Logo of Phnom Penh Post newspaper Phnom Penh Post - Will the oil price crash affect green energy?

Will the oil price crash affect green energy?

Content image - Phnom Penh Post
Wind turbines in Vergranne, eastern France. AFP

Will the oil price crash affect green energy?

The 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.

But on the flip side, it could see companies move away from exploiting expensive fossil fuel deposits.

The plunging price of crude could prompt more people to use cars and planes rather than public transport, and encourage the purchase of bigger fuel-hungry models such as SUVs.

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 reducing profits of oil majors cheap oil could see some potentially less profitable exploration projects put on hold, which would help cut future carbon emissions.

That is particularly the case with shale oil in north America, for example, which is costly to extract and is seen as not profitable below $50 a barrel.

But Charlie Kronick, oil finance adviser to environmental campaigners Greenpeace UK, said it could also delay companies in their move towards 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 told AFP.

Bobby Banerjee, from City University in London, stressed that given the climate crisis and promises from a number of countries to achieve net zero carbon emissions by 2050, 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 per cent worldwide in 2019, according to the independent energy think-tank, Ember.

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 paralysed the economies of several countries, grounded air traffic, and in the case of Italy, put the entire country into lockdown.

The demand for oil, especially from the world’s second-biggest consumer China, is in free-fall.

This should lower CO2 emissions temporarily and even on a more sustainable basis if the effects of coronavirus are as severe as the 2008 global financial crisis.

Banerjee said the situation was “a perfect opportunity to remove the subsidies to oil companies because oil prices are low”.

“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, that could be politically problematic.

Kronick stressed 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 added.

“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.”

MOST VIEWED

  • Hong Kong firm done buying Coke Cambodia

    Swire Coca-Cola Ltd, a wholly-owned subsidiary of Hong Kong-listed Swire Pacific Ltd, on November 25 announced that it had completed the acquisition of The Coca-Cola Co’s bottling business in Cambodia, as part of its ambitions to expand into the Southeast Asian market. Swire Coca-Cola affirmed

  • Cambodia's Bokator now officially in World Heritage List

    UNESCO has officially inscribed Cambodia’s “Kun Lbokator”, commonly known as Bokator, on the World Heritage List, according to Minister of Culture and Fine Arts Phoeurng Sackona in her brief report to Prime Minister Hun Sen on the night of November 29. Her report, which was

  • NagaWorld union leader arrested at airport after Australia trip

    Chhim Sithar, head of the Labour Rights Supported Union of Khmer Employees at NagaWorld integrated casino resort, was arrested on November 26 at Phnom Penh International Airport and placed in pre-trial detention after returning from a 12-day trip to Australia. Phnom Penh Municipal Court Investigating Judge

  • Sub-Decree approves $30M for mine clearance

    The Cambodian government established the ‘Mine-Free Cambodia 2025 Foundation’, and released an initial budget of $30 million. Based on the progress of the foundation in 2023, 2024 and 2025, more funds will be added from the national budget and other sources. In a sub-decree signed by Prime Minister Hun Sen

  • Two senior GDP officials defect to CPP

    Two senior officials of the Grassroots Democratic Party (GDP) have asked to join the Cambodian People’s Party (CPP), after apparently failing to forge a political alliance in the run-up to the 2023 general election. Yang Saing Koma, chairman of the GDP board, and Lek Sothear,

  • Cambodia's poverty cut in half from 2009 to 2019: World Bank report

    A report published by the World Bank on November 28 states that Cambodia’s national poverty rate fell by almost half between 2009 and 2019, but the Covid-19 pandemic recently reversed some of the poverty reduction progress. Cambodia’s poverty rate dropped from 33.8 to 17.8 per cent over the 10