If the world were to adopt best practice for energy use, it could maintain its standard of living on perhaps 80 per cent of present consumption, maybe a bit less. The useful effect of higher oil prices is to drive the world towards adopting best practice. The market mechanism might succeed where international political debate has largely failed.
Consider a world where oil remains not just at its present levels but rises above $100 and shows every sign of staying there. If we want to increase our living standards we would start to ask whether we want to spend our money on energy or on something more agreeable. Expensive energy would give a huge drive for people, companies and governments to save it wherever they possibly could.
More than this, if economies are to go on delivering better standards of living, the only way to do so will be to become “greener” - to do the opposite of China, which is using more energy per unit of output, by increasing output without increasing energy use.
What we cannot know is whether the oil price is already sufficiently high to force radical change. On the other hand we can be pretty sure that if it isn’t, then it will go still higher. We shall, I suspect, see some brutal movements in energy prices in the next few years, particularly if the world is indeed close to the peak of its oil production.
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