Long-term oil price’s impact on the energy system and climate

Decisions on energy system composition and carbon emissions will be impacted by future oil prices, but also by other uncertainties connected to technology, alternative resources and policy, according to a paper published online this week in Nature Energy. The analysis of different oil price futures and related policy scenarios suggests high oil prices offer no substitute to climate policies in mitigating carbon emissions.

Oil prices have an important role in the global economy with consequences for climate change mitigation. The recent fall in oil price has introduced uncertainty about how markets may change in the future and what effects this will have on connected issues like the growth of renewables, energy efficiency measures, or climate change initiatives.

David McCollum and colleagues model the effects of different future oil price trends on carbon emissions, energy resources, and supply and demand technologies. They find that sustained low (US$40-55 per barrel) or high (US$110-120 per barrel) oil prices could have a large influence on the global energy system, partly by influencing the choices of alternative fuels. This choice could account for between 5 to 20 per cent of the cumulative emissions allowable for keeping global temperatures under the 2 °C threshold. They find that the key uncertainty to consider for future policy decisions is whether oil and gas prices - which have typically increased or decreased together - will decouple. Other uncertainties include the potential for sustainable biofuels to replace oil and the growth of the electric vehicle market.