Oil drops, emissions decrease, petro-states lose revenues, but this is not a solution!
With environmental policy so closely tied to the price of oil, the dramatic drop in its price in recent weeks is of special interest. Today, oil prices fell to $77.61 a barrel, which is its lowest level since October 2007. Additionally, the International Energy Agency cut its forecast for daily global demand for oil to about 86.5 million barrels. This would represent the slowest growth in oil consumption in 15 years. Additionally, petro-states like Iran, Venezuela, Russia, and Saudi Arabia are seeing a dramatic decrease in revenue.
Both Venezuela and Iran have already reached a point where their current government subsidy systems are no longer sustainable (sub req’d). With oil below $90 per barrel, the macroeconomic policies of these countries cannot be maintained long-term. If oil prices do not rise, they will be forced to reform their policies. Additionally, Russia will also face cutbacks, as its budget relies upon oil being priced no lower than $82 a barrel for Russian Urals crude (which sells at a discount to the US benchmark price).
While the short-term effects on the environment and on petro-states is good, this is not an energy policy. A global recession where people can’t afford to use resources is not a solution. At some point in time, the global economy will recover and demand for oil will rise again, as will the profits of petro-states. As this is a certainty, we need to take this temporary pause in price increases to implement a real energy policy. We cannot be lulled into believing this temporary lowering of price and consumption will last.
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