Tuesday, January 13, 2015

The Climate Pros and Cons of Low Oil Prices

Oil prices keep plummeting and this is both good and bad news for efforts to combat climate change. On the upside it will slow the exploitation of the dirtiest forms of fossil fuels on the downside it will make renewable sources of energy less economically attractive.

Markets are used to higher oil prices and now that the price has fallen below 46 dollars a barrel it may be an ideal time to push for a job creating oil tax or even put a price on carbon. There are a number of good reasons why we can hope for a price on carbon.

There are other good things that flow from cheap oil, it makes the production of dirty oil economically untenable and slows exploration for new sources of fossil fuel.

While Saudi Arabia can produce a barrel of oil for less than $10, many other nations including the US, Canada, Russia, Iran and Venezuela cannot produce oil as cheaply. Dirtier forms of energy in particular are more expensive. US shale oil cost around $77 per barrel to produce and Canadian tar sands oil costs around $63 per barrel to produce.

Less extraction means reduced supply which will in turn drive up the price. Many are predicting that oil will stabilize around $60 dollars a barrel which will still make dirtier forms of oil (shale and tar sands) economically untenable.

There are also a number of downsides to low oil prices this includes increased consumption, more waste and less efficiency. For example, historically higher oil prices have contributed to more demand for cars with far better fuel economy.

Perhaps most alarming is the fact that renewable sources of energy are tied to the price of oil. As the cost of oil declines renewables become less price competitive. This will diminish investment in clean energy which will in turn reduce the amount of new installed capacity that will come online. This is disconcerting because renewables are instrumental to reducing emissions and curtailing climate change.

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