Market Failure: Global Warming And Peak Oil

By Bill Henderson

23 February, 2005
Al-Jazeerah

"'A crisis is a problem that was ignored'. All great crises were ignored until it was too late.
"Most serious scientists worry that the world oil supplies will peak (and then decline). While the optimist/pessimist debate (economists vs scientists) rages on, the jury has decided the optimists have lost. Too much real data now proves their total thesis was wrong.
"Does this prove the pessimists were right? The pessimists might also be wrong, they might also be too optimistic.
"Peaking of oil cannot be predicted accurately, but the event will occur. Peaking turns out to only be clear through a "rear-view mirror". By then, an alternative or solution is too late."

Oil industry expert/ Bush Admin consultant Matthew Simmons

A new study of the effects of global warming on oceans by researchers at the Scripps Institution of Oceanography at the University of California, San Diego contains the first clear scientific evidence that the indisputable rise in global mean temperatures called global warming can only be the result of greenhouse gas emissions from the burning of fossil fuels.

Skeptics - including the Bush Administration which has always maintained that global warming science is uncertain - have up until now insisted that evidence of warming could not be connected only to greenhouse gas emissions because climate change is 'natural', i.e. not human caused so nothing economic has to change. Given the complexity of climate cycles, they argued that climate change science confused the effects of volcanism, celestial positioning or variable solar activity.

Skeptics have always been a very small minority of scientists studying climate change and most skeptics have been funded by fossil fuel business organizations, but their minority opinion has been used to confuse the public and paralyze efforts to reduce greenhouse gas production.

The evidence derived by American scientists using powerful computer models to study data from the US National Oceanic and Atmospheric Administration may be able to squash the skeptics:

“The debate about whether there is a global warming signal now is over, at least for rational people,” said Tim Barnett, lead scientist on the Scripps team. “The models got it right. If a politician stands up and says the uncertainty is too great to believe these models, that is no longer tenable.”

There is a wider lesson from our evolving understanding of global warming that is particularity relevant to that other emerging global-scale problem threatening global society collapse: peak oil.

Markets have never quantified and accounted for the greenhouse gas costs of burning fossil fuels. The costs of production and demand by users have always been the market variables setting the price of coal and oil. This historic inability to take into account the effects of greenhouse gas emissions is a stake in the heart of ideologues who would reduce government and other attempts at rational-comprehensive planning and depend entirely upon markets.

These same ideologues dismiss the threat of peak oil. They believe that we cannot consume our finite supply of oil - we will find more. Severe depletion will not occur without the development of sufficient alternative energy sources and therefor we needn't worry about severe economic dislocation and possible societal collapse.

Their position is an unqualified optimism that markets will allocate the production and use of oil, improve efficiency, and develop new, always sufficient, energy sources.

Markets have always just accounted for costs of oil production and user demand. There has never been any market accounting for alternative fossil fuel use, for inter-generational equitable use of a once-only, finite resource, for example.

Information about potential recoverable reserves and estimated future demand for oil has never been quantified with an accuracy that would allow markets to work properly. The recent write down of oil reserves by Shell and the current debate about Saudi future production capacity are examples of this lack of reliable market information.

Has the market mechanism developed optimal efficiencies in our use of fossil fuels? Only a Luddite ideologue or state socialist (if there are any left) would deny the enormous efficiency gains over the history of fossil fuel use due in large part to market mechanisms. But the development of the SUV due in large part to loopholes in truck tariffs with Japan, or of the burgeoning luxury travel industry, suburbia, Caesar salads from Mexico, grapes from Chile, hundreds of pro sport teams jetting across America daily, etc. etc. etc. all suggest that the interaction of producers with consumers in markets does not have anything like full cost accounting from which optimal efficiency could result.

Peak oil pessimists are reasonable and informative in their critique of possible development of alternative, non-fossil fuel energy in time to sustain our economies present demands.

They point out that we have wasted decades of needed lead time where investment in solar, wind, tidal and other possible sources of energy has stagnated at a very small percentage of investments in oil. Non-fossil fuel energy production is still less than 1% of production from fossil fuels. And path dependency is diverting investment to within existing fossil fuel derived patterns, i.e. hydrogen or biofuels for continuing 'car economies'.

With peak oil now predicted within the immediate decade these pessimists have a pretty strong argument that market failure has already occurred. They also point out that it will take energy from much more expensive oil in the future to make the transition to alternative energies and that possible resource wars or severe economic dislocation caused by high oil prices could make the transition very much more difficult.

There is no question that markets have proven invaluable in helping achieve our present bountiful economy and wonderfully complex global society. But given these obvious examples of market failure, blind faith in markets is dubious ideology. Markets provided with full information might have lead us to a post-fossil fuel economy decades ago.

Even worse, like the global warming skeptics, it is obvious that those who remain optimistic that there will be no peak oil problem - no economic and societal collapse because the market mechanism will always provide needed energy - do not want to recognize the existence of these global-scale problems because they are completely committed, completely invested in business as usual. Completely preoccupied with their own short term economic self-interest.

There are potential rational-comprehensive frameworks for organizing our societies survival given these global-scale problems. Accurate knowledge of the dangers from and possible solutions to both global warming and peak oil are possible. Businesses operating in markets within these frameworks would be a big part of possible solutions.

But if the history of denial and greenwashing of global warming is any indication, and the peak oil pessimists are right, it is probably too late for even a wartime economy government to do anything but try and keep order and save memes needed for the birth of a future society.

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