Donald Trump, the man who said “drill baby drill” and labelled policies to slash greenhouse gases a scam foisted on the poor of America, is managing to create one big global carbon tax.
The decision this afternoon by the International Energy Agency to issue a 10-point plan on ways to reduce the use of oil because of the shortages created by Trump’s war against Iran is a carbon reduction plan in every way but name.
The recommendations would give a dose of PTSD to anyone who remembers the loo paper rolls war of the pandemic, or who became fed up with being told to wear a face mask and stand at least 1.5 metres from others.
Work from home, the IEA says. Cut highway speed limits by 10 kilometres an hour. Use public transport. Increase carpooling. Restrict car usage in our major cities through an odds-and-evens licence plate system. Encourage people to install electric rather than gas appliances in new homes (a policy already in place in parts of Australia).
These and other ideas are a recognition that the war that has blocked oil and gas supplies moving freely through the Strait of Hormuz – and which has now spread to oil and gas production plants in the region – will not be resolved quickly.
As IEA boss Fatih Birol noted: “The war in the Middle East is creating a major energy crisis, including the largest supply disruption in the history of the global oil market. In the absence of a swift resolution, the impacts on energy markets and economies are set to become more and more severe.”
Birol and others in the energy sector simply don’t believe Trump’s claims that the war will be over soon with everything returning to normal.
The Qatari government on Friday confirmed the impact of the attack by Iran on its LNG production plant at South Pars (after an attack by Israel on Iran’s production plant) will last for years.
The IEA knows it has to come up with ways to reduce demand. Hence, its 10-point plan. But it also knows that the surge in prices is already playing a role.
Electric vehicle retailers are being inundated by people who have seen $2.50 a litre at the local service station, looked at their petrol-powered car, and done a quick mathematical calculation in their head.
Given the advent of cheap EVs into this country over the past two years, the difference in the upfront cost between one and a traditional car has almost collapsed. But the EV is going to be much cheaper to run than an internal combustion engine vehicle.
This is one of the reasons economists bang on about price signals. They really do work. This should also encourage the Albanese government to ditch its subsidies for EVs, as consumers don’t need tax advantages to buy given what the oil price is doing.
On Friday, the Commonwealth Bank’s chief economist Luke Yeaman said there was now a “strong likelihood” that oil prices will lift to be between $US120 and $US150 a barrel.
“At these levels, demand destruction is also inevitable,” he said.
Demand destruction means a collapse in spending by businesses and consumers as the cost of anything connected to oil simply becomes too expensive. Hence, you end up with the IEA hit list, as well as lines outside BYD and Tesla showrooms.
By happenstance, on Thursday Tesla revealed its electric Semi. Tesla is expecting to produce around 50,000 of these trucks, which it says have a range of 800 kilometres, in 2027.
The reviews from truck drivers for the new vehicles are extremely positive. Trucking companies are also positive, given how much they will save on diesel costs by moving to an EV.
Trump has worn his disdain for anything related to the environment as a badge of honour. Just a fortnight before starting the war against Iran, his administration revoked an Obama-era scientific ruling that a number of greenhouse gases were a threat to public health.
Axing that ruling, he said, was the “largest deregulation in American history” that would make cars up to $US2400 cheaper.
But that’s no use if you cannot afford to drive the car. Gas prices in the US have climbed a third to almost $US4 a gallon since Trump launched the war.
Now people around the world are being told to stop driving as much, to catch public transport, to take their foot off the accelerator, to carpool.
Shane Wright is a senior economics correspondent for The Age and The Sydney Morning Herald.Connect via X or email.