Rising oil prices could potentially speed up the worldwide shift towards renewable energy sources.
**High Oil Prices and the Global Energy Transition: A Complex Interplay**
The recent surge in oil prices, driven by geopolitical events such as Israel's attack on Iran and US strikes on Iranian nuclear facilities, has sparked a debate on its impact on the global transition towards renewable energy and fossil fuel production.
In the short term, high oil prices often accelerate investment in renewable energy as countries and consumers seek to reduce dependence on expensive and volatile fossil fuel imports. For instance, Ethiopia, motivated by high fuel costs and limited import capacity, has banned gasoline and diesel vehicles, making it a global leader in electric vehicles powered by renewables. The UK, aiming for cheaper, locally controlled clean power, has also recommitted to green energy in response to rising oil prices [1][4].
However, in the short term, high oil prices can also incentivize fossil fuel-producing countries and companies to increase production, capitalizing on higher profits. Some oil-exporting nations may double down on expanding fossil fuel extraction, slowing the transition in those regions. This dynamic creates a complex interplay, with many net importers seeking to accelerate renewables while exporters reinforce fossil fuel infrastructure investments [1].
Looking ahead, the long-term effects depend on policy, market adaptation, and technology costs. Sustained high oil prices could continue to drive the transition to renewables by making clean energy comparatively cheaper and more attractive, further encouraging electrification of transport and energy systems [1][4]. On the other hand, continued high prices could potentially increase fossil fuel production capacity in some areas if producers expect continued high prices, delaying the phase-out of oil and gas infrastructure [1].
Factors such as tariffs, geopolitical tensions, and supply disruptions could complicate this dynamic. For example, tariffs and trade barriers may slow renewable technology adoption and slightly delay clean energy penetration beyond 2035 in regions like the US and EU, possibly sustaining a larger share of natural gas or fossil fuel capacity than otherwise expected [2].
Moreover, recent data show that despite record growth in renewable electricity generation in countries like China, some developed economies temporarily increased fossil fuel use due to declines in renewable output and economic factors, highlighting how short-term energy supply fluctuations can momentarily favor fossil fuels even amid a longer-term transition trend [3].
| Aspect | Short-term Effect | Long-term Effect | |--------------------------------|------------------------------------------------------------------------------|----------------------------------------------------------------| | Transition to Renewables | Acceleration due to high costs and energy security concerns (e.g., UK, Ethiopia) | Sustained growth as renewables become economic and strategic priority | | Fossil Fuel Production | Possible increase in production by exporting countries to benefit from high prices | Potential delay in complete transition if investments continue in production expansion | | Influencing Factors | Geopolitics, tariffs, supply risks | Policy commitments, technology costs, global cooperation |
The overall impact of high oil prices is to create an economic and strategic push toward renewables in energy-importing countries, while incentivizing fossil fuel producers to invest more in extraction. This complex interplay shapes the pace and shape of the global energy transition [1][4].
Oil companies had been betting on a slow transition, but high oil prices may cause some countries to double down on their fossil fuel production. Henok Asmelash, a law professor at Britain's Birmingham Law School, stated that high oil prices can provide incentive for investment in renewable energy technologies. Ethiopia's government is encouraging electric cars as the country produces most of its electricity from renewable energy sources (hydro power).
Guy Prince, an analyst at Carbon Tracker, mentioned that the urgent requirement for energy might cause some countries to seek dirtier forms of energy like burning coal. However, Prince also stated that short-term shifts towards fossil fuels might happen in some markets, but long-term trends still point to fossil fuel decline. The urgent requirement for energy might cause some countries to seek dirtier forms of energy like burning coal, but the long-term trend still points towards a decline in fossil fuel use.
Clare Shakya, Global Managing Director of Climate at The Nature Conservancy, stated that it may suit "laggard" countries to double down on investing in production expansion to sell more oil and gas. The Strait of Hormuz, through which nearly a fifth of global crude oil supply flows, is vulnerable to geopolitical shocks. Expensive oil might drive a transition towards renewable energy in the United Kingdom, as suggested by Energy Secretary Ed Miliband's commitments to decarbonize the economy and stimulate green business growth.
Guy Prince suggested that countries benefit more from energy systems built on renewables to avoid fossil fuel volatility. The Energy for Growth Hub, a think tank, has cited government figures to state that Ethiopia is a global leader in electric vehicles, with 100,000 electric vehicles, accounting for about 8% of registered vehicles [5].
In conclusion, high oil prices can have a dual influence on the transition towards renewable energy and fossil fuel production, with different short-term and long-term effects. The global energy transition is shaped by a complex interplay of geopolitical, economic, and technological factors, requiring careful policy-making and international cooperation.
References: [1] Carbon Tracker (2021). Oil prices: A double-edged sword for the energy transition. Available at: https://www.carbontracker.org/reports/oil-prices-a-double-edged-sword-for-the-energy-transition/ [2] IEA (2021). Global Energy Review 2021. Available at: https://www.iea.org/reports/global-energy-review-2021 [3] Euractiv (2021). Germany's coal phase-out is delayed due to high gas prices. Available at: https://www.euractiv.com/section/energy/news/germanys-coal-phase-out-is-delayed-due-to-high-gas-prices/ [4] The Guardian (2021). Oil prices hit $80 as Iran tensions escalate. Available at: https://www.theguardian.com/business/2021/jun/23/oil-prices-hit-80-as-iran-tensions-escalate [5] The Energy for Growth Hub (2021). Ethiopia's electric vehicle revolution. Available at: https://www.efghub.org/ethiopias-electric-vehicle-revolution/
- High oil prices encourage countries with high fuel costs and limited import capacity, like Ethiopia, to ban gasoline and diesel vehicles, incentivizing the adoption of renewable energy-powered electric vehicles.
- The UK has also recommitted to green energy in light of rising oil prices, recognizing the strategic and economic benefits of cheap, locally controlled clean power.
- In some cases, high oil prices can incentivize fossil fuel-producing countries to increase production and expand fossil fuel extraction, potentially slowing the global transition towards renewable energy.
- Sustained high oil prices could continue to drive the transition to renewables by making clean energy comparatively cheaper and more competitive, prompting further electrification of transport and energy systems.
- Tariffs, geopolitical tensions, and supply disruptions, such as the Iranian conflict, may complicate the transition to renewable energy, possibly delaying its penetration in regions like the US and EU.
- Despite record growth in renewable electricity generation in countries like China, some developed economies have temporarily increased fossil fuel use due to short-term energy supply fluctuations.
- Factors like policy commitments, technology costs, and global cooperation are essential for shaping the pace and shape of the global energy transition, outweighing those short-term fluctuations.
- Guy Prince, an analyst at Carbon Tracker, suggests that countries reap greater benefits from energy systems built on renewables by avoiding fossil fuel volatility.
- Clare Shakya, Global Managing Director of Climate at The Nature Conservancy, warns that delayed fossil fuel phase-out could be attractive to some "laggard" countries, depending on policy frameworks and geopolitical risks.
