Cheap oil may put green efforts on back burner

DOUBLE-EDGED SWORD? A rig drills for natural gas at a hydraulic fracturing site in the US.


    Dec 15, 2014

    Cheap oil may put green efforts on back burner

    I WAS just about to go with a column that started like this: When they write the history of the global response to climate change, this year could well be seen as the moment when the balance between action and denial tipped decisively toward action.

    That is thanks to the convergence of four giant forces: Sao Paulo, Brazil, went dry; China and the United States together went green; solar panels went cheap; and Google and Apple went home.

    But before I could go further, the bottom fell out of the world oil price and energy economist Phil Verleger wrote to me, saying: "Fracking is a technological breakthrough, like the introduction of the PC. Low-cost producers such as the Saudis will respond to the threat of these increased supplies by holding prices down" - hoping the price falls below the cost of fracking and knocks some of those American frackers out.

    In the meantime, sustained low prices for oil and gas would "retard" efforts to sell more climate-friendly, fuel-efficient vehicles that are helped by high oil prices, and slow the shift to more climate-friendly electricity generation by wind and solar, which is helped by high gas prices, he added.

    So I guess the lead I have to go with now is: When they write the history of the global response to climate change, this year surely would have been seen as the moment when the climate debate ended.

    Alas, though, world crude oil prices collapsed, making it less likely that the world will do what the International Energy Agency (IEA) recently told us we must: keep most of the world's proven oil and gas reserves in the ground. As the IEA warned, "no more than one-third of proven reserves of fossil fuels can be consumed prior to 2050" - otherwise, we will bust through the limit of a 2 deg C rise in average temperature that scientists believe will unleash truly disruptive ice melt, sea-level rise and weather extremes.

    Technology is a cruel thing. The innovators who have made solar panels, wind power and batteries so efficient that they can now compete with coal and gas are the same innovators who are enabling us to extract oil and gas from places we never imagined we could go, at prices we never imagined we would reach.

    Is a third lead sentence possible? There is. In fact, there is an amazing lead waiting to be written. It just takes the right political will. How so?

    Let's go back to my first lead. The reason I thought we were decisively tipping towards action was, in part, because of news like this from the BBC on Nov 7 in Sao Paulo: "In Brazil's biggest city, a record dry season and ever-increasing demand for water have led to a punishing drought."

    When a metropolitan region of 20 million people runs dry because of destruction of its natural forests and watersheds, plus an extreme weather event scientists believe was made more intense by climate change, denialism is just not an option.

    Then you have the hugely important deal that US President Barack Obama and Chinese President Xi Jinping struck on Nov 12, under which the US will reduce its carbon emissions by 26 per cent to 28 per cent below 2005 levels by 2025, and China will peak its carbon emissions by or before 2030. China also committed to build by 2030 an additional 800 to 1,000 gigawatts of clean power - or nearly as much new renewable energy in China as all the electrical capacity in America today. That will greatly spur innovation in clean tech and help do for solar, wind and batteries what China did for tennis shoes - really drive down global prices.

    Also, in February, Google bought Nest for US$3.2 billion (S$4.2 billion). Nest makes a US$250 smart thermostat that can save home owners tons of money by learning their temperature preferences, and automatically managing their air-conditioners and home heating systems for the greatest efficiency. Also this year, Apple announced the development of the Apple HomeKit, which will enable customers to remotely manage their appliances and home energy systems on their iPhones. When Apple and Google start competing to make homes more energy efficient, watch out. We will likely see nonlinear improvements.

    But what if Dr Verleger is right - that just as the cost of computing dropped following the introduction of the PC, fracking technology could flood the world with cheaper and cheaper oil, making it a barrier to reducing emissions? There is one way out of this dilemma. Let's make a hard political choice that is a win for the climate, the US and its youth: Raise the petrol tax.

    "US roads are crumbling," Dr Verleger said. "Infrastructure is collapsing. Our railroads are a joke." In the meantime, petrol prices at the pump are falling towards US$2.50 a gallon - which would be the lowest national average since 2009 - and consumers are rushing to buy big cars and trucks.

    The "clear solution", said Dr Verleger, is to set a price of, say, US$3.50 a gallon for petrol in America, and then tax any price below that up to that level. Let the Europeans do their own version. "And then start spending the billions on infrastructure right now. At a tax of US$1 per gallon, the US could raise around US$150 billion per year," he said. "The investment multiplier would give a further kick to the US economy - and might even start Europe moving."

    So there is a way to make this year that truly decisive year in confronting both climate and rebuilding America, but only the country's political leaders can write that lead.