More Environmental Bets

More people are starting to jump on the betting bandwagon pioneered by Julian Simon and Paul Ehrlich. The latest bettors are Matthew Simmons, the head of a Houston investment bank specializing in the energy industry and author of Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy, and John Tierney, an op-ed columnist for the New York Times. The following excerpt describes the details of the bet:

I [John Tierney] proposed to him [Matthiew Simmons] a bet using what Julian considered the best measure of a resource's value: how it compares with the average worker's wage. I offered to bet that the price of oil would not rise faster than the average wage, meaning that future workers would be able to afford oil more easily than they could today.

Mr. Simmons said he favored a simpler wager, based on his expectation that the price of oil, now about $65 per barrel, would more than triple during the next five years. He said he'd bet that the price in 2010, when adjusted for inflation so it's stated in 2005 dollars, would be at least $200 per barrel.

Remembering a tip from Julian, I suggested that we use the average price for the whole year of 2010 instead of the price on any particular date - that way, neither of us would be vulnerable to a sudden short-term swing as the market reacted to some unexpected news. Mr. Simmons agreed, and we sealed the deal by e-mail.

The first person I told was Julian's widow, Rita Simon, a public affairs professor at American University. She was delighted to see Julian's tradition carried on and thought the bet sounded so good she wanted a piece of the action herself.

With Mr. Simmons's approval, we arranged for Rita and me to split the wager, with each of us putting up $2,500 against Mr. Simmons's $5,000. (Note to accounting department: I'm aware that my expense account doesn't cover gambling. I'm using my own money.) All the money is being put into escrow in a joint account; the winning side will collect the $10,000 plus any accrued interest on Jan. 1, 2011.

Well, that's sporting. Relatively short term supply disruptions could easily push the price of oil past $200 per barrel (in 2005 dollars). Good luck to Mr. Tierney - this bet is far from a shoe in - though I think the odds are strongly in his favour.