The plummeting oil prices might undermine efforts put forward to lessen pollution that has been perceived as the main contributing factor to global warming. Projects that have been designed to squeeze the use of oil may be at stake following the plunging prices of oil, says International Energy Agency in its yearly assessment of markets.
In the event that the cost of crude continues to fall or remain at the $50 a barrel range for a couple of years until the end of this decade, such a scenario would likely suppress the development of bio-fuel or electric cars. These cars are designed using technologies that help cut back on emissions, according to IEA. Close to $800 billion, accounting for efficiency innovations in automobiles and airplanes, would drain away.
In the market assessment report, the findings explain the intricacy of the United Nations effort to foster restrictions in emissions from fossil fuels by end of the year. The low prices of oil may on one hand be helping in recovering from the economic slump, however, on the other hand, they may increase pressure on technologies that reduce emissions such as solar and wind power. The low prices are making some of the projects that foster green energy take longer in paying off.
Effects of lower oil prices
While consumers, due to the tumbling prices of oil, may get reprieve from previously recorded high prices, it may not be all good news according to IEA in its World Energy Outlook report released recently. With longer payback duration, it would mean that the world economies are missing out on close to about 15 percent in energy savings.
In 2008, the oil prices attained a peak price of a whooping $140 a barrel, but that has dipped to about $50 a barrel in 2015. It’s not only the oil prices that have tumbled, but also coal and natural gas— these have shown a similar trend in the drop of prices. Coal and natural gas are considered the main fuels that compete with green power options like solar and wind in serving the power generation supply.
When gasoline sells cheaper at the pumps, it increases the use of oil over bio-fuels, which are produced from crops like corn and sugarcane, says the Paris-based institution. One of the biggest challenges, which has been brought about by the dipping oil prices, is negative impact on measures put forward to create efficiency in energy consumption.
When the fossil fuel remains at the lower end price tags, it implies that the duration green energy projects take to pay off their costs is extended. The market assessment outlook predicted that energy demand would rise by close to a third in the period between 2013 and 2040, and in that same duration, there would be a weaker link experienced between pollution and growth levels.
Already, countries such as India and China have joined nations like the U.S. and European Union to implement energy efficient rules. This makes about one third of countries involved, compared to three percent in 2005, according to IEA. The policies in adopting efficiency rules are likely to expand in the next couple of years.
What lower oil prices mean to renewable energy
On their own, lower oil prices may not bring a big effect on exploitation of renewable energy technologies, but this is only so if the policy makers tighten their belts in offering strict guidelines of market rules, subsidies, and policies, the IEA report further elaborated.
Green energy or renewable energy commanded close to 50 percent of new investments within the power generation sector in 2014. Renewables are expected to overtake coal by 2030’s, which has been the largest supply of electricity. In the European Union, renewables are expected to have a share of 50 percent by the year 2040 while in Japan and China, they would account for 30 percent.
In India and the U.S. it is expected that green power will take a market share of 25 percent by 2040. With these kind of estimates in renewable energy investments, it is thought that they will help hold the increase in temperatures that have been responsible for global warming to 2.7 degrees Celsius by the turn of the century, IEA’s calculations indicate.
Such temperatures would mean that they surpass the 2-degree target that had been adopted by United Nations, though on the other hand, the estimations are less than what scientists had initially warned (4 degrees) if no mitigation measure was taken to reduce global warming.
The energy sector has been tagged as the largest contributor of gas emissions through global greenhouse. With this in mind, the same energy sectors needs to be at the forefront in taking actions that are intended to tackle climate change, added Fatih Birol, the IEA Executive Director in a statement.
In regard to Forex market, the lower prices of oil will impact countries in different ways. The countries that rely on importation of crude oil such as Japan will have a strong currency value compared to those who rely on exportation of crude oil such as Canada, which may find its dollar value diminishing.