Looking at the data there is one statistic that stands out as being particularly dramatic. The price of oil has hovered around 20 to 30 dollars a barrel for several weeks and there was even a week when producers had to pay those with storage facilities to take the unsalable deliveries off their hands. It is possible that the concerted efforts of Saudi Arabia and Russia will succeed in cutting demand and bringing that price back up. It is unlikely that those efforts will be entirely successful and that the market price will quickly get back up to the heights of 100 dollars a barrel that were once normal.
That low price is a mixed blessing. On the one hand it means that fracking is no longer going to be economically viable even looked at from the very narrow point of view of the owner of the fracking site. The cost of land and licenses added to the cost of the technology make it pretty near impossible to break even. Few companies are going to invest in a method of doing business that eats money and irritates many of its own customers. That has to be a huge positive. We know that we have to leave most fossil fuels in the ground if we are to keep the damage to the climate to a minimum. So, we badly need to avoid becoming addicted to one of the dirtiest and most wasteful technologies and to the increases in methane emissions that have happened since fracking started.
The other huge positive from a lowering of oil prices is a shift in economic power and hence political power. It is no bad thing to see a huge cut in the state budgets for Saudi Arabia and for Russia given how that money has been used in recent years. Nor will it be a disaster to see the oil industry in the US become an expensive leach on taxpayers’ money instead of a wealthy source of campaign contributions for politicians. There is also a reduced temptation for political leaders to indulge in warfare if the oil rich territories become less valuable sources of easy income.
But hang on a minute. All is not necessarily going to be good. A low price usually means increased demand. It is going to be hard to stop people buying petrol if it comes in at half the price that they’ve been used to paying. Cheap oil and gas could seriously undercut the upcoming technologies of solar, wind, heat exchange and energy storage. We need to see dramatic reductions in use of oil and gas not dramatic reductions in the price that encourage greater use. A temporary post Covid drop in fuel prices could create a dramatic setback for demand for electric cars or decisions to install fossil fuel free heating systems. Why pay a lot of money for a capital expensive next generation product if the running cost savings disappear because you can fill up your tank with fossils on the cheap? Low fossil fuel prices just create an incentive to continue bad behaviour. And if the temporary cheap prices are coupled with a fear of people mixing on public transport we could see a very dangerous increase in car use and greater consumption of fossil fuel.
Fortunately, this is a pretty simple way out of this for governments. If they are desperate for revenue to pay for post Covid debts then should raise the taxes on fossil fuels so that the price gets back to pre-Covid prices. Doing that provides stability and predictability for customers if the price at the pumps doesn’t dramatically change. It is therefore one of the least painful ways of paying for the costs of the crisis. Keeping fossil fuel prices relatively high but stable is also extremely helpful for those bringing in new technology. It is hard to invest for years in bringing a wonderful new fossil free machine to the market that operates at less than the price than the fossilised version if the price of fossil fuels suddenly plunges and stays low.
It is entirely possible that many governments will indeed take such a common sense approach and tax fossil fuels realistically in order provide a high and stable price for markets whilst shoring up their own revenues. It is also entirely possible that they will bottle out of it because of public pressure. There is going to be a real battleground over this and every effort will be made to portray environmentalists as killjoys who want to inflict cost on the poor working man and woman. The truth is that the cost of ignoring the environment is always higher in the end. Just look at how much we have all paid recently as a result of mistreatment of wildlife in wet food markets providing an ideal breeding ground for inter-species virus transmission. Those of us who raised the issue of the environmental damage or of animal rights were portrayed as wild idealists. It turns out that ignoring animal rights creates a perfect breeding ground for a virus to jump between species and that massive practical damage was done to lives and livelihoods by ignoring the environmental consequences. The environmentalists who raised this issue turned out to be the practical common-sense people and the ones who ignored the warnings the impractical people. Hundreds of thousands of deaths and trillions of dollars of economic damage is a consequence that has to be taken seriously by everyone regardless of their morality on wildlife crimes.
We have gone past the point where there is a battle between well-meaning but naïve environmentalists and practical hard headed people who understood economics. Any practical person who studies the real economic consequences of using fossil fuels for more than a few seconds must now accept that the collective price of using them has become too high. A single world economy can’t keep lurching from one massive crisis to the next without any changes to business as usual. Mistreating wildlife in a market in China has brought the entire world economy to its knees. If we keep pumping out Carbon Dioxide and Methane then the damage will be on a scale that dwarfs Coronavirus. That damage is just starting to materialise. Extreme weather is happening more and more frequently and comes with huge price tags. Yet even if we hit current targets of net zero emissions by 2050 the climate will continue to get more extreme until 2070, sea levels will continue to rise and coral reefs will continue to be destroyed.
The time has come for governments to face up to their responsibilities and act realistically. Fossil fuels cannot be allowed to become cheap. Governments must raise taxes on them now before the next crisis caused by carelessly mistreating the environment wrecks the economy even more comprehensively than the Coronavirus has done.