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Climate action is imperative regardless of oil prices, and market volatility is a strong case for investing in clean, stable energy.
But prices affect the calculation of decisions made at all scales, from government taxes to household spending.
When oil prices crashed in 2014-16, the IMF told policymakers it was the perfect time to cut fossil fuel subsidies. The oil majors have scaled back their expensive exploration plans. The flip side was lower cost savings from swapping a gasoline-powered car for an electric car.
Now that crude is trading near $90 a barrel and gas is soaring, frontier oil developments are back. The International Energy Agency has made it clear that no new oil is compatible with a 1.5°C limit on global warming – but climate policy is still driven by measures to reduce demand and they don’t bite yet. Oil consumption is expected to return to pre-pandemic levels this year.
London-based think tank Climate Tracker has identified some of the biggest developers betting on climate failure. Major oil projects in Kuwait, Nigeria, Brazil and Mexico will not be profitable in a Paris-compliant future. While there may be an equity argument for developing countries having a license to drill longer than developed countries, it is a risky economic strategy.
Germany champions gas as transition fuel in EU Green Finance Guidelines. Given that the EU is generally seen as a climate leader, this would set a worrying benchmark for the rest of the world.
And in negotiations to reform the murky and problematic Energy Charter treaty, the UK and Switzerland are accused by campaigners of providing a haven for fossil fuel interests. (Bonus content: Subscribers to our Extra newsletter got an exclusive interview with ECT’s new chief on the potential landing ground for modernization talks.)
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Then there is another type of oil industry that threatens forests: palm oil. Indonesia abruptly ended an agreement with Norway last year, complaining about delays in paying the results of forest protection efforts.
A study published this week suggested that Indonesia avoided more carbon emissions than Norway gave it. The methodology for calculating avoided emissions is controversial – and at least one critic on Twitter disputed the finding.
But it raises a more fundamental point about the dynamics of such partnerships: the funding available to protect the trees is less than what can be obtained by growing palm oil on these lands. Until this changes, the demand for palm oil to be used in globally traded products, such as cosmetics and food, will continue to drive deforestation.
