Gas guzzling

Cheap Oil Threatens Green Economy

Autos stehen Schlange an einer Tankstelle der Metro in Dortmund aufgrund niedriger Benzinpreise, Objekte; 2008, Dortmund, Deutschland, Tankstelle, Benzin, Benzinpreis, PKW; , quer, Kbdig, Totale, Mineralölindustrie, Wirtschaft, , Straße, Verkehr, , Europa
Oil is getting cheaper.
  • Why it matters

    Why it matters

    Cheap oil is a boon for consumers and businesses, but acts as a disincentive in the pursuit of greener energy sources and technologies.

  • Facts

    Facts

    • Low oil prices benefit many sectors, including airlines, shipping and the auto and chemical industries.
    • With high demand for large cars, trucks and SUVs, automakers are less inclined to pursue the development of more fuel-efficient technology.
    • Cheap kerosene has prompted airlines to keep older aircraft in service longer than planned.
  • Audio

    Audio

  • Pdf

A rare phenomenon is on display at gas stations today: Drivers are smiling as they pull away from the pump, where a liter of super unleaded gasoline costs €1.25, or $1.36, and a liter of diesel goes for €1.

People are feeling enthusiastic as they get into their cars, and they can finally sing along to the 1980s song by German pop singer Markus: “I’m Stepping on the Gas, And I’m Having Fun.” Thank god for cheap oil.

Passionate motorists aside, drivers aren’t the only ones who are thrilled by low fuel prices. Entire industries are benefiting from cheap fuel: Airlines, which can use any break they can get in a relentlessly competitive price environment; shipping companies, which can expand their narrow profit margins because of cheap gasoline; and automakers – especially in the United States – whose gas-guzzling mega SUVs are in greater demand than ever.

Consumers and businesses alike can consume to their hearts’ content without having to worry too much about the cost. And cheap energy is even keeping inflation in check.

Meanwhile, the flipside of cheap oil is being completely overshadowed. It isn’t the pain of oil companies or countries like Russia, whose oil and gas revenues have declined sharply.

We must continue to invest in future-oriented technology, because this is the only way it will achieve the maturity and scale to make it economically viable.

The real issue is the urgent need to transform our economy into one that conserves resources and the environment, and that is energetically making itself less dependent on oil and pursuing alternative sources of energy. The economic pressure to bring about this transformation shrinks with every cent by which the price of oil declines.

This fatal development is already unfolding in some sectors. Take automakers, for example. All manufacturers claim that they are intensively preparing for the era of the electric car, and they are announcing new models to achieve that goal. But they know that the money is to be made elsewhere, with powerful cars, SUVs and luxury sedans.

And automakers can’t even be blamed for pursuing this strategy because we, the customers, want it that way. The consequence is that the impetus to develop and sell electric cars with even greater intensity is declining.

In the fight against climate change, flying is also supposed to become gentler on the environment. The road to greener skies requires investment in new, fuel-efficient aircraft and the development of new engines and fuels. But the industry is peddling like mad in a different direction. Because of the low price of kerosene, airlines are prolonging the use of older and relatively inefficient aircraft.

For instance, Lufthansa, Europe’s largest airline, has 19 aging Airbus A340-300 aircraft in its fleet. The carrier had already decided to phase out the planes. But partly as a result of cheap fuel, Lufthansa is keeping some of them in operation and using them to fly to tourist spots. Experts are not ruling out that a persistently low kerosene price will tempt some airlines to delay taking delivery of new aircraft.

Oil is the most important raw material for the chemical industry. A large share of production is based on carbon derived from crude oil. There have been some initial but tentative stabs at obtaining carbon through alternative means, such as from carbon dioxide.

But while this is technically feasible, the process is costly and difficult. As long as oil is cheap and abundant, there is little reason for companies to pursue these developments on a significantly larger scale. For chemical producers, optimizing the existing supply chain is a more cost-effective strategy.

In all of these examples, the actions of companies make economic sense, especially when they consider the present and the near future. In fact, the International Energy Agency believes it is possible that oil will remain cheap for more than a decade.

But efforts to do business in a more environmentally friendly way should not suffer as a result – not just because of climate change, but also for economic reasons. Companies need to begin preparing for the post-fossil fuel age now, which will begin before oil wells run dry in 50 or 100 years.

The transition to clean energy sources, which includes reducing carbon dioxide emissions, will make the development of alternatives to oil-based energy sources and raw materials more urgent. We must continue to invest in future-oriented technology, because this is the only way it will achieve the maturity and scale to make it economically viable within the foreseeable future.

Those who pursue this approach will have an edge in this future-oriented economy. The political world must provide the necessary incentives. For those who succumb to inertia, cheap oil is only one thing: A sweet poison.

 

To contact the author: froendhoff@handelsblatt.com

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