Peak oil

A NYT piece on the supply side of the story. Peak oil is here, for real, as Paul Krugman said,

"This is what peak oil is supposed to look like — not Oh My God We’ve Just Run Out Of Oil, but steady pressure on the economy and the way we live from rising energy prices and their consequences. And it doesn’t matter much whether we’re literally at the peak, or whether production can rise by a few million more barrels a day; unless there are big sources of oil out there, we’ll be feeling peakish for the foreseeable future."

Of course there are still optimistic people out there, e.g. Harry Clarke.

A missing piece of this discussion is the demand side. On one hand, oil is an inelastic commodity which means change of price does affect price much. On the other hand, oil consumption means CO2 emission. So the question is, how do we get people to change their behavior if they don't react to price increase much (to some degree anyway, Americans finally started to drive less)? Nate Hagens, a PhD candidate in Gund Insitute shed some light in this Google video. Another recent development is Pay-as-you-drive-car-insurance.

Update: This blog post talked about the inelastic supply of fertilizer contributed to its price hike. It is the same with oil--the marginal cost of production matters!

Update: still here is somebody who doesn't believe peak oil. He does expect oil price climbs to $200 a barrel.