Oil Plunge Seen Eroding Emissions Ambition: Carbon & Climate
While the falling price of crude oil is giving consumers cheaper energy, it’s threatening long-term global pollution-control efforts.
Reduced national income from energy taxes and “a low-growth economic environment” might spur countries to curtail their emissions-curbing pledges for after 2020, leading to more emissions of carbon for a longer time, said Zoe Knight, head of HSBC Holdings Inc.’s climate change center in London. These proposals will be submitted under a United Nations climate-protection process starting in March.
Public money “for funding low-carbon energy scale-up and energy-efficiency retrofits could be scarcer,” Knight said yesterday in an e-mailed note. Reduced government funds “leads to difficult choices on capital resource allocation, which in turn could mean high carbon lock-in over the long run.”
The International Energy Agency said in November that the world would probably reach by 2040 an emissions ceiling recommended by a panel of scientists formed by the UN. Should that limit of an extra 1 trillion metric tons of carbon dioxide equivalent be exceeded, it’s unlikely temperature gains will remain below a targeted 2 degrees Celsius (3.6 Fahrenheit) above 1880 levels, according to the Paris-based IEA.
Brent crude yesterday dipped below $50 a barrel for the first time since May 2009 amid signs of a continuing supply surplus. Futures lost 33 cents to $50.82 today on ICE Futures Europe in London. They dropped 53 percent over the past year.
Emerging nations are set to lose most from the plunging price, because countries outside the Organization for Economic Co-operation & Development produced 76 percent of the world’s oil in 2013, according to data published by BP Plc in June.
‘Limited Risk’
The 66.3 million barrels a day on average produced by those developing economies were valued at $2.6 trillion for the year, based on an average price for Brent of $108.71 a barrel. At $50 a barrel, the value would drop to $1.2 trillion.
National efforts to curb emissions will continue despite reduced economic expansion and there’s only a “limited risk” the push for an agreed climate deal at the end of this year at a meeting in Paris would unravel, HSBC said. Still, it’s “doubtful” national pledges added together will be ambitious enough to meet the 2 degree target, it said.
Emerging countries “have limited financial resources to embed resilience to the risk factors, which will affect the pace of economic development,” Knight said. “Developing countries continue to worry that developed ones are not doing enough to mitigate warming nor provide enough financial resources for adaptation; we expect this to feature heavily in a Paris deal.”
Capital Needed
In December, envoys from 190 countries gathered in Lima, Peru, and took a first step toward the goal of binding all nations to greenhouse-gas limits. While outlining what information countries must provide to back up their pledges, commitments will be voluntary.
Less government subsidies because of oil’s fall means it’s even more important for nations and companies “to signal they understand the long-term challenges of enabling a low-carbon world and are stepping up to tackle them by deploying capital appropriately,” Knight said.
The envoys in Lima didn’t agree how to differentiate between what rich nations must do to cut pollution and what commitments will be accepted by developing countries, such as India and Brazil.
“The oil price drop shows the danger of having an economy that’s heavily dependent on fossil fuels,” said Bob Ward, policy director at the Grantham Research Institute on Climate Change and the Environment at the London School of Economics.
Carbon Tax
The U.S. should consider adopting a $25-a-ton carbon tax to boost government revenue and take advantage of falling oil prices, Larry Summers, former U.S. Treasury Secretary, argued Jan. 4 in the Washington Post. Such a move also could encourage other nations to embrace carbon prices, the case for which has become compelling, he said.
Benchmark European carbon permits settled today at 6.90 euros ($8.15) a ton on ICE. They gained 48 percent last year.
“In terms of timing, putting carbon taxes on now when the price of oil is low makes a lot of sense,” LSE’s Ward said yesterday in a phone interview.
Carbon pricing “should return to the limelight” as South Korea this month begins its emissions trading system, HSBC’s Knight said today in a separate e-mailed report.