Russel Norman asked Bill English about the economic impacts of coming oil shocks and how transport infrastructure planning takes them into account. I’m not sure which was more surprising: English’s matter-of-fact acknowledgment that peak oil is coming, or his attitude that it’s not something the government needs to worry about because the market will sort things out.
Dr Russel Norman: Is New Zealand’s economic recovery vulnerable to oil price shocks; if so, how?
Hon BILL ENGLISH: Yes, the New Zealand economic recovery is vulnerable to any kinds of price shocks, including oil price shocks. At the moment there is evidence of increases in commodity prices that would suggest that there could be risks in the future. That is why we have to manage the Government’s books very tightly in case things go wrong. That is why we need to get on with a programme of structural reform, investment in infrastructure and in skills, and changes in the tax system. Those are some of the things we can influence that will improve our outlook. Other things like the oil prices we cannot influence, but we could be badly affected by them.
So far, so good, right? Don’t get too excited.
Dr Russel Norman: In reference to the infrastructure investment, does he think that future high oil prices should be considered in the business cases for new infrastructure, such as roads of national significance?
Hon BILL ENGLISH: That factor is taken into account indirectly through traffic forecasts, and it is possible that if oil prices got very high and stayed that way, there would be less traffic. I do not think that is likely. The record in New Zealand is that with economic growth, traffic volumes tend to grow. But, fundamentally, we leave those decisions to New Zealanders to decide whether they want to face that cost and have the related benefits, or get on their bikes or take public transport.
But what if the public transport is full to bursting already? Rail patronage in Auckland was up 17% in August compared to last August and total Auckland public transport numbers were up 7.8%. People don’t want to pay $1.80 a litre to sit in congestion and then pay a small fortune for parking. They want public transport but it’s all full up and it isn’t widespread enough.
Dr Russel Norman: Does he believe that the kinds of infrastructure investments that the Government makes have a profound effect on behaviour, by providing opportunities to use public transport or opportunities to use motorways, so given the length of time that these infrastructure investments last for, he needs to take into account the future price of oil because these infrastructure investments will last for many decades?
Hon BILL ENGLISH: The Government, in the first place, is not any better placed than anyone else to guess prices in 10 or 20 years’ time; but, secondly, we have spread our investment on infrastructure. For instance, in the Auckland area we are spending about $3.5 billion on motorways, but $1.5 billion on trains. I hope that in 20 years’ time both of those investments have proven to be useful, and it will need a sharp increase in the patronage of people using public transport to make those investments viable. At the moment, they are pretty marginal.
Dr Russel Norman: Is the Minister aware of the comments made by the chief economist from the International Energy Agency just last year in which he said “oil … is running out far faster than previously predicted and that global production is likely to peak in about 10 years—at least a decade earlier than most governments had estimated.”, and if global oil production peaks in 10 years, does he think that will result in an increase in the price of oil?
Hon BILL ENGLISH: I think that is anticipated, to a significant extent, because we are seeing any number of energy companies looking at investing in alternative sorts of energy. We are seeing significant investment in solar energy, for instance, which is bringing the price down, and investment in electric cars on a pretty large scale. I think most people expect oil prices will be pretty high, and they are looking for alternatives. In our view that is best left to the market, which has stronger incentives to get it right than Governments trying to follow political fashions.
So much for English’s earlier admission – now being worried about the ability of oil supply to meet demand with out devastating price spikes is just a ‘political fashion’.
The idea that some techno-fix will be created by the market save us if oil prices get too high is rubbish. English may as well ask Key’s pixies down the bottom of the garden to magic up an alternative energy system.
The next oil shock is just a few years away. By that time the government expects there to be a only few hundred electric cars in the country. And a cycleway of oil-spike recessions will only force companies to cut R&D – not that there are any alternatives to oil for fuelling a car-based economy (there’s not enough lithium or rare earths to make nearly enough batteries, even if we did have the extra electric power capacity).
We can’t sit around and expect the market will produce cars that don’t need oil in sufficient quantities when the oil spikes come.
The Government needs to take some responsibility and realise that, when it comes to transport, the government is the prime shaper of the market – it is the one that decides whether there will be more roads, encouraging more driving, or sustainable alternatives for people to choose.
Wait, did I just say the Government needs to be responsible? Ah. I think I see the problem.