Larry MacDonald and Business Week report that oil prices are up to a record $117 per barrel. This has the obvious disadvantage that we’ll pay more to fill up our cars. But, there are advantages as well.
High energy prices create a greater incentive to develop alternative forms of energy. We can’t depend on oil forever. We need other forms of energy, but they are expensive to develop. Higher oil prices increase the chances that other energy sources can compete. Investors will be more willing to sink money into alternative energy development.
Another advantage of higher oil prices is that it will spur some businesses that consume large amounts of oil to become more efficient.
Closer to home, higher gas prices cause some people to choose not to drive. This means that there will be fewer cars in my way when I’m forced to drive on the highway at rush hour.
As we run out of oil, we need prices to rise to induce the necessary changes to reduce oil use and shift to other forms of energy. Governments may be tempted to change tax levels or even subsidize oil to reduce the shock, but this would be a mistake. If prices stayed constant, we would merrily burn the last barrel of oil without having prepared at all for an oil-free world.