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Why Gas Should Cost More

North Americans complain about fuel costs. But to avoid a possibly unprecedented human crisis in coming decades, they should be urging their governments to allow the price of oil and natural gas to rise even more.

The present world energy market obscures the true price of hydrocarbon fuels. The Washington-based International Center for Technology Assessment, for example, has calculated the full cost of running automobiles. In addition to the price of gasoline, this includes construction and maintenance of roads and highways, oil-industry subsidies, and pollution-driven medical expenses. Depending on the range of subsidies included and the quality of available data, this fuller accounting puts U.S. gasoline prices between $5.60 and $15.14 per gallon.

American consumers enjoy the most underpriced fuel available in any major industrialized country, with Canadians not far behind. And as every economist knows, the consequence of underpricing is overuse. Wealthy and middle-class North Americans live in ever-larger energy-inefficient houses and vehicles, and so are squandering in a few decades a nonrenewable resource that took tens of millions of years to accumulate.

On top of this, the world is running out of cheap oil. Recent price hikes may be mere tremors heralding the shock to come.

Oil "production" – really extraction – peaked in the United States about 1970 and in North America as a whole in 1984. Several recent studies project global oil output to peak as early as 2010. The conservative International Energy Agency predicts that supply will fall short of demand by nearly 20 percent by 2020. Others show that by 2040, total oil and natural gas output may fall to 60 percent of today's supply.

Keep in mind that oil is also the raw material for thousands of products besides fuel, including medicines, paints, plastics, fertilizers and pesticides.

The human population has grown sixfold in less than 200 years. The global economy has quintupled in less than 50. No factor has played a greater role in this explosive growth than abundant, cheap fossil fuel. No other resource has as greatly changed the structure of economies, the nature of technologies, the balance of geopolitics and the quality of human life.

Little wonder that some scientists believe that passing the peak of oil production will shock the human enterprise like no other event in history. Population and consumption are still on a steep trajectory, but the rocket is running out of fuel.

The problem is solvable only with positive action and wide-ranging policy innovation. Universities should be leading the way in energy alternatives and conservation.

Meanwhile, citizens should urge governments to get real about energy pricing. All direct and indirect subsidies to oil and gas producers must end to induce conservation of remaining reserves, to encourage efficient technology, and to make inherently more expensive but necessary alternatives more competitive. This would help render the entire economy more efficient as the energy market tightens.

An unfair burden on low-income families must be avoided, but without abandoning the overall objective. Failure to act now may bring even greater inequity.

If we ease our society gradually into a world of scarce fossil fuels, problems should be relatively short-lived. Both producers and consumers respond to higher prices. People would not much mind paying twice as much for gasoline if their cars were twice as efficient – which they would be if manufacturers hoped to stay in business.

And keep in mind that European countries already have much higher energy costs than North America, with no appreciable harm.

Governments have known about the coming scarcity of fossil fuels for years, yet they have sacrificed the public interest to benefit the energy and automotive industries. We must begin hiking energy prices now to signal the real scarcity to come.

Without higher fuel prices, we will not invest in the technology needed for a smooth transition to the post-petroleum age. If we don't act soon, the remaining life expectancy of industrial society, as energy analyst Richard Duncan has argued, may be less than 40 years.

William E. Rees is an ecological economist and professor at the University of British Columbia's School of Community and Regional Planning.

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