Raiks
Enigma Unlimited
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- Sep 10, 2003
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- 2002
Throughout the first half of this year as oil prices rose, petroleum consumption in the Benelux nations (Belgium, Netherlands and Luxembourg) fell by about 10 percent. We have not seen a drop like this for many years in any country, developed or otherwise. It shows that the market mechanism continues to function as the most important regulator of supply and demand - and in a way which is considerably more accelerated than the Kyoto Protocol would have ever planned. The general international community has been laboring for the good part of a decade under the much publicized Kyoto Protocol negotiations to agree on a global-scale reduction of energy consumption and carbon dioxide emissions of less than 10 percent by 2012. As a result of these increases in prices within the market, it has achieved within half a year what international bureaucrats - hindered by the resistance from key nations like the United States, China, India and our own government in Australia - have struggled to obtain in 10 years of negotiations.
So what can we learn from this?
First, there is nothing more effective than price incentives to induce society into changing consumption habits. The spike of oil prices during the last year has raised the prices of planes, shipping, power, steel, and of course, of fuel for automobiles and heating. Every citizen in the world is considered equal when confronted with the oil price increase. This may not be equality at its best, but it is effective. And that is what counts when addressing the issue of reducing energy consumption and carbon dioxide emissions. Secondly, a 10 percent decline in demand for petroleum is massive, given the effect of a reduction in Australian petrol excise taxes, and consumers' inelastic addiction or to their cars. While the Australian Government has cut excise to 38 cents a litre a considerable cut considering that if the excise was not reduced and it was still indexed, it would be 52 cents a litre today, so it's 14 cents less than it would have been if the government had not intervened. Americans on the other hand, with hardly any excise taxation on petroleum, feel the pinch much more than us, which should result in an even deeper cut in consumption.
Third, the longer oil prices stay at the high level of more than US$65/70 per barrel, the greater the impact on the demand for oil. It'll even be more extreme when you have AMP Capital chief economist Dr Shane Oliver saying he believed $US100 a barrel was now a probability and could be reached within a year. People will buy cars that consume less fuel and shift from petrol to diesel engines. In parts of Europe such as Belgium, 70 percent of the cars bought in the first half of 2005 were equipped with diesel engines, which offer the double advantage of lower consumption and lower fuel prices. The higher the oil prices and the longer they stay there, the more people will invest more in new energies and energy-saving devices, which are suddenly becoming profitable, a major factor in the embracing of developing new technology by industry.
Finally, can we ask the question whether oil prices will decline again in the near future? Hardly anybody expects this to happen with many predicting “Peak Oil”. The general expectation is for the price to stay above at least US$65/70 per barrel, because of problems affecting supply and rising demand. Through oil industry’s diminishing capacity to discover new reserves, due to the fundamental law of limited resources, and the rising cost of production as less accessible reserves are tapped, prices will continue to rise. Meanwhile, the demand for oil and energy continues to rise, as billions of people in Asia and Latin America make their claim for part of the developed world and the associated materialistic prosperity.
Politicians should be preparing the people they represent for a future where energy prices remain high. Unfortunately, most politicians are still too myopic or timid to deliver the message. This needs to change. It is hard for that to happen when Peter Costello is found telling Southern Cross radio:
"High petrol prices are bad for the economy and they're very difficult for consumers… I think we've got to raise our voice in international fora about OPEC (Organisation of Petroleum Exporting Countries) and the production of oil… If the world could get the production of oil increased, that would be the most concrete thing that could lead to a lowering of the petrol price."
On World Environment Day in 2002, Prime Minister Howard declared that it would not be in Australia’s interest to ratify the Kyoto Protocol on climate change. However, his government still insisted that it intended to reach the target set under the agreement. It can be assumed that the government will make claim for reductions in energy consumption but they won’t be alone as the high oil price is also ripe for the pickings for advocates of the Kyoto Protocol, who will probably claim for the protocol what the market has achieved world wide: the decline of carbon dioxide emissions. If oil prices continue to circulate at or above today's high levels, there is less pressure for the extension of the protocol beyond 2012. The market is doing the job in a way which encompasses all energy consumption, which the Kyoto Protocol could never achieve. It becomes therefore almost irrelevant whether or not Australia, China and the United States will one day ratify it. If the market takes an extended downturn, however, as it did in the 1990s, the protocol, particularly its mechanism relating to trading emission rights, has the possibility of still being useful as a safety valve.
So what can we learn from this?
First, there is nothing more effective than price incentives to induce society into changing consumption habits. The spike of oil prices during the last year has raised the prices of planes, shipping, power, steel, and of course, of fuel for automobiles and heating. Every citizen in the world is considered equal when confronted with the oil price increase. This may not be equality at its best, but it is effective. And that is what counts when addressing the issue of reducing energy consumption and carbon dioxide emissions. Secondly, a 10 percent decline in demand for petroleum is massive, given the effect of a reduction in Australian petrol excise taxes, and consumers' inelastic addiction or to their cars. While the Australian Government has cut excise to 38 cents a litre a considerable cut considering that if the excise was not reduced and it was still indexed, it would be 52 cents a litre today, so it's 14 cents less than it would have been if the government had not intervened. Americans on the other hand, with hardly any excise taxation on petroleum, feel the pinch much more than us, which should result in an even deeper cut in consumption.
Third, the longer oil prices stay at the high level of more than US$65/70 per barrel, the greater the impact on the demand for oil. It'll even be more extreme when you have AMP Capital chief economist Dr Shane Oliver saying he believed $US100 a barrel was now a probability and could be reached within a year. People will buy cars that consume less fuel and shift from petrol to diesel engines. In parts of Europe such as Belgium, 70 percent of the cars bought in the first half of 2005 were equipped with diesel engines, which offer the double advantage of lower consumption and lower fuel prices. The higher the oil prices and the longer they stay there, the more people will invest more in new energies and energy-saving devices, which are suddenly becoming profitable, a major factor in the embracing of developing new technology by industry.
Finally, can we ask the question whether oil prices will decline again in the near future? Hardly anybody expects this to happen with many predicting “Peak Oil”. The general expectation is for the price to stay above at least US$65/70 per barrel, because of problems affecting supply and rising demand. Through oil industry’s diminishing capacity to discover new reserves, due to the fundamental law of limited resources, and the rising cost of production as less accessible reserves are tapped, prices will continue to rise. Meanwhile, the demand for oil and energy continues to rise, as billions of people in Asia and Latin America make their claim for part of the developed world and the associated materialistic prosperity.
Politicians should be preparing the people they represent for a future where energy prices remain high. Unfortunately, most politicians are still too myopic or timid to deliver the message. This needs to change. It is hard for that to happen when Peter Costello is found telling Southern Cross radio:
"High petrol prices are bad for the economy and they're very difficult for consumers… I think we've got to raise our voice in international fora about OPEC (Organisation of Petroleum Exporting Countries) and the production of oil… If the world could get the production of oil increased, that would be the most concrete thing that could lead to a lowering of the petrol price."
On World Environment Day in 2002, Prime Minister Howard declared that it would not be in Australia’s interest to ratify the Kyoto Protocol on climate change. However, his government still insisted that it intended to reach the target set under the agreement. It can be assumed that the government will make claim for reductions in energy consumption but they won’t be alone as the high oil price is also ripe for the pickings for advocates of the Kyoto Protocol, who will probably claim for the protocol what the market has achieved world wide: the decline of carbon dioxide emissions. If oil prices continue to circulate at or above today's high levels, there is less pressure for the extension of the protocol beyond 2012. The market is doing the job in a way which encompasses all energy consumption, which the Kyoto Protocol could never achieve. It becomes therefore almost irrelevant whether or not Australia, China and the United States will one day ratify it. If the market takes an extended downturn, however, as it did in the 1990s, the protocol, particularly its mechanism relating to trading emission rights, has the possibility of still being useful as a safety valve.
