Economic nonsense in the Times Online:
“The fundamental, and possibly fatal, flaw in all these well-meaning personal efforts [to reduce energy use] and well-intentioned government initiatives to tackle global warming is that the West’s entire strategy is based on restraining demand for, and use of, fuels. Yet this strategy will prove entirely futile unless the result is that the extraction and supply of these fossil fuels falls back as reduced demand puts downward pressure on their price.”
The mistake is in assuming that there’s actually some worthwhile point to reducing global energy consumption; there isn’t. Reducing personal energy consumption can make sense if you’re trying to save money, but reducing global energy use? It’s just silly. We don’t want to reduce the amount of energy the world uses, we want to increase the amount of energy the world uses. In a very real sense, energy use is the fundamental definition of wealth. The more energy we use, the longer we live, the better our lives are, etc… etc….
So the issue isn’t energy consumption so much as fossil fuel consumption. The author’s concern is that unless a reduction in demand leads to a reduction in supply, energy conservation won’t reduce the rate of fossil fuel consumption. And that’s exactly right. Why? Because oil is a commodity. A reduction in demand in location A just means that there’s more oil available for location B. Reduce demand in New York and more oil gets used in the Congo. The energy market is a global market and local variations have little effect on aggregate demand.
And from a strict conservation standpoint, shifting consumption from New York to the Congo would result in more pollution and significantly more waste. First-world industry is remarkably efficient and clean–we extract as much energy out of each barrel of oil as we possibly can (and we keep getting more and more efficient). But all that efficiency is expensive and time-consuming; third world economies just can’t match that level of efficiency. Shifting demand from New York to the Congo is a loss in terms of both efficiency and conservation.
But even that’s beside the point. Energy conservation on a massive scale is just poverty conservation. The point isn’t to reduce energy use, but to reduce fossil fuel consumption (well, it is for some people). And to do that, you need to replace fossil fuels with some form of alternative energy. But if we reduce energy consumption, then we reduce demand for fossil fuels, and as we reduce the demand for fossil fuels, we reduce the cost of fossil fuels, as we reduce the cost of fossil fuels, we reduce the incentives to develop and use alternative energy sources.
Alternative energy will only replace fossil fuels when alternative energy is less expensive than fossil fuel consumption.
But wait!!!! This only really works if the price of oil and the price of alternative energy actually reflects market demand and relative efficiencies. Subsidies, tax breaks, penalties, tariffs, and other restrictions will not work. A subsidy for alternative energy use, for example, doesn’t actually make the alternative energy more efficient or less costly than fossil fuel use, it only masks the cost difference by increasing the total cost of energy consumption. Drive up the relative price of oil, and demand will simply shift to locales that don’t penalize consumption.
So… if you want to see a real reduction in fossil fuel use, use more fossil fuels.
And don’t worry, we’ll never run out of fossil fuels. The price of fossil fuel consumption will rise to the point that further consumption doesn’t make economic sense. At that point, we’ll be using something else.
Note: It’s probably also worth pointing out the fact that the big issue surrounding fossil fuel consumption isn’t limited supply vs. unceasing demand (which is usually how the situation is characterized), but rather steadily increasing efficiency in combination with tightly controlled supply lines and unceasing demand. And while oil is very expensive right now, we only just (in the last two weeks) passed the previous inflation adjusted peak price set in 1979. Despite massive increases in demand and limited increases in supply, the adjusted price of Oil stayed relatively low for nearly 30 years–because increases in efficiency offset increases in demand. The same is generally true for all commodity prices, ingenuity tends–over the long-term–to negate price pressure from either supply or demand. This makes it exceedingly difficult to calculate global fuel reserves as the amount of known reserves are likely to last far longer than we currently expect them to.