By some accounts the financial crash that began in 2008 is a mere economic hiccup compared with the next big economic (and environmental) disaster — the fossil fuel crisis accompanied by risk denial syndrome.

From the New Scientist:

FIVE years ago the world was in the grip of a financial crisis that is still reverberating around the globe. Much of the blame for that can be attributed to weaknesses in human psychology: we have a collective tendency to be blind to the kind of risks that can crash economies and imperil civilisations.

Today, our risk blindness is threatening an even bigger crisis. In my book The Energy of Nations, I argue that the energy industry’s leaders are guilty of a risk blindness that, unless action is taken, will lead to a global crash – and not just because of the climate change they fuel.

Let me begin by explaining where I come from. I used to be a creature of the oil and gas industry. As a geologist on the faculty at Imperial College London, I was funded by BP, Shell and others, and worked on oil and gas in shale deposits, among other things. But I became worried about society’s overdependency on fossil fuels, and acted on my concerns.

In 1989, I quit Imperial College to become a climate campaigner. A decade later I set up a solar energy business. In 2000 I co-founded a private equity fund investing in renewables.

In these capacities, I have watched captains of the energy and financial industries at work – frequently close to, often behind closed doors – as the financial crisis has played out and the oil price continued its inexorable rise. I have concluded that too many people across the top levels of business and government have found ways to close their eyes and ears to systemic risk-taking. Denial, I believe, has become institutionalised.

As a result of their complacency we face four great risks. The first and biggest is no surprise: climate change. We have way more unburned conventional fossil fuel than is needed to wreck the climate. Yet much of the energy industry is discovering and developing unconventional deposits – shale gas and tar sands, for example – to pile onto the fire, while simultaneously abandoning solar power just as it begins to look promising. It has been vaguely terrifying to watch how CEOs of the big energy companies square that circle.

Second, we risk creating a carbon bubble in the capital markets. If policymakers are to achieve their goal of limiting global warming to 2 °C, 60 to 80 per cent of proved reserves of fossil fuels will have to remain in the ground unburned. If so, the value of oil and gas companies would crash and a lot of people would lose a lot of money.

I am chairman of Carbon Tracker, a financial think tank that aims to draw attention to that risk. Encouragingly, some financial institutions have begun withdrawing investment in fossil fuels after reading our warnings. The latest report from the Intergovernmental Panel on Climate Change (IPCC) should spread appreciation of how crazy it is to have energy markets that are allowed to account for assets as though climate policymaking doesn’t exist.

Third, we risk being surprised by the boom in shale gas production. That, too, may prove to be a bubble, maybe even a Ponzi scheme. Production from individual shale wells declines rapidly, and large amounts of capital have to be borrowed to drill replacements. This will surprise many people who make judgement calls based on the received wisdom that limits to shale drilling are few. But I am not alone in these concerns.

Even if the US shale gas drilling isn’t a bubble, it remains unprofitable overall and environmental downsides are emerging seemingly by the week. According to the Texas Commission on Environmental Quality, whole towns in Texas are now running out of water, having sold their aquifers for fracking. I doubt that this is a boom that is going to appeal to the rest of the world; many others agree.

Fourth, we court disaster with assumptions about oil depletion. Most of us believe the industry mantra that there will be adequate flows of just-about-affordable oil for decades to come. I am in a minority who don’t. Crude oil production peaked in 2005, and oil fields are depleting at more than 6 per cent per year, according to the International Energy Agency. The much-hyped 2 million barrels a day of new US production capacity from shale needs to be put in context: we live in a world that consumes 90 million barrels a day.

It is because of the sheer prevalence of risk blindness, overlain with the pervasiveness of oil dependency in modern economies, that I conclude system collapse is probably inevitable within a few years.

Mine is a minority position, but it would be wise to remember how few whistleblowers there were in the run-up to the financial crash, and how they were vilified in the same way “peakists” – believers in premature peak oil – are today.

Read the entire article here.

Image: power plant. Courtesy of Think Progress.