Could low gas prices be good for the environment?

As long as I have paid attention to environmental issues, I have held firm to one central belief: the price of fossil fuels is way too cheap, and we need to raise those prices to create a transition to a low carbon future. Yes, I have sympathy for low income families who struggle to pay their gas bills—but the answer lies in tackling poverty generally, and fuel poverty in particular, not perpetuating our dependence on destructive technologies.

To some degree, I still hold this belief. After all, when gas prices rise, Hummer sales go down. But low gas prices have a bright side too:

They suggest that oil producers are going to have a harder time making a profit.

This article over at Bloomberg sheds a little light on the current maneuverings between Middle Eastern OPEC nations like Saudi Arabia and Kuwait, and shale oil producers like Canada and the US. OPEC is deliberately keeping prices low in an attempt to make shale gas production unprofitable:

“It makes perfect sense for Saudi Arabia to let the price drift down,” said Jamie Webster, an analyst in Washington at IHS Inc. “There’s a lot of discussion on what is the break-even price for shale, and whatever you believe, the reality is there’s no clear consensus. It gives the Saudis the opportunity to test” that level, he said.

Lower gas prices may still encourage some to keep consuming, but with millennials ditching their cars because of lifestyle as much as economics, and with electric cars gaining ground because their customers just love them, gas prices may become less of the primary driving force than they once were. And of course, as clean tech becomes more competitive, oil producers will have even less room to expand their profit margins—making fossil fuels a less convincing bet for investors too. (Exxon, apparently, thinks divesting from fossil fuels is a bad idea. Just so you know. The Bank of England, not so much.)

I still believe the price of fossil fuels should reflect their true costs. But those higher prices should be about addressing environmental and health costs that have so far been foisted on society, not boosting producer profits. That's why a realistic price on carbon is long overdue. In the meantime, let the fossil fuel producers fight each other to maintain market share, while we push to keep the true low carbon economy steadily moving forward.

Tags: Ecological Economics | Economics | Oil

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