Wednesday, 18 June 2008

Dominic Lawson's Oped on the Hypocracy of the Oil Debate

Lawson has a good article over at the Independent. It is a bit of lulz when the government justifies high tax on fuels as 'green taxes' but then asks their brutal dictator mates to pump more oil. But there are lulz within his article, by lulz I mean hypocracy of course.

Lawson cites the chief economist of BP Christof Ruehl pointing out that the "developing world uses more than three times more energy per unit of Gross Domestic Product". However he doesn't put it into context.

The reason for such a high figure because the developing world is in a process of inudstrialisation which is very energy intensive. Take a look at China's use of cement which is literally off the charts, a very energy intensive process (China uses entirely coal in the "clinker stage" and in the blending stage electricity (80% provided by coal). When a country begins to inudstralise it uses much more energy per GDP. As a country gets wealthier it shifts its comparative advantage by careful tariff/quota policy towards the 'high tech' economy. Take say the UK for example, a lot of our GDP is in the 'bull shit' economy. That is lawyers, bankers, financial information etc. Take the US, if it didn't shift its comparative advantage it's number one export would be fur or something.

In actual fact the amount of energy used by the developing world per capita is tiny. We in the west use about ~ 88% of the worlds resources but have ~12% of the population. Accurate figures at wikipdia. The myth of overpopulation putting demand on our scarce resources is far from the truth. But then again the instituional structure of western socities mean we find it hard to look in the mirror, so people like Ruehl and the media as a group point to the third world who we have opressed for so long.

The second issue is Lawson pointing out that many in the third world subsidise fuel, which as traditional market theory would predict, increases consumption. However this is too simplistic. There is an excellent post over at the Oil Drum about it. Briefly:

  1. Oil has an inelastic demand curve.
  2. Opportunity cost issues, but in terms of energy. - "If a government does’t spend $X billion on fuel subsidies, what will it spend the money on? What is the energy intensity of that expenditure compared to the amount of demand reduced through cutting the subsidy?
  3. Cutting Subsidies Won’t Slow the “Export-Land” Effect
The only way a reduction in subsidies would reduce the energy cost would be to redirect subsidies torenewable research or adoption. An entirely sane thing to do. But of course the US Senate has blocked the debate of a bill proposing such subsidies. Again the instituional structure of our socities encourages Keynesnian lunacy, where we subsidies things (arms especially) that will bring about our distruction.

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