No one, outside the oil companies, is happy at the current high price of petrol (gas, for my American readers), currently at least £1.10 per litre here which equates to about $10 per gallon in US units. British customers are threatening blockades and boycotts in an attempt to bring the price down. It won’t work, of course, and Sam Norton explains why. International oil prices may rise and fall a bit but the long term trend must be upwards, because oil production is gradually falling while demand is still rising. This means that all of us are going to have to change our habits to use less oil.
How can this happen? Well, in principle the government could intervene with a rationing scheme, but I don’t think anyone wants that. If the market remains free the only other way of balancing supply and demand is to allow the price to rise, on the forecourts as well as in the international markets. That is the only effective method of cutting consumption. It is of course a blunt weapon, with disproportionate effects on the poor and on those living in rural areas – and perhaps on small businesses. These especially bad consequences can perhaps be mitigated with tax breaks, and it is good that the British government is considering them. But the government cannot deny the unpalatable truth, that high petrol prices are here to stay. So we all need to change our habits to use less. If we don’t do this voluntarily, which is unlikely, we will be forced to do it by spiralling prices.
One significant positive step that the government could take, perhaps necessarily in co-operation with other governments, is to charge as much tax on aviation fuel as on petrol. That would put a dampener on the boom in cheap flights, catering mostly to people who don’t need to travel, or who fly because it is cheaper than overland and under-Channel travel. Putting a brake on this rapidly growing use of fuel would help to provide more for the rest of us and keep down prices for essential uses.
And all this is quite apart from the good environmental reasons for burning less oil, and for higher prices as a way of ensuring this.