Making the most of cheap oil

Where is the concept of 'peak oil' now?
Futures Forum: The end of peak oil: "supply just keeps expanding while demand fails to take off"
Futures Forum: "The eulogies for peak oil came too soon."
Futures Forum: Fracking: 'the party's over': Peak Oil now forecast for 2020
Futures Forum: Squaring the circle: low oil prices, high renewable prices ... ... and high carbon emissions
Futures Forum: Peak Oil as a concept is finished: "Now a huge amount of money and smart people are invested in replacing much energy production dependent on oil: This scares the oil producing countries and they start reducing the price of the oil to keep people consuming their product for longer."

But, actually, it's even more interesting, as pointed out by the New Economics Forum:

Energy round-up: making the most of cheap oil

Photo credit:   Carsten ten Brink

JANUARY 22, 2016 // BY: STEPHEN DEVLIN

You can hardly have missed the ongoing drama in international markets for oil. The price just keeps dropping lower and analysts are falling over themselves trying to explain why and what it means.

I want to ask a slightly different question: how should we respond and can we use the falling price to our advantage?

1. Higher taxes will hurt less

If ever there was a convenient time to introduce unpopular policies that make oil-dependent products more expensive, that time is now. Higher taxes on fuel-intensive vehicles are less painful when fuel prices and the cost of driving that vehicle are low.

A price increase in goods that use oil in manufacturing, such as many plastics and some forms of energy, may not be so bad in an environment of general price deflation and oil price deflation in particular.

We’re repeatedly told that combating climate change requires “tough choices”, so when circumstances make them slightly less tough we ought to grab the chance with both hands.

The increased tax revenue should appeal to the UK Treasury, and it would also help make amends for the government’s broken promise to increase the proportion of environmental taxes in total revenue.

2. Cancel new projects

Analysts and activists have been arguing for some time that developing new sources of fossil fuels, such as oil from beneath the Arctic and shale gas obtained through fracking, makes no economic sense. When we get serious about reducing greenhouse gas emissions, as we must very soon, these new sources will be worthless.

The low oil price is helpful in two ways. First, it forces oil producers to reconsider these new exploration projects – many of them are simply not profitable as long as the price they can obtain is so low (and it may remain that way for some time). We’ve already seen withdrawals from the Arctic and financial problems in the US shale industry.

Second, it means activists can point to the financial underperformance of fossil fuel companies now, instead of at some hypothetical future point.

3. Begin a just transition

There’s no point pretending that everyone’s a winner in the transition to clean energy. There are workers in the UK oil industry and elsewhere whose jobs have either already evaporated or may do so soon because of the industry’s financial problems, caused in part by low prices, or because of new environmental regulations.

We should learn the lessons from our previous experience of a waning fossil fuel industry. The economic and social scars that blight many areas of the UK are a result of no support – through labour market policies or industrial strategy – for the victims of the coal industry’s decline.

With low oil prices and a struggle for profits set to continue, we must not make the same mistake for workers in the North Sea fields and elsewhere.

The government should abandon support for this unsustainable industry, but not for its workers: we need a deliberate strategy for supporting them into other sectors.

Don't miss these:

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In other news…

China bans new coal mines

China’s state media announced that new coal mines would not be approved and many existing ones would close. This is primarily a reaction to shocking levels of air pollution in Chinese cities, but clearly has implications for greenhouse gas emissions. Coupled with huge levels of expected investment in renewables and a leading role at the COP21 conference, this is another step in China’s transformation from climate villain to climate pioneer.

Obama uses State of the Union to highlight climate action

Tackling climate pollution (as it has come to be known in the States) was a key theme of Barack Obama’s final State of the Union address, emphasising the increasing competitiveness of renewable technologies and the need to support workers in fossil fuel industries through the transition. With many states gearing up to challenge Obama’s executive climate action in the courts the issue is set to remain top of the US news agenda.

Britain’s naughty energy companies

The chief executive of Britain’s energy regulator, Ofgem, claimed that most people in the UK are being overcharged by their energy company since the wholesale cost of energy has fallen but the price we consumers pay has not. E.On have been the first to respond with a 5.1% cut in gas prices, but, as our graph of the week shows, most of us don’t expect much in the way of fair treatment from energy companies.

UK renewable policy

Before Christmas, the government announced that the proposed cuts to financial support for solar energy would be reined in from catastrophic to just terrible (though the Lords may yet block it). The solar industry continues to warn about the devastating consequences of this change and the wider renewables community has denounced the government’s entire policy approach.

Energy round-up: making the most of cheap oil | New Economics Foundation
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