Rhein on Energy and Climate

The doubling of nominal oil prices is more effective in curbing climate change than the Kyoto Protocol and any climate policy measures taken so far. Politicians are therefore wrong and inconsistent when they try to dampen the impact of higher oil and gas prices.

This goes for European heads of government or ministers, who propose reducing VAT or excise taxes on gasoline or diesel, and for the US President keen to remove restrictions on off-shore drilling for oil and gas.

Of course, high oil prices are hitting air transport, lorries and taxis brutally, as fuel inputs account for 40 percent of their operating costs. They have no choice but to minimise fuel inputs or to pass the higher costs on to their clients. They are effectively doing both.

Airlines are idling up to 10 percent of their capacity, replacing older planes, flying with fully packed planes or a bit more slowly. Some 40 had to close down in the USA during the last 12 months.
Trucking companies and fishing boats face the same constraints. So do fertiliser, pulp, aluminium manufacturers. Companies think twice before shipping by air-freighting their products, the most expensive method of transport, causing by far the highest C02 emissions. We resort less to airplanes for importing strawberries, pears, flowers etc.

Thanks to the sudden and substantial rise of oil and gas prices, operators and consumers are finally becoming aware of the cost of energy. For half a century energy has been ridiculously cheap. We did not have to care about burning fuel and its impact on the climate when taking the plane or the car for a weekend holiday trip. We thought we could drive SUVs with impunity. That sort of paradise belongs to the past: We better understand that, the faster the better.

Of course, policy makers have told us to go for low-carbon methods. They have invented sophisticated methods of carbon cap and trading in order to make us aware of the external costs of emitting carbon dioxide. But nobody has felt the pinch. For only € 25 per ton of C02 any EU utility can burn unlimited quantities of coal, gas or oil. The market price of fuel has gone up by 10 times that amount during the past 12 months! That matters, not the low price of C02 emissions.

So, what should policy makers do in the present situation?

First, let the market sort things out. Steeply rising prices signal a worrying trend of demand outstripping supply. By pretending that speculators cause the prices to rise we only fool ourselves.

Second, help trucking companies, airlines etc. to adjust to the rising costs of energy by passing the cost increases on to their clients and facilitating necessary investments in energy efficiency.

Third, repeat constantly that higher energy prices are indispensable for the rapid transition to the zero-carbon energy supply that humanity needs to achieve in the next 50 years.

Fourth, rapidly put in place a comprehensive arsenal of effective climate policy measures that will induce us to use energy much more economically and turn to alternative sources of energy, which will not emit carbon dioxide.

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