Transitioning from Oil

From Bloomberg:

Increasing pressure on major oil companies has forced many to make promises to reduce the extraction of their main fossil fuel. They also warn that the result may not be a reduction in global emissions.

“Imagine Shell decided to stop selling petrol and diesel today. This would certainly cut Shell’s carbon emissions,” Chief Executive Officer Ben van Beurden wrote on LinkedIn last week. “But it would not help the world one bit. Demand for fuel would not change. People will fill up their cars and delivery trucks at other service stations.”

This isn’t completely true.  As we all remember from Econ 101, decreasing supply of goods and services while demand remains the same causes prices to rise to a higher equilibrium price and a lower quantity of goods and services sold.  It also increases demand for alternative, competitive products, in this case, electric transportation.

Though Shell’s position isn’t completely true, it’s largely correct, of course; one oil company’s acting alone will have a very small effect on volume.  In any case, don’t expect Big Oil to do anything remotely like this voluntarily.  What’s really required is a tax on carbon that significantly eats into consumption, e.g., the Carbon Fee and Dividend.