The figures I am using are all from the wikipedia Peak Oil page, just a disclaimer
Peak Oil is an idea first developed by one of this century's great geologists, M. King Hubbert. He introduced his theory in the late 1950's as a way of predicting future oil supplies. The idea is fairly simple, and is based on the fact that oil is a non-renewable resource, and there is consequently a finite supply of oil in the world. Oil production will follow a bell shaped curve. As the demand for oil increases, oil companies increase their supply as much as they can; pumping fields at full capacity and discovering new reserves. Demand continues to increase, but fields begin to dry up, and new fields just don't exist, so production declines. Whatever the exact shape of the curve, the logic is pretty plain, the integrated area under the curve is equal to the total amount of recoverable petroleum reserves in the world. This is Peak Oil, the idea that there will (or has been) a peak in oil production, and that at some point production will decrease, about as rapidly as it initially increased. This model works very well for individual oil fields, or even national reserves
The red curve shows US oil production versus time, with a peak in 1970, and a slight secondary bump thanks to the north slope of Alaska. World oil is in blue.
This is the theoretical production curve (red) and actual data for Norwegian production. I don't want to argue the specifics of the model; whether or not the curves are symmetric, how much technology can help (answer jack squat), when the peak is, etc.. There are some truths that you just can't get around, namely that the amount of oil in the world is finite. and that at some point we will be using more than we can extract, and production rates will decline.
Arguments against peak oil seem to follow the lines of "the market solves everything." As supply decreases, price increases, and demand decreases, thank god for the market, it will save us all. Oil will get expensive, and some budding entrepreneur will devise some amazing technology that will save the world! At some level I suppose that is true; if there are humans around in 500 years, they will undoubtedly not be using oil as their primary energy source (they will of course be using flux capacitors). Whether or not it happens isn't the problem, but instead what happens during the transition. Dismissing peak oil with some dreamy ode to market forces ignores how nasty things can get in the face of scarce resources. Technology will find alternatives, but when? Do we decide now to solve the problem before it gets too hairy, or do we wait until something resembling this happens? Hell, remember when stores would run out of Beanie Babies and all hell would break lose? I think oil might be worse.
This brings me to biophysical economics. The term, as used by Charlie Hall, refers to an economic theory that does not violate the laws of nature, especially trivial little ideas like thermodynamics. This is of course a major problem with simple supply and demand, it assumes that supply is only limited by something like factory output. For example, no matter how much the price of oil increases, the supply cannot, and any reasonable replacement would take much longer to develop than the oil would last. Economic theory rooted in physical realities, I like it.
I am less an economist than I am a petroleum geologist (not much), so this post is really not in my wheelhouse. This has sparked my interest though. Are there any more econ-minded folks out there who know about biophysical economics, or any economic theory that explicity takes into account the laws of nature? Any notable economists who consider the natural world, or economics programs that require some line of study like this?