a v8 F250 truck drove 330 kms for $7.42 USD…

Heres the site : http://www.cngutah.com/index.html

We sell Natural Gas overseas for only a few cents per litre…So theres no Reason why it should be 75 cents per litre here.

If the Govt is thinking about fuel excise on CNG - it would do well to look at what happened in NZ when this occured - Among other things, Their balance of payments deficit dramaticlly increased due to increased oil imports and created interest rate pressure.
see this here : http://fueltaxinquiry.treasury.gov.au/content/Submissions/Industry/Origin_Sup_341.asp

Peak oil mongers are just pointing out that it is going to be pretty hard.

All agree it will happen. It’s a question of timing.

Oil at $200 a barrel will already be hard enough for many people living on the outer fringes. And $200 a barrel will come way before any of the promised alternatives. $300 will too.

Most people in China and India haven’t even started using oil yet. The numbers are important here.

If greenhouse was no issue, coal to oil and tar sands would be Thunderbirds Are Go

I agree, and because (thankfully) we haven’t attempted a large scale ramp up in CTL thus far we don’t know how well it will scale. We have however tried to ramp up the tar sands, and climate impacts or not, it has proved very problematic:

Athabasca Oil Sands - Economics
Athabasca Oil Sands - Environmental impacts

The main limitations seem to be lacked of skilled labour, water and natural gas.

I agree with you in part on inflation targetting, because the price of fuels is rising. There is a premium on price at the moment due to scarcity of liquid fuels, perceived or otherwise (and water!!). In any case, it must rise to take on cost externalities by pricing in climate damages, and perhaps this shouldn’t be viewed in the same way as supply and demand driven inflation. If we’d had a carbon price brought in over the past few years with compensation for low income earners, it may have been much better for the (Australian) economy than interest rate rises and tax cuts benefiting high earners.

I don’t agree with your bearish take on substitution. If greenhouse was no issue, coal to oil and tar sands would be Thunderbirds Are Go. The task is to substitute with cleaner fuels. To that end, it seems the biggest blocks are institutional and perceived threats to the existing industrial estate. I agree with Prof Quiggin and think if we would address those types of blockage, the economy would do quite nicely, thank you.

In any case, these costs are comparatively low, and when we compare them to the benefits of avoided damages, look like a great deal in my book.

John Quiggin’s number may make oil look unimportant but horse sense will tell you that it is the foundation stone upon which the edifice of the service and information economy rests.

Economists often argue that primary energy production is in long term decline as a share of national income, and therefore is unimportant, but “horse sense” tells you that if you take it away everything falls over.

On the same basis you and John could argue that water is not important to the economy.

Excellent point. Water costs us very little at the moment, and makes up a very small part of the cost of most consumer products and services, but its a fundamental requirement for our civilisation.

Both water and oil fall seem to fall into the same category of being cheap and plentiful (until recently anyway) but absolutely cruicial.

Suppose, for the sake of argument, that there are absolutely no alternatives to oil except worse ones, which would therefore not emerge under a carbon tax. Then reductions in demand (economising) have to do all the work. That would give you bigger cost numbers than the ones I standardly provide, but standard economics still shows that the cost of a 50 per cent reduction in emissions over a decade or two is very small (1 or 2 per cent of national income), and the cost of bigger reductions is manageable.

Ok, my view is yes, economising will have to do most of the work because the alternatives will fail to deliver, at least in the short to medium term. Two further points: 1. There are non-climate change problems with alternatives; with biofuels its competition with food crops, with CTL, oil sands, shale etc, its poor energy return and large energy requirements. All of the liquid fuel alternatives also have problems increasing production at a rate that can match the rate of decline in conventional crude production. 2. The science is now telling us we need 80% reductions in emissions, and if we allow the developing world to expand emissions, the developed world will have to cut by 90% by mid century.

Finally you’re left with a claim about adjustment costs, that the costs of the shift will be too great to handle. These claims need to be assessed in the context of fairly complex models (which support the conclusions I reach). To claim the opposite on the basis of a combination of high school economics and intuition, then say “orthodox economics is wrong on this” is not, I think, a responsible way to argue.

I didn’t say the costs would be too great to handle, that’s the “peak oil we’re doomed” view, I said the transition will be very difficult, characterised by many years of high inflation and sluggish growth.

Regarding adjustment costs: I’ll give you an example of the kinds of problems I suspect are ahead of us. You say we can go 100% renewables for transportation (we could also reduce our dependence on oil with public transport within cities and improved rail between cities). That’s great, but it would require a massive (unprecedented?) infrastructure build out: Massive solar farms, wind farms, geothermal power stations (which incidentally compete with the oil industry for drilling equipment), nuclear power stations, trans-contintental HVDC powerlines, new railways, subways etc. Unfortunately, the heavy machinery of infrastructure-building runs on diesel, diesel which may become fantastically expensive.

We usually end these arguments in “furious agreement”. We agree on the urgency of the problem and the solutions, the sole point of disagreement is how painful the transition will be. I realise I’m talking out of my ar*e here, but there’s a voice at the back of my high school economics brain screaming: This is not going to be easy!

Inflation targeting is a way of running monetary policy that’s justified mainly on the basis that it has worked reasonably well for the twenty years or so it’s been widely used and criticised mainly on the basis that it’s not working so well now. Abandoning inflation targeting wouldn’t require any big revisions to the standard macroeconomic model. It’s a judgement call about the details of policy.

By contrast, price theory is basic economics. Suppose, for the sake of argument, that there are absolutely no alternatives to oil except worse ones, which would therefore not emerge under a carbon tax. Then reductions in demand (economising) have to do all the work. That would give you bigger cost numbers than the ones I standardly provide, but standard economics still shows that the cost of a 50 per cent reduction in emissions over a decade or two is very small (1 or 2 per cent of national income), and the cost of bigger reductions is manageable.

But in fact of course, there are alternatives, like wind, solar and geothermal that don’t have the problems you mention (these produce electricity and electricity can displace liquid fuel in all but a handful of uses). Simple economic analysis (given many times on my blog) shows that even if these alternatives remain many times as costly as oil, the cost meeting the remaining demand (after the reductions in demand implied by a big increase in price) is still well below 10 per cent of national income (maybe 5 years economic growth).

In this context, complaints about particular characteristics of these sources (reliability and so on) are irrelevant. The costs of adjusting to different supplies are reflected in the numbers that give us the cost estimates. Bear in mind that even the low estimates are in the tens of billions per year, which gives plenty of scope for adjusting to new patterns of load and supply.

Finally you’re left with a claim about adjustment costs, that the costs of the shift will be too great to handle. These claims need to be assessed in the context of fairly complex models (which support the conclusions I reach). To claim the opposite on the basis of a combination of high school economics and intuition, then say “orthodox economics is wrong on this” is not, I think, a responsible way to argue.

the cost of fuel makes up a relatively small part of the cost of most consumer products and services

Robert, that only applies when you look at the aggregate of all economic activity. But most economic activity in a country like Australia is discretionary in a very real sense.

Fundamental economic activity to do with food, construction, transportation etc are directly effected by oil price rises.

John Quiggin’s number may make oil look unimportant but horse sense will tell you that it is the foundation stone upon which the edifice of the service and information economy rests. City people require only one county person to feed them in this age. But the city economy is not 99 times more important than farmers output. Food (transformed fertiliser) and its carriage is necessary for all the frippery that follows.

On the same basis you and John could argue that water is not important to the economy.

Googling their latest reveals this little beauty that went around Australia with two people plus luggage at 3.13 litres per 100km (90.75 mpg). Easily beats the Prius!

They were working on fitting it out as a electric plug-in hybrid for release in 2010 I think in combo with Citroen with French Government help but EU competition law has intervened. So now they are going solo in a higher-end, premium model for release in 2011.

Bugger the EU! We were throwing gold coins into a jar to save up for one and save the environment.

Another interesting argument is whether the oil price rise is a bubble or something that will continue subject to only the odd downward adjustment. The Guardian seems to think so. Forbes sez no.

The bubble explanation is appealing mainly because it promises hope the madness will end with a nice crash. But I still have to side with the conventional idea that supply v demand with a little help of irrational speculators is the main problem.

As I understand it, these things, like 50cc petrol scooters, are dangerously slow - not just in top speed but, I believe, acceleration. Other road users treat them like motorcycles, but they just can’t keep up with traffic.

My suggestion? If you can afford it (and they’re damned expensive) get a Vectrix. If it’s suitable for your commute, an electric bicycle like the Izip Enlightened range. If not, get yourself a 125cc petrol scooter and buy some carbon offsets to compensate.

Better electric scooters are indeed on the way, but the current ones aren’t up to scratch for Australian urban traffic (some of the fastest in the world).

Theory says as oil prices rise consumers will economise, producers will search for more and (eventually) substitutes will develop.

Economise: certainly.

Search for more: Sure, but the evidence of the past 40 years suggests they won’t find as much as they have in the past, and the oil they do find will be very expensive to extract.

Substitutes: They exist, but they’re all worse for various reasons (oil sands, CTL, biofuels, shale…) There’s certainly no whale-oil-to-petroleum-oil transition imminent. In other words we’re not about to substitute oil because we found something better, like we did with wood-to-coal and coal-to-oil.

I’m completely open to the possiblity that someone might come up with a fusion engine the size of a basketball next week, but it seems unlikely.

In short, the transition will be slow and very painful and be characterised by high inflation, slow growth rates (or recession) and other unforeseen inconveniences.

We’re already seeing conventional economic wisdom being challenged with the current debate about inflation targeting by central banks. Namely, that raising interest rates in Australia can have no effect on world oil prices, and we’ll senselessly drive ourselves into recession (the non-resources sectors anyway)

Joe Stiglitz: The Failure of Inflation Targeting
Henry Thornton: Should the Reserve drop inflation targeting?

Presumably if you think we are going to have stagflation, you have some kind of macroeconomic model in mind. After all this is clearly a claim about market economies, and not just a general statement that oil is important.

TIB, the hybrid approach is certainly an overly complex and expensive solution compared with the little euro diesel hatches, but it could be your best hope for prolonging the lifespan of petrol head culture - it’s currently the only way of giving large, powerful cars a mileage performance equivalent to smallish, sluggish cars.

Er, by far the easiest way to give a large car the fuel economy of a small car is to put a diesel in it. Diesels will give Aussies all the lazy torque they so desire in their family Falcodore. The Europeans don’t just build little diesels you know, they put whopping great 5 litre V10 diesels in 4WDs.

The biggest problem with diesel is it will become too popular and demand will push the price up to a point where there’s no hip pocket advantage at the pump.

one of the reasons why I don’t buy the whole “peak oil means we’re doomed” stuff. John Quiggin has made this point repeatedly over at his blog.

We may not be doomed but we’re in for a prolonged period of stagflation, and some serious challenges to conventional economic theory. IMNSHO, Quiggin, and most economists, significantly underplay the importance of oil in our economy.

And I certainly would not object to seeing a few more of the European style small cars on Australian roads.

However, another problem with hybrids in Australia is that the nature of many of our car journeys does not make best use of a hybrid. Hybrids work best in congested urban environments, with lots of stop start operation. Here they excell because they operate principally on their electric motor and, at a standstill, use no fuel and produce no emissions. Out on the highway and over longer distances, however, they become dependent on their ic engine and deliver fuel economy that, although decent for a petrol engine, really isn’t that outstanding. Outside the city centres, a hybrid in Australia isn’t operating at its best.

Our outer suburban vehicle use is much better suited to the super efficient little turbo diesels that Europe favours. Having driven a few, they’re not in the least sluggish, and given a bit of design flair, can be colossal fun to drive. Certainly more so than the V8s I mentioned, in these days of speed cameras and potential instant licence loss. Not much use if you want to tow a boat or a caravan from Perth to Sydney, but, realistically, the majority of cars spend their working lives shuttling one or, at most, two people over the same 20 or less km of bitumen, day in, day out. Not a task which requires 2 tonnes of metal, a 5 litre engine, or, indeed, the cost and complication of a hybrid.

Now, if you’d mentioned plug-in electrics……..

If increased petrol prices serve to moderate the behaviour of these idiots, that’s at least one benefit.