Michael Tobis wrote:
{cut}
>
> Putting a price on carbon seems to impact the wrong people. Large
> disparities in income seem to be part of the situation, as does a hard
> constraint on available resources. For the first time, substantial
> numbers of wealthy people are competing with poor people for the same
> goods. This seems to me to summarize the novelty of the contemporary
> situation.
>
> The immediate consequence is that the circumstances of the poor get
> dramatically worse. Price incentives seem to me much less desirable
> than they did a few months ago. It is one thing to shrug and say
> "subsidies". It's another thing when the price goes up before
> subsidies are even considered.
>
> I start to think that some form of rationing for certain materials may
> be needed. Perhaps part of the food and fuel supply can be injected
> into a free market, but it seems necessary that some must first be
> reserved for the population regardless of wealth. I don't relish the
> consequent bureaucracy but the only alternative I can see is a much
> more equitable distribution of wealth than we now have, which also
> isn't easily achieved.
>
> Otherwise it isn't just the surplus that goes to the animals,
> unfortunately.
>
> mt
I agree with your conclusion regarding rationing and have written
about it for years.
Energy [particularly oil these days] is not like many other
commodities which are renewable or recyclable. Our stock of fossil
fuels will be exhausted some day and long before that, the rate of
recovery of what remains will reach a maximum and begin to decline.
There are some analyst who contend that world oil production is now
near or perhaps past the peak. Several books have been written over
the years and the present stunningly high prices for oil have
energized the discussion.
I've spent quite a bit of time at theoildrum.com where this issue is
debated daily. Along with the rapid increases in oil prices, we've
seen more and more articles in the popular press discussing the
situation. The economists tend to think that more supply will
magically appear to satisfy the demand, a thinking which has long been
a characteristic of the classical economists who apparently don't
understand that the Earth is a sphere floating along thru space.
The basics of the oil problem and the reason prices have risen so
rapidly is that the so-called "elasticity" of oil supply is very
steep. That means that demand does not change much when the price
goes up, thus a shortage in supply results in a steep increase in the
price in the market place. In this present situation, the supply of
oil has not increased as fast as the demand, especially as the rest of
the world's peoples try to keep up with the U.S., Europe and Japan in
their use of oil. What results in the market is called "demand
destruction", ie, the price must increase enough such that the demand
matches the available supply. Thus, some people will not be able to
use the oil which they would if the supply were freely available, as
had been the situation for most of the years after WW II.
When the price is the only mechanism available to produce the
necessary "demand destruction", be that a pure market set price or the
result of increased taxes, the resulting "demand destruction" tends to
fall on the lower income sections of the economy. And, "demand
destruction" is not immediate, as many consumers have invested in
systems that must have oil to function, such as the large SUV's and
PU's which were widely purchased in recent years. Also, houses with
oil heating can not be easily switched to other sources of heat or,
perhaps worse from our climate change viewpoint, may be switched to
energy sources which emit more CO2, such as electricity.
As a result of the inertia within the consuming sector of the economy,
much pain is experienced by those on the bottom rungs of the economic
ladder. For them, "demand destruction" is very personal because they
don't have the resources to adapt, such as the ability to buy a new
vehicle which uses less gasoline. For that matter, they don't buy new
vehicles at all, but are stuck with the hand-me-downs from the more
well off in the community. Similarly, they can not scrape together
the money to improve the energy efficiency of their dwellings and they
are likely to be renting instead of owning. Renters typically pay the
utility bills and the land lords have little incentive to invest in
insulation when rents can not be increased to cover the cost.
If the world is at peak oil, then I think that the price mechanism
won't work in the long run. As oil production can be expected to
begin an inexorable decline with less available each year, prices
might just begin a spiral to infinity. Worse yet, the cost of
building alternative energy sources is a function of the cost of
energy and materials used, which can be expected to increase as the
price of oil increases. Call it hyperinflation, only this would be a
world wide problem, not just the result of a very bad national
economic policy. There's been considerable discussion of the
possibility that the internal inertia of the world economy would
simply grind to a halt as the oil runs out, with dire consequences for
the many billions of people living or to be born in the near future.
Some have suggested that the world's population would experience a
massive dieoff as a result.
Given that prospect, I think the only rational solution is a system of
rationing such that the most wealthy would immediately feel the pain
and begin to work toward a solution. Such a system could begin with
rationing oil products, but might be expanded to include all fossil
fuels, given that they will all run out eventually. The rationing
system should include a "white market" for individuals to trade their
allowances, thus cutting out some of the criminal element who would
tend to take advantage of the situation. The idea of rationing is not
new and is very similar to proposed "cap-and-trade" systems, the
difference being that individuals would be allowed to chose how to use
the rations.
The Peak Oil problem will likely impact everybody on Earth today and
into the future. It is to be hoped that the problems resulting from
the decline in production can be contained in a rational manner which
would minimize the pain associated with the transition to other energy
sources.
Eric Swanson
{sorry for the long rant}
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