Monday, June 4, 2012

Kevin Drum — Oil Prices are Down, and That's Very Bad News

Generally speaking, we're finally living in the world of peak oil. Or call it plateaued oil if you like, since we seem to have hit a rough plateau in oil production that's likely to continue for quite a while. This is the world of the vicious circle: when the economy gets better, demand for oil goes up and oil prices spike. This causes the economy to tank, which sends demand for oil down. Rinse and repeat. Add to that the effect of external events on oil prices (the Arab Spring, pipeline breakdowns, embargoes on Iran, etc. etc.) and world economic growth is likely to remain both sluggish and unstable for the foreseeable future, held hostage to OPEC oil production until we get serious about alternative energy. And since, in this brave new world, the price of oil gyrates frequently and erratically, it's hard to get people serious about this. If oil were, say, permanently above $200 per barrel or so, we'd be building wind farms and installing PV solar at breakneck speed. But whenever the price of Brent falls below $90 or so, everyone gets nervous and wonders if wind farms and solar arrays are really such a good investment after all.
The uncomfortable truth is that we'd probably all be better off if the federal government simply taxed oil variably at a rate that set the all-in price at $200 no matter what the market price was. That would be high enough to get everyone serious about more reliable energy sources and stable enough that investors would be falling all over themselves to fund alternative energy projects. And since it's oil price spikes that hurt the economy more than high oil prices per se, this probably wouldn't even have a major impact on growth.
Read it at Mother Jones
Oil Prices are Down, and That's Very Bad News
by Kevin Drum

Note that Drum assumes that the Saudis are the swing producers and control price.


DustinM said...

I've thought about this problem. I think the best, most non-disruptive solution is to have the federal government become a permanent buyer of alternative energy. If it was, companies would be constantly trying to undersell each other to sell to the government. Eventually, as prices fell, that market would get low enough to attract energy\environmentally conscious people(and companies who want to appear so).

Maybe, one day, it could start competing with oil.

Tom Hickey said...

One of the largest users of oil is shipping, including military ships. The military overall — ground, sea, and air — burn through a huge amount of energy. Add to that government vehicle fleets and public transportation, and there is a humongous opportunity to shift to alternatives. This is where to start. It's the low hanging fruit. But conservatives would scream about wasting money.

JK said...

In my opinion, our lack of renewable energies is mostly a political problem, not an economic one. While it may be true that we don't have the infrastructure and battery technology to efficiently transport and store electricity, that's just a matter of R&D (i.e. political will).

If you haven't seen this yet…

I think that we should treat energy as a public good. Renewable energy ought to be subsidized like our national highway system. It costs nothing to use, but there are manage and upkeep costs. big deal! Imagine if business and households we're freed from energy as a cost?

Likewise, when energy becomes abundant, renewable, and "free" … water desalinization becomes cost efficient. If we can change ocean water in to drinkable water and irrigation water…. world poverty is one giant step closer to being eliminated.