As oil prices plummet, a world economy flooded with cheaper energy would seem to pose a serious threat to investment in renewable industries. While some experts say crude costs under $60 per barrel could scupper eco-friendly plans, others believe it could give them a boost.
Headlines around the world have heralded a new era for oil because of greater supply and weaker demand. Huge growth in shale oil production in North America has flooded the market, and European and Chinese consumption is down. But there are divergent views on what this means when it comes to investment in renewable projects.
Some think the sudden drop in prices of oil and natural gas deals a serious blow to curbing climate change.
“The issue just disappears off the political radar screen,” said Henry Lee, director of the environment and natural resources program at Harvard University’s Belfer Center. “Energy is not considered a problem, with low prices and plenty available. Climate is an issue, but it’s one that [people feel they] can worry about it in the future.”
He said cheap oil also makes it less likely U.S. lawmakers will institute a carbon tax or incentivize the development of renewable energy technologies — both of which he said were crucial.
Prices for crude oil and gas at the pump, in December 2014 dollars
Source: U.S. Department of Energy
But others said low oil prices could prove a boon to renewable development. Some $270 billion is invested annually in renewables now, a figure activists say needs to double globally for 2030 emission targets to be met.
"Low oil prices are a mixed bag, but one of the things they do is free up capital that can be invested in renewables,” said Jamie Henn, a spokesman for the climate advocacy group 350.org. Those savings for petroleum-reliant countries and companies could be spent on long-term commitments to alternative resources that give off less carbon dioxide.
Henn said two other possible outcomes of low oil prices are a public more willing to accept a tax on carbon and a drop in oil industry profits, driving investors to renewable energies.
Maria van der Hoeven, head of the International Energy Agency, a Paris-based intergovernmental organization, called low oil prices a “golden opportunity” to make plans for renewable infrastructure development, including cutting incentives for hydrocarbon production and phasing out fossil fuel subsidies, according to Reuters.
But low prices at gas pumps could hamper that vision. The price of a gallon of gas dropped 2 cents a day during the last two weeks, to a five-year low of $2.48, giving the petroleum-dependent transportation and travel sectors a significant boost. For consumers, SUV sales are ticking upward, partly in response to cheaper fuel.
Overall, the picture is mixed. The use of renewable generating capacity (including hydroelectric, biomass and geothermal) continues to increase, but as a share of overall electricity production, natural gas growth has dominated the picture — largely thanks to the hydraulic fracturing boom reducing prices.
At the same time, renewable energy sources are growing. A massive new photovoltaic installation in California is helping beat last year’s record for solar power generation. Alternative energy sources are gradually becoming more competitive, with solar projected to be as affordable as wind in the next decade.
And some advocates argue that regulatory difficulties, not low oil prices, are actually the biggest barrier to renewables growth.
For now, it looks likely the oil price slide will continue. OPEC appears unwilling to make any moves to tighten supply, with more than a million barrels of excess production each day.
Falling oil prices are having a profound geopolitical impact. Low-cost energy is theoretically good for any economy dependent on outside sources, and higher oil costs are associated with recessions in those countries. On the other hand, Russia, Iran and other net exporters like Nigeria and Venezuela suffer — needing to sell oil at $100 or more per barrel to keep budgets balanced.
Experts believe that Saudi Arabia’s calculation to maintain current production levels is partly based on the logic that low prices punish new high-cost producers in North America and will drive many of them out of business — eventually shrinking the supply and driving prices back up.
The larger geopolitical impact of the shift could depend on the duration of the price depression. “Oil prices are cyclical, and we’ve seen this before,” said Lorne Stockman, the research director at Oil Change International, a nonprofit based in Washington, D.C. “Each time it happens, it’s a little bit different. But they will go up again. If you’re making long-term purchase like buying a new vehicle based on gas prices today, you’d be unwise.”
40 billion tons
Annual world CO2 emissions, a record high
400 parts per million
CO2 in atmosphere, much greater than target of 350
5 degree F increase
Conservative prediction of temperature rise by 2050
15-inch higher sea level
Estimate for Manhattan waters by 2050
In the meantime, global efforts to combat climate change continue. Despite some pessimism about the slow pace of talks, international cooperation was boosted by a joint Chinese-U.S. climate pledge last month. China has promised to peak its emissions by 2030, with one-fifth of its energy coming from renewable sources. Like 195 other nations, the U.S. will be setting its own long-term aims but has already committed to doubling previous reduction targets.
Key to reducing carbon footprint is lessening the carbon intensity of the of energy sources — a central part of the vision going into next year’s climate change conference in France. Countries are aiming to seal a final Paris alliance deal by the end of next year, and a loose, nonbinding framework is being considered.
But that will not satisfy most activists and countries already experiencing the effects of climate change, which demand more decisive action to avert disaster. Most studies indicate current cutbacks are insufficient to cap the global temperature increase at the widely cited threshold of 3.6 degrees Fahrenheit.
Atmospheric carbon dioxide is quickly approaching 400 parts per million (ppm), well above a frequently cited goal of 350 ppm. Lee, the Harvard environment expert, recommended focusing on a 450 target instead.
“Forget the 350 goal,” he said. “We’re not even going to come close.” But on the bright side, he added, “we’re beginning to see signs of things that countries four to five years ago just were not doing. We’re making progress.”
Stockman agreed. “I’m encouraged by Lima,” he said, referring to the U.N. climate negotiations this month in Peru. He added that the participants had a clear view of "the writing on the wall with climate change.”
“The younger generation is fired up about the future,” he said. “But I still probably wouldn’t invest in seafront property in New Jersey right now.”
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