NEW YORK – The world economy is being battered by sharply higher energy prices. While a few energy-exporting countries in the Middle East and elsewhere reap huge profits, the rest of the world is suffering as the price of oil has topped $110 per barrel and that of coal has doubled.
Without plentiful and low-cost energy, every aspect of the global economy is threatened. For example, food prices are increasing alongside soaring oil prices, partly because of increased production costs, but also because farmland in the United States and elsewhere is being converted from food production to bio-fuel production.
No quick fix exists for oil prices. Higher prices reflect basic conditions of supply and demand. The world economy – especially China, India, and elsewhere in Asia – has been growing rapidly, leading to a steep increase in global demand for energy, notably for electricity and transport. Yet global supplies of oil, natural gas, and coal cannot easily keep up, even with new discoveries. And, in many places, oil supplies are declining as old oil fields are depleted.
Coal is in somewhat larger supply, and can be turned into liquid fuels for transport. Yet coal is an inadequate substitute, partly because of limited supplies, and partly because coal emits large amounts of carbon dioxide per unit of energy, and therefore is a dangerous source of man-made climate change.