Jeremy Leggett

Comment left on his piece today:

"Economists tend not to see the problem. As the oil price goes up, they assume more cash will be available for exploration, the oil majors will duly explore, and they will find more oil."

Eh? As an amateur economist only might I point out that you\’re missing something really rather important here? Economists tend to assume that as the price rises then people will use less oil. How much less depends upon hte elasticity of demand an in the short term it\’s pretty inelastic (that is, over a period of months or perhaps a year, a rise in price leads to not much change in demand).

But over longer periods it\’s very elastic indeed, as is the demand for just about anything. Indeed, you\’ve told us so yourself Jeremy: your business is based on the idea that people will substitute for expensive oil with lower cost solar as that technology develops in the next few years.

5 comments on “Jeremy Leggett

  1. I really enjoyed one of the comments posted on the article:
    “The need to find suitable alternatives in replacing the anomalies associated with nuclear and the fast decline of oil has to be placed in light of balancing the requirements under EU Directives for meeting the 2020 climate change targets and, that would take some pressure off personal cash flows.”
    Yeah, right. You haven’t seen pressure on personal cash flow until you start trying to meet the 2020 targets .

  2. “lower cost solar”??

    the average generating price for solar electricity is 40 cents…. the avg price for fossil fuel is 5 ccnts…
    raise the price of f0ssil 8 tmes and its break even time…
    most greenie articles compare the price of that solar energy(wholesale) vs the price of fossil (retail) …11 cents in NE USA.

  3. I think you forget that just because people will use less oil as the price goes up, that doesn’t make it painless. If all the oil suddenly disappeared except for what was left at the pumps, the price would soar and demand would meet suppy. But it would be very economically painful.

  4. Tim:

    “how much less depends on elasticity of demand.”

    I can’t say that’s incorrect but can point out that it’s quite the same as saying “it’s height depends on its altitude.”

    “Elasticity of demand” is treated by mathematical economists as though it’s useful economic information; but it is simply a record of facts prevailing at specific times and locations without reference to other potentially price-influencing conditions. The fact that such “elasticities” can change over time should give mathematical economists some idea that they’re trying to get hold of a will-o-the-wisp of the kind that’s there when you’re not looking but disappears when you look.

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