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The right time for climate action is now
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DURING most of the roughly three decades since climate change became a global concern, governments optimistically assumed that a green transition would happen naturally over time, as rising fossil-fuel prices nudged consumers toward low-carbon alternatives.
The impediment, it was believed, was on the production side, as gushing returns on oilfield investments spurred ever more ambitious exploration.
Today, the tables have turned. With oil prices languishing around US$40 a barrel, fossil-fuel companies do not need governments to tell them to stop investing. The challenge has moved to the consumer side of the equation. With fuel prices so low, what can be done to change consumption patterns?
To be sure, there are some signs that cheaper energy could generate enough growth to drive oil prices back up.
But nobody predicts a rebound strong enough to prompt the radical transformation that will be required if countries are to meet their emissions-reduction goals.
A 2015 OECD report shows how far behind countries are on their emissions targets — never mind their commitment to limit the global temperature rise to well below 2° Celsius. Meanwhile, oil majors are keen to remind us that we will need to burn fossil fuels for many more years as we shift to a new energy economy.
Different interests
So what are governments to do? There is near-universal agreement that no one will benefit from a dangerously warmer planet. But different countries have different interests, depending on whether they are oil exporters or importers and how developed their economies are.
Oil-producing developing countries should consider whether their resources have an economic future, given diminishing scope for emissions. Countries like Saudi Arabia, Iraq, and Iran — where oil is plentiful and cheap to extract — are likely to stay in business for some time.
But countries with less generous oil endowments need to implement economic reforms and eliminate subsidies.
Many governments have been forced to act. Russia announced a 10 percent cut in public spending as oil prices continued to slide this year. And Indonesia should save almost US$14 billion by scrapping gasoline subsidies and capping support for diesel fuel.
On the other side of the spectrum, oil-importing developed countries are most likely efficient users of fossil fuels already. Their economies, having proved they can cope with oil at US$100 a barrel or more, clearly do not need an infusion of cheap energy to thrive.
It is therefore a good time to introduce carbon taxes, so that the oil windfall is not simply gobbled up at the gas station. These countries should shelve any delusions of finding “black gold,” enjoy the short-run benefits of cheap oil, and take action now to align infrastructure investments to changing technology.
Meanwhile, oil-producing developed countries should bank the remaining rents to enable capital substitution and ensure life after oil. This is what Norway has done, to significant national advantage, over the past 25 years.
Finally, it is governments of oil-importing developing countries that are likely to have the most urgent need for energy — and also the widest array of possibilities to meet that need. They will be looking to the global community for support and will need to take a hard look at whether the energy solutions on offer are modern or sustainable.
It can sometimes seem like there is never a right time to take climate action. When growth is strong, people urge governments not to derail the gravy train. When growth is weak, people ask incredulously how climate policy advocates could consider making things worse.
There is never likely to be a perfect moment for introducing new climate policies. Long-run problems require policies that send long-run signals. And these policies cannot be constantly fine-tuned to the volatility of the moment. Now is always as good a time as any to take action.
Simon Upton is Environment Director at the OECD. Copyright: Project Syndicate, 2016. www.project-syndicate.org
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