Oil prices have receded from their recent flirtation with $100 a barrel, but demand soars from China and India, rapidly industrializing countries with a massive energy thirst. The combination of increased demand, high prices and the prospect of an eventual peak in oil production, has caught Americans paralyzed between twin terrors: the fear that rampant consumption of oil and coal is irreversibly warming the Earth and the dread that without cheap oil our affluent lifestyles will evaporate...
Study of the long economic history of the world suggests two things, however. Cheap fossil fuels actually explain little of how we got rich since the Industrial Revolution. And after an initial period of painful adaptation, we can live happily, opulently and indeed more healthily, in a world of permanent $100-a-barrel oil or even $500-a-barrel oil...
Many people think mistakenly that modern prosperity was founded on this fossil energy revolution, and that when the oil and coal is gone, it is back to the Stone Age. If we had no fossil energy, then we would be forced to rely on an essentially unlimited amount of solar power, available at five times current energy costs. With energy five times as expensive as at present we would take a substantial hit to incomes. Our living standard would decline by about 11 percent. But we would still be fantastically rich compared to the pre-industrial world...
At current rates of economic growth we would gain back the income losses from having to convert to solar power in less than six years. And then onward on our march to ever greater prosperity.
Gregory Clark is professor and chair of the Department of Economics at the University of California, Davis.
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