Business·Analysis

Oil's fading clout will aid climate change fight in Lima: Don Pittis

Until recently, worries about energy security only added to the clout of the fossil fuel industry in the climate change debate. But recent talk of a world-wide oil glut removes another barrier to reaching an international agreement, says Don Pittis.

Declining status of energy security another cause for optimism in Peru climate talks

The Pastoruri glacier is one of the fastest-receding glaciers in the Cordillera Blanca mountain range in Peru. The country is home to 71 per cent of the world's tropical glaciers, which are a source of fresh water for millions, but 22 per cent of the surface area of Peruvian glaciers has disappeared in the past 30 years, says the World Bank. (Mariana Bazo/Reuters)

It is amazing what a difference a year makes. Or in the case of oil, a few months.

And in this case it may be that the decline in the status of oil — from something akin to the scarce lifeblood of industry, to just another commodity — may actually help climate change negotiators now meeting in Lima, Peru.

Representatives of 195 countries have gathered in the South American capital in what has been described as the most optimistic United Nations climate gathering yet.

A recent pact between the world's two biggest carbon emitters, China and the United States, is one reason for renewed buoyancy at this round of talks. At a meeting last month between China's President Xi Jinping and U.S. President Barack Obama, the countries for the first time agreed to firm greenhouse gas reductions.  

When the current talks in Peru were scheduled, few could have predicted there would be another world-shaking event that would encourage negotiators. I refer to the sudden plunge in the price of oil that came only days before the Lima climate gathering.

It seems only yesterday that we were worried about a shortage of oil. Certainly that is what a survey we reported a year ago suggested. According to a poll released by the Woodrow Wilson Center for Scholars in Washington, D.C., Canadians and Americans were more worried about a shortage of oil than they were about the environment

And that's not crazy. A year ago we were still talking about worldwide oil scarcity. In those days the economic scenario was a resource-hungry developing world, including China, challenging the industrialized nations for a limited supply. A thirsty China meant world prices were heading to $200 US.

Running out of oil would have serious consequences for the entire world economy. Countries were willing to invest to make sure that didn't happen.

Famine to feast

As I say, it's amazing how quickly things can change.

Within a matter of months, oil has altered in status from a scarce and dwindling commodity to one where there is plenty to go around. In the last week, crude has been even further downgraded to the point where analysts say we are drowning in the stuff. 

In four months we moved from dearth to glut. And many experts say that glut will not disappear quickly.

In his London Financial Times blog on Sunday, energy economist Nick Butler ​made a strong case that "we must prepare for a long-term fall in oil prices." Having worked for oil giant BP for nearly 30 years, he describes a business that builds decades ahead and builds to last. Powered by its own momentum, the one thing the industry can't do is slam on the brakes when oil prices fall.

Butler is by no means a lone voice.

In a speech last week, Murray Edwards, the chairman of energy company Canadian Natural Resources, said oil "could spike down to $30" (less than half of today`s price), leading to a gradual industry-wide slowdown.

Oil continues to be an essential commodity to a modern economy, so governments still have to think about security of supply. But when there is plenty to go round at bargain prices they don't have to worry as much. And that means energy security is not as big an issue facing negotiators in Peru.

Declining clout

There is another reason why falling prices reduce the clout of oil. An expanding business creates the precious jobs, new investment and economic growth that help governments get re-elected. A static or shrinking industry just doesn't have the same kind of leverage.

With the loss of urgency powered by security concerns, and the loss of economic sway, the fear that we are destroying our planet for future generations gets a stronger relative voice in the public debate.  

When Canadians think of climate change, Peru is not one of the obvious victims. But the country is home to a majority of the world's tropical glaciers. Those glaciers, which provide the only water for huge areas of Peru's agriculture, have shrunk by nearly a quarter. The potential economic costs of further shrinkage are huge and real.

If the UN calculations are right, the costs of climate change are unimaginably large. But because many of the most serious costs won't be incurred for decades, for many people those costs just don't feel as real as the urgent issues of today and tomorrow. 

There is a growing realization that the battle to end climate change is a battle against fossil fuels. That is a difficult thing to face for countries like Canada, where oil, gas and coal have been engines of growth.

But as we enter a period where fossil fuels carry less economic and political weight, maybe the economic costs of continuing to release carbon into the atmosphere will get the attention they deserve.  

About the Author

Don Pittis

Business columnist

Don Pittis was a forest firefighter, and a ranger in Canada's High Arctic islands. After moving into journalism, he was principal business reporter for Radio Television Hong Kong before the handover to China. He has produced and reported for the CBC in Saskatchewan and Toronto and the BBC in London. He is currently senior producer at CBC's business unit.

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