LOW OIL PRICES and THE NEW CLIMATE ECONOMYOpportunity or constraint? презентация

Lorenzo
Stockholm Environment Institute

oil prices leave us in a transition to a low carbon economy?

Fossil fuels provide ~86% of global energy
Stable carbon intensity over the last 3 decades

consumer and producer countries

2016

0,8%

2015

0,7%

Global GDP
points increase

The world uses approx. 90 million bbl per day...

...so an oil price of $50, rather than $100 per bbl...

...would save consumers $1,6 trillion

0,3%

0,2%

However, there are still many drivers that justify a move beyond fossil fuels...

of oil as % of GDP

Reducing exposure to energy price volatility has economic value

7,6%

0,8%

Source: BP Statistical Review

proven wrong

OPEC could change sentiment

Global economic activity could pick up again

CAPEX spending slashed by majors

Varied outlooks already out there

International Energy Agency, fossil fuel subsidies:

Reached $550 billion value, 2013

Impose a heavy burden on state budgets

By 2020, can represent 0,7% of global GDP

Extremely inefficient way to support the worse off

of the human race is our inability to understand the exponential function.” Albert A. Bartlett

the oil dominated transport sector

5

How air pollution has economic costs

Each year of life cut short in turn reduces the GDP of that country. Productivity is further reduced by lost work days due to sickness

Chronic lung and heart diseases are caused by PM2.5 inhalation, these in turn cost countries millions in health care

Wheat crops in India were 36% lower in 2010, of which 90% is attributable to air pollution

Cost of paying for damages associated with extreme weather events has risen by 60% over the past 30 years in Europe

Extreme weather damage

Agricultural yield loss

Health-care costs

Labour costs

3.7%

UK

Germany

USA

4.5%

India

6.0%

1.5%

5.8%

China

Estimated costs (% GDP)

Source: WHO 2014 , New Climate Economy, 2014, OECD, 2007

within companies and at market level

Potential for fossil fuel assets to become ”stranded”

Institutional investors becoming more active shareholders

Long term players (pension funds, insurances, central banks) increasingly considering climate risks

“The exposure of UK investors, including insurance companies, to climate shifts is potentially huge”
Mark Carney, Governor Bank of England

In order to fulfil long-term liabilities, insurers like Allianz need stable investments and long-term yields – and this is exactly what wind and solar farms have to offer”
David Jones, Head of Renewables at Allianz

volatility

Renewables getting cheaper

Fossil fuel subsidies

Investors concerns

Co-benefits drivers

subsidies

Introduce a price on carbon

As many as 27 countries are now undertaking reforms

40 countries + over 20 jurisdictions have carbon pricing
Another 26 countries/jurisdictions considering

fossil prices in the future

There are plenty of reserves already, oil, gas and coal – not all might be developed (stranded assets)

Current lower prices are scaling back investments in further developments and exploration

Opportunity to recalibrate investment strategies and maintain steps to a low-carbon economy

Lower future demand vs. BAU – outlook for lower prices (IEA models as much as 35% lower in a 2C scenario)

Abundance of fossil fuels, questioning development of high-cost oil resources

lower prices are a welcome help to the global economy

However, we should not allow this to derail our transition towards a better, more sustainable energy system as the long term economic benefits of structural changes to economies and energy systems remain valid

In fact we should see this as an opportunity to reform our energy markets
True costs of fossil fuels and reduce their subsidies
Introduce a price for carbon
Target some of the long lasting co-benefits