Tuesday, April 22, 2008

The Advantages of High Oil Prices

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.


  1. Big Cajun Man:

    I know your comment is intended to be funny -- and it is. But, it is also true that my comments could be taken as support for oil companies, which I didn't intend. If oil companies are colluding to artificially inflate prices, then I would have no problem with governments regulating them to limit their profits. However, it would be a mistake for governments to reduce gasoline taxes (or worse, start subsidizing gasoline). If anything, it would make sense to increase gasoline taxes and reduce other types of taxes by a corresponding amount.

    1. The above comment was a response to Big Cajun Man's comment:

      And with higher oil prices I can go out and buy more things that I don't need with the money that I have so much of, I can't even count it, YEEE HAW!!!!

      --- Simpsons Texas Oil Dude


  2. jbgood314:

    Sounds good to me. More taxes on oil raises prices to make alternative energy sources more competitive. The tax money raised can then be used to lower other taxes and/or to pay for development of alternative energies.

    1. The above comment was a response to jbgood314's comment:

      Any incentive to get alternative energy a boost is good by me. Oil companies should be encouraged to develop these alternative energies or they will just die when the last drop of oil is burnt. Dying oil companies will cause a lot of damage to economies. I think that the incentive should come in the form of higher taxes for them for not investing honestly in future energy...not tax breaks.