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Businessweek Archives

The Downside To More Abundant Oil



For years, "experts" have predicted a global energy shortage, yet time and again technology has proven them wrong. Today, the physical limits to growth are nowhere in sight as the new economics of oil amply demonstrates. In the past decade, the average cost per barrel of finding and producing oil has fallen 60% in real terms, while proven reserves are about 60% higher than in 1985. And technology continues to push the production frontier for oil ever higher, making it more abundant. The average field gives up just 35% of its contents, but a new air-injection technique would raise that figure to 70%. New software for interpreting seismic data, meanwhile, is slashing exploration costs, as new deep-water rigs are making more and more tracts accessible (page 140).

Still, despite the good news, there's a downside. The low price and ready availability of oil will certainly boost economic output, but pollution is likely to increase as well. That does not mean scarcity is desirable. But it does suggest that a "negative externality," as economists like to call bad air, requires the aggressive application of intelligent solutions.

Emissions should be curbed, preferably through the issuing of tradable emission permits to corporations. And Detroit auto makers should make vehicles that are far more fuel efficient. If they don't, they may find the government once again mandating improvements.

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