How is oil so cheap?! Really. Have you ever considered just how inexpensive it is? You can fill up your car, drive hundreds of kilometres in your own private bubble set at just the temperature you like, play your own personal soundtrack through your own personal sound system or, failing that, tune into the veritable variety of music available over the radio waves (for free!). You can even take three or four of your friends with you, and have a holiday. All of this you can have and only burn about $60 of fossil fuel in the process. Sixty dollars! Do you know what else $60 gets you? Half a meal at the Hilton, a fifth of a pet cat, a tenth of a one course for one semester at a University in New Zealand, or one millionth of a house in Auckland. In short, $60 doesn’t get you much these days (he says wistfully like an old man facing an existential crisis as he nears the end of his life…). But $60 does give you the freedom to travel hundreds of kilometres in any direction of these glorious islands.
This is even more remarkable when you consider where it comes from. New Zealand imports 97% of its oil. It travels many miles from under the ground and under the ocean, through volatile regions of the world on massive oil tankers, trying to avoid Somalian pirates as they navigate the seven seas. All to get to a little group of islands at the bottom of the Earth.
And yet, the price of petrol has been hovering around $2 a litre in recent months, thanks to the fact that OPEC (Organization of the Petroleum Exporting Countries) has continued to keep pumping oil at a rate of 30 million barrels per day (one barrel is about 160 litres). They are doing this to compete with the Shale fields in North America, in a hope that the low prices will render these fields unprofitable and OPEC will once again have full control over the fossil fuel market – but that’s an aside to this discussion. Returning to the price of oil, compare $2 a litre to the price of water, carbonated drinks, liquid gold; it’s cheaper than almost any other liquid you can think of. The question is, how?
One reason is simply the scale of consumption on this planet. We get through 90 million barrels of oil a day. When you are dealing with an industry of such vast scale, even the most basic reading of economics will lend you an understanding of how this lowers the price of what would otherwise be an expensive product.
So there’s that, but there is something else worth a mention; the cool sum of 5.3 trillion dollars. That’s $5,300,000,000,000 with all the zeroes. This is how much the International Monetary Fund (IMF) calculated the global subsidy to the fossil fuel industry is worth every year. That’s $14 billion a day and $10 million a minute. It is also 6.5% of global GDP, and more than all governments spend on healthcare combined. And this number is almost certainly an underestimate according to Lord Nicholas Stern, a climate economist at the London School of Economics. Compare that to the sustainable energy sector subsidy of $121 billion (this is a shaky figure, it seems no one has done the equivalent subsidy calculation for renewable energies, but it is certainly smaller than fossil fuels), and it’s a wonder a sustainable energy sector exists at all! Well, maybe not, many people realise its value and so are wisely supporting it; entire nations in some cases. Sadly, New Zealand is not among them. Our government is actively encouraging the fossil fuel industry by granting companies access to huge areas of ocean for exploration, making protesting at sea illegal, trying to open up protected land to mining, and giving $46 million in subsidies to the industry according to a WWF report.
But enough about that. If you are like me, you’ll be wondering how the IMF arrived at such an eye watering figure. It is certainly not a case of governments simply shovelling $10 million a minute into the bank accounts of Shell and BP. The number is largely due to a consideration of all the effects of burning fossil fuels, the costs they impose, and who is paying for these costs. The largest is obviously pollution. The pollution caused by burning oil, coal, and gas imposes huge costs to the health systems of countries, as air pollution is a direct cause for many illnesses and deaths. They also considered the costs of increased droughts, floods, and tropical cyclones due to anthropogenic climate change. In all these cases, it is primarily governments and to a lesser extent charities that have to bear the cost. And they get their money from either taxes or donations that come from the population of the entire world! We are directly subsidising their activities.
However, the extent to which these companies are responsible for the adverse effects of their products is a legitimate topic for debate, considering that we as consumers cannot plead ignorance when we slurp up what they give us. There is a tacit understanding when we fill up our car that there are many negative consequences in doing so. The problem is that not all of us are consumers of fossil fuels (directly that is, nearly everyone is indirectly), but we all suffer the negative consequences of such a polluted world. Should we charge fast food companies for the obesity epidemic? Soft drink companies for the diabetes spike? Tobacco companies for all the lung cancer treatment? I would answer yes to all these questions. But the difference between these companies and the fossil fuel companies is that the effects of food consumption are largely contained to the single consumer (until we have to pay for their medical costs), but the effects of burning fossil fuels are felt worldwide.
My view is that companies should have to bear at least some of the cost the products they produce incur. The ‘better’ option usually is devoid of these negative consequences, but finds it hard to compete because the cost of production is usually higher because they don’t use cheap and nasty methods to produce cheap and nasty products. But these cheap and nasty products have such dire consequences for our health and planet (consequences that the rest of us have to pay for) that they should be built into the costs for the company producing the product. This would make fossil fuels more expensive yes, but that is exactly what should be happening. When we’re running out of fossil fuels, we should not expect the price to be dropping. A higher price for fossil fuels would make the consumer demand a cheaper (and hopefully more sustainable) alternative, which would encourage spending in research and development, bring the price of sustainable alternatives down, and help herald in the sustainable future we all hope will soon exist.
In short, when you are next filling up your car full of prehistoric gloop, do not despair that the cost has risen by another two cents per litre, instead throw your hands in the air, fall to your knees, and exclaim to the heavens: “Why must I still rely on this 200 year old technology to get around!!!!!”. Then we might actually begin to make progress.