Demand Destruction – Market Failure

Stern and others have pointed out that markets for coal, then oil and gas never quantified or priced their greenhouse gas emissions. As the potential serious consequences of climate change are now being understood, this externality can now be considered the biggest market failure ever. More importantly, this historic inability of markets to value something as important as the humanity endangering consequences of burning fossil fuels calls into question the central tenet of our socio-economy.

Rising oil prices ‘drowning’ the poorest Third World economies – demand destruction as demand for oil begins to exceed faltering global production – is a second strike against the ideology that rational actors in free markets will always choose the optimum allocation and use of any material or technology.


Just as CO2 emissions were never priced, there has never been any consideration of equity of opportunity from this one time only use of millions of years of dense, stored energy from the Sun. Those nations that developed the technology and infrastructure to first utilize coal then oil have used their rapid and unprecedented development to control and develop fossil fuels globally primarily for their own use.

US and developed world use of oil is up to twenty times that of the poorest countries even though their own nationally located oil fields are now far past their production peaks and headed for depletion. China and other developing nations are increasing their ability to use fossil fuels by climbing the economic ladder, by being the cheap labour, outsourced manufacturer to the US and developed world.

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