An oil rig
At 12:10 on Wednesday afternoon, on the New York Mercantile Exchange, a single trader bid up oil until it finally hit the price we'd all been waiting for: $100 a barrel. Driven by trends both short-term (political instability in Africa and speculation) and long-term (voracious new demand from China and India), oil has quadrupled since 2003, doubled since the beginning of 2007 and now reached triple digits for the first time since it began trading on the exchange began in 1983.
By the end of the day the price had dipped back down to $99.62, and oil still has yet to break its all-time inflation-adjusted high of $102.81 (set in April 1980 after the Iranian revolution). "One hundred dollars is a symbolic number," says John DeCicco, a senior fellow at Environmental Defense. But unlike past eras of high-altitude oil prices, caused by short-term disruptions in supply, today there are simply more countries demanding more oil than ever before, and that's unlikely to change soon. Gasoline prices lag behind oil in the U.S. — a gallon currently goes for an average of $3.05 nationwide — but analysts predict that gas could pass $4 a gallon by the spring.
High petroleum prices might hit your wallet hard, but $100-a-barrel oil has some environmentalists quietly celebrating. The more expensive oil gets, the more attractive alternative — and climate-friendly — fuels become. Biofuels that would be buried by $17-a-barrel crude — the price as recently as November 2001 — are suddenly competitive when oil is in the triple digits. Ultra-efficient cars, public transit, plug-in hybrids — they all become better investments as oil gets and stays expensive. Global greenhouse gas emissions have skyrocketed over the past few decades on the back of relatively cheap oil, but as the price rises, it pays to decarbonize, and the climate will benefit. Most immediately, expensive oil essentially ties the hands of consumers, all but forcing them to use less, or deal with the economic pain. "Price plays a huge role," says Nathanael Greene, a senior policy analyst with the Natural Resources Defense Council. "The interesting question is how long prices will stay high and how volatile they'll be."
For environmentalists, that's the risk. Oil has spiked in the past, prompting a wave of investment in alternative energy that crashed as soon as petroleum prices dropped. Transitioning from fossil fuels to clean power will be a long, fraught process, and investors — whether they're pushing ethanol, hybrids or something new — need long-term certainty that they won't be undercut by old, dirty fuels dipping down to cheaper prices again. "That risk [of volatility] makes consumers and investors alike very reluctant to bank on high prices," says Greene. It doesn't make sense to spend hundreds of millions on an ethanol plant if the Saudis can undercut you by turning on the oil spigots.
That means even though high-cost oil seems here to stay, governments still need to act to send long-term signals to alternative energy investors. Price matters less than certainty, knowledge that an outlay in clean power will still be worthwhile 5, 10 or 15 years down the road. That could take the form of a carbon tax that sets a floor on oil prices, a cap-and-trade system that could do virtually the same thing or mandated standards that require the use of less carbon-intensive fuels. (California attempted to go the last route, mandating steep reductions in carbon emissions from cars, but the Environmental Protection Agency last month rejected the law. The state announced today that it would sue the federal government in response.) The safe level varies from technology to technology but programs that keep oil above roughly $50 a barrel would be a great help. "One hundred-dollar-a-barrel oil is not sufficient alone to drive investment," says DeCicco. "We need an energy policy with a conscience."
In the meantime, consumers should get used to the era of triple digit oil. "As we move forward we're looking at the sources of oil becoming more and more expensive," says Brendan Bell, an energy analyst with the Union of Concerned Scientists. "I don't realistically see it becoming cheap again." It might be scant consolation, but when you shell out extra to fill up your car or pay your heating bill, at least you're helping the planet, a little bit.