Reevaluating Oil Essential in Ecological Crisis

27th August 2020

Earlier this year, we stopped travelling and spending when governments imposed lockdowns to halt the spread of coronavirus. As a result, the demand for oil plummeted, and prices subsequently fell to historically low levels. Today the value of oil is back in the news because these changes led to dividend cuts from BP and Shell and many are now calling for a divestment of pensions in these markets. We asked Eunomia’s Chairman Dominic Hogg, an economist and environmental expert, what might happen next. Dominic said:

The search for great leadership

“In April 2020, with many countries already in lockdown, oil prices in the US turned negative and producers – their storage facilities full – paid buyers to take oil off their hands. In reaction, The Organization of the Petroleum Exporting Countries (OPEC) and the separate major oil producer Russia, agreed to restrict supply to increase demand. The announcement received support from the US and the G20 – an international forum for governments and central bank governors from 19 countries and the European Union. What’s confusing about this reaction is that ordinarily a group of independent market participants who collude with each other to improve their profits and dominate the market are referred to as a cartel – most jurisdictions deem them unethical and anti-competitive. What’s even stranger, is more than a decade ago the G20 committed to “Rationalize and phase out over the medium term inefficient fossil fuel subsidies that encourage wasteful consumption” (as part of the Pittsburgh Summit in 2009). Government leaders know that we’re facing a climate crisis as a result of burning fossil fuels, so why are they continuing to prop up and support a market that we not only no longer need, but also threatens our survival?

Archaic thinking – let’s fill the knowledge gap

“We have previously used the price of oil as an indicator of how healthy our economies are – higher oil prices were used to signal increases in consumption and spending, which has signalled GDP growth. This thinking sums up fairly well why we’re now facing the ecological crises that we are. The reaction of the market, and policymakers, in April shows leaders are still locked into an outdated paradigm that has long been unfit for purpose. If we are serious about dealing with this ecological emergency, we need government leaders to understand why the old model is broken and how they can engineer a massive drop in demand for oil, instead of propping up an industry that the world can’t afford to see thriving.  Oil producers need to see – in this recent pandemic-inspired episode – a glimpse of their future – that if policymakers make the right decisions, producers – in their current guise – will go out of business.

Your self-sabotaging pension

“Those calling for the divestment of pensions locked up in these industries are correct, not just because they are precarious markets, but because revenue generated is from burning fossil fuels. Currently the burning of fossil fuels is the most likely cause of the average eco-anxious 25 year old spending their retirement years in a completely bleak place. What is the point of ‘providing for your future’ if in doing so, you’re also destroying it?

 

Image courtesy of Thomas Hawk via Flikr (CC BY-NC 2.0)