Gerard Baker comments in the Times today that we should “cheer” oil reaching $100 a barrel as it will help “wean us off the petroleum fix”. He argues that expensive oil will break our dependence on some of the world’s worst regimes, encourage energy efficiency, and lead us to seek more environmentally friendly ways to feed our energy habit. This is the classic market-liberal environmental panacea: let the markets run free and – hey presto! – we end up with better technology, higher output, and nice green planet to top it all off.
Sadly, reality is a little less perfect. Dear oil isn’t making investment in green technology the automatic choice of the rational economic actor. No, the winner from oil price inflation is the worst possible option from a green perspective: the renewed economic viability of coal.
Over the next eight years it is expected that China will add 562 new coal-fired power stations, India 213, and the US 72. The US considers itself the “Saudi Arabia of coal”, with a guaranteed 250-year supply. Even Britain, with the environment now a key political battleground, is on the point of commissioning its first new coal-fired station in 24 years. As the price of oil becomes prohibitive, the smart money does not go into untried and expensive green technologies, it goes into the pit.
So the hard fact is, we can’t rely on markets to solve this problem. Markets will push money in the direction of the best deal, and with current regulation, that deal is coal.
We must not believe that the environmental problem is an economic issue which will solve itself. It is at its core political, and can only be tackled through a demonstration of political will. Instead of a blind faith in markets as they are, it requires leaders with the courage to make markets serve our environmental priorities, to make the best deal economically also the best deal morally. So let’s not do this contortionist’s trick and pretend that expensive oil is really a great thing; let’s not, Mr. Brown, talk green to our faces but commission coal-fired power stations behind our backs; the only real solution to this problem is for brave leaders to make tough choices, and until they do, we’re nowhere.