barrel of oil

Opinion: Is the falling oil price an environmental victory?

Photo credit: Geof Wilson via Flickr.
By Anders Lorenzen
As I recently reported a drastic drop in the oil price over recent months has thrown several oil projects into doubt and if it stays low it could put a dent in oil companies desires to drill for oil in the Arctic, pleasing environmentalists. This is despite oil companies receiving billions and billions worth of subsidies each year. On top of that, there is no working global carbon tax scheme in place, such a scheme would make oil projects even more uneconomical.
If the world’s political leaders could get their acts together and phase out fossil fuel subsidies and enforce a global carbon tax system, then fossil fuel projects could prove uneconomical even at a high oil price.
Free-market enthusiasts who want to see action on climate change have been quick to use the drop in oil price as a model that market forces can work in dealing with climate change and no regulations are needed. They say the market strength of renewables is so strong that it eventually makes fossil fuels uneconomical. They would point to Greenpeace’s campaign to halt oil drilling in the Arctic for the last two years and say that the Greenpeace campaign did not achieve anything, it was the market that changed the playing field.
But before we celebrate the drop in oil price as an environmental victory, maybe we should sit back and see what has happened to the oil price in just the last four months. Back in June, the oil price reached a year high of $113 a barrel and less than six months later it has dropped to $62 a barrel.
What it illustrates, is just how volatile the price of oil is and investors should take a hard look at themselves and reevaluate investments in oil stocks. In the world’s largest pension funds the majority of peoples investments are made in oil stocks, and as the excellent NGO Carbon Tracker has pointed out, millions of peoples pensions could be at risk by investing in very fluctuating oil stocks. It has already been reported that due to the drop of price, oil companies are forced to cut back their spending by as much as a fifth. But then again, oil prices could spiral upwards again kick-starting new oil projects. It maybe not happen tomorrow but will eventually happen.
But aside from the environmental victory in the cancellation of oil projects, as a low oil price could ensure fossil fuels are kept in the ground, how else will it impact on climate change? With a drop in the oil price, we would possibly see a drop in oil conservation and efficiency. As the oil price drops so does the price of fuel which would mean that the consumption of fuel from both private people and businesses will increase, the airline industry would also be able to run more flights at a lower price, meaning more people would take to airline travel. Ultimately, the drop in the oil price would mean that oil consumption could rise, while at the same time oil projects being cancelled. this will mean that the price of oil would go up again once oversupply is no longer an issue.
There is only one way to reduce oil consumption, make many oil projects uneconomical and enforce a shift to renewables: phase out fossil fuel subsidies and agree on a global carbon tax.

But are the world’s politicians ready to take that daring step?

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