Why won't you die?

I had a discussion with a coworker the other day on the dynamics of oil price and demand response. One of the arguments that she brought up highlighted a critical point in the debate over peak oil. A common argument against the idea that the world will someday simply run out of oil, or that efforts to find alternatives now are counterproductive, is that price signals will soon do their part to "crush" demand such that existing supplies will last longer and more alternatives will be found before there is a catastrophic drop in production.

This is a possible outcome under the law of demand, which states that as the price for a good rises, the quantity demanded will drop (i.e. demand curves have a negative slope). However, it depends heavily on just how much the quantity demanded responds to changes in price. This property, measured by the price elasticity of demand, is the key to understanding the magnitude of these effects. It turns out that the price elasticity of demand for gasoline is remarkably well-studied in the empirical literature. However, even most people with a reasonable understanding of the subject may have missed out on recent work that suggests that the American predicament is more dire than in previous years.

The Efficiency Fallacy

One of the most common arguments that I hear against different types of alternative energy is that the respective technologies are inefficient. Solar and wind power are two of the most common subjects to receive this treatment. The argument implies that the low efficiency of many renewable energy processes when compared with fossil fuel processes are an indication of a correspondingly low technical maturity, or still worse, of outright impracticality.

That asinine arguments like this gain traction is a result of efficiency numbers being taken out of context and used to, in effect, compare apples to oranges in more ways than one. Efficiency measures can only be used as a basis for judging technology in the narrowest of cases. Unfortunately, I have yet to find a single case where efficiency is correctly cited in a debate about renewable energy, whether for or against.

This uniform lack of understanding and the sheer ubiquity of the efficiency fallacy makes it one of the most dangerous red herrings in arguments on renewable energy.