Impact of energy price rises on costs: A thermodynamic analysis

The standard of living in an industrialized country depends on the quantity of energy available and the efficiency with which it is utilized. Changes in the price of energy will, for a time, influence the choice of goods and services and so affect the world economy, until the balance between prices for goods and energy is restored. If we could control the economy during this time interval, there is no reason why increases in energy prices should reduce our standard of living. If renewable energy sources are to be more expensive than oil today, by implication we need to invest much more capital to be able to utilize these sources. We should therefore be willing to accept a smaller increase in standard of living and use the difference for investment in equipment to convert renewable energy sources to useful work. Only through new technology can the price of energy from such sources be reduced relative to the price of energy from oil. Increases in oil prices will not change the price ratio.