Rod Adams on Phaseout Profit

Rod Adams kindly replied with a couple of tweets to my latest article on Phaseout Profit. I am pleased with the opportunity to discuss why my idea might not work. He raised three points.

The first:

History is clear. If prices are high, more drilling in sensitive resource areas like Arctic, deep ocean, & tar sand

That is true. Higher oil prices make it possible to drill in more expensive places. It is also true that oil companies are unlikely to drill anywhere more expensive than current prices.

But there is no “history” on Phaseout Profit. This is a new idea. It remains to be seen what happens if the oil industry understands it.

And the idea is to reduce drilling and production in both expensive and cheap places.

The second is a related point:

Unrealistic to believe “for profit” companies would voluntarily refrain from drilling in a high price market.

That is correct as well. Therefore, Phaseout Profit would work not as a “voluntary” scheme. It would work like the environmentalists want. Force the oil companies to keep 80 percent of their oil in the ground (except for sales as raw material in the chemical industry).

That’s because if there is no obligation to reduce investments and production with legal force, the resulting cartel would be ineffective. Since less production leads to higher prices and therefore high profits per unit, each producer would be tempted to break the cartel by producing more than his allocated share.

The third:

High energy prices harm billions of humans. Better way to keep oil & gas in ground is to flood market with E

Again, correct. All things equal, cheap energy is better than expensive energy. And high prices for gasoline will hurt some people that depend on gasoline cars.

But people will be hurt on a much larger scale if global warming is allowed to continue unchecked.

Also, the argument of Phaseout Profit is from the point of view of the oil companies. As I mentioned in the article, they are just now hurting to the tune of close to a trillion dollars per year from the recent 40% oil price drop. While Europe and the United States rejoice in equivalent savings on their energy bill, those are clearly not in the interest of the countries holding the oil (many of them developing countries much poorer than either Europe or the United States).

As far as nuclear is concerned, I recall reading at Atomic Insights about gas prices. Obviously, low gas prices may be good for consumers, but they are not good news for the competing nuclear industry.

If a coalition of Bill McKibben and the fossil fuel industry pushes through effective reductions of fossil fuel production, and if such reduction leads to higher prices, competing sources of energy like nuclear and renewable will profit from that as well.

 

 

 

 

Published by kflenz

Professor at Aoyama Gakuin University, Tokyo. Author of Lenz Blog (since 2003, lenzblog.com).

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