World Economy Facing Peak Oil?

The Economist looks at the new IMF World Economic Outlook:

The most disconcerting part of the IMF analysis is its estimate of the potential impact of declining oil output on world GDP under different output scenarios. In the benchmark case, growth in oil output drops by one percentage point a year and real world GDP two decades from now is about 3 percentage points below where it otherwise would have been. In America, the drop is closer to 4 percentage points. Given greater substitution away from oil, the gap over two decades is closer to 1 percentage point for both the world and the American economy.

But the IMF also considers a more pessimistic scenario in which the annual hit to growth in oil output is 3.8 percentage points. In that case, real world GDP could wind up 10 percentage points below its but-for level. In America, the projected gap is more like 13 percentage points.
That's a serious risk to consider. The dynamics in this market are pretty straightforward: oil is mostly used for transportation, and the key to limiting the impact of increased scarcity is improving the extent to which consumers can substitute away from oil use.
We know what that's likely to entail—greater efficiency, greater reliance on electric transport, greater use (potentially) of biofuels and other petrol alternatives, reduced driving and greater use of transit and other travel alternatives. Some of these shifts can be better facilitated with the aid of public investment. There's no question that substitution would be accelerated by a steady increase in tax rates on oil and petrol. Conveniently, those revenues could be used to fund necessary investments in alternatives.
It's not really that tricky a policy mix. Unfortunately, the attitude in Washington is, for the moment, one of tax aversion, combined with an enthusiasm for cuts in public investments and an embrace of the idea that new drilling can make a meaningful dent in America's appetite for oil imports. That amounts to a big gamble with America's economic future.