Wednesday, May 15, 2013

Why Oil Prices Matter for Renewable Energy

The long-term prospects of solar, wind and other clean sources of energy are tied to the cost of fossil fuels. The artificially low price of oil makes it harder for renewable sources of energy to compete. Subsidies drive down the price of petrochemicals, but the true costs are not reflected in crude oil prices.

Investors are also driving up prices. Not too long ago oil was a commodity that traded principally on the actual or the anticipated forces of supply and demand. However, new strategies are increasingly driving investments in petrochemicals which are designed to cash in on the economic recovery. (The simple logic being that coming out of recession the demand for oil will increase as the economy improves.)

Increased supply will also put downward pressure on oil prices in 2013. Although this increased production will be offset by increased consumption, particularly in the developing world.

The faster that renewables can be price competitive with oil the sooner we can leverage the markets to wean ourselves off of dirty sources of energy.

© 2013, Richard Matthews. All rights reserved.

Related Articles
The Cost of Carbon
Responsibility for the Costs of the Gulf Oil Spill
Offshore Oil is an Avoidable Tragedy
Two More Reasons to Move Beyond Fossil Fuels
The Costs of Offshore Drilling

3 comments:

David Guion said...

People still complain about high fuel costs, of course. It seems to me that all the new, unconventional ways of obtaining fossil fuels (oil shale, oil sands, etc.) can stay viable only as long as fuel prices remain high. But as you point out, they're not as high as they ought to be.

I'm not sure what the prospects are for either cutting subsidies or some kind of carbon tax.

I wonder if there is a way to boost alternative fuels at the level of local or state government on some other basis besides a superficial price comparison.

Richard Matthews said...

Thanks for the comment David. While it may seem politically impossible to cut subsidies or impose a carbon tax, the overwhelming logic will eventually force legislators to come to their senses. In the meantime we are seeing local initiatives at the state and municipal level, but to really make a difference we will need to see a national strategy which will require the support of Congress.

David Guion said...

Yep. If Congress won't lead, maybe we can get them to follow!