supply and demand demonstrate a second incentive to transition away from oil. Recent studies of global oil production capacity have emphasised that conventional oil production will probably go into decline soon, signalling the likely end of low cost, abundant oil. A survey of reliable conventional oil reserve data found that the public reserve figures should be reduced from 1150 - 1350 Gb to 850 - 900 Gb [41]. Oil discoveries have been decreasing in the past few decades, with the discovery rate peaking in the early 1960s. In addition oil field production rates follow an approximate bell-shaped curve - oil field production cannot be maintained at a constant rate until resources are exhausted due to geological constraints. Once peak production has been reached the average rate of decline in production is estimated to be 4.07 per cent pa [41]. A substantial portion of today's producing oil fields are currently in decline. Of 430 giant oil fields that are in production 261 are in decline. In 2007, out of 20 of the top producing oil fields, representing 27 per cent of global oil supply, 16 were in terminal decline [42].On top of conventional oil reserves, the world has a large amount of unconventional oil (heavy oil, and oil from shale and tar sands). The rising price of oil has made extraction from unconventional sources economically attractive. The result of this has been Canadian tar sands and deep-sea drilling coming increasingly into production over the past decade. Unconventional oils currently make up just over 2% of total oil production [43].The extraction of unconventional oil is both environmentally damaging and energy and water intensive. These factors alone could limit future production. In addition, the rate of extraction of unconventional oil is currently very slow and, if the peak of conventional oil production is reached within the next two decades, it will not be able to meet increasing demand [44].Given that demand for oil will continue to increase over the coming years due to inertia in the transition to low carbon transport these physical restrictions on supply may induce a global recession, determined by an unaffordably high oil price. It is urgently necessary to diversify the sources of energy production. Having economies that are dependent upon oil is no longer advisable [41]. All qualitative indicators point to substantial future increases in oil price. In addition, estimates of future oil prices are, over time, increasing; the World Energy Outlook (WEO) of 2008 [42] estimate of 2030 oil price is $135 higher per barrel than the 2007 WEO estimate of $65 per barrel [41]. The negative effects of increased oil prices on the global economy are substantial. The International Energy Agency (IEA) [45] carried out an analysis concluding that over the period 2002 to 2006 increases in oil prices lowered world GDP growth by an average of 0.3 percentage points per year. High oil prices are likely to have played a role in the global economic downturn in 2008, acting to increase the vulnerability of the economies of all oil importing countries [46]. There are other clear benefits in diversifying the means of producing energy. The UK, for example, has an existing energy production infrastructure that will need to be renewed within the next ten years; if government decisions are implemented in a timely fashion this energy infrastructure will be replaced by a combination of indigenous renewable energy, nuclear energy, dispersed microgeneration energy sources, and a smart grid, while initiating the switch of road transport onto the grid through hybrid and electric vehicles. The United Kingdom is in a prime position to lessen its dependence on oil. This will also act to stimulate the economy - finance that would previously have gone straight to oil producing countries will remain in the country and jobs will be generated from the switch. The economic imperative to move away from coal and gas is less strong; there appear to be vast reserves of very cheap coal remaining and discoveries of natural gas continue apace. Developments in gas extraction Chapter 4Chapter

EnvironmentSmith School of Enterprise and the Environment25technology have enabled access to large amounts of natural gas. A higher future carbon price, through a carbon tax or a trading scheme, will, of course, be needed to reduce GHG emissions. It is, nevertheless, worth noting that recent studies [47] have been increasingly pessimistic about the abilities of coal to continue to meet increasing demand over coming years. 4Chapter 4Chapter 4: Learning from the Negotiation Process