Oil is cost-efficient as a primary energy source--in the short term. Long-term, however, oil poses economic risks and damages the environment. Should we allow markets to determine energy sources or implement energy policies to invest in alternatives?
Arguments in favor of oil as a primary energy source focus on cost and conversion.
In relative terms, oil is usually the most cost effective. You get more energy per unit of cost versus most alternative energy sources. So, moving away from oil technology usually means costs to consumers (for example, taxes either increase gasoline prices or provide subsidies to alternative sources).
Also, capital investment in oil infrastructure is enormous. Think not just of wells, pipelines, and refineries, but think also of manufacturing plants, gas stations, transporting goods, and power plants.
(Of course, oil is advocated by large corporate interests, but efficiency and conversion costs are more powerful arguments than conspiracy.)
Arguments against oil are longer-term. The cost of climate change does not have the same short-term impact as a hike in prices at the pump. Also, the effects of pollution, even of the Gulf of Mexico, are mostly localized.
Dependence on oil creates ongoing economic risks. Diversification is a better long-term strategy. A Financial Times headline reads, "Rapid rise in oil prices holds global economy hostage." Its caption reads "Oil price shocks often precede recessions…"
Finally, oil is not infinite, and is crucial for products beyond energy. Conserving a finite resource for other or future uses makes sense.
One option is strong, forceful leadership which accepts short-term consequences in favor of long-term gains, but inertia favors reliance on oil.
What would you do? Would you accept inertia and allow markets to determine policy? Or, would you encourage active policy options, and be willing to pay more?
For more information see:Robin Harding, "Rapid Rise in Oil Price Holds Global Economy Hostage," The Financial Times, March 12, 2011, p. 3.
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