I hope I’m not the only one who was struck by the contrast on The 7.30 Report
last night, where a harrowing report on the Middle East was preceded by
an examination of the “crisis” of high petrol prices. We again heard
John Howard saying petrol was “the greatest worry of my political
life”. If petrol prices (actually among the lowest in the world) are the worst we have to worry about, we surely are the lucky country.

But
it seems that petrol prices are the number one concern of Coalition
MPs. And just as the coal lobby thinks we can get clean coal technology
without imposing any economic disincentive for use of the dirty sort,
the honourable members simultaneously want to develop alternative
fuels, but also stop the one thing that provides incentive for that
development: namely, high petrol prices.

For a while now, certain environmentalists have been talking up “peak oil”
– the idea that the world is headed for an economic crisis as oil
production passes its peak and industry has to deal with an energy
shortage. Since previous doomsaying of the “we’re running out of X”
variety has almost always proved wrong, I’d been putting peak oil in
the same category.

After watching The 7.30 Report I’m not
so sure. What generally prevents commodity shortages doing major damage
to the economy is the price mechanism. As things get scarce, their
price rises, and that provides incentives to (a) produce or discover
more of them, (b) find or invent substitutes for them, (c) use less of
them, and (d) recycle them or use them more efficiently. The
combination of these effects minimises dislocation and allows us gradually to
shift to different ways of doing things.

But if
governments are so short-sighted – or just plain stupid – as to try to
keep petrol prices artificially low, then none of this will happen.
Instead, we’ll continue happily consuming cheap fuel until we wake up
one morning and discover we’ve run out, just as the “peak oil” people
say.

Peter Fray

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