The Oil Price Opportunity

29th December 2014 - 3409 days ago

Kemal Dervis is Vice President and Director of Global Economy and Development at the renowned Brookings Institution. He is also the former head of the United Nations Development Program. Here he discusses the impact of the global pricing of crude oil and the political opportunity this can offer the world.

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WASHINGTON, DC – The sharp drop in the price of crude oil since late June has been grabbing headlines worldwide – and producing a lot of contradictory explanations. Some attribute the fall largely to declining global growth expectations. Others focus on the expansion of America’s oil and gas production. Still others suspect a tacit agreement between Saudi Arabia and the United States aimed at, among other things, weakening political rivals like Russia and Iran.

Regardless of the reason for the price drop – probably to be found in some combination of these factors – the consequences are the same. Though, as International Monetary Fund Managing Director Christine Lagarde has noted, lower oil prices may boost overall global growth, with the oil-importing advanced economies gaining the most, the impact on efforts to combat climate change could be devastating.

Indeed, a sustained decline in oil prices would not only make renewable energy sources less competitive now; it would impede their future competitiveness by discouraging research and investment. More generally, it would reduce the incentive for consumers, companies, and governments to pursue more energy-efficient practices.

Even if we remained on our current trajectory, keeping temperatures from rising more than 2º Celsius above pre-industrial levels – the threshold beyond which the most disruptive consequences of climate change would be triggered – would be next to impossible to achieve. Read more.

Courtesy of Project Syndicate.