I have a bet with a close friend that oil will be more expensive in around 18 years time than it was 2 years ago (it’s a two year old bet). My money’s looking pretty safe at the moment. Not that I necessarily think that oil prices are going to stay as high as they are for the next few years.
Nor do I think they are going to drop precipitately either, although I was surprised to see a share analyst valuing oil company shares going out a few years on the basis of prices for a barrel of oil as low as $60.
There will be a correction in the price of oil. We’ll economise and they’ll find some more, but with maybe only 15% of the globe enjoying fossil fuel mobility comparable to ours, and at least 42% – China and India – wanting it, and being in a position to do something about it, the retreat won’t last for long.
However, we will buy some time converting coal and oil shale into liquids. (It shouldn’t hurt my bet because for them to be competitive they still need a price for oil somewhere over where it was when I made it).
So Martin Ferguson was right to be spruiking coal and gas to oil and petrol conversion.
The problem with carbon credit markets is that they can only work effectively if there is an alternative to carbon based fuel. At the moment there isn’t. So any carbon trading scheme at this stage is likely to be seen for what it is – a tax on the public without any environmental pay-off.
That seems to have been one reason that Boris Johnson won the mayoralty of London – Londoners were tired of paying environmental taxes that didn’t improve the environment. Australian Labor is not going to be so stupid, particularly if they listen to ministers like Ferguson.
June 05, 2008 | Graham
Martin Ferguson is right.
6 Comments
RSS feed for comments on this post.
Sorry, the comment form is closed at this time.
You wrote: “The problem with carbon credit markets is that they can only work effectively if there is an alternative to carbon based fuel.”
What about nuclear power and electric cars.
And yes your money looks very safe at the moment, but 18 years is quite a while.
Comment by Jennifer — June 6, 2008 @ 10:21 am
Well, I like to look at the longterm! 😉 I might need the proceeds of the bet about then for my retirement.
You might be right about nuclear and electric (although I wouldn’t mind taking a bet on geothermal instead of nuclear), but they’re not here now. The higher price should stimulate their development, but there’s an issue with how long it might take for them to become readily available. Could easily be longer than 18 years.
I can’t buy diesel at my local servo at the moment. The reason is that they have to get new pumps in, and that takes 3 months. And that’s for a small bit of infrastructure in a well-established technology!
So the problem with a trading scheme when you can’t readily substitute is that it operates by rationing your usage by putting the price up. Natural forces are doing that with fuel at the moment without a trading scheme. But if you put a trading scheme in place you’re going to end up with surplus credits, and the risk is that government will only give a proportion of that back to tax payers and spend the rest on “good works” – infrastructure and services.
Comment by Graham Young — June 6, 2008 @ 10:45 am
Welcome to the Ferguson left, Graham 😉
Comment by Jason — June 6, 2008 @ 12:04 pm
I think I was already a member of the Tanner left!
Comment by Graham Young — June 6, 2008 @ 12:07 pm
Are you sure you can trust this friend of yours? I’d be happy to hold the bet in escrow for the next 18 years, particularly if it’s a sizeable one 😉
Comment by Andrew Leigh — June 10, 2008 @ 9:10 am
She’s close and dear, but maybe we should run a betting market on it. I guess we’d need a URL in a country where you don’t need a licence to be a bookie. Then she might have a chance of winning her money back, and we’d both have another subject to blog on. 😉 (I’m assuming that oil futures markets don’t go out that far.)
Comment by Graham Young — June 10, 2008 @ 9:21 am