The Fall of Oil Price Stresses the Importance of Reaching a Climate Change Agreement in Lima

Monday, 08 December 2014

The tumbling price of oil underlines the urgency of agreeing an international global warming treaty, the minister presiding over this week’s UN climate negotiations in Lima has warned, according to the Financial Times.

"The price of oil can create difficulties in this process if we don’t move quickly,” said Manuel Pulgar-Vidal, the Peruvian environment minister in charge of the two-week UN conference.

The meeting of delegates from more than 190 countries opened on Monday at the same time as oil prices hit a five-year low after Opec nations decided not to cut production.

A prolonged dip in prices has the potential to boost the use of gas-guzzling cars and other sources of the planet-warming greenhouse gases that countries aim to curb in a global climate deal in Paris at the end of next year.

Low prices could also put pressure on countries to cut investments in renewable energy generation and low-emission projects, said Mr Pulgar-Vidal.

That makes it all the more important for the Lima conference to set the ground rules for the emissions-cutting pledges each country is due to make in the lead-up to the Paris meeting, he said.

"They [the pledges] are a mechanism that can avoid any change in what the country has already agreed, even if the oil price changes,” he said.

The oil price rout has been an unsettling backdrop to the Lima talks, the last significant climate meeting before the Paris accord is due to be sealed.

But the UN’s top climate official, Christiana Figueres, played down any suggestion that low prices could lead to cuts in renewable energy investments.

"We’re all old enough to know that oil prices go up and down,” she told reporters. "The fact that oil prices are so unpredictable is exactly one of the main reasons why we must move to renewable energy, which has a completely predictable cost of zero for fuel.”

Some energy analysts say the impact of lower prices on emissions was likely to differ around the world.

"Lower oil prices feed through into higher demand much more quickly in the US than anywhere else, as retail prices there are much more exposed to the wholesale price,” said Mark Lewis of Kepler Cheuvreux, a European financial services company.

"Overall, I don’t think lower oil prices will have a sustained, meaningful impact on emissions as we expect prices to rebound in the second half of next year, although we think they could go lower before that.”

In Lima, another development in the energy sector this week provoked almost as much speculation as oil prices: the decision by Germanys’ biggest power utility, Eon, to spin off its fossil fuel and nuclear generation business to focus on renewables.

Niklas Hohne of the New Climate Institute research group said Eon’s decision was a clear sign of the impact of Germany’s Energiewende switch to renewables.

"Energy companies have to diversify,” he said. "They have been far too slow in the past. They’ve been missing the boat.”

Ms Figueres said Eon’s lead was likely to be followed by other energy companies as boards begin to understand the threat to their assets posed by policies to reduce greenhouse gas emissions.

"We’re seeing more and more the realisation that investment in fossil fuel is actually a high risk,” she said.

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