What does the oil price slump mean for climate?

History was made in the global energy industry earlier this week after the demand for oil plummeted. Crude prices fell so much that traders paid buyers as their storage capacities started to run low. What does that mean for climate?

The slump reflected prices for just May’s future contracts. And while experts state that June would be a more indicative measure, prices for June quickly also fell by 28% – leaving much uncertainty over whether this could happen again next month.

Oil prices have since surged back to positives – in part influenced by a tweet by US President Donald Trump that indicated a looming threat of conflict between the US and Iran.

“I have instructed the United States Navy to shoot down and destroy any and all Iranian gunboats if they harass our ships at sea,” the US President tweeted on Wednesday, which resulted in oil prices rising by 20%.

But the existing oversupply combined with a collapse in demand due to the global pandemic, are continuing to keep oil prices at historically low prices leaving hundreds of oil companies at the risk of bankruptcy.

What do these oil prices mean for climate?

“An oil prices slump is a double-edged sword on decarbonization and how it influences climate action is influenced by a lot of external factors too,” explains George Stacey, an analyst working with Norvergence – an international environmental advocacy NGO.

Typically, cheap oil would eventually result in a greater incentive to continue using it which would bump up emissions and also possible lower ambitions about renewable energy policy.

But this time it could be different. Stacey points out that context is important and COVID-19-induced changes to the economy and people’s habits are likely to have an important influence on what an oil price slump means for the future of society and for energy industries.

Transport is one of the biggest reasons for burning oil and we will have to wait and see how and if the pandemic leaves any lasting impacts on our attitude towards it,” she states. “People are obviously not flying or even driving as often right now and it is possible that many businesses continue to consider video-conference or remote jobs as viable options after this is over because it is more cost-effective too.”

The atmosphere of current oil places could sink the fossil fuel industry, helping climate.


Photo: Shirokazan/FlickrCC BY 2.0

While only time will determine whether and how social (and buying) habits will permanently change in the post-COVID-19 world, some patterns taking place right now are leaving room for foresight.

For instance, tight budgets and uncertainties about financial security in the future have already taken a hit on the automobile industry. Dylan Tanner, executive director of UK-based think tank InfluenceMap, points out that long-term trends favour electric vehicles over those with internal combustion engines. And, depending on how much more of an affordable option electric vehicles becomes by the time people are ready to buy cars again, it is possible that less oil will be burnt on commute in the years to come.

Long-term trends have not been on the favour of the fossil fuel industry for some time now.

A lot of this has been possible through ongoing improvements in technology but its driving force continues to be strict regulation that has also been steering investments towards permanently in the direction of cleaner energy – primarily wind and solar.

Riding the virus against climate

A recent report by InfluenceMap, reveals that the fossil fuel sector is exploiting the circumstances around COVID-19 to lobby for more relaxed regulations.

“We detected that a tactic of the oil/gas sector in the wake of the twin trigger for the price slump- COVID-19 related demand fall & existing oversupply conditions –  is to use the crisis to opportunistically lobby for unrelated relaxation of regulations, often on climate change,” says Tanner.

The report by InfluenceMap looks at evidence that shows fossil fuel lobbyists using the current environment, which is allowing rapid decision-making and for usual processes to often be sidelined, to advocate for policies in a “manner counter to the Paris Agreement”.

These include looking for financial interventions by governments that are either specifically advantageous for fossil fuel production or contrary to science-based advice from the IPCC on climate.

For instance Life:Powered, a project of the US-based Texas Public Policy Institute that includes members such as Competitive Enterprise Institute, sent a letter to Congress opposing proposals by some US lawmakers to align any COVID19 stimulus proposals with “tax incentives and spending for unreliable ‘green’ energy programs”.

The letter argued that “climate change is not an immediate threat to humanity.” This was also backed up with paid-for advertising on social media referencing COVID-19 and downplaying the need to act on climate change. 

“Government financial support of the oil & gas sector could have profound long term implications as they will be hard to roll back after the crisis,” says Tanner. “It is a cause for concern, [as] crisis opportunism from a sector that is facing demand/supply issues and regulatory pressure not related to the COVID crisis.”