Two critical factors will shape the future of oil production and consumption over the next decades. The first is accelerating climate change. The second is the increasing difficulty in finding secure sources of oil in the world. The interaction of these two factors is currently leading the world into a more and more unstable position.

The only successful way out of the climate change crisis will be for the global economy to manage a rapid transformation of its energy base away from its current excessive dependence upon the burning of fossil fuels. The Intergovernmental Panel on Climate Change (IPCC, 2007) has estimated that in order to contain global temperature rises to no more than 2°C to 2.4°C above pre-industrial levels, CO2 emissions will need to be reduced by 50 to 85 per cent from 2000 levels by 2050. The IPCC and the International Energy Authority (IEA, 2008) have analysed a number of different scenarios for achieving such reductions, some of which differ in detail. But it is clear that in all plausible scenarios each type of fossil fuel will have to play its part in achieving the reductions needed. For oil, in particular, global consumption will need to stop growing within a few years and then to decline steadily to much lower levels by the mid century.

The supply-side situation reinforces this argument. The world's resources of oil are finite and cannot last forever. New sources of oil supply in the world are still being discovered; but the new finds tend to be smaller and more difficult to develop, and are sometimes in politically unstable parts of the world. They may be more expensive to develop, and there will be more competition in the world to secure access to the supplies that are still available.

Some of the new sources are also located in environmentally sensitive areas such as the Arctic. Some new sources, such as the Canadian tar sands, will also be more difficult to operate, and the extraction process will itself produce larger CO2 emissions. It would be better to avoid using such sources at all if possible, or at least to postpone using them until better environmental and carbon capture safeguards can be put in place.

Taken together, these two factors make an overwhelming case for taking action as soon as possible to check the growth in global demand for oil and to start managing it downwards over the next 50 years. The IPCC and IEA illustrate the kind of radical transformation of current patterns of consumption and production throughout the world that this will require.

Most of the current scenarios do not establish separate pathways for reductions in consumption of the different fossil fuels. In future iterations it might be helpful to establish a generally agreed trajectory or benchmark for the progressive reduction of global demand for oil (and other fossil fuels) over the next 50 years. Since many developing countries have a legitimate expectation that their own consumption of fossil fuels must be expected to continue to rise for some time as their development progresses, it is clear that the developed countries will have to shoulder the main burden of the reductions to be achieved - at least initially. The sooner such a downward trajectory can be firmly established in all government and business strategic planning, the more chance there is that the world may manage a soft landing to the inevitable climate change and oil price shocks ahead.

Europe only accounts for less than 20 per cent of global demand for oil and cannot achieve the necessary global change by its own actions alone. Europe is, however, one of the regions heavily dependent upon imports for its supplies of oil (over 80 per cent) and is therefore among the regions most vulnerable to emerging supply constraints. It does, therefore, have a strong incentive to take a lead in managing the transition to a new low-carbon economy that is less dependent upon oil and other fossil fuels. If it could do so successfully, it could provide a useful example for others.

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