Something Always Comes Along

Commentary, Energy, Frontier Centre, Information Technology, Worth A Look

In 1920, George Otis, the director of the U.S. Geological Survey, declared that the United States had used 40% of its oil supply and needed a conservation campaign to save what remained of the essential resource. In 2008, trillions of barrels later, we can easily recognize the extent of his mistake. Yet there are still some individuals who believe that we are running out of oil, and other resources — and that we need giant state-controlled programs to manage our transition to other commodities and fuels. Like Otis, they are mistaken.

In AD 200, Tertullian — a Carthaginian Christian theologian — believed that we had “become a burden to the Earth, the fruits of nature hardly suffice to sustain us.” It was only thanks to the genocidal effects of war, famine, plague and earthquakes, he believed, that the global population might be controlled, and the problem thereby remedied. At that time, the planet’s population was 30 times smaller than it is now.

In the 19th century, amid fears of the world running out of food, we discovered that farmers could use guano (solidified bird droppings) as a fertilizer. That realization spawned a gigantic industry, and huge deposits in the Pacific were extracted by the tonne. Theorists expressed fears that the supply would be exhausted and that food production would plunge as a result. Guano extraction did indeed fall, though it continues to this day. Food production, meanwhile, has skyrocketed thanks to other technological developments.

Coal, too, was supposed to have run out a long time ago. In the 19th century, economist Stanley Jevons declared in his Coal Question that “such a rate of growth will before long render our consumption of coal comparable with the total supply. In the increasing depth and difficulty of coal mining we shall meet that vague, but inevitable boundary that will stop our progress … So far then as our wealth and progress depend upon the superior command of coal we must not only stop — we must go back.”

They were all proven wrong. The same can be applied to theorists who embrace the “peak oil” hypothesis — according to which the world’s annual production of oil will soon reach a maximum, and then begin an irreversible decline — and worry that our economies will collapse because of it.

In a market economy, a sustained increase in the price of any resource — say, oil — motivates entrepreneurs and individuals to make a more efficient use of it, and also to develop substitutes. Under increased scarcity, prices and profit opportunities both will increase.

The case of guano, mentioned above, is a good example of this phenomenon. As reserves of guano dried up, prices increased, which raised the per-unit costs for farmers. Pushed by this economic reality, scientists made breakthroughs in ammonia synthesis: Carl Bosch and Hans Haber discovered that they could combine hydrogen with nitrogen by using high temperatures and high pressures in a process that now bears their names. The result: cheaper fertilizers.

The same is true of everything else: Whale oil was supplanted by coal, gas and kerosene, which were themselves replaced by electricity and the incandescent light bulb. Wood and hay as energy sources were replaced by hydroelectricity, nuclear power, coal, natural gas and oil.

Even humble by-products helped revolutionize the market for resources. Plastics, developed from petroleum residuals, displaced a variety of different products — including wood and ivory.

The same will be true with oil. As prices rise, there will be more incentives to create a substitute. It will perhaps render nuclear energy more profitable and boost investment in that field. It might even create a new transportation method that will make the car look like a horse carriage. The beauty of all of it is that we never know where the innovation will come from — or lead us. We will not need to “plan” this innovation. Someone who wants to make a profit will research — or employ others to research — new technologies.

That’s the way the world works. Anyone who says we need a big statecontrolled effort to wean us off oil is peddling guano.

Vincent Geloso studies economics and politics at Université de Montréal.