Peak Oil

In the requests thread, a number of people wanted me to comment on “peak oil.” The main thing I have to say about this is that I don’t totally grasp the alleged significance of reaching a global production peak. It seems to me that to generate the conclusion of big time oil price spikes you only need the assumption that oil production will grow at a persistently slower rate than the world economy.

That seems to me to basically describe our current situation. I think there’s insufficient attention paid to the possibility that if the US/EU/Japan were to return to anything resembling full employment the response would be a giant oil price spike leading to a new recessionary contraction in highly oil dependent economies (i.e., the USA).

You’ve always got to distinguish, though, between shorter-term and longer-term impacts. The technology exists right now to build automobiles that are radically more fuel efficient than the average car on the road today in the USA. Oftentimes this technology is known as “buy a lighter vehicle” to say nothing of hybrids, etc. Cars are expensive, so in the short-term a price spike just leads to hardship and recession. But in the medium-term persistent high prices will lead to more efficient vehicles and in the longer-term persistent high prices will lead to even more R&D on electric cars. So in the long-run, you could say I’m an optimist about resource scarcity. What I’m a pessimistic about is air travel, which seems much more doomed than people generally realize.

What I’m also a pessimist about is climate change. The “easiest”/laziest policy response to persistently high oil prices is to freeze in place all our current policies that explicitly or implicitly subsidize sprawl, car ownership, and car use and then slather a bunch of subsidies for electrification of the vehicle fleet on top of that, with the electricity provided by dirty coal-fired plants. Note that if your electrification subsidies spur sufficient increases in the demand for electricity, it’ll be possible to pair generous subsidies for renewable electricity with increased demand for coal, thus “solving” the political economy problem without really solving anything.

As you know, my preferred approach would be to instead attack this problem at the root—land use regulations that lead everything to be inefficiently far apart and that prevent the built environment to adapting to changes in objective economic conditions.