A post-crisis outlook on the move to green energy

A post-crisis outlook on the move to green energy

/ Energy & Power / Monday, 08 June 2020 11:00

The 2020 coronavirus crisis has hit the oil and gas industry incredibly hard. Global oil demand is down 30% while the sector is unable to respond with matching production cuts. As a result, the world is oversupplied in oil that's going to keep the energy market out of whack for potentially a year or more and oil prices plunged to new record lows.

This collapse in global oil prices may end up being bad news in the short term for the transition to green energy, as cheaper crude could see more use of cars and aircraft since people could be more incited to use their cars rather than taking public transportation, and encouraged to purchase bigger fuel-hungry models such as SUV. But on the other side, it could see companies move away from exploiting expensive fossil fuel deposits.

For individuals as well as businesses, a cheap barrel of crude also means cheaper heating oil, a slowdown in energy savings and could delay schemes to convert to “greener” electricity.

However, by decreasing the profits of oil majors cheap oil could see some potentially less profitable exploration projects put on hold, which would help to cut future carbon emissions. A good example in this case would be North America and its shale oil. The process to extract the shale is very costly and is seen as not profitable below $50 a barrel.

However, Charlie Kronick, oil finance adviser to environmental campaigners Greenpeace UK, said it could also delay companies in their move toward becoming more environmentally friendly.

“In purely financial terms, cheap oil will make it easier for fossil fuels to compete with the increasingly affordable renewables, making the economic case for companies like BP that are trying to reinvent themselves as greener energy producers more challenging, and potentially slowing the transition,” he said. 

“Expensive oil makes the alternatives, like electric vehicles, more attractive. Cheaper oil creates a headwind for that change,” he said.

Bobby Banerjee, from City University in London, expressed his point of view highlighting that many countries have made promises to achieve net zero carbon emissions by 2050 and address the climate crisis, and such investments in the sector were long term.

“Oil prices always fluctuate, no government makes decisions on oil prices,” he said, adding that investment had already begun, helped by state subsidies which guarantee oil majors income.

Countries such as Britain are gradually closing all their coal-fired power stations. The combined result has been that CO2 emissions in the energy sector dropped 2.0 percent worldwide in 2019, according to the independent energy think-tank, Ember.

In addition, many businesses, notably investment funds, are also taking into account a high “carbon risk,” which has led the world’s biggest asset manager, Blackrock, to pull its investments in coal.

All these factors risk being supplanted in the short term by the coronavirus outbreak, which has paralyzed the economies of several countries, grounded air traffic, and put several countries entirely into lockdown.

Banerjee said that the situation was “a perfect opportunity to remove the subsidies to oil companies because oil prices are low,” he said. “It’s a good time to put the carbon tax very high to accelerate the energy transition.” But given the likelihood of a looming economic slump, it could be politically problematic.

Kronick emphasized that the transition to low carbon energy is not dependent on the price or availability of fossil fuels.

“The shift is ultimately driven by the need to avoid catastrophic climate change and the inevitable economic disruption that comes with the climate emergency,” he said.

“The shocks that we’re currently experiencing show that rapid changes are possible, though not always welcome. The economic conditions that we face now will pass, but the need to leave oil and gas in the ground won’t.

“The additional challenge is to make sure that the corresponding crisis in the oil markets doesn’t delay the low carbon transformation that we must begin now.”

Latest Issue

Please publish modules in offcanvas position.