Russel Norman
Flight tax vs oil price

I have posted earlier about the PM’s short sightedness when it comes to considering the potential impacts of oil price increases on tourism, versus his loud complaining about the potential impacts of flight taxes being imposed by the UK govt.

But I wondered if it was possible to quantify the comparison between the departure tax and oil price increases.

According to the Herald the cost of the departure tax is: “Premium tickets to New Zealand face taxes of up to $355 while economy class travellers will be charged half that amount.” So roughly $175 for an economy ticket.

So how does that compare to the impact of oil price rise? The library had a go at it for me:

A Boeing 747 consumes 0.0167 gallons of jet fuel per passenger per mile – that comes to about 4.6 oil barrels for a one-way flight from Wellington to London.

Jet fuel costs about 20% more barrel than crude oil – it was selling for USD$95 on October 29th and crude was about USD$80. This rough relationship appears to have held in the past.

So, if crude hits USD$100 a barrel, then jet fuel should be about USD$120 a barrel, a USD$25 a barrel increase from now.

USD$25 multiplied by 4.6 barrels equals USD$115. At the current conversion rate, that’s about NZD$150.

So, a rough measure would see the cost of the fuel needed to fly someone one-way from Wellington to London increase by about NZD$150 if the price of a barrel of crude rose from the roughly USD$80 it costs today (actually, currently trading at USD$85 on the back of the US quantitative easing announcement) to USD$100.

Can anyone put a hole in these figures?

So, if these calculations are correct, the increase in cost of a ticket due to the increase in departure tax is roughly comparable to the increase in cost of a ticket due to an increase in oil prices to US$100 a barrel.

41 thoughts on “Flight tax vs oil price

  1. Can anyone put a hole in these figures?

    Yes, they are in US Dollars. Given that the US Dollar is going the way of the German Papiermark, the Hungarian Pengo, the Yugoslav Dinar and the Zimbabwean Dollar, I am not a fan of using that measure for oil prices.

    Personally, I would rather use the price of oil in terms of gold, as it is linked to a “currency” that can never be artificially inflated.

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  2. Your prices are based on oil hitting $100 a barrel, but two years ago it peaked at $147 a barrel – 87% higher than it is now.

    I can’t recall massive hikes in airfares two years ago, specially not of the order you talk about.

    Also, departure tax is in ADDITION to higher fares – not an alternative.

    And it is a significant payment travellers make, but get absolutely nothing for. Not a thing.

    So it leaves a very bitter taste, leaves people feeling ripped off, and therefore puts people off travelling.

    And then we have new aircraft that have come out in the last couple of years which are 20% more fuel efficient, which pretty much nullifies the increase you are talking about.

    And finally, Key adding his voice to the many criticising UK departure tax may have a small impact.

    But the NZ PM screaming to high heaven about world oil prices would be completely ineffectual and pointless.

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  3. Photonz, yes the question is how much of the increase was passed on during the last price peak. The info I have from the library is that “When oil prices reached their peak in mid-2008 when cured oil was USD$147 a barrel and jet fuel was USD$180, British Airways’ surcharges were 109 pounds for long-haul flights, or NZD$280 at the exchange rate at the time.”

    I’m not saying Key could shout oil prices down, I’m saying that if he recognises the risk to NZ tourism from the departure tax, then why can’t he see the risk posed by oil price shocks?

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  4. Russel – I’m sure he is very aware of the risk posed by increased travel costs because of oil prices.

    But what is he supposed to do about it? It’s not as if he can ask the oil companies to reduce the price because NZ is on the opposite side of the globe as european and American travelers, and they should feel sorry for us.

    Also, if the surcharge was NZ$280 when oil was $67US higher than it is now, then pro rata that would make an approx NZ$83 surcharge if oil went up by US$20 a barrel (or more like NZ$50-$60 if you count our high exchange rate)

    Either of which is pretty insignificant to an average traveller spending US$5000 on their trip to NZ.

    Two years ago that would have converted to NZ$9090 to spend in NZ. Today it would be around NZ$6300.

    So change in exchange rates means the average traveller has nearly NZ$3000 LESS to spend than two years ago, which makes an $83 surcharge look insignificant by comparison.

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  5. There is no such thing as a flight from Wellington to London, at the least it will be three legs. On top of that, after April 2011 there will be no Boeing 747s operating the route, the 777-300ERs are about 10-15% more fuel efficient.

    That increasing consumption because takeoffs and landings are thirsty, and because no flights go “as the crow flies”. So you need to take Wellington-Auckland, Auckland-Los Angeles, Los Angeles-London as three separate distances (and the first is no 747).

    However, the thing that throws any of this is hedging, which saved Air NZ a fortune in the last few months. The arrival of next generation aircraft (787s, A350s) will cut consumption by 20-25% on some routes in the next few years as well.

    Forecasts I have from aviation experts is that fuel consumption per passenger mile is on a continous 2-3% per annum saving, cumulative, and this looks like continuing for the next 20 years (and has been happening as of late as well).

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  6. Russel, don’t forget that when oil prices were at US$147 a barrel, a British Pound could buy something along the lines of two US Dollars. At the moment, that same British Pound can only buy 1.6 US Dollars, although that figure is slowly climbing back up again.

    The problem is that oil is denominated in something that is inherently unstable – the US Dollar is slowly having its value eroded by the Federal Reserve, making comparisons with the past almost useless.

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  7. It seems to me that while he can do nothing about either at least if he complains enough about the UK flight tax it might annoy one of our major trading partners.

    Also bear in mind large numbers of people still don’t believe in peak oil and think its price increases are just due to more consumption which will always of course be stable from now on or even go down in their heads. I imagine there is even a few people who look forward to it returning to $3 a barrel.

    At any rate who really cares that it is a few hundred dollars more to fly to the UK its not something you can afford unless you are reasonably wealthy and therefore can afford a few hundred dollars more.

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  8. And adding to what photonz’s said – when fuel prices went astronomic, air fare prices did not rise sufficiently to cover the additional costs to the airlines; the airlines took a haircut over that one.

    They felt (probably correctly) that the public would not wear such a rapid rise in prices. They would have no such lack of enthusiasm over a longer period of time.

    The UK departure tax is still a horrible thing; the sign of a government that realises just how deep a hole its in possibly. But killing the goose won’t make money over any significant period of time.

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  9. What we should be doing is routing all flights through Iceland or Dublin, that way the premium is minimised and a separate ticket sold for the remaining sectors that is unaffected by the surtax.

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  10. The best way to put a hole in the WHOLE ISSUE, is to be serious about locally grown/produced Bio-fuels derived from Hemp. As Henry Ford was planning for US in the 1940s. Bio-mass absorbs CO2 from the air as it grows & then puts it out when it burns (carbon neutral). Kia-ora

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  11. Air travel will become largely extinct. It’s not the price of oil that is the issue but that either oil will become persistently more expensive and not available at the scale it is today. After the peak of oil production (currently, 2008 for all liquids, 2005 for conventional – aka cheap – oil) oil will become scarce if global economies ever start to meaningfully recover from the last recession.

    John Key is either unaware of this or in complete denial that peak oil will be a defining moment for our civilisation and also a harbinger for all sorts of other resource peaks.

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  12. Tony says “Air travel will become largely extinct.”

    Why? We can have nuclear powered flights for centuries to come.

    No need for fossil fuels.

    No carbon emmissions.

    And the tecnology need to do it has been avalable for 60 years, when the first nulcear powered aircraft flew.

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  13. Also, I would point out that even if the price of oil were to double or triple, we would only be going back to the sort of airfares that existed a decade or two ago (obviously adjusted for inflation). As I said in another thread, the problem isn’t Air New Zealand and its twice daily flight from Heathrow to Auckland via Hong Kong or Los Angeles, the problem is the dozens of flights that Ryanair and Easyjet have from Stansted and Luton through to the Continent and with those runs, the people already have a speedy ground based alternative.

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  14. Many people assume that high prices simply mean high prices. What is causing those high prices? Scarcity or increasing difficulty in obtaining the resource. If it’s increasing difficulty, that’s because the easy stuff is gone and scarcity will sure follow anyway, with any limited resource (as are all resources on this planet).

    So what we should expect is economic growth (if it ever returns) resulting in increasing oil prices to a point where recession then ensues. Indeed, this is what a recent parliamentary research paper suggests is our future – a downward spiral of recessions interspersed with brief periods of growth. Even without economic growth oil prices will trend upwards, as production becomes increasingly difficult to maintain and then declines.

    In the case of scarcity, air travel will diminish as more important uses get priority. In the case of continuously increasing prices, increasingly fewer people will be able to afford air travel. In either case it will diminish.

    Nuclear air travel is an example of waiting for the magic elixir. Some people just can’t believe that “progress” cannot continue forever (sometimes even acknowledging the finite nature of our planet). Even if some countries allow millions of air miles of nuclear powered travel across their skies (highly improbable), New Zealand won’t and so air travel will become extinct here even sooner.

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  15. Tony says “Nuclear air travel is an example of waiting for the magic elixir”

    It’s not futuristic magic – nuclear planes were in the air 60 years ago.

    We have nuclear ships, submarines and power stations all over the planet now.

    As for our opposition to nuclear power – the last poll I saw had just 54% of Kiwis opposed.

    As for prices – tickets would need to go up between 4 and 5 times their current cost to get to what they were just 30 years ago (i.e a typical return ticket to london in 1980 was around $2200 (adjusted for inflation, that’s $9500 in todays dollars).

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  16. Photonz

    My initial reaction was “ridiculous”, “I would have known about this” and a vague recollection of the Russians trying it…

    On September 5, 1951, the USAF awarded Consolidated-Vultee a contract to fly a nuclear reactor onboard a modified Convair B-36[6] under the MX-1589 project of the ANP program. The NB-36H Nuclear Test Aircraft (NTA) was to study shielding requirements for an airborne reactor, to determine whether a nuclear aircraft was feasible. This was the only known airborne reactor experiment by the U.S. with an operational nuclear reactor on board. The NTA flew a total of 47 times testing the reactor over West Texas and Southern New Mexico. The reactor, named the Aircraft Shield Test Reactor (ASTR), was operational but did not power the plane, rather the primary purpose of the flight program was shield testing.

    Based on the results of the NTA, the X-6 and the entire nuclear aircraft program was abandoned in 1961.

    The Russians did try it, with similar results.

    The “Ridiculous” is the natural response of someone who has actually studied the basics of vehicular and specifically aircraft and airship design, which is something I did somewhat later. I was only 10 when they were running these stories. The mass ratios and efficiencies of heat transfer, simply make it so unlikely as to be plainly wrong. The additional risk entailed in the event of a crash, too great.

    Not a working option.

    BJ

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  17. If we get Cheap Access To Space (CATS), there is a really scary alternative to fossil fuels for powering aircraft – satellite-based lasers! A satellite power station equipped with a couple of high-power infra-red lasers can put enough energy onto the tops of a couple of planes to allow them to cruise without burning any more jet fuel. The planes would take off and land using conventional engines but once at altitude, one of the satellite lasers would be directed onto a target on the top of the aircraft which would then be heated. This heat would then be used to drive a jet turbine. The laser frequency would be chosen to be absorbed by water vapour so if the laser missed the plane, most of its energy would not reach the ground, and it would be focussed at the plane’s height so the beam would be defocussed should it reach the ground. That and the beam’s speed across the ground reduce the potential risks, and there would also be various interlocks to ensure that the laser switched off immediately if it isn’t locked onto the target on the plane.

    The idea is scary but it is doable with current technology.

    Or we could use hydrogen-powered planes.

    Trevor.

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  18. bj says “Not a working option.”

    You are using the problems, and available technological solutions from 60 years ago, to say it’s not feasible.

    I also thought it was a rediclous idea when I first thought of it, but thought nuclear submarines are quite small, and A380 Airbuses are 600 tonnes, then was surprised to find that nuclear powered planes were flying 60 years ago.

    The major problems (sheilding and heat) can be overcome, leaving issues of safety and public opinion.

    While you think it is not an option, experts in aerospace engineering believe millions will be using nuclear aircraft in a few decades.

    See Times article from a couple of years ago –
    http://www.timesonline.co.uk/tol/news/environment/article5024190.ece

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  19. The reason that aircraft flight is so accessible is due to the energy density of jet fuel, and that density allows the plane to fly an economic number of passengers.

    The fuel load and engines of an A380 weigh about 310 tonnes, so the first challenge for nuclear flight is to get the complete power package to be within that weight, and the reactor has to survive being dropped on the deck from 45,000 feet.

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  20. So, people dream of nuclear transport, with no negative impacts and an infinite affordable fuel source that can be produced at whatever rate keeps economic growth chugging along. Why can’t people understand that this is a finite planet and that we need to have finite expectations of what it can sustain? The reason is the story that our mother culture has been telling us all our lives, that humans are the ultimate animal, able to even overturn the “laws” of nature as we solve any problem that comes our way.

    Is there any possibility that collapse can be avoided with this sort of entrenched mindset?

    By the way, photonz1, when oil was US$147 per barrel, it precipitated a recession. That it will take another 25 years to reach that, inflation adjusted, level again is yet another example of wishful thinking, like much of the WEO 2010, from what I’ve read about it.

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  21. fanciful talk of nuclear powered aircraft is a symptom of many of us not simply wanting to confront the harsh reality that we soon face an energy descent. Even if nuclear technology was feasible it would take 20 years or more to change the airline fleet and cost trillions.. But as the NZ Parliament report pointed out the next oil shock is likely in the 2012-2015 time frame.

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  22. Tony says “That it will take another 25 years to reach that, inflation adjusted, level again is yet another example of wishful thinking,..”

    I agree. If it got to that level two years ago, a sustained growth bubble could cause it again in substantially shorter time.

    I think in 2008 high oil prices were a symptom of the bubble – not the cause of it.

    hillsinthemthargold – 20 years for nuclear flight is probably optimistic. Experts were suggesting 40 years.

    You say “fanciful talk of nuclear powered aircraft is a symptom of many of us not simply wanting to confront the harsh reality that we soon face an energy descent.”

    Wrong – talk of left-field solutions ARE part of confronting energy issues. Just like tidal power was called fanciful on this site just a year or two ago. Now we have tidal generation going through resource consent ready to be built.

    Technology has never progressed faster. Just twenty years ago a lot of ideas were fanciful – a computer in every home, touch screen cell phones, tablet books, hand held global positioning systems, digital cameras, sd and compact flash cards the size of your fingernail that hold more information than 100 (1990)computers.

    So we have no idea of what will be posible in ten years, let alone 20 or 40 years.

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  23. @Photonz: let’s just assume that technological and political change does allow viable nuclear-powered air travel in the future…

    how long will nuclear fuels last if it becomes the main fuel for aircraft travel in 50 year or so? what will uranium prices be like in 50 years time when oil stocks are considerably depleted?

    it may not be completely impossible but I have to say I find your optimism somewhat excessive.

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  24. “Technology has never progressed faster. … So we have no idea of what will be posible in ten years, let alone 20 or 40 years.”

    you’re ignoring the fact that pollution, extinction rates, environmental degradation and resource depletion have also never (in the human age) progressed faster, and that these things are a by-product of the fast rate of technological development.

    to assume that all these advancements can continue to accelerate is to assume that the planet has a limitless capacity to absorb pollution and to supply the resources required for technological advancements. do you think these are valid assumptions? I sure don’t.

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  25. “I think in 2008 high oil prices were a symptom of the bubble – not the cause of it.”

    Low plentiful oil supported the bubble, and high prices likely precipitated the recession, even if they weren’t the direct cause. Any recovery will tip economies into recession again, as limits are hit.

    “Technology has never progressed faster. Just twenty years ago a lot of ideas were fanciful – a computer in every home, touch screen cell phones, tablet books, hand held global positioning systems, digital cameras, sd and compact flash cards the size of your fingernail that hold more information than 100 (1990)computers.”

    I don’t agree that technology has never progressed faster. It seems to be slowing down, to me. Most “advances” today are just refinements of decades old technologies, or foreseen convergences of multiple technologies. I think yours is a rosy view of technology because of all the in-your-face widget advertising that goes on. Twenty years ago, I was a laggard in the mobile phone stakes but still got a phone that is not much different from a phone today (for use as a phone). 3G was hyped to the moon and didn’t live up to that hype (I worked for one of the first supposedly true 3G companies).

    And what is the purpose of this technology? Most people, I would guess, use a fraction of the facilities in the gadgets that get marketed and bought today. Many get put on a shelf after the “ooh aah” dies off and are hardly used again. Digital cameras compete on pixels that will never be seen by the average human (computer screen and printer resolution is way below what cameras can take.

    Most of what we buy is garbage and lasts almost no time. Which is what the widget producers want, of course.

    To invoke some fanciful future on the basis of not knowing what technology might be available at some unspecified point in the future, provided we hit no limits, is akin to burying one’s head in the sand. But you’re in good company (or, at least, a lot of company).

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  26. Tony says To invoke some fanciful future on the basis of not knowing what technology might be available at some unspecified point in the future, provided we hit no limits, is akin to burying one’s head in the sand. But you’re in good company (or, at least, a lot of company).”

    I think it’s head in the sand to say things are fanciful, when in truth, you have absolutely no idea of what we will have in two or four decades.

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  27. nommopilot says “to assume that all these advancements can continue to accelerate is to assume that the planet has a limitless capacity to absorb pollution and to supply the resources required for technological advancements. do you think these are valid assumptions? I sure don’t”

    Many of the advances DECREASE the amount of resources used. In a single model change, new gearboxes are making cards 20% more efficient.

    I used to spend thousand of dollars on sending pictures around the country and overseas – now it’s all done on the internet.

    I used to spend a fortune on power for heaters and buring coal. Now I spend much less with a heat pump.

    My new fridge is substantially more efficient, so is my washing machine.

    New planes in the last year or two are substantially more efficient. New technology added to older planes, like the little winglets being added to the end of wings save another 5%.

    Advances have meant it’s now feasible to generate power from wind and tides. With atecnological advances solar is becoming more and more viable.

    Unfortunately none of this fits a doom and gloom scenario.

    Yes – we need to better look after our environment. And technological advances will play a huge part in helping us do that.

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  28. “I think it’s head in the sand to say things are fanciful, when in truth, you have absolutely no idea of what we will have in two or four decades.”
    I have an idea though it’s true that I don’t know for certain. However, what I do know for certain is that the earth has limits and that human ingenuity has limits. Do you understand that?

    With the high density, portable, energy that we built a civilisation on, over the last century or two, entering its decline well within the time frame you mention, photonz1, it’s certainly true (or at least highly probable) that our society in 40 years will not resemble this one, and will not be recognizable as a continuation of this one. Your attempts to wish for a continuation of this one is certainly head in the sand stuff. Do you honestly think 9 billion people will have access to nuclear powered aircraft, in the manner that a couple of billion have access to oil powered aircraft today?

    Why do you think the unsustainable is sustainable? or are you simply keeping your fingers crossed that it will not be a problem that you have to deal with?

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  29. can I humbly suggest to photonz that he read “Searching for a Miracle” by Richard Heinberg ..
    http://www.postcarbon.org/new-site-files/Reports/Searching_for_a_Miracle_web10nov09.pdf

    It examines all of the technological alternatives and concludes that “contrary to the hopes of many, there is no clear practical scenario by which we can replace the energy from today’s conventional sources with sufficient energy from alternative sources to sustain industrial society at its present scale of operations. To achieve such a transition would require (1) a vast financial investment beyond society’s practical abilities, (2) a very long time—too long in practical terms—for build-out, and (3) significant sacrifices in terms of energy quality and reliability.”

    and there are links to dozens of other reports from credible international bodies – all coming to the same conclusion — oil shocks are imminent in the 2012 to 2015 time frame… see …
    http://oilshockhorrorprobe.blogspot.com/p/reportsresources.html

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  30. Low plentiful oil supported the bubble, and high prices likely precipitated the recession, even if they weren’t the direct cause. Any recovery will tip economies into recession again, as limits are hit.

    Tony, don’t forget that in part, the oil price spike of 2008 was caused by the likes of Goldman Sachs and others who were looking for a one way bet. Their future traders had no doubtedly read all the material on Peak Oil and expected that oil was guaranteed to increase in price as supply dropped. Fortunately (or unfortunately), the supply of credit to engage in such trading dried up very suddenly.

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  31. Tony says “Do you honestly think 9 billion people will have access to nuclear powered aircraft, in the manner that a couple of billion have access to oil powered aircraft today?”

    I’ve never even talked about what portion of the world population will have access to air travel in the future, so how can you make up some absurd claim about everyone on the planet having access to nuclear powered air travel, then insinuate it is my honest position.

    I have no doubt there will be oil shocks in the future, just like there has been in the past, and have already said so.

    I just don’t automatically jump to a doomsday scenario.

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  32. “Many of the advances DECREASE the amount of resources used.”

    maybe in relative terms but not in absolute terms. There were more 1st generation iPods sold than all casette tape walkmans combined. sure you need less plastic for making tapes but there will still be more iPods in landfill and at the bottom of the sea off the coast of africa than all the cassettes ever produced.

    the savings in efficiency do not manifest in decreased consumption because the population is growing and “standards of living” (defined as how many gadgets you can afford) supposedly increases.

    how many gearboxes will the auto industry need to produce in order to stop depleting non-renewable energy sources and materials?

    what are you going to do with the nuclear waste from all these extra reactors that will need to be contained for tens of thousands of years? more problems to leave our great-grandchildren if they manage to survive…

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  33. nommopilot says “there will still be more iPods in landfill and at the bottom of the sea off the coast of africa than all the cassettes ever produced.”

    Based on what evidence?

    What is the total number of cassettes ever produced? (or at least the number you are using for your calculation?)

    I’ve got two cartons of cassettes in my basement that need to go to the tip. Sitting beside them are two stereo tape decks and a large twin tape ghetto blaster. Did you count my ones?

    That’s a few hundred times the plastic of my ipod (if I had one).

    As consumption goes up as more poeple are lifted out of poverty, much better to have more efficient use of resources with new technology.

    Or should we all dump out highly efficient heat pumps and go back to our smokey coal fires?

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  34. photonz1, I made that jump because your response to the suggestion that air travel will cease was to claim that nuclear powered aircraft could replace oil powered aircraft. Unless you’re now saying that that replacement could only be at a much lower level, then replacement implies the continued growth of air travel, even as developing economies grow and their citizens have similar expectations to those in the developed nations.

    If you’re saying that, at best, nuclear powered aircraft will only service a fraction of those who would otherwise have expected access to air travel, then welcome to the doomsday camp. Otherwise, could you please explain how nuclear powered aircraft will delay, or even eliminate the possibility of, collapse?

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  35. “As consumption goes up as more poeple are lifted out of poverty”

    Could you please provide evidence of that?

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  36. john-ston,

    Oh yeah, I think speculation was a significant factor in where the oil price ended up but that wasn’t the point. The point was that an oil price that high (whatever the reason) was a factor in the recession. A recession would probably have happened later but an oil price that high would have taken a toll even without bubbles.

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  37. Tony – currently the vast majority of the population of the globe CANNOT afford air travel.

    Now you’re trying to say it will be doomsday if the whole future population of nine billion can’t afford air travel.

    Such a giant leap to the whole global population being able to afford to fly is silly, and no one has ever made that assertion or anything like it.

    So why are you argueing against it?

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  38. photonz1, I didn’t claim that most people can or will be able to afford air travel. It’s a common ploy to try to win an argument by answering a point that wasn’t made. It’s a straw man.

    Most people in developed nations and increasing numbers in developing nations (with increasing aspirations) have access to air travel – all they need to do is save their money and anyone can travel almost anywhere by air. That will certainly not continue and, in not continuing, will represent a very changed society or set of societies. New Zealand’s current unsustainable economy relies on that wide access for both freight and people.

    As for poverty, many more slip into poverty in so-called rich nations like the US (th king of consumer nations). This year, over 40% were on food stamps (not a measure of poverty but an indicator of how people’s real incomes are worsening). An article in New Scientist, a couple of years ago, illustrated the fallacy of your claim, for which you have provided no evidence; a comment by Kevin Rudd about the last 30 years in China hardly constitutes evidence that increasing consumption lifts people out of poverty. Where are the scientific research and verifiable statistics?

    However, even if it were true it is something that cannot possible continue indefinitely on a finite planet. It also is something that is resisted by the status quo which supports an increasing gap between rich and poor, not a decreasing gap. I recall a survey which asked whether someone would prefer a salary of $100,000 with the average salary being $100,000, or a salary of $50,000 with the average salary being $25,000. The majority chose the latter. We have been conditioned to expect, or aspire to, doing better than others, since that is the real measure of individual prosperity.

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