The Copenhagen Accord of 2009 essentially put a quota as well as “best by” date on fossil fuels. When combined with a growing perception that these are yesterday’s energy sources, the recent plunge in oil prices takes on a new perspective.
One hundred sixty-seven countries, including all of the major carbon polluters, have agreed that the Earth’s average temperature must be kept from rising more than 2oC above the preindustrial level.
The Carbon Tracker Initiative has estimated that to meet that goal only 565 gigatons of CO2 can be added to the atmosphere by the “best by” deadline of 2050. Burning all of the current proven reserves of fossil fuels would release 2,795 gigatons therefore technically 80% of the world’s total reserves are unburnable.
The 565 gigaton useable quota has to be divvyed up amongst three resources; coal, oil and natural gas.
According to Carbon Tracker the 2795 gigaton figure is derived 65% from coal, 22% from oil and 13% from gas but this is not necessarily the ratio that will be burned in reaching the 565 gigaton limit. Natural gas is rapidly replacing coal in the United States for electricity generation, for pollution reasons, and China too has announced that it will burn less coal in 2014 than last year.
Amongst the sectors there is competition as well between suppliers for quota and price wars are a well worn strategy for increasing market share as well as for freezing out higher cost competition.
The law of supply and demand dictates that when there is an over abundance of a commodity, as is the case with burnable fossil fuels, prices decline and this is probably what is happening?
As a product’s “best by” day approaches prices have to be slashed and they are moved to the clearance table but the smart shopper knows long before that to pick from the back of the rack where the freshest product is stacked.
Most suggest low oil prices will freeze out renewable energy as well as high cost product but this is not necessarily the case. While there is a demonstrable excess of burnable fossil fuels that is not the case with renewables. Unless the global economy collapses under the weight of stranded fossil fuel debt, the need for energy will continue to rise and will increasingly be met with renewables whose costs continue to decline to the point where the New York Times reported a few weeks ago they are starting to win on price vs. conventional fuels.
Little wonder then that in October the Saudis told the oil market they would be comfortable with much lower oil prices for an extended period. Why wouldn’t they be when their cost is only $5-6 per barrel to get the stuff out of the ground, which begs the question why have we consumers been so sheepish about protesting prices anywhere from $20 to $150 a barrel this century?
That kind of profiteering is particularly galling considering cost is invariably offered as the excuse for not adopting energy regimes that can save the planet from environmental degradation.
In what world is it legitimate to pay 30 times cost for oil when 5 times the levelized cost of coal, at worst, is the price of clean energy that is branded unaffordable?
First adopters have always been prepared to pay extra to test the benefits of new technology; the demonstrated success of which paves the way for greater acceptance and lower cost.
Thankfully there have been enough of these adopters in the energy sector that the oil industry is now forced to lower its prices, even as its costs continue to climb.
The cost of renewable energy meanwhile is going the other way and by the time the Saudis feel compelled to boost prices again they as well as their competitors may find themselves no longer cost competitive with sustainable sources that have continued to move along the development continuum.
Oil may also by then be yesterday’s news.
There aren’t many holdouts left today prepared to watch T.V. on a 21 inch black and white regardless of cost and therefore the market for the same has dried up. Hopefully that will soon come to pass for fossil fuels as well lest our financial system, to say nothing of our biosphere, be laid to waste.