Sunday, May 15, 2011

High Oil Prices Stimulate Renewable Energy

Higher oil prices stimulate renewable energy. Renewable energy enables the world economies to grow sustainably, where our current reliance on fossil fuels is entirely unsustainable.

To stimulate renewable energy we must see what is known as supply shock. A supply shock is an event that suddenly changes the price of a commodity or service. In the case of oil this will be caused by a sudden decrease in the supply relative to demand. This sudden change affects the equilibrium price.

When oil approaches $200 per barrel we should get the shock and a stimulus effect on renewable energy. This will occur when the oil supply out paces demand by something like 10 percent.

Instability in the Middle East may very well be the catalyst that causes oil prices to go sharply higher, which in turn will create the shock that will stimulate renewable energy.

There are a great many unknowns, but renewable energy will be driven by how market demand reacts to higher oil prices.

© 2011, Richard Matthews. All rights reserved.

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