July 7, 2008
Finally, the oil price of $ 140/barrel does what 10 years of international climate policy have failed to achieve. Citizens across the planet are becoming aware that oil is an increasingly scarce resource that must not to be wasted.
They finally realise that high oil prices are there to stay and that the time of cheap fossil energy is definitely over. We should rejoice at this sea change. It will lead to a more economic use of fossil energy, induce us to invest more in energy efficiency and make alternative energies more competitive.
These effects start being visible, but their full potential will only be realised after several years when the adjustment process will be running at full speed.
The impact will be highest in the USA, which accounts for one quarter of global oil consumption and where gasoline taxes have been ridiculously low. And it will most affect three sectors where fuel accounts for a major share of costs: transport, heating and power generation.
Air transport is hit hardest. Kerosene accounts for up to 40 percent of operating costs. It is therefore logical that airline scramble for reducing their kerosene consumption by cutting routes with little traffic, idling planes or ordering them to fly at lower speed, merging with competitors, using more fuel-efficient planes, imposing fuel-surcharges, etc. .
The industry is undergoing a radical adjustment process. C02 emissions from air traffic are likely to fall for the first time in decades.
The automobile sector is the second most hit. Shares have plummeted to the lowest levels for decades. Some US companies may be faced with bankruptcy, as consumers become aware that costly gasoline is hurting their purses. They drive less and change from individual commuting to public transport. They have stopped buying gas-guzzling SUVs, forcing automobile manufacturers to idle plants and personnel. The demand for small fuel-efficient cars is rising rapidly, benefiting manufacturers that are able to offer decently comfortable cars with C02 emissions of less than 140 g/km.
This profound change in consumer behaviour, especially in the USA, is bound to reduce the global C02 output from automobiles, responsible for at least a quarter of global C02 emissions.
The high oil price also affects international shipping. Freight rates for container shipments from the Far East to Europe and the USA have gone up steeply during the last 12 months. This will handicap Asian manufacturers compared to those closer to the main consumption centres, curb long-distance shipping and air-freighting of many consumer goods, and reduce overall C02 emissions.
Last not least, the high oil price will lead to a more efficient use of heating fuel, which is a major source of C02 emissions in the northern hemisphere. The inadequate thermal insulation of most buildings in the world, especially in the USA and the former socialist countries, engenders an extraordinary waste of costly energy. With or without public support programmes for thermal insulation home owners will have little choice but to retrofit their buildings. The necessary investments for double glazing, insulated roofing etc. will pay much faster because of the prohibitive cost of heating fuel.
The high prices will, no doubt, unleash an investment boom in retrofitting of buildings, the results of which will become visible in a few years.
In conclusion, the high oil price will be blessing in disguise. It would be wise for politicians to emphasise the positive aspects of the rising oil prices, instead of only bemoaning their negative impact. It would therefore be contra-productive to offset the higher oil prices by providing tax reductions on fossil energy or specific subsidies for heating or commuting. If governments want to remedy the pinch high oil prices may cause to poor citizens, they should focus on supplementary income payments limited to the very poor.Author : Eberhard Rhein