Way back in 1980, Paul Ehrlich famously took up cornucopian Paul Simon’s bet that the prices of five natural resources would decline over the next 10 years…and lost. Ehrlich found himself $10,000 in the hole, but it turns out Ehrlich would have won, and lost, and won again, had the time frame been extended by a couple more decades.
For those of you too young to recall, Ehrlich was betting on the Limits to Growth Theorem that natural resources would continue to become evermore scarce, while Simon was betting that the innovation induced by scarcity would perpetually pay off in the form of either additional resources, or additional efficiency. Both, however, shared one assumption in common—that the price of a given natural resource would offer a direct reflection of its scarcity, and on this point, neither Paul was entirely correct. For one thing, in a global staples economy, supply is a rather elusive data point, for the simple reason that the only “supply” that factors into the price of a resource at any given time is the supply that has already been pumped, mined, cut or caught and subsequently weighed and measured, and not the supply represented by remaining global reserves, even if we were able to generate accurate estimates of those reserves (which is far easier said than done!). The price of cod, for example, provided no indication whatsoever of the declining volume of Atlantic cod stocks in the years before the collapse of that industry, which happened right around the time of Ehrlich’s gamble.
This is not to say that we in the environmental social sciences should pay no heed to the prices of natural resources. To the contrary. For environmental sociologists the prices of natural resources tend not to factor into analyses of socio-environmental change (there are some notable exceptions), but perhaps we should, for two reasons. The first is, for better or worse, observed and projected prices of natural resources drive policymaking at many levels, and a better critical understanding of natural resource pricing, its relationship to consumer and investor behavior and in turn to environmental impact, can enhance our contributions to those policy dialogues. Economists, on the other hand, who privilege the role of price quite regularly, have the ear of policymakers and media. In fact a recent article highlighted the notably higher frequency at which the New York Times cited economists than other disciplines! (See http://www.nytimes.com/roomfordebate/2015/02/09/are-economists-overrated).
The second reason is that while the prices of natural resources might not offer us a clear indication of the scarcity of those materials, they do have important implications for ecological impact, even if those implications are more complex than initially understood at the time of Ehrlich’s and Simon’s wager. In any system as complex as our global staples industries, multiple drivers influence the price of a commodity, and by the same token, the means by which that price in turn influences ecological impact is equally multiple and complex.
Today the price of one particular natural resource is making headlines—the price of a barrel of oil, which as of this writing is hovering around $45, down from over $100 less than a year earlier. While painful to the ears of some, and music to others, no one should be particularly surprised, given the dramatic volatility of oil prices in recent decades, as depicted in the following graph (Source: huffingtonpost.com).
Needless to say, if history is any indication, the price may well be low for a while yet, but it won’t stay there. Our social responses to current conditions, on the other hand, may have lasting effects.
What do low prices do for demand? Theoretically, it increases, as consumers and businesses take advantage of the relative reduction in their expenses. Historically low oil prices have fuelled GDP increases, and the consumption that goes along with it—not just of gasoline but other goods as well. This is a key concern at a time when we urgently need reductions in our greenhouse gas emissions. On the other hand, today we may not see this happen to the same extent as in historical low price moments, since middle class consumers across the West are still reeling from the recession that began in 2009, and aren’t in a position to buy more of anything, certainly not new SUVs. Increasing efficiency, especially in the U.S. (finally!), is also dampening demand. Demand for oil in industrialized countries has in fact been relatively stable since 2005; much of the new demand is coming from developing countries, where governments tend to set prices anyway.
More interesting are the dynamics on the production side. A year ago, when oil prices were high, development of unconventional reserves, like oil shale and bitumen, was forging ahead full steam. At $45 a barrel, however, enthusiasm among investors for supporting such development has come to a screeching halt, simply because the costs to develop unconventional reserves is much higher than for conventional reserves. The already questionable economics of new infrastructure like the Keystone XL pipeline likewise look grim, further challenging the legitimacy of its construction. Low oil prices also enhance the legitimacy of the 100’s of fossil fuel divestment campaigns sweeping academia today, since oil stocks aren’t helping anyone’s investment portfolio at these prices. On the other hand, low oil prices will likely reduce incentives to support biofuels, which at least in some cases offer promise as a lower carbon transportation fuel alternative.
The other possibility worth serious consideration relates to political responses. Can social movement organizations engaged in climate change campaigns capitalize on what presents itself as a political opportunity window favouring the adoption of a tax on carbon, at a time when the price of one particularly carbon-intense commodity is so low? States that are desperate to generate new revenues, including those highly dependent upon oil development that have been particularly averse to climate mitigation policies to date for obvious reasons, might be especially fertile ground for such initiatives to make headway. Several prominent voices representing a diversity of backgrounds and political leanings have suggested as much, and the idea seems to be getting more attention in North America now than in the past several years of climate negotiations. The Government of my own Province of Alberta, ruled by a conservative party for longer than most of us have been alive, and reeling from this latest bust in its boom-bust economy, recently launched a survey of the Province’s citizens, assessing among other things their support for a tax on gasoline! Indeed, this crisis just might be an opportunity.