Accounting for supply responses to an earlier

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Unformatted text preview: provides one economic explanation of Saudi Arabia’s moderating role. However, so far the fears of cheaply available backstops and environmental restrictions have proven unwarranted. Indeed, early availability of backstops may harm future revenues, but as long as these are costly, oil producers can undercut their costs thereby deterring their entry. And conversely, developers of alternative sources of energy should know that no matter how cheap they can make alternative energy , say photovoltaic, once it is available they will find themselves undercut by oil producers pumping oil at unbeatable low costs. Accounting for supply responses to an earlier provision of renewables will only speed up fossil fuel extraction today, which is known since Sinn (2008) as the ‘green paradox’. Similarly, global warming is much less of a threat to OPEC’s revenues, because it harms much more its more carbon intensive liquid substitutes:—tar sand, heavy oil, shale oil, coal liquefaction (otherwise presumably a profitable backstop at currently high oil prices). Indeed, an active global warming policy may prove beneficial for OPEC according to Johansson et al. (2009). 72 Oil DDW 2012 1 Turns Warming Technology 73 Last printed 9/4/2009 7:00:00 PM Oil DDW 2012 1 Low energy prices prevent implementation of any energy alternatives Toman, senior fellow at Resources for the Future, 05 Michael A. Toman, senior fellow at Resources for the Future, 7-25-05, [“International Oil Security Problems and Policies,” %20Problems%20and%20Policies.pdf] E. Liu Over the longer term, affordable energy security will come mainly from increasing the diversity of energy sources and making energy consumption more responsive to price changes. One approach would be to expand the use of vehicles that use both gasoline and other fuels. Even better, for the long term, may be moving toward highly efficient and (eventually) nonfossil-based energy systems like hydrogen fuel cells. Unfortunately, most of the highly desirable new energy systems probably are still years (or even decades) away from large-scale commercial adoption. That may not be too long to wait if one views the energy security problem as manageable in the short term through the Strategic Petroleum Reserve and other measures, including unavoidable diplomatic and military efforts to protect oil supplies. Accelerating the pace of energy diversification would mean more public spending on a much more concerted effort to overcome technical hurdles. It would also require a change in the economic condition of energy markets—in which low fossil fuel prices make advanced technology development and diffusion unprofitable. We can get as much energy security as we are willing to pay for through a combination of higher current energy prices and increased R&D efforts. But we cannot get something for nothing, at the end of a drill bit or otherwise. 74 Oil DDW 2012 1 Low oil prices cause governments to abandon alternative energy tra...
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This note was uploaded on 01/30/2013 for the course ECON 101 taught by Professor Burke during the Spring '13 term at Southern Arkansas University.

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