The Strategist

Price war in oil market will slow down transition to clean energy

03/13/2020 - 09:25

The ongoing price war in the oil market, which caused the collapse of quotations, will adversely affect countries' desire to switch to clean energy, said Fatih Birol, Head of the International Energy Agency (IEA).

Analysts warn that a price war in the oil market, along with a slowdown in global economic growth, could hit demand for electric cars and reduce the attractiveness of measures to support renewable energy sources (RES).

Unlike the period of low oil prices observed in 2014-2016, now many countries, including the UK and the EU, have set ambitious goals to achieve zero carbon dioxide emissions in the coming decades, which requires significant changes in energy use.

According to Birol, the current situation will be a “good test” of the commitment to climate commitments that governments and companies have made recently. “Observers will quickly notice if increased attention paid by governments and companies to this transition comes to naught when market conditions become more unfavorable,” he said.

The situation is aggravated by the fact that low energy prices tend to reduce the economic benefits of conserving energy and finding ways to use it more efficiently.

“Cheaper energy always leads to lower energy efficiency,” Birol said. “Low energy prices will make the energy-saving economy less attractive due to cheap oil and gas.”

FT notes that changes in oil prices do not directly affect power generation, since oil is rarely used to generate electricity. However, government policies that will determine the future of renewable energy may change due to the current situation in the oil market.

A drop in oil prices may also limit the investment of oil and gas companies in renewable energy projects.