Skip to content
Northern Powerhouse European Union

Low oil price will not derail green economy, say experts

Experts have downplayed the anticipated negative impacts of low oil prices on green investment, with some arguing that it represents new opportunities for low carbon development.

Experts have downplayed the anticipated negative impacts of low oil prices on green investment, with some arguing that it represents new opportunities for low carbon development.

The continuing collapse in the price of oil – which recently fell below $50 (£33) per barrel, its lowest point in six years – is expected to pose a number of challenges to the transition to the green economy. 

Not only does cheaper fuel costs present a risk to the viability of energy efficiency investments, it also has a far-reaching impact on other parts of the low carbon and environmental goods and services market.

‘Challenging year’

For example, fears are beginning to emerge in the domestic recycled plastics market, where low oil prices are expected to affect the value of recycled oil-derived products. 

Speaking to The ENDS Report, Chris Dow, chief executive at Closed Loop Recycling, one of Europe’s largest recyclers of high density polyethylene (HDPE) bottles, warned that 2015 will be “the most challenging year in the history of the UK plastic recycling industry.”

However, many experts maintain that a transition to a greener economy still represents a prosperous opportunity despite such concerns.

‘Net positive picture’

Professor Paul Ekins, director of the University College London (UCL)'s Institute for Sustainable Resources, has argued that although low oil prices would reduce some of the economic benefit of decarbonising the UK economy over the next 15 years, the damage would still be outweighed by the advantages of the transition.

Referencing a report published by Cambridge Econometrics in September last year, Professor Ekins highlighted that even under a ‘low oil price scenario’, complying with the UK’s carbon budgets would still result in a 0.8 per cent increase in GDP by 2030 and create 180,000 jobs. 

“A low fossil fuel price scenario does lead to lower GDP benefits, but it is still a net positive picture”, he pointed out.

Aiding the transition

Meanwhile, Anthony Hobley, chief executive of the Carbon Tracker Initiative, has argued that the oil price collapse may even help the decarbonisation process by making high-cost unconventional projects unaffordable.

According to the Carbon Tracker Initiative, more than $1.1 trillion (£7.3 trillion) of potential investments in oil projects over the next decade require a market price of over $95 (£62) a barrel to be economical. 

‘World’s riskiest asset’

Along with the recent revelation that a third of oil, half of gas and 80 per cent of coal reserves must stay in the ground if dangerous climate change is to be avoided, Hobley also highlighted the volatility of price as a key driver for the growing ‘divestment’ agenda in the financial sector.

“The global fossil fuel sector is presently on the world’s riskiest asset classes. Meanwhile, the benefits from investing in renewable energy remain as real as ever…less climate risk, less price volatility and cleaner air”, he said.

Furthermore, new research from the International Renewable Energy Agency (IRENA) suggests maturing renewable energy technologies, including onshore wind and solar PV, have already reached grid parity in some parts of the world and will continue to be competitive even if fossil fuel prices remain low for a sustained period.

Energy efficiency

Energy efficiency can also be expected to remain a focal point for business investment despite current oil prices, as highlighted by Todd Holden, director of low carbon policy and programmes at ENWORKS: 

“As we don’t burn oil to produce electricity, don’t expect energy bills to drop any time soon; energy efficiency remains the mantra of the enlightened”, he said.