Use cheap oil to implement a carbon tax

WHEN faced with a dinner buffet, many people tend to forget their diets. Similarly with cheap oil, many are forgetting their fossil fuel diets. Suddenly, that gas-guzzling V8 vehicle becomes useful again, instead of that new hybrid vehicle.

Analysts agree that current cheap oil prices are a result of Saudi Arabia's decision to continue pumping oil to ensure that supply far outstrips near-term demand. This has driven crude oil prices down to the US$50/barrel level from their highs last summer and are now at their lowest since 2009.

The main targets are the relatively new US shale hydraulic fracturing (fracking) companies and even the Canadian tar sands oil companies that have managed to reduce North American oil imports from the Middle East. Because Saudi Arabia's established oil infrastructure has a lot of sunk costs, they can afford to pump oil from their reserves at a much cheaper price than the frackers, whose drilling equipment and companies are relatively new and are still being amortised, and go even lower than other oil-producing states like Venezuela and Russia. The energy industry worldwide is currently in the doldrums because of depressed oil prices because several producers are going after few buyers. It may stay that way for a few years, some analysts point out, as the Saudis would lose market share if they cut back on production and others take up the slack.