Needed: a kick in the gas

Back in mid-October, as the price of oil was rapidly descending from its all-time highs of the summer, I began to worry about the state of alternative energy investments (“Can oil be too cheap?”). Since I wrote that piece, the price of oil has halved again, and suddenly I don’t feel so alone in worrying about oil’s plunging prices.

Today, writing in The Financial Times, energy beat reporter Ed Crooks says much the same thing with far more flesh on the argument than the one I mounted.

One part of the problem that Crooks brings up – and that I neglected to – involves the havoc of plunging oil prices on oil industry investment. Refining capacity is already less than what it was a decade ago, and now, projects meant to expand oil supply around the world are being put on hold. All this points to another spike in energy prices, possibly steeper than this past summer, once the world economy recovers in a few years.

As I argued in October, if we wish to escape this madness, we need to consider heavy subsidies for the alternative energy industry. With oil trading below $40 and the possibility of it staying below $70 for an extended period of time, there is a better-than-even chance that alternative energy will collapse, just as it did in the 1980s. This past summer has scared up a good deal of momentum for alternative energy…we shouldn’t squander it through inaction.