More Support for High Energy Prices

Posted by: John Carey on September 29

In early August, Business Week ran a cover story pointing out the benefits of expensive energy. For instance, high oil and gas prices water the flowers of innovation, stimulating everything from alternatives to clever ways to use energy more efficiently. The story provoked a flood of responses, most agreeing with the general idea that higher prices do help push the economy in the right direction. But what’s been surprising is how some big corporations have also embraced this view.

Take United Technologies, a $60 billion company that make jet engines, air conditioners, elevators, and other products. Chairman George David points out that “91% of the world’s energy is wasted before it becomes useful work.” Most of it goes out as waste heat. David believes this has to change. “We need to declare war on waste,” he says. “I think we can run the planet with half the energy we use today, with equal or greater standard of living.”

How are we going to get there? David believes that the key is putting a higher price on energy. “What I am asking for from our government, as a citizen and as a company, is a continued assured higher price of energy,” he says. “When you have that, people will get traction on conservation, and products will come.” Until now, “energy has been too cheap, so people simply throw it away.”

A reasonable price, David thinks, is something north of $100 per barrel of oil. And probably the easiest way to get there, he argues, is through a carbon tax or cap and trade system to reduce carbon dioxide (and other greenhouse gas) emissions. “We’ve got to get the cost of carbon in the $100 a ton range, which would be $30-40 per barrel of oil,” he says.

David believes that, far from hurting business and the economy, higher oil prices will help in the long term.. Instead of costing money, the steps companies and individuals take to reduce their energy use actually end up putting more money in their pockets. “I don’t think the high price of energy has any kind of material negative impact on the growth of the economy,” he says. “The things we have done to reduce our energy bill all have positive rates of return, so be definition, they are not an economic drag.”

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