Saturday, June 21, 2008

The Price of Oil

I have been “off the air” for some weeks due primarily to the time it has taken to get broadband in the London flat which will be my summer home, but also due to being sick. I woke up this morning to the sound of Malcolm Wicks (UK Minister for Energy) explaining why going to Jeddah to discuss oil prices was not only worthwhile but also consistent with the government’s commitment to reduce Britain's use of fossil fuels. I cannot say it made a lot of sense, but with demonstrations in various parts of Europe about high fuel prices, and discussion on both sides of the Atlantic about reducing or removing fuel taxes, a politician must pander. (To his credit, Obama has not called for a “tax holiday” though he stopped short of giving the real reason.)

The truth is one might as well protest about the color of the sky. The market is sending us a message; our reliance on fossil fuels is unsustainable, and the only way we will see prices go down is if we use less. And as the Asian countries increasingly meet their populations’ legitimate aspirations we in the west who can best afford it need to set an example by using much less. As for fuel taxes, this would be a good time (for a suicidal politician!) to increase taxes; in the current supply/demand scenario the money would come almost exclusively out of the producers’ pockets, leaving the consumer price unchanged. Producers would have reduced incentive to develop ever more costly sources of oil, while the extra tax revenue could be used to encourage energy efficiency and clean energy.

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