20 responses to “The strange relationship between environmentalists and the oil price”

  1. McLea

    Another way to think about is that if oil is at $150, some suit in downtown Calgary is signing off on drilling wells on the extremities of the earth. The artic. The ocean. Mining dirt in Fort McMurray and processing it into usable fuel.

    There’s a lot of oil out there. We just need sufficient incentive to drill it.

  2. Duncan Kinney

    I think you’re being a little simplistic when it comes to a couple facets of your argument.

    One

    “As more of these deep water wells are drilled or oil sands plants are built, the technology will improve, and the costs will go down.”

    These are expensive, long to develop, capital intensive plays with uncertain flow through rates and a host of other uncertain variables. There are all kinds of natural limits you can butt up against (water use if the oil sands significantly scales up, black swans when it comes to deep water drilling). All the technology in the world isn’t going to make bitumen anything less than 20-40% oil when it comes out of the ground. There are limits to natural capital that all of the tech in the world can’t solve whether it makes sense from a price perspective or not.

    I’m fairly indifferent to the price of oil. I’m more of a fan of the price going up because of the limits it puts on the depletion of natural capital but there are a lot of moving parts here. The price of oil will do its thing. I’m currently more worried about food price volatility/climate change related matters and its effect on politics around the world. If what happened in Moscow this summer happened in Chicago (and it will eventually) you’re going to be hearing a different tune from south of the border.

    Two

    You seem to have been sucked into this view that environmentalists are this homogenous block who all want electric cars and alternative fuel sources so we can continue to run this amazing and trouble free transportation system we have.

    I don’t think electric cars are worth the rare earths that you dig out of the ground to run them. Looking at it from a systems perspective, our road system is an investment in infrastructure that is simply unsustainable (damn that word). Two cars a household, the investment in public space for private property (parking), ever widening roads and the vehicles that fill them, this is not planning, it’s madness.

  3. Surdas

    Interesting article, although I’m not sure I follow your main argument. You seem to be saying (and correct me if I’m wrong) that high oil prices are bad for the environment because they make things like oil sands and shale gas profitable. I follow that part, although (as you point out) high oil prices also provide incentives to develop alternative energy technologies.

    But then you say that low oil prices indicate that either we’ve found a cheaper way of extracting oil (which you suggest would produce lower GHGs) or we’ve more or less switched off oil. The first part of that doesn’t make sense to me, because most GHGs are produced by burning fuel (not producing it) and lower prices will mean higher consumption. In any case, I think this scenario is not realistic, since we aren’t going to find magical ways of extracting unconventional oil and gas as cheaply as conventional: it inevitably takes more energy because it’s a lower quality deposit (and we’re unlikely to discover more giant conventional fields). The second part (we’ve switched off oil) seems like an outcome for the distant future – which would have to be preceded by higher oil prices. We’re not going to magically switch to cleaner technology if oil is at 30$/bbl – without massive govt intervention.

    So, living in the present (as opposed to the distant future), low oil prices (which are a bit hard to imagine) would just indicate higher consumption and less investment in renewable energy. However, I do think that extremely high oil prices would be bad for renewable energy development because it takes energy to develop new technologies – and 200$/bbl oil would likely shift a lot of capital to the oil sands. So, I think gradually rising prices would be the best scenario. If some new information hits the market that drastically increases the price of oil (say, Saudi Arabia writes down their reserves and cuts production dramatically), that would be bad.

  4. Wojciech Langer

    It seems that all of you forgot that oil is not exclusively for energy. It is for making polymers and all kind of plastics (not to mention other chemicals for fertilizers).
    One will not get polymers from the wind or burning bio-fuel.
    E-cars are just utopia. What you gonna use to create electricity for them? Grass?

  5. Joel Wood

    Andrew, I understand that the point of your post was to remind everyone about the supply-side effects of high oil prices; however, would these effects completely offset any gains in increased energy efficient technology that high oil prices would produce? My guess is that they would at the aggregate level due to population growth, but possibly not at the per capita level.

    IMHO, this post was a great round-about way of criticizing peak oil theorists without actually calling them out.

  6. Bernie Sesos

    Important observations, Andrew. I think the point is most succinctly encapsulated in one sentence you wrote above, towit “If you want emissions-free innovations, price emissions.” I would amplify this by suggesting that if you wish to achieve a specific outcome, it is unrealistic (and frankly wishful thinking) to rely on an inadequately structured market to do your work for you. Reliance of this type suggests either a high degree of complacency or a fundamental failure to apprehend the complexity of society – or both. In the end, markets are great tools, but they still need to be shaped by policy and that can be hard work.

    More generally, while it may be possible to set forth a few plausible statements of principle about the way markets function (eg “scarcity leads to increased prices in light of continuing high demand” and “increased prices lead to a search for substitutes”), the outcomes arising out of the interactions between resources, technological innovation and markets over time are fundamentally unpredictable. Thus, if societies (or more precisely groups within societies, whether local, regional or global) wish to at least shape the field of possible outcomes in a context where markets are some of the key tools available to us, the proper conceptual space in which to operate is that in which social norms are formed and, in the case of the modern state, regulatory powers are exercised. (Obviously, I don’t accept the fundamentalist idea that “free and open markets” are themselves desirable outcomes – markets are tools; important tools, but tools nevertheless.)

    Given this, regarding carbon emissions, the best way to proceed may be by getting adequate societal agreement to put a price on all carbon emissions in order to better shape the market for energy (as your remark quoted above suggests). Then, as non-carbon substitutes come to the fore in light of a market that discriminates against high-carbon outcomes, it will be necessary to be ever-vigilant and to deal with the deleterious consequences of some or all of those substitutes too; all in a never-ending process of adjustment.

    Alternatively, another possibility would be to coax into existence social norms that stigmatize excessive carbon emissions. Thus, even where the price of carbon remains ‘low’, it may well be possible to stigmatize its use through non-market social mechanisms. Such a process might mirror the growth of the organic food industry in North America and Europe which has operated through a scheme of moral choices, combined with follow-through by markets that developed in order to cater to those choices (ever more efficiently), providing options that fit within the zone of acceptable moral bounds.

    Returning to your original thesis, then, because of the complexity of social and economic realities, without a much more detailed picture of the world over time (which we will never have), I agree that it is impossible to state what impact specific prices of carbon will have on the anthropogenic emissions of CO2 into the atmosphere (I’m not sure that you would state your thesis in this manner, so I may be taking some liberties). We do know however that, if we can achieve a consensus to limit those emissions by such means as are available, and are willing to make the efforts required to do so, the outcome that matters – CO2 levels in the atmosphere – can be influenced profoundly over time regardless of the price of carbon.

  7. Adriana Mugnatto-Hamu

    Andrew, actually you’ve got it all wrong.

    The rising cost of oil only brings new fields into play when the profits are made by oil companies in a growing economy thirsty for more oil. Then, of course, you’re absolutely correct.

    But what environmentalists are asking for is prices that would be inflated by governments so that the cost of oil would contain some small part of the social cost of extracting it. So consumer prices would be higher but oil companies would not see a penny of that increase.

    In that situation, the first thing that happens is that demand declines. And when demand declines, the unconventional fields would be the first to be abandoned.

    Of course, if we’re to kick the fossil fuel habit altogether, the wedge between consumers and oil companies will have to grow. So we’d get to the point where most of the consumer cost of fossil fuels would be in taxes. In this environment, where demand is declining and oil companies are seeing less and less profit, there is absolutely no incentive for more drilling.

    Hope this helps,
    Adriana Mugnatto-Hamu
    federal Green Party candidate, Toronto-Danforth
    Climate Change critic for the Green Party of Canada

    P.S. Thanks for this site and the intelligent discussion here. I just got pointed to it by a supporter.

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