Global crude oil prices fell to a five-and-a-half-year low on Sunday last week as Brent crude oil futures hit the critical tipping point of US$50 per barrel, sending shockwaves through international stock markets and causing the value of the euro to decline to a nine-year low. The slide in prices continues the downward trend of the past six months, since peaking at US$115 per barrel on June 19 last year, leaving green industries significantly concerned over a potential negative impact on their ability to find financing, as the outlook remains unclear.
Following 36 hours of negotiation at the closing meeting of last month’s annual UN Climate Change Conference, an outline plan seems to have been agreed to tackle the issue of how to make up for a projected 10 billion metric tonne shortfall in the 2020 carbon reduction target, with each signatory nation providing “intended nationally determined contributions.” With the key basis for calculating profit, loss and long-term planning — crude oil prices — having declined significantly, is the world suddenly about to enter a period of drastic climate change from which there can be no recovery?
The continuing slide in oil prices is not due to the discovery of vast new oil fields, but has been caused by in-fighting within international climate politics and a price war between energy producers, triggered by wide-scale development of shale oil and gas in the US. In and among this sits the Russian supply of natural gas to Europe, based on its own strategic considerations, and the self-preservationist policies of Middle Eastern nations as a counter to the US shale revolution.
In addition, there is the longstanding sentimental attachment to the UN Framework Convention on Climate Change’s joint protocol on carbon reduction.
The coming storm seems to have caused exporting countries to engage in price-dumping, using cheap supply to bolster demand, which has comprehensively disrupted the price structure of energy markets, and in doing so wiped out the alternative energy market, pulling the rug from under its feet.
The IMF predicts that each time the price of crude oil falls by US$10, the global economy will grow by 0.3 to 0.8 percent. In other words, falling oil prices cause energy prices to slide, which has a positive effect on economic growth. It is estimated that this year global economic growth will reach 4 percent.
The US, as a major energy consumer and emitter of carbon dioxide, is already surging ahead. In the past six months, it has experienced rapid economic recovery, while exporting nations, including Taiwan, are benefiting from the resulting strong increase in demand. Prosperity has returned and unemployment is down. It appears that, with the rocketing ahead of the “bellwether” US economy leading to a huge increase in consumption of oil, coal and other carbon-containing energy sources, each nation’s pledge to reduce carbon emissions will be broken.
Since 2008, Taiwan’s energy resource intensity has fallen year-on-year, with an average yearly improvement of approximately 2.5 percent. According to this trend, before 2020, Taiwan will be able to reduce its greenhouse gas emissions to 2005 levels, thereby achieving President Ma Ying-jeou’s (馬英九) declared carbon reduction goal.
Considering that the nation imports approximately 300 million barrels of crude oil per year and international oil prices have been cut in half, Taiwan can save approximately US$1.5 billion in oil purchase costs. This would contribute 2 percent toward GDP and has been described by central bank governor Perng Fai-nan (彭淮南) as a “tax cut.”
For an energy-hungry, exporting nation such as Taiwan, this provides a welcome boost to the economy, which is this year expected to grow by about 4 percent. In addition, the price of gasoline at pumps has already been cut an unprecedented 17 consecutive times over the past six months, and 95 octane unleaded gasoline is about to fall to NT$25 a liter. The public has sensed this, which will undoubtedly lead to an increase in the consumption of all types of energy. If exports flourish, and the government and private sector join forces in an all-out economic push, this year’s carbon emissions will certainly increase sharply.
Whether it is frequent extreme global weather events, havoc caused by heatwaves and cold snaps, or droughts and floods, humanity, as the Western saying goes, will be “courting disaster.” However, hesitation and caution are not permitted during the making of easy profits. Thus, the invisible hand — prices — which stimulate markets, industries and individuals, as if through the waving of a magic wand, throws up a misty fog of glimmering profits, distracting people’s gazes from the ultimate fate of humanity. The grand plan of global carbon reduction now seems to be a lost cause, with global warming the only possible outcome.
Wei Kuo-yen is minister of the Environmental Protection Administration.
Translated by Edward Jones
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