Destruction - Market Failure
Stern and others have pointed out that markets for coal, then oil and gas never quantified or priced their greenhouse gas emissions. As the potential serious consequences of climate change are now being understood, this externality can now be considered the biggest market failure ever. More importantly, this historic inability of markets to value something as important as the humanity endangering consequences of burning fossil fuels calls into question the central tenet of our socio-economy.
Rising oil prices 'drowning' the poorest Third World economies - demand destruction as demand for oil begins to exceed faltering global production - is a second strike against the ideology that rational actors in free markets will always choose the optimum allocation and use of any material or technology.
Just as CO2 emissions were never priced, there has never been any consideration of equity of opportunity from this one time only use of millions of years of dense, stored energy from the Sun. Those nations that developed the technology and infrastructure to first utilize coal then oil have used their rapid and unprecedented development to control and develop fossil fuels globally primarily for their own use.
US and developed world use of oil is up to twenty times that of the poorest countries even though their own nationally located oil fields are now far past their production peaks and headed for depletion. China and other developing nations are increasing their ability to use fossil fuels by climbing the economic ladder, by being the cheap labour, outsourced manufacturer to the US and developed world.
There is a race to expand national capacity to utilize the wealth creating opportunity of fossil fuels - several tablespoons of oil with the right technology can move as many foot pounds as a man in a eight hour working day. Oil even at $300 a barrel will still be a tremendous wealth generation opportunity.
But there are nations, human societies, parts of our global village, that may never get the fossil fuel opportunity to develop. There are nations, people in villages and immense cities, that have been tricked by development and technologies like the 'green revolution' into being dependent on oil and are now being priced out of oil as oil heads for $100 a barrel and maybe far higher due to political or other shocks to tenuous oil supply.
There never was any geographic or inter-generational equity pricing in the history of fossil fuel use. Incredibly valuable energy created over immense geological time was priced considering cost of production and immediate demand only. It was always 'our oil'.
Those of us in the developed world live in both the most amazingly complex and richly diverse lifeform ever and the most wasteful dissipator of energy ever. Never was there more freedom of opportunity and never was there such a brutal imperialist power usurping opportunity from the disenfranchised masses.
Demand destruction will occur in those countries that can't afford oil.Demand destruction will occur in farmers fields and Third World slums. America will eat turkey, watch football and give thanks to the Lord while millions starve, while millions starve outside a privileged world where oil is still fungible.
Demand destruction will occur outside a Fortress America
which allows who it wants to buy oil and just prints more dollars so that Americans can
keep on using oil in the totally wasteful way they've become accustomed to.
Doesn't look like it. The end of cheap oil seems to have surprised markets. The exponential increase in demand for fossil fuels seems to have surprised markets. The alternative sources of power: solar, wind, nuclear, tidal, etc. are not as energy dense, portable, or as readily usable as fossil fuels; path dependence, the sunk costs of over a century of fossil fuel utilization, keep economies to fossil fuel paths; and history tells us that complete development of new energy sources (coal and oil in the past) takes about a century.
Given the present high and rising oil prices, isn't it pertinent to point out that the rational actors over the past decades of cheap oil seem to have missed the optimum opportunity to develop these alternative sources of energy? Isn't this understandable in hindsight? Won't relentless demand destruction in the Third World be a stage in market allocation of remaining oil as demand exceeds supply?
If demand destruction bites deep by the 2010 Olympics at Whistler and the Football World Cup in South Africa won't it be super embarrassing ethically to be associated with or seen at such a wasteful extravaganza? Ethically embarrassing to fly anywhere? to go to a Cowboys game? to go on a cruise? to eat steak and eggs? to own a rec vehicle?
To own a monster house out in the Burbs? To be employed in, adapted to and completely dependent upon the sprawl economy?
To live as we do today in a world where many are dying because their economies have been priced out of oil?
When you hear about massive famine and failing states as you drive your SUV to work from exurbia in 2010, are you going to complain that governments should have seen this coming? And put in place high fossil fuel taxes and taxes upon consumption to significantly lower our present wasteful use of fossil fuels?
Will you complain then that somebody should have helped push us to lifestyles and economies with much lower energy use and material throughtput?
By 2010 will the US lead in signing a depletion protocol? Relocalization has enormous potential for reconfiguring a new economy with high quality lifestyles using much lower energy then our presently configured socio-economy - will there be governmental leadership and innovation in nurturing relocalization? An international agreement to ratchet down national use of fossil fuels for military purposes - OK, OK, not possible. OK, none of the above are now possible. Presently there are no paths to significantly reducing developed world use of energy and re-allocating fossil fuels in a much more equitable and utilitarian manner.
Just as there are no realistic emission reduction pathways of a scale needed to stop us from going over a threshold to runaway climate change.
It is possible to clearly foresee a situation in the not too distant future where there is not enough oil for everybody. Let's leave it up to markets then to decide a fair optimum allocation of this ever more expensive and diminishing fossil fuel energy.
We'll have political failure on top of clearly foreseen market failure, the scale of which will only be understood as the tragedy unfolds.