New Scientist – Fred Pearce

A halving of oil prices is hailed as good news for cash-strapped consumers. But there could also be unexpected gains for the environment

IS THE recent oil price crash good or bad for the environment? For years, environmentalists have been seeking carbon taxes and other measures to ratchet up oil prices to encourage us on to a clean-energy path. But some are now hailing the recent price crash as good for the environment, because it could fatally weaken big oil and its hold on the world’s energy system. You could be forgiven for being confused.

What gives? Oil prices have more than halved since last June, to just under $50 for a barrel of Brent crude, the industry’s global benchmark. This is likely to increase the amount of oil burned as fuel, both because people are less careful with stuff that is cheap and because low fuel prices will stimulate economic activity. The price crash will also discourage investment in alternative sources of energy such as renewables. The oil glut shows no signs of easing, as major producers such as Saudi Arabia and other OPEC nations are reluctant to pump less.

“High-priced oil dampens petroleum demand and makes oil alternatives more viable [whereas] lower oil prices reboot oil demand, leading to higher overall production and consumption,” according to Deborah Gordon, an energy and climate analyst for Washington DC-based think tank the Carnegie Endowment for International Peace.

In the past decade of high oil prices, people in the US have been driving less, and more economically. Now, the argument goes, gas-guzzlers will be back.

But there are those who think that the price slump could bring green gains. That’s because low oil prices are bad news for big oil and its need to sniff out new sources of the black stuff. In particular, low prices make huge investments in new oil reserves look like bad deals – especially since almost all new reserves have high extraction costs, whether in the Arctic, deep off-shore or tied up in Canadian tar sands. The cheap stuff is running out.

Carbon Tracker, a UK-based think tank on finance, energy and climate, is hailing the environmental benefits of low prices. James Leaton, its research director, says large oil companies have committed $1.1 trillion over the next decade in projects that have a break-even price of at least $95 a barrel. These investments are in trouble if low prices persist – which is possible. While circumstances were different in the 1980s, when oil prices crashed spectacularly, it took well over a decade for them to fully recover. Even shale reserves could be at risk. The giant Bakken shale-oil reserve in North Dakota has a break-even price of almost $80 a barrel. The industry as a whole could be weakened and supply could shrink.

 

To read the full article visit the New Scientist website.