From Matt Owens and Anders Lorenzen December 27, 2014
Presented here are two opinions on the related topics of the price of oil and carbon taxes, one from Anders Lorenzen, who writes for the blog A Greener Life, A Greener World and the other being mine. First, here is Anders’ view:
By Anders Lorenzen, Originally posted on A Greener Life, A Greener World
As I recently reported, a drastic drop in the oil price over recent months has thrown several oil projects into doubt; if it stays low, it could put a dent in oil companies’ desire to drill for oil in the Arctic, which would please environmentalists. This is despite oil companies receiving billions and billions 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 this 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 people’s investments are made in oil stocks, and as the excellent NGO Carbon Tracker has pointed out, millions of people’s pensions could be at risk by investing in volatile oil stocks. It has already been reported that due to the price drop, oil companies have been forced to cut back their spending by as much as a fifth. But then again, oil prices could spiral upwards—kick starting new oil projects. It may not happen tomorrow but will eventually.
But aside from the environmental victory that the cancellation of oil projects represents, how else will it impact climate change? With a drop in the oil price we will possibly see a drop in oil conservation and efficiency. As the oil price drops, so does the price of fuel, which means that the consumption of fuel from both individuals and businesses will increase, and the airline industry will be able to run more flights at lower prices, thus leading to more airline travel. Ultimately, the drop in the oil price means that oil consumption can actually rise—while at the same time, because oil projects are being canceled, the price of oil will inevitably rise 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?
A carbon tax is not enough—we need an energy overhaul
By Matt Owens
In short, I largely agree with Anders: the volatile price of oil is not good for the world’s economies, even though lower fuel prices are, of course, better than higher prices. However, a carbon tax is not sufficient, in my estimation, to bring about significant change in the global energy system. The relative price of fossil fuel energy compared to renewable energy is not the primary factor holding renewables back. The most important factor is social convention.