Destruction - Market Failure
By Bill Henderson
03 August, 2007
and others have pointed out that markets for coal, then oil and gas
never quantified or priced their greenhouse gas emissions. As the potential
serious consequences of climate change are now being understood, this
externality can now be considered the biggest
market failure ever. More importantly, this historic inability
of markets to value something as important as
the humanity endangering consequences of burning fossil fuels calls
into question the central tenet of our socio-economy.
oil prices 'drowning' the poorest Third World economies -
demand destruction as demand for oil begins to exceed faltering global
production - is a second strike against the ideology that
rational actors in free markets will always choose the optimum allocation
and use of any material or technology.
Just as CO2 emissions were
never priced, there has never been any consideration of equity of opportunity
from this one time only use of millions of years of dense, stored energy
from the Sun. Those nations that developed the technology and infrastructure
to first utilize coal then oil have used their rapid and unprecedented
development to control and develop fossil fuels globally primarily for
their own use.
US and developed world use
of oil is up to twenty times that of the poorest countries even though
their own nationally located oil fields are now far past their production
peaks and headed for depletion. China and other developing nations are
increasing their ability to use fossil fuels by climbing the economic
ladder, by being the cheap labour, outsourced manufacturer to the US
and developed world.
There is a race to expand
national capacity to utilize the wealth creating opportunity of fossil
fuels - several tablespoons of oil with the right technology can move
as many foot pounds as a man in a eight hour working day. Oil even at
$300 a barrel will still be a tremendous wealth generation opportunity.
But there are nations, human
societies, parts of our global village, that may never
get the fossil fuel opportunity to develop. There are nations,
people in villages and immense cities, that have been tricked by development
and technologies like the 'green
revolution' into being dependent on oil and are now being
priced out of oil as oil heads for $100 a barrel and maybe far higher
due to political or other shocks to tenuous oil supply.
There never was any geographic
or inter-generational equity pricing in the history of fossil fuel use.
Incredibly valuable energy created over immense geological time was
priced considering cost of production and immediate demand only. It
was always 'our oil'.
Those of us in the developed
world live in both the most amazingly complex and richly diverse lifeform
ever and the most wasteful dissipator of energy ever. Never was there
more freedom of opportunity and never was there such a brutal imperialist
power usurping opportunity from the disenfranchised masses.
destruction will occur in those countries that can't afford
oil.Demand destruction will occur in farmers fields and Third World
slums. America will eat turkey, watch football and give thanks to the
Lord while millions starve, while millions starve outside a privileged
world where oil is still fungible.
Demand destruction will occur
outside a Fortress America which allows who it wants to buy oil and
just prints more dollars so that Americans can keep on using oil in
the totally wasteful way they've become accustomed to.
But wait, aren't fossil fuels merely one step in human economic development
where new fuels and technologies will eventually provide energy sources
for all? Won't market mechanisms ensure that capital and innovation
combine at the end of cheap oil to develop alternative sources of energy?
Doesn't look like it. The
end of cheap oil seems to have surprised markets. The exponential increase
in demand for fossil fuels seems to have surprised markets. The alternative
sources of power: solar, wind, nuclear, tidal, etc. are not as energy
dense, portable, or as readily usable as fossil fuels; path dependence,
the sunk costs of over a century of fossil fuel utilization, keep economies
to fossil fuel paths; and history tells us that complete development
of new energy sources (coal and oil in the past) takes about a century.
Given the present high and
rising oil prices, isn't it pertinent to point out that the rational
actors over the past decades of cheap oil seem to have missed the optimum
opportunity to develop these alternative sources of energy? Isn't this
understandable in hindsight? Won't relentless demand
destruction in the Third World be a stage in market allocation
of remaining oil as demand exceeds supply?
If demand destruction bites
deep by the 2010 Olympics at Whistler and the Football World Cup in
South Africa won't it be super embarrassing ethically to be associated
with or seen at such a wasteful extravaganza? Ethically embarrassing
to fly anywhere? to go to a Cowboys game? to go on a cruise? to eat
steak and eggs? to own a rec vehicle?
To own a monster house out
in the Burbs? To be employed in, adapted to and completely dependent
upon the sprawl economy?
live as we do today in a world where many are dying because
their economies have been priced out of oil?
When you hear about massive
famine and failing states as you drive your SUV to work from exurbia
in 2010, are you going to complain that governments should have seen
this coming? And put in place high fossil fuel taxes and taxes upon
consumption to significantly lower our present wasteful use of fossil
Will you complain then that
somebody should have helped push us to lifestyles and economies with
much lower energy use and material throughtput?
By 2010 will the US lead
in signing a depletion
protocol? Relocalization has enormous potential for reconfiguring
a new economy with high quality lifestyles using much lower energy then
our presently configured socio-economy - will there be governmental
leadership and innovation in nurturing relocalization? An international
agreement to ratchet down national use of fossil fuels for military
purposes - OK, OK, not possible. OK, none of the above are now possible.
Presently there are no paths to significantly reducing developed world
use of energy and re-allocating fossil fuels in a much more equitable
and utilitarian manner.
Just as there are no realistic
emission reduction pathways of a scale needed to stop us from going
over a threshold to runaway climate change.
It is possible to clearly
foresee a situation in the not too distant future where there is not
enough oil for everybody. Let's leave it up to markets then to decide
a fair optimum allocation of this ever more expensive and diminishing
fossil fuel energy.
We'll have political failure
on top of clearly foreseen market failure, the scale of which will only
be understood as the tragedy unfolds.
bill (at) pacificfringe.net
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