Bad News From Michael Liebreich

Since I believe that fossil fuel should be expensive, I was not pleased reading this post by Michael Liebreich.

He explains that prices for gas and oil will stay low. That’s because just like renewable energy, it gets cheaper to produce fossil fuel all the time. From the post:

The surprising fact is that in the U.S., oil and gas unit costs have come down about as rapidly as solar power costs over the past five years.

He doesn’t say if he likes that fact. The whole post is just arguing about what he expects prices in the future to be.

In contrast, I think the last thing we need is cheaper fossil fuel. All things equal, cheaper oil and gas will delay the transition to electric vehicles. All things equal, cheaper fossil fuel will mean even more CO2 emissions.

If it is true that costs for the production of fossil fuel are going down, that is bad news for the planet.

And it is of course exactly the opposite of what I call for with the “Phaseout Profit” idea.

On the other hand, my idea is that fossil fuel companies should make some extra profits by reducing their production and getting higher prices in the process. Reduced production costs only mean even more profits in such a scenario.

It is only if you allow market forces to determine prices that lower costs mean lower prices. If you have a cartel in place that is working, lower prices mean ever higher margins.

 

Published by kflenz

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

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