Friday, May 23, 2008

The high cost of oil is bad for the economy, but is it good for the climate?

Several theories were emerging yesterday over the environmental effects of oil at $130 a barrel or more. In the green corner were the optimists, who believe that the shock will force people to cut their energy use, invest in renewables and energy conservation, downsize their cars, take fewer foreign holidays and reduce greenhouse gas emissions

Others fear that oil prices at this level for any length of time will usher in a new bleak period where governments turn to extracting coal, growing biofuels and deforestation.

There was evidence of both trends yesterday. As Honda announced it was increasing output of its hybrid cars because of high fuel prices, Barrie Johnstone, chief executive of said inquiries about his company's solar panels to heat water had risen by more than 50% in five months.

"The oil price rises change the payback period dramatically. Anyone who buys solar equipment now has probably paid off the investment at the moment he buys it. High oil prices like this are good for us but no one else."

"These prices are already proving to be the biggest single factor in curtailing the expansion of the aviation industry, and that wont necessarily be a bad thing," said Ben Stewart, communications director at Greenpeace. "One hopes it will lead to a huge investment in alternative sources of energy. We are moving into the unknown. As prices increase, it will just have to lead to the investment that we so desperately need."

Tom Burke, environmental scientist and visiting professor at Imperial College London, said that in the short term the oil price rise would cause a rush to exploit oil tar sands in Canada and Venezuela, and possibly deforestation in the Amazon to clear space for biofuels.

"We have passed the peak of cheap oil. I do not think it will slow down Indian and Chinese vehicle use. It will really hit the aviation industry and could cut the ground under the push for the third runway at Heathrow. It could also strengthen the localisation movement." The majority of companies, he said, had already done a lot already to reduce their energy use.

Environmental consultant and former -director of Friends of the Earth Charles Secrett said the lesson of history in high oil prices was that it was an opportunity for change. "In the years after the 1973 oil shock, energy efficiency soared, but governments did not step in with policies to encourage alternatives energies to flourish. They have the real choice now."

In the short term, the oil price rise is expected to cause further increases in the price of fertilisers, which doubled last year as US farmers rushed to put as much on fields as possible to take advantage of high prices for biofuel crops. But in poor countries the more expensive fertilisers are likely to be beyond the means of most small farmers. This could reduce farm yields and incomes, and result in more deforestation as people turn to any source of income they can.

"This is a wake-up call. In the short term we can already see people in the US cutting down on their driving, starting to use public transport and not buying SUVs. But in the long term it means that we have to completely rethink how we use energy", said Walt Patterson, a fellow in the sustainable development programme at Chatham House in London.

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