I recently spent a few weeks in California’s endemic car culture, and it got me thinking about oil supply and climate change. America seems to depend on cars in a much more extreme way than Europe or Asia. But all over the world - including China with its 1.3 billion people - economies are being built on a steady and growing supply of fuel.

Peak oil refers to the point in history at which oil production begins to drop, due to dwindling supplies. There’s a debate about whether we’re there now, with oil prices pushing $100 per barrel. But it’s a mathematical certainty that peak oil will eventually come around, since there’s only so much of the stuff. Even the biggest toothpaste tube can’t be squeezed forever.

When peak oil happens, and production begins to shrink, expect some nasty consequences. The price of fuel will skyrocket until it forces us to use less. This might mean gas at $10 per gallon or utility bills which take up a scary chunk of your salary. Economies everywhere will enter a prolonged depression until they move to alternative sources of energy.

Peak oil and global warming have a lot in common. Give or take a few decades, they’re going to happen at the same time. They’re both a consequence of our dependence on fossil fuels. And they both threaten the world economy, especially poorer countries.

For a capitalist like myself, it’s interesting that both peak oil and global warming are classic examples of market failures. Most of the time, free markets ensure that resources are put to the best possible use, and priced to match supply and demand. But this only works so long as the process is fair and open.

Market failure #1: We failed to charge for carbon emissions, despite their cost in terms of global warming. So carbon emissions have grown to today’s dangerous levels. It’s like giving children cigarettes for free.

Market failure #2: The people of the future don’t get a chance to bid for today’s oil. So they’re condemned to paying too much while we pay too little. Today we cruise in our SUVs, and tomorrow’s ambulances will be drawn by horses.

Global warming and peak oil will also affect each other. Peak oil won’t matter if we switch to renewable energy first. Oil production would simply drop due to lower demand. With today’s technology we’ll still need oil for a few things like aviation. But planes cause just a few percent of climate change - a drop in the ocean compared to cars and power stations.

But here’s the big question: What if peak oil hits us before we’ve dealt with climate change? Will there be lower carbon emissions, simply because there is less fuel to burn? Will geology succeed where humanity failed?

I, like many others, have my doubts. Even with all the easy oil gone, there is still enough coal left for hundreds of years. Coal can be burned directly to make electricity, or turned into other fuels by a process called liquefaction. No help there. Even worse, we’ll extract more oil from challenging sources like Alberta’s tar sands, which require huge energy inputs. The end result: extracting a barrel of oil will emit almost as much carbon dioxide as burning it.

The bottom line is that peak oil is no panacea. If we move to renewable energy now, we can avoid the worst of both peak oil and global warming. If we fail, our children and grandchildren will curse us while they suffer from both.