12 Experts Comment: What Oil Below $30 Means for Efforts to Tackle Climate Change

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Jonathan Grant, director, sustainability and climate change, PWC

“High oil prices force governments and consumers to think about alternatives, low prices take the pressure off.

“Energy companies are acutely aware of the importance of cost reduction right now and probably have less time to think about the low carbon transition. The lower crude price in regions with high production costs will also accelerate decommissioning of older production infrastructure, but companies will seek to maximize production and cashflow in the short run. Governments which subsidise fossil fuels are finding it easier to cut these subsidies.

“From an investor perspective, we may see them start to question what proportion of their portfolios should be in fossil fuel companies and this could have a knock on effect on sectors such as asset management and pensions for example. Many are already asking how exposed energy companies are to changes in climate policy.

“For consumers, cheaper petrol means drivers may be less concerned about fuel economy and driving longer journeys. As the performance and ‘cool’ factor of electric and hybrid vehicles on the market improves, the total cost economics of buying them becomes less of an issue. But with low oil prices people may still be less inclined to take this option.”

Shane Tomlinson, senior research fellow, energy, environment and resources, Chatham House

“The low oil price provides a window for countries to implement fossil fuel subsidy reform, currently estimated at around $550bn annually by the International Energy Agency. The collapse in prices means governments can now look again at these subsidies while still keeping prices for consumers lower than when oil was closer to $100 per barrel. The savings in fossil fuel subsidy expenditure could be channelled to support low carbon development.

“Low oil prices, which also impact natural gas contracts that are indexed to oil, have led to the cancellation of plans to develop new fossil fuel reserves. To the extent that this creates a shift of capital into low carbon technology, as banks such as Goldman Sachs and Barclays have indicated, this will enhance the implementation of the Paris deal. However, cheap oil may also increase demand and impact the relative competitiveness of renewables in the short-term. How these two effects play out will be critical for shaping the future business environment for energy investment.”

Alasdair Cameron, renewable energy campaigner, Friends of the Earth

“For renewable electricity, oil is sufficiently decoupled from the market that it’s possible renewables will be relatively unaffected. If natural gas follows the oil price though, that could put pressure on renewables, underlining the need for a robust carbon price.

“In the UK the way the Levy Control Framework it is calculated means lower wholesale gas prices make it seem more expensive, despite the fact that consumer prices are not affected. Perhaps more importantly though, in the wake of Paris it’s clear that business-as-usual cannot continue and countries which previously relied on oil to support their economies will need to find a new way forward and many may start to look towards renewables.”

Helen Mountford, program director, New Climate Economy

“The smart money will continue to flow into renewables, regardless of the price of oil. Despite last year’s low oil prices, solar and wind attracted a record $329bn dollars in investment. They are increasingly cost-competitive, even with low priced fossil fuels. Moreover, we’ve seen oil prices go dramatically up and down, often without warning and that volatility is making investors cautious.

“With the costs of building renewables falling and zero (and stable) costs for wind and solar fuel, there’s just no contest for forward thinking investors. And, finally, $30 oil has now made production of more polluting unconventional oil uneconomic.”

Richard Nourse, managing partner, Greencoat Capital

“$30 oil is a threat if it leads to higher energy use and less focus on low carbon alternatives but could be used to make the transition to low carbon—with associated cost reductions—relatively painless for consumers. In the UK, the levy control framework mechanism needs to be looked at again to prevent low fossil energy prices disrupting the money available for low carbon generation.”

Stephen Devlin, economist, natural resources, New Economics Foundation

“Primarily, [$30 oil] means trouble for oil producers, casting doubt over the profitability of new investments and potentially leaving more oil in the ground than otherwise might have happened—a climate win.

“The countervailing concern is that low prices lead to a surge in demand, thereby bolstering those companies. But this seems unlikely based on current events: the source of the low price is not just a supply glut but also an economic slow down and booming renewables—not conditions that are conducive to surging oil demand, even when prices are low. 2016 will still be a record year for renewables.”

Luke Sussams, senior researcher, Carbon Tracker Initiative

“Much is made of the likelihood that the collapse in the oil price serves to incentives greater consumption and delay the ongoing low-carbon energy transition. However, one must not overlook the impacts that support this transition.

“For example, Wood Mackenzie showed this month that oil majors have cut spending on new projects by $400bn since the oil price crash, keeping these reserves in the ground. At the very least it delays their production to a future where the regulatory and market landscape may be less favorable.

“Furthermore, Bloomberg New Energy Finance also showed this month that the lower oil price has not impeded investments into renewable technologies in any way—2015 saw a record $329bn investment into renewables such as solar and wind.”

Richard Howard, head of environment and energy, Policy Exchange (comments drawn from a longer blog on $30 oil)

“All else being equal, economic theory would suggest that the falling price of oil and gas would lead to an increase in consumption of oil and gas, with people driving their cars further and heating their homes more. This could increase or slow down the fall, in greenhouse gas emissions. However, the evidence suggests that it takes quite a while for people to respond to movements in energy prices and change their behavior—energy use is relatively price inelastic, at least in the short term.

“There is significant inertia towards improving energy efficiency and reducing energy use in the UK—for example consumption of electricity and gas in homes has dropped by 23 percent over the last decade (or by 28 percent per person if you strip out the effect of population growth). It remains to be seen how consumers respond to the new lower energy price environment over the long term.

“Low fossil fuel prices should also in theory have a negative impact on investment in low carbon energy sources, as they become relatively more expensive compared to fossil fuels. However the evidence seems to suggest otherwise: data from Bloomberg New Energy Finance shows that global investment in clean energy hit a new record of $329 billion in 2015, up 3 percent on the previous year.”

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