Oil slump not necessarily bad news for climate

February 14, 2015
Advocates of wind say unit costs of their technology are falling, which makes turbines better able to withstand a fall in fossil energy

Since the 1970s, the renewable energy sector has usually trembled each time oil goes through the "bust" phase of the commodity cycle.

When crude was dear, users became interested in wind, solar and hydro.

But when became cheap, they gorged on it once more, turning their backs on novel, cleaner but costlier alternatives.

Today, oil is again in the doldrums. It plunged by 60 percent in price between June 2014 and January, falling to just over $40 a barrel, before pulling back to around $60 today.

So does this herald another crisis for green energy, further complicating the fight against ?

Not necessarily, say observers.

Lower may indeed lead to more emissions in the transport sector, where electric vehicles have struggled to penetrate even at times of high pump prices, they say.

Transport accounts for around 14 percent of the world's annually tally of greenhouse-gas emissions.

As the cost of petrol (gasoline) falls, "people drive more, and tend to buy thirstier cars," said Pascal Canfin, a climate expert at the World Resources Institute (WRI) think-tank.

Fossils vs. renewables

But the picture is different when it comes to energy production, which contributes to 35 percent of world emissions.

"In most (electricity) markets, renewables are not competing with oil, they're competing with and coal," said Alden Meyer, an analyst at a US NGO, the Union of Concerned Scientists (UCS).

The question whether gas and coal will track oil in its extreme movements is unresolved for now, said Canfin.

But already, more and more high-end oil projects—deeper-water and marginal fields and tar sands, for instance—are being shelved.

The question whether gas and coal will track oil in its extreme price movements is unresolved for now

Oil investment around the world is likely to fall this year between 10 and 15 percent, the specialist bank Evercore IS forecasts.

Advocates of wind say unit costs of their technology are falling, which makes turbines better able to withstand a fall in fossil energy.

In 2014, 51,477 megawatts of wind-generated capacity were added, a record increase of 44 percent over the previous year, according to the Global Wind Energy Council (GWEC), the industry's lobby.

"Not only the low prices but also the cost stability of wind power makes it a very attractive option for utilities, independent power producers and companies who are looking for a hedge against the wildly fluctuating prices of fossil fuels," argues GWEC chief Steve Sawyer.

Stranded assets

Another risk factor for fossils is climate policy, said Dimitris Zenghalis of the Grantham Research Institute on Climate Change at the London School of Economics (LSE).

Unbounded fossil consumption "is incompatible with climate objectives," Zenghelis said bluntly. "If you're an investor, you have to take that risk into account."

UN members on Friday completed a new round of negotiations towards a planned climate deal to be sealed in Paris in December.

The pact aims to limit global warming to two degrees Celsius (3.6 degrees Fahrenheit) over pre-industrial levels.

The prime concern for investors, said Zenghelis, is "stranded assets"—long-term fossil projects that could be scrapped.

According to research published last month in the science journal Nature, a third of all oil reserves, half of gas and over 80 percent of coal reserves must be left untouched until 2050.

This would be the sole way to meet the global 2 C target, according to the study, led by specialists at University College London.

Targets for climate action include reducing the subsidies for , which according to the International Energy Agency (UEA) amounted to 550 billion dollars in 2013, and imposing taxes on carbon pollution.

Another goal would be to boost energy efficiency.

"If governments use lower oil prices to overhaul their fossil subsidies or introduce environmental taxes, then the fall in prices will be excellent news for the climate," said Stephane Hallegatte, a senior economist at the World Bank.

Historically, though, green policies typically get sidelined when oil prices fall.

Governments usually prefer to reap the benefits of a short-term economic lift.

And they are loath to stir unpopularity with the public or opposition from powerful lobbies by introducing energy levies.

This time, though, the conditions seem more favourable: the science about the dangers of fossil pollution—just published by the UN's expert panel—is clear, and public awareness is high.

"Politically, now this is a very good time to do it," said Zenghelis.

"It just remains to be seen whether policymakers will take advantage of it."

Explore further: Clean energy risks over oil price fall: French minister

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9 comments

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Science Officer
2.3 / 5 (6) Feb 14, 2015
So i guess the last thing the world needs is affordable energy prices?
Returners
4.3 / 5 (3) Feb 14, 2015
All this means is someone, somewhere was making 2 to 2.5 times the fair market value of oil on trades.

That should be criminal, but it isn't apparently.

They get to do that though when they have you by the nuts, and you have to drive to school, work, and the grocery, and the government doesn't regulate them (Rygg).

Robbery, usury, extortion, deceit. Supposedly making a few cents per barrel and they were really making $40 to $60 profit per barrel.

The BP disaster in the Gulf of Mexico was actually good for climate and the economy, because it exposed the fraudulent pricing and cheating of the safety standards in the oil industry, and the U.S. government worked for more regulation and had hearings showing how much money executives made in personal income, much less the companies on-hand funds.

The government needs to take a close look at Apple next.
jamie_ostrowski
2.5 / 5 (2) Feb 14, 2015
Well I think the free market will work to correct the ridiculous profits by some...at least, hopefully it will. We saw the effect that fracking had in the bakken region on oil prices...it brought the prices down and lowered the profit margin when everything was coming from Saudi Arabia. They responded by glutting the market, forcing US oil to close down some of their wells. Eventually the price of oil will increase a bit, but then when it becomes profitable to do so, our wells will re-open and drive the price down again and keep it in check.
Shootist
1 / 5 (1) Feb 14, 2015
Well I think the free market will work to correct the ridiculous profits by some..


You are not qualified to determine what "ridiculous profits" are, or even if such a thing exists. You just aren't that smart. No one is.
Caliban
5 / 5 (2) Feb 14, 2015
So i guess the last thing the world needs is affordable energy prices?


Well I think the free market will work to correct the ridiculous profits by some...at least, hopefully it will. We saw the effect that fracking had in the bakken region on oil prices...it brought the prices down and lowered the profit margin when everything was coming from Saudi Arabia. They responded by glutting the market, forcing US oil to close down some of their wells. Eventually the price of oil will increase a bit, but then when it becomes profitable to do so, our wells will re-open and drive the price down again and keep it in check.


Here's how your "Freimarket" supplies us with cheap energy prices, Scioff, j.o.:

".....Targets for climate action include reducing the subsidies for fossil fuels, which according to the International Energy Agency (UEA) amounted to 550 billion dollars in 2013, and imposing taxes on carbon pollution."

How much Wind'n'Solar would .5Tera$ install?

Returners
5 / 5 (2) Feb 14, 2015
How much Wind'n'Solar would .5Tera$ install?


Over the 10 years or more it is significantly more cost-effective to invest in wind and solar.
weathervane
5 / 5 (1) Feb 14, 2015
If you want to critically talk about oil tax and economics then it's import to understand the beast.

With respect to the tax, see graph on page 4 for global government take.
http://www.aoga.o..._231.pdf

Note that globally the government tax take is pretty high showing you that the main stake holder is government, not the oil companies. When oil prices tank governments feel the pinch.
Governments globally want and are hooked on that sales revenue.

The second take home is understanding risk. Look at countries with high tax rates and those with low tax rates. With a few exceptions high tax rates equate to easy to find hydrocarbons low tax rates equal hard to find hydrocarbons.

A country with hard to find hydrocarbons my have, in global terms a high production, generating lots of government revenues, simply because it has a favourable tax rate, change the tax rate and exploration drops, companies leave.
weathervane
not rated yet Feb 14, 2015
So government has the problem:
If you change the tax rate and become uncompetitive to your peer group, then exploration and eventually production evaporate and then you have a big hole in your government finances.
Plus you are then open to more geopolitical risk because you have to import any oil and gas you need.

So question for alternatives is who pays? Power supply in general, i.e. from power stations, is a commodity product with poor margins.

Government has already spent its oil dollars on on things like healthcare, infrastructure, social security etc. so has no cash and no risk appetite.

Oil companies, excluding National Oil Cos, are generally exploration and production companies they are generally don't own/run infrastructure like power stations as a core business. Building alternatives is building and operating power stations and grid, not something oil companies do.

So a new player with deep pockets is needed to pony up the cash for alternatives
mndaffy
not rated yet Feb 15, 2015
How many people here have actually worked in the oil industry? Or know anything of it first hand? How many people here have looked at the books for the oil companies? They are public you know.

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