Environmental Engineering Reference
In-Depth Information
to the biggest stretch of a target in renewable energy of any of the 27 EU
states. Moreover, the UK has gone ahead and passed its 2008 Climate
Change Act. This goes even further than the EU commitment on emis-
sions. The Act imposes on future governments “legally binding” targets of
a 26 percent emission reduction cut by 2020, and a series of legally binding
five-year national carbon budgets for the country. (It is not entirely clear
what kind of legal redress could be taken, or by whom, were the UK to fail
to meet its targets.) The US has subjected itself to somewhat fewer targets
than the UK or the EU, but is beginning to catch up with its federal man-
date on biofuels and the minimum renewable energy standards already set
by 29 individual US states.
The reason for all this is obvious. Markets are useful, perhaps even
essential, when it comes to matching supply and demand: today's oil mar-
kets have prevented - at a price - any of the shortages of the 1970s era
recurring. But markets cannot take proper account of carbon until it has
a price that truly reflects carbon's social welfare cost (as economists would
say), or its damage to the environment. Governmental regulation, subsidy
and intervention are therefore needed to produce the low-carbon energy
outcomes that markets have so far not delivered.
Liberalization is under scrutiny, due to pressing concerns about energy
security - which increasingly acknowledges stability of price as well as
quantity - and of climate change. The state is stepping back into energy
to deal with the market problem of oil prices and the market failure of
climate change.
Oil prices: chronic instability?
“The problem of oil is that there is always too much or too little”, as Paul
Frankel said in his
Essentials of Petroleum
in 1946. Not only is oil a key
commodity, but its price is also chronically unstable. Some would claim
that oil prices are
inherently
unstable, because specific features in both the
supply and demand of oil mean that supply does not rapidly self-adjust to
changes in demand, and vice versa.
Oil and gas projects tend to be slow to set up and get going. They tend
to be projects with a long lead-time to get the necessary commercial
permission and to make the necessary technical preparations - which is
particularly problematic if they are located offshore. Once started, they
can be slow to stop - in response, say, to a fall in demand - for geological
and commercial reasons. Oil is almost
physically
prone to boom and bust.
