Monday, December 15, 2014

Falling oil Prices and a Global Climate Agreement

The decline in oil prices underscores the risk associated with fossil fuel investment. On December 1 as the COP20 talks began in Lima Peru, the UN's climate chief said that falling oil prices show the "high risk" of fossil fuel investments compared with renewable energies. This perspective was underscored by the December 14th Lima draft agreement that included mention of a world free from fossil fuel emissions by 2050. A final global climate agreement is scheduled to be signed in 2015 at COP21 in Paris. Prior to the Lima agreement there were agreements by the US and China and the European Union to cut greenhouse emissions from the burning of fossil fuels.

Christiana Figueres, head of the UN's Climate Change Secretariat, dismissed suggestions that a tumble in the price of oil to a five-year low on Dec. 1 could undermine hopes for a shift to renewable energies as a cornerstone of the climate deal. Oil price volatility "is exactly one of the main reasons why we must move to renewable energy which has a completely predictable cost of zero for fuel" once wind turbines or solar panels were built, she told a news conference.

"We are seeing more and more the realization that investment in fossil fuel is actually a high risk, is getting more and more risky," she said, welcoming a decision by Germany's top utility E.ON to spin off power plants to focus on renewable energy and power grids.

Still, other experts suggest that falling oil prices could slow investments in renewables and increase the consumption of dirty sources of energy.  To further compound the problem,  countries like Russia and Saudi Arabia may be more reluctant to make concessions at the climate talks, due to concerns that such concessions to devalue their oil assets. 

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