In continuance of the Myth series, today we explore “peak oil.” Last week, an IEA whistleblower made headlines by stating, “We have [already] entered the ‘peak oil’ zone.” This has obviously caused some stir among environmental experts and politicians.
What is Peak Oil?
Peak Oil is the period of time in which we start finding fewer and fewer places to extract oil. Imagine a bell curve which represents access to oil, peak oil would be at the very tip of the curve, thus the term “peak oil” (see image at right). It’s at this point, it is said, that oil prices will increase at an exponential rate because finding oil fields will become harder and harder. And since our economic infrastructure is based on cheap oil, it will devastate our economy.
Virtually everything we use is based on oil; plastic, rubber, fuel, etc. If the cost of oil rises too quickly, it could cause a snowball effect of rising prices in virtually every product we use. Thus, the collapse of our very way of life.
The Free Market Solution
While this post is titled The Myth of Peak Oil, it’s actually more about the myth of collapse due to peak oil. Scientifically speaking, peak oil makes sense. There are only so many places we can drill before we eventually run out. And, aside from the Abiotic Synthesis Theory, there is no way to quickly replenish those wells.
However, despite this “doomsday” scenario of running out of oil, the free market has the solution. Or, let me rephrase: the free market is the solution.
The free market has this uncanny ability to adjust to consumers’ demands. If demand for a product increases, the market will adjust their supply accordingly. In this case, demand for alternative fuels will force manufacturers to increase supply in those alternative fuels, be they natural gas, electricity, hydrogen, or whatever. Instead of plastics made from oil, perhaps supplies of plastics made from hemp or other materials would increase. As more of those alternative sources are used, the costs associated with those items will decrease.
Will product prices increase overall after peak oil? Only the free market can tell you that. It is possible the prices will increase. However, unlike what the doomsdayers believe, they will rise gradually, not immediately. Eventually, those increased prices will top off as well, as the costs of alternative sources decrease because of increased usage.
So, in the event that we’ve already reached peak oil, the free market is the only solution for preventing a total economic collapse.