» Thursday, May 6, 2004

Oil Prices

Asked if the Prime Minister was concerned about rising oil prices, the PMS said that she had nothing further to add to what the Prime Minister had said about this matter in his joint press conference with the Polish President this afternoon. Asked if the Government would halt the increase in petrol prices which had been announced in the Budget if oil prices continued to rise, the PMS said she did not think it would be appropriate to get drawn into a discussion about any kind of fiscal measures which might or might not be taken.

Briefing took place at 15:45 | Search for related news


  1. Oil supplies are running out so oil prices will, over the mid to long term, keep on rising. This is a fact so why do we always get so much whinging about it?

    Why isn’t the PMOS being asked about the Government’s support for alternative fuel research? Surely the country that develops a viable alternative to fossil fuels will have a secure and prosperous future – a preferable alternative to being dragged into more and more wars over dwindling oil reserves.

    Comment by Uncarved Block — 7 May 2004 on 1:11 pm | Link
  2. Well, as you say, oil prices should rise gradually over time. On the face of it that should encourage the market to find subsitutes. Why should the government subsidise research with such an obvious commercial application?

    Comment by Chris Lightfoot — 7 May 2004 on 1:46 pm | Link
  3. Because the market doesn’t take into account the externalities of pollution, the social impact of increased oil prices, the cost of ‘oil wars’ etc etc.

    The R&D costs of alternative fuels are believed to be high and so the market will not invest sufficiently in it until the market can be sure of a return to match.

    Comment by Uncarved Block — 7 May 2004 on 4:09 pm | Link
  4. It’s true that the market doesn’t cover the externalities, but surely the appropriate response to that is taxes on pollution, rather than subsidies to research into nonpolluting fuels?


    "The R&D costs of alternative fuels are believed to be high and so the market will not invest sufficiently in it until the market can be sure of a return to match."

    — surely that’s desirable? Why invest in the technology until it’s economically sensible to do so?

    (I’d agree about the subsidies, by the way, if I thought that there were bits of fundamental science left to discover before alternative fuels could be brought to market. With a few exceptions, companies aren’t good at fundamental research. But I don’t think that’s really true here. We already know how to make — say — electric cars or wind turbines; though there’s obviously scope for improvement in both, that’s something which car and wind turbine companies ought to be able to handle on their own.)

    Comment by Chris Lightfoot — 7 May 2004 on 4:19 pm | Link
  5. As I said before chris, new technologies have wider benefits than pure economics can measure. Decisions on what the Government should or should not do are not made on whether or not it is profitable or ‘economically sensible’ – that’s a mechanism for private industry. The Government has a role in acting where markets fail and I agree that taxing pollution would be a way of reducing one of the externalities from fossil fuel usage. However, this is only one of the problems with continued reliance on fossil fuels and so developing an alternative seems a more effective solution to the overall problem.

    I agree that private companies could develop alternatives but I don’t understand why that should prohibit Government intervention. I’ve never understood the worship of the sacred free market and why people insist that profits should go to rich shareholders rather than everyone in the country. I don’t want to drift off into a discussion on the failings of capitalism but I think it is valid to ask the Government why they are not doing more to tackle the problem of our dependence on fossil fuels.

    Comment by Uncarved Block — 7 May 2004 on 6:42 pm | Link
  6. UB listed three externalities "of pollution, the social impact of increased oil prices, the cost of ‘oil wars’ " to which the current energy market is oblivious. CL pointed out that simply taxing pollution would reduce it, and, I think he and I imagine, would reduce the appeal of oil and oil war as well. Is UB rejecting this simple approach on ideological grounds? (I too am scornful of the Greed is Good school, but I do like straightforward approaches to problems where they look promising.)

    Can I also ask what is meant by "the social impact of increased oil prices"? Is this impact distinct from the impact of using expensive renewable energy?

    I’m not sure that "I agree that private companies could develop alternatives but I don’t understand why that should prohibit Government intervention." is an effective bit of rhetoric. There are lots of things that the private sector does energetically that we would be astonished to find the government trying to do as well. The government already has a lot on its plate trying to provide public services, as well as trying to decide who to invade and why.

    Comment by Cui Bono — 7 May 2004 on 8:34 pm | Link
  7. We had our chance of cheap non-polluting energy in the early sixties and Wilson bottled out. Other countries, notably France and Japan persevered and are reaping the rewards. We have only ourselves to blame for the consequences.

    Comment by colonel mad — 7 May 2004 on 9:11 pm | Link
  8. 1) Building an alternative fuel supply today, even with today’s technology, materials science, and knowledge is no less challenging, and arguably more challenging than it would have been in the 60s. In the 60s, you didn’t have computer-generated simulations of stresses, fluid dynamics, or for that matter, computers that could do better than add a few numbers. Today is arguably a better day to start.

    2) There are a raft of options open – including carbon limiting – which would push people towards alternative fuels, if they existed.

    3) It’s not clear who’d be the developer – because anyone who developed it would find their technology replicated and used by their competitors. This means that government funded reasearch – whether a single government, the EU, or some huge multinational organisation – is the only real option for getting something developed that won’t suffer a technology control that simply doesn’t exist in the oil->gas/LNG fuel transformation scenario. Either it’s heavily patentable – in which case, all your eggs end up neatly in one corporation’s basket, which isn’t interesting as a business model for investment due to risk, or it’s not patentable at all, which is arguably an even worse investment for businesses because they can’t guarantee any kind of return.

    So when it comes to alternative fuels, it’s the government, the embodied representation of the people, who need to create the technology; and just as in the material world, where the energy industry supplies, the energy industry will supply the mechanism and method of supply – but asking the energy industry to ‘invent’ a new oil just isn’t likely.

    Comment by Gregory Block — 9 May 2004 on 12:41 pm | Link
  9. Keep in mind that taxing output doesn’t necessarily curb emissions; it just makes things more expensive. If a certain amount of pollutant is required in order to make product X possible to produce, the tax will get added on and passed through. While it in theory drives the company to make product X more fuel efficient, it doesn’t automatically mean that we’ll meet Kyoto treaty requirements.

    The carbon market does that well, and efficiently.

    Comment by Gregory Block — 9 May 2004 on 12:43 pm | Link
  10. Sidenote: Nuclear is not "cheap, non-polluting" energy. It’s an interesting combination of the two – but LNG is "cheaper" because it’s easier to scale capacity to the exact requirements of the grid, and therefore less energy is wasted; and you can only call Nuclear "non-polluting" when the world actually figures out where it’s going to store its nuclear waste.

    So long as places like Yucca Mountain never get built, and EU countries with nuclear power insist that their own nuclear waste needs to go somewhere else to get buried, you’re going to be in a situation where it will be impossible to justify nuclear power. The most dangerous thing about nuclear isn’t the actual disposal – it’s that there’s nowhere to dispose of it. Companies in the U.S. have had nuclear waste sitting in temporary disposal sites in holding tanks for over twenty years now, waiting for a final resting place; meanwhile, we’re stockpiling nuclear waste on the surface of our planet, in containers that weren’t meant to last 20 years.

    If you want nuclear, then start accepting the fact that nuclear means having to live next door to a Yucca Mountain, and that your, our waste is our responsibility to dispose of, and that means it’s going to be next to one of our homes.

    Comment by Gregory Block — 9 May 2004 on 12:47 pm | Link

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