Washington should devise policies that consciously

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Unformatted text preview: e average lifetime of a car is above 10 years; adjustment times reach many decades in the case of buildings, which are also affected by choices of locations. Energy supplies exhibit substantial lead times of several years for additional supplies of oil, gas and power and more than a decade for nuclear and large hydro power plants. Therefore, the residual demand (= world oil demand—competitive supply) faced by OPEC is sluggish from both sides, demand and supply. Of course, sluggishness is a characteristic of the demand for many other non-durable goods too in particular if their use is tied to nondurables (capital); behavior and positive experience are additional reasons for observed sluggishness. Indeed, the recent paper of Keane (2010, pp. 52– 53) criticizes the inappropriate use of static demand relations in the empirical industrial organization literature leading to substantial bias (‘not small potatoes’) and this critique applies to many oil market investigations as well. This sluggishness —i.e., the significant difference between shortand long run elasticities—implies that observed consumption is incompatible with a static demand relation and time series data are at best realizations from a dynamic path converging to an equilibrium relation. Therefore, a dynamic analysis of oil prices is required beyond the often made reference to exhaustible resources. 298 Oil DDW 2012 1 Replacing gas vehicles takes atleast 14 years and Chinas emissions will outweigh savings in 7 Yetiv, University Professor of Political Science and International Studies at Old Dominion University and Fowler 11 Steve A. Yetiv, University Professor of Political Science and International Studies at Old Dominion University and Eric S. Fowler, doctoral candidate in International Studies at Old Dominion University, 11, [“The Challenges of Decreasing Oil Consumption,” Political Science Quarterly Volume 126 Number 2 2011, www.psqonline.org/article.cfm?IDArticle=18738] E. Liu It will take a long time to switch away from oil toward other energies. What is more, once the United States began in earnest to transition the POV fleet to hybrid-like vehicles, the replacement cycle would take about 14 years; to transition to nascent zero-oil technologies will take much longer. Unfortunately, as we have shown, given Chinaʼs growth alone, the savings generated by U.S. efforts will be eclipsed by a conventional Chinese POV fleet after only seven years. The implication is clear. A long-term national energy policy should be developed, but at some point, its gains will be short-circuited by the consumption patterns of industrializing states. In the case of global energy—a transnational problem that manifests itself across borders and requires multilateral cooperation to solve—America will need not only a short-term local plan, but also a long-term global initiative. This initiative will need to include those others that are both part of the energy problem and its solution. Washington should devise policies that consciously seek to decrease POV fuel consumption and work with China on such solutions. 299 Last printed 9/4/2009 7:...
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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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