Get ready for higher oil prices.
A new study by CSIRO (Australia's Commonwealth Scientific and Industrial Research Organisation) titled "Modelling of the future of transport fuels in Australia" has found that in any scenario, the cost of petrol is to rise, and it will do so markedly from 2010. The study considered that a petrol price of between $2.60 and $8 per litre would be required in order to constrain petrol consumption to the rate of production and availability.
As petrol production capacity reduces and demand increases, so does the price. Importantly though, this study only considers the increasing demand from Australia and not from the rest of the world, which would suggest to me that this price could be even higher?
In the study several scenarios are outlined that consider 3 key measures:
1) The emissions trading target adopted - both the Australian government's position of a reduction to 60% of year 2000 levels by 2050 (2000-60) and a more ambitious target of 95% of year 2000 levels by 2050 (2000-95) were modelled. The CSIRO chose two targets as it feels that the 60% target "..stills entails significant risk to the environment" and that the 95% target "...would significantly reduce the risk of irreversible climatic impacts associated with exceeding average global warming of above 2 degrees Celsius"
2) The speed of decline in oil supply - two scenarios were considered, one where we have a slow decline and another with a rapid decline due to a peak of supply
3) The speed of technological response - two scenarios were considered - one where we quickly adopt the technology required as an alternative to fossil fuels and one where we are slow to make the transition.
Under the best case scenario model where oil supplies decline slowly and we have a fast technological response to the shortages through the adoption of alternative energy, the price will peak at $2.60 per litre. Under the worst case scenario where oil supplies decline most rapidly and we do not adopt alternative technology the price peaks at $8.20 per litre. According to the study, the price bubble does not deflate until 2020 when it considers that bio fuels and synthetic fuels from coal and gas will be widely available. Below is a graph from the report - Page 46.
How will our vehicles be powered in the future?
When considering the government's current emissions target of 60% of year 2000 levels, the study found that by 2050, plug-in hybrid and pure electric that obtain their electricity from the grid will account for around 33% of vehicles on the road. Mild hybrids that generate their electricity on board will account for another 50% and traditional combustion engines will account for only 16% of vehicles. It is interesting to note that the CSIRO considers that the uptake of pure electric vehicles will be at a faster rate than hybrid vehicles within a year or two. Although it considers pure electric to be solely in the realm of light vehicles (<1200kg) and not in direct competition with hybrids. They obviously feel that the electric car will be adopted widely by consumers as the small family vehicle of choice. I differ in opinion though, as I do feel that advances technology in electric motors and batteries will allow us to also power heavier vehicles using electric motors in the foreseeable future.
The trend toward electrically powered vehicles in figure 6 takes into account the oil price shown in red in Figure 1 below. It shows that the oil price will peak at around $100 per barrel around 2009 and then decline to between $60 and $80 per barrel. When you consider that oil is currently just under $140 a barrel it is clear that there will be some difference to the model used. In fact, even the worst case scenario modelled, the oil price does not creep above $100 a barrel until 2030!
Of course higher petrol prices at the pump will be the most obvious effect of the price per barrel we are seeing at the moment, but it may also cause an accelerated uptake of hybrid and electric vehicles as more choice and quantity of vehicles become available in this sector. What car company is not going to want to be ahead of this trend?
So where is all this electricity coming from?
With this massive trend toward electric vehicles, there is going to be a corresponding demand for more electricity. Of course, what is the point of converting away from combustion engines to vehicles powered by high emission electricity production such as the burning of coal? In order to meet even the 60% emissions target set by the government, there will have to not only be a overhaul of the transport sector, but also one of the electricity generation sector. In the graph shown below you can see that by 2050, even if oil remains in the target band of $60-$80 per barrel, the electricity sector will be transformed from fossil fuel fuel dependent to one that primarily utilises renewable energy.
What does this mean for the cost of electricity?
The study found that in any scenario, the projected wholesale costs of energy will increase significantly from 2006. The wholesale cost increases always translate to a increase in the retail sector and we are already seeing this trend with, for example, the Queensland rate increasing 5.4% this year. This part of the study shows one area where a more aggressive emissions target of 95% will have a large effect. The study concludes that the 95% target could translate into a wholesale price of up to $120/MWh where a 60% target would peak at around $90/Mwh. If these increases translate directly to retail prices, it could mean that electricity costs could either triple or quadruple in the near future. Of course, consumers could take their energy future into their own hands and install wind or solar power generators at their home. This may involve a large initial outlay, however, as the cost of electricity from the grid increases, the installation of such a system will quickly become more cost effective. 
Conclusion
This study goes into far more detail including the examination of the effects of the bio fuels industry. I suggest you read the full PDF of the study here for more information.
The most striking finding of this study for me is that under any scenario, the cost of transport and electricity is set to increase enough to have a significant effect on our lives. The thorough scientific investigation involved here and the conservative estimates as to the future costs of fuel make it apparent that our lifetimes will see paradigm shift. Whether we move now and make that shift have the smallest possible impact and with the best result for the future of our planet is a matter for all of us.
The opposition government in Australia refuses to support the current government's 60% of 2000 levels target by 2050 - a target that the CSIRO sees as "challenging" to adopt but still environmentally risky for our future. I believe the oppositions' position on the issue is going to polarise voters and cause the Labor government to reduce its stance in order to retain voter popularity. We are already seeing this with the issue of whether petrol will be part of the emissions trading scheme.
With these policies of "live well now" and "leave it up to future generations to deal with", there is no way we would ever reach the 95% of 2000 levels by 2050 that the CSIRO sees as required for the earth to avoid irreversible damage. Believe it or not - being sustainable does cost money and we're all going to pay in one way or another - think about it as a future fund for your kids kids...