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Falling oil and coal prices raise the bar for renewables

Of all the millions of words written about the Paris climate deal over the weekend, this one by ANU lecturer Luke Kemp, and published in Business Spectator yesterday, is perhaps the clearest.

Using a 2013 report from the London School of Economics, Kemp explains that to limit global warming to 2 degrees, only 886 billion tonnes of carbon dioxide can be emitted between 2020 and 2050.

He says there are 2795 billion tonnes of carbon dioxide in known fossil fuel reserves in the ground, 65 per cent of which is coal.

The current rate of emissions is about 37 billion tonnes per year. For an 80 per cent probability of achieving 2 degrees of warming, according to the LSE report, the carbon dioxide budget is 900 billion tonnes between 2103 and 2049, or 25 billion tonnes per year -- a cut of 32 per cent.

Basically the world agreed on the weekend to go on that sort of carbon diet and report back every five years, with 2 degrees of warming the goal and 1.5 the 'aspiration'.

Global temperatures are apparently already 0.9 degrees above pre-industrial levels, so these are challenging goals, especially the 1.5 degrees aspiration.

It seems likely therefore that the Paris Accord will result in two things: the next coal mine, if there is one, will be the last; and there will have to be a massive research effort to get the cost of alternatives down.

That’s why Bjorn Lomborg was probably right on the weekend when he wrote in The Australian that the best thing to come out of Paris was the Bill Gates-led green energy innovation fund designed to reduce the cost of renewable energy.

After all, the world’s fossil fuel industries greeted the Paris deal with further discounting of their prices.

The price of oil has been cut 60 per cent in 18 months and the price of coal by 30 per cent. These price cuts are not generally seen as deliberately aimed at heading off cheaper renewable energy, but that’s the effect.

And it’s worth noting that the collapse in the prices of fossil fuels is mostly due to the actions of producers, which have been flooding the market.

Whatever the reason, events in commodity markets have been raising, or rather, lowering, the bar for renewable energy prices.

On Friday the Brent crude price dropped about 4.6 per cent to $US37.41 as the International Energy Agency said that OPEC was no longer acting as a cartel and was “pumping at will” and a senior Russian minister said his country was preparing for $US40 oil for at least seven years.

It’s clear that in order to meet the Paris climate targets, there will need to be wholesale switching of transport to battery powered electric vehicles, or renewable liquid fuels (for aircraft), as well as electricity generation to solar and wind.

To achieve this will require a big acceleration of battery research to get the price of them down for cars, households and businesses.

But since we are talking about replacing one form of energy with another, it is relative prices that matter, not absolute ones. And with the oil and coal prices tumbling, the goalposts have already moved a long way, and just keep moving.

Even if OPEC stops pumping at will, and America, Russia and Iran don’t keep flooding the market with oil, and even if there is a moratorium of new coal mines as many are arguing for, it’s hard to see how fossil fuel producers will be able to get their prices up with the world on a strict carbon diet.

source: http://www.businessspectator.com.au