The Bet Here is Oil Prices will Rise

Fox & Hounds Daily, 2/4/10.

By David Crane, Special Advisor to Governor Schwarzenegger for Jobs & Economic Growth

Joel Fox is offering a guarantee against rising oil prices!

Well, he didn’t explicitly offer that guarantee, but that’s the inference I drew from his recent column in which he worries that alternative fuels elicited by Governor Schwarzenegger’s Low Carbon Fuel Standard could raise transportation costs for California consumers. Apparently Joel is so certain that gas prices won’t rise that he’d rather California remain reliant on that product for 97% of its transportation fuels than seek alternatives.

I’m glad he’s offering that guarantee because I’m not comfortable with that bet. Instead, I’m betting Saudi Arabia, Iran, Russia and Venezuela want oil prices to rise, and I’m betting that gasoline demand by the three billion new drivers in China, India and other rapidly-developing countries is likely to make that happen. So I would like alternatives.

I’m also betting that capitalism and competition can give me those alternatives. I’d also like to see the US rather than China and India get the jobs from that competition.

This is why I like the Low Carbon Fuel Standard that Joel worries about. Just as with California’s low-electricity appliance standards, all you have to do is set the standard and then let businesses compete to both meet that standard and win the customer. So long as governments don’t pick winners and competition is really and truly enabled, the result is standard-meeting products at competitive prices. Better yet, in the case of transportation fuel pricing we’d no longer be hostage to the Middle East or other hot spots.

Decades ago in connection with his winning bet with Paul Ehrlich that natural resource prices wouldn’t rise to crushing levels, the great economist Julian Simon said human ingenuity is the ultimate natural resource. To end our hostage status, all we need to do is unleash that ingenuity. The Low Carbon Fuel Standard does just that. But in the meantime I’ll gladly take up Joel’s offer.

Link to full article: http://www.foxandhoundsdaily.com/blog/david-crane/6385-the-bet-here-oil-prices-will-rise