Energy Economics and Some Energy Myths for the 21st Century

Taking oil as a case in point, it might be true that the most imaginative myths in circulation today are those being generated by OPEC. Having come to appreciate the supreme importance of oil – and how it functions as a benchmark for the world’s energy systems – that organization has informed the oil importing countries that if the oil price goes up and stays up, then they will invest in more production capacity, and also raise their output of oil.

That sounds good – in fact it probably sounds like something you heard in an introductory economics lecture, or read in your favourite textbook or newspaper – only it is completely untrue. It is a distinguished myth, and unfortunately a myth that is believed by many drowsy academics and their students, and probably more than a few influential but not very brainy decision makers. Instead, although there might be exceptions, the aggregate of OPEC producers is not going to invest in additional capacity, and they are definitely not going to produce or try to produce much more oil. Why should they? Would you if you were in their place?

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