But Will the Planet Notice?: How Smart Economics Can Save the World by Gernot Wagner

Author:Gernot Wagner [Wagner, Gernot]
Language: eng
Format: epub
Tags: Business & Economics, Environmental Economics, nature, Environmental Conservation & Protection
ISBN: 9781429969154
Google: Rl7My17y7-MC
Publisher: Farrar, Straus and Giroux
Published: 2011-09-27T23:57:33.410262+00:00

MONEY ON THE MIND

Sometimes price is not an issue. To this day, the Hubble Space Telescope and the Voyager space probe exploring the outer reaches of the solar system are lubricated by sperm whale oil, prized for its property of not freezing even in subzero conditions. NASA can afford to pay premium dollars to lubricate its space missions with the finest spermaceti and can write off the need for it as falling under scientific research rather than now-banned commercial whaling. For most everyone else, price is the deciding factor—as it should be. By 1850, the cheapest right whale oil cost $200 a barrel in today’s dollars. The superior spermaceti cost a whopping $1,500, and the price was going up as the whales became more scarce.

Crude oil, by comparison, promised a bonanza. By the 1870s, it came in at under $100 a barrel in today’s dollars, and the price went down from there. Throughout the twentieth century, oil mostly hovered around $20 a barrel before spiking during the Arab oil embargo in the 1970s and then again in the first decade of the twenty-first century.16

That latest rally has been particularly curious. If you wanted to know the price of oil in the early aughts, there was a simple rule of thumb: take the last digit of the year and add a zero. The year 2002 saw prices in the $20s; 2003 in the $30s; 2004 in the $40s. Prices climbed through 2007, when they reached the $70s. Then things overheated. Oil spiked above $140 in 2008 before crashing down to less than half that as the financial crisis hit. By this writing, they are back near $100, with many signs pointing up.

Some of this roller coaster was speculation, particularly at the height of the bubble in the summer of 2008. The general euphoria surrounding the housing and stock bubbles spilled over into commodities. The proof? Oil prices weren’t the only ones spiking. Aluminum, barley, coffee, cocoa, copper, corn, cotton, gold, lead, oats, silver, tin, wheat, and plenty of others hit similar records. Commodities were flying high, largely fueled by a generally overheating economy.17 But not all of it was folly.

Much of the run-up in the first decade of the new millennium was due to fundamentals, the underlying factors that are chiefly responsible for any longer-term price movements: demand went up; supply didn’t keep pace or even went down. Anyone interested in the main reason only had to look east.

Chinese oil consumption shot up by over 500,000 barrels a day in only three years, between 2005 and 2007.18 That’s not speculation. That’s physical barrels changing hands and being burned up to fuel hundreds of millions of people escaping poverty during the last throes of the fossil fuel age. By comparison, the United States, the most successful energy hawk in history, siphons off around 20 million barrels a day. China’s demand crashed much like everyone else’s during the global financial crisis, but it soon picked up steam again and by 2010 had surpassed the United States in total energy consumption.

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