June 04, 2005

Cheap and scarce oil?

When I wrote my previous post I was puzzled by David Ehrenfeld's worries about the end of cheap oil. Ehrenfeld himself helps me out of the paradox: his solutions are rationing, forced "efficiency" and voluntary reduction in consumption. In WorldChanging Jamais Cascio writes:

"Global production of oil will soon reach its maximum, and will subsequently decline (even while demand continues to rise). [...] Lower oil production only matters if demand is greater than supply. As we've demonstrated here time and again, we have the tools and models necessary to shift into a high-efficiency, low-energy-consumption, high-quality lifestyle. We just need to make the decision to do so."

Like Ehrenfeld, Cascio worries about demand being greater than supply. Needless worries. Unless someone (read governments) decides to artificially set prices below market values, demand will never be greater than supply. There will be no shortages and no need for blackouts, rationing or police-enforced "efficiency." There will be higher prices, which will naturally lead to higher efficiency and switching to substitutes. Higher prices will naturally lead to lower demand. Demand will equal supply.

This is probably the kind of simplistic answer Ehrenfeld hates -- because he hates free markets.

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