Plummeting Oil Prices effect on the Climate

Plummeting Oil Prices
Plummeting Oil Prices

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Plummeting Oil Prices

How does the plummeting oil prices affect the climate?

The recent fall in oil price from about USD 115 to 50 per barrel in mid-2014 and August 2015 respectively has contributed to diverse views regarding the adverse effects on the environment. These views may be divided into three groups;

a) Plummeting oil prices is regarded to exert downward strain on gas oil cost as well as the price of natural gas. This is likely to divert significant ventures from environmentally sustainable energy methods to gas-driven electric plants. The required change of the globe’s energy technologies from fossil fuels to low-carbon techniques may be significantly stopped (Kurtz, 2004).

b) Falling oil prices and the low cost of petroleum by-products including gasoline, may exert increased demand on internal combustion engine (ICE) driven vehicles. This may hinder not only development but also diffusion of ecologically friendly options, like electric vehicles (EVs) that do not emit CO2 emissions. Also, advanced vehicle travel may, in turn, lead to further emissions.

c) In the context of low oil price, global attempts to attain the relevant diplomatic agreements on the conservation of the planet, like the UN Sustainable Development Summit, could be hindered by the remarkable opportunity costs countries will experience in dissociating from fossil fuels.

Plummeting Oil Prices

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Electric Vehicles

Plummeting oil prices are regularly seen as contribute to reduced pump price of gasoline and diesel. Something, some people believe that can adversely affect a nascent sector of Zero-emission automobiles like EVs, which use fuel-cell technologies or even lithium-ion battery, which some see as a challenge when it comes to competing with incumbent ICE. In reality, reduced oil cost per barrel does not imply low pump prices.

Less than a half of the retail cost of diesel and gasoline in the United States is based on the cost of crude oil. The remaining is going to refinery, distribution, marketing and taxes. As as matter of fact, much as the price of crude oil has declined to approximately 57% since 2014, gasoline has reduced by about 36% (U.S. Department of Energy 2016).

With the considerable reduction of oil prices, it is not certain the degree of EV producers will be affected. For instance, the main players, in battery-driven EVs, Telsa and target premium Model S cars and compete with other premium car producers.In this case, the client base is less concerned with opportunity costs of using electricity as a result of the price of oil. Instead, they are mainly interested in environmental benefits as well as reputation associated with having a Telsa.

Nevertheless, the price of gasoline has little impact on the general demand of vehicle travel; this means that vehicle travel is, in fact, inelastic. This may illustrate by the ill-timed reality of the present day transport structure is significantly reliant on oil. Individuals want to move around, go their workplaces, take children to school and buy goods. Particularly, in the United States individual motorized mobility, ICE is the most suitable alternative for personal transport. They prefer to purchase and use gas despite its costs since it’s a necessity.

Plummeting Oil Prices

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Thus plummeting price of fuel may be expected to have little impact on the CO2 emission in the environment. Regardless of the falling oil price, renewable energy is primarily cost-competitive with fossil fuel in different areas. For certain applications including off-grid, they are without a doubt superior. Moreover, solar PV cells are cost-competitive at utility-level. These is likely to develop further while the falling costs of battery technologies can, together with widespread use of smart grid applications, result in an absolute change in terms of how energy is produced and used (COSNRC, 2003).

More so, the plummeting oil price poses a low-carbon transmission cannot be overlooked, since full influence on deployment and investment in renewable energy is not evident yet. Again, it is challenging to establish the appropriate counterfactual of how to be invested in renewable energy with the recent oil price reductions and therefore to recognize the degree of harm on climate.

Nonetheless, it is proposed that the latest plummeting oil price has hindered the installation of new investments as well as shale exploration, as the majority are not viable based on the current costs. This demonstrates that falling oil price can materialize like a two-fold sword. On one hand, possible increasing demand for oil while diluting economic incentives for changing to low-carbon options, which can prevent supply by ensuring that new investments are economically not viable on the other.

Perhaps the question one would ask is whether or not the current oil price nosedive has an effect on the environment. For too long environmental activists have been concerned with carbon taxes to inflame oil costs and pave the way for clean-energy innovations. However, the recent price crash has been upheld as good for the environment, since it could gravely weaken big oil and its grip on the world’s energy business (Kurtz, 2004).

Plummeting Oil Prices

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Oil prices are now less than 50% of what it used to cost in less than one year ago. Logically, this may escalate the volume of oil burned regarding energy, largely because people are somewhat less cautious with cheap stuff, and because plummeting fuel costs will spur economic activities. Low fuel cost will equally deject outlay in alternative sources of energy like renewables. However, the oil greed demonstrates no signs of easing, as some of the leading oil producing nations under the OPEC umbrella are not ready to pump more oil to the market.

The high cost of oil reduces petroleum demand an aspect that makes petroleum options more viable, while plummeting oil costs re-energize the demand for the product, culminating in massive production due to demand.  When oil prices go up, people tend to drive less, but with low oil prices, people prefer fuel-guzzlers because of the purchasing power. Nonetheless, there is an argument that price decline could enhance green gains. That is mainly because low oil costs may spell doom for big oil and the necessity to look for alternative sources of black coal.

Precisely, declining oil costs make a huge investment in new oil reserves appear like bad deals because of the high costs associated with drilling new sites, whether it deep off-shore drilling or Arctic (U.S. Department of Energy 2016). Analysts suggest that unrelenting oil costs could weaken investment by entities involved in oil probe and production. Again, dropping oil prices will slow the need for developing alternative sources of clean energy. This will help conserve the environment by making the coal and oil deposits unburnable hence curtailing global temperature rise to two degrees Centigrade.

Plummeting Oil Prices

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The reality about oil companies is to make a profit. So, falling oil prices will mean less exploration, an issue that will help conserve the environment because some of the most ecologically hurting oil exploration transpire in the expensive regions. The underlying economics with cheap oil is increased consumption. Commuters are more likely to avoid cycling during winter.

The demand for petroleum is widely unbendable, in simple words; people may hardly change with a change in pricing (Kurtz, 2004). While crude oil is employed to make petroleum items used to fuel airplanes, vehicles; warm homes and produce pharmaceutical products, less activity owing to dropping oil prices will reverse the adverse effects that the glut for the exploration has had on the environment.

Exploration and oil drilling distracts land and maritime environments. These activities may hamper fish and marine life. While modern technology can enhance the proficiency of exploration and drilling operations, dropping, oil prices will lessen these activities. Hydraulic fracturing is a method employed to produce oil not only from shale but also from tight rock formations. This approach has enabled the US to enhance its domestic fuel production while minimizing the amount of fuel imported.

Plummeting Oil Prices

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These are ecological issues related to this technique. Fracturing rocks involve large quantities of water and utilize high levels of hazardous chemicals to produce fuel from rocks. In particular regions, the use considerable amount of water to produce fuel can remarkably impact the availability of water as well as aquatic life. Faulty wells or poor handling may lead to spills and leaks. With less activity when it comes to exploration, the marine life would be saved from such disasters. Furthermore, hydraulic fracturing generates significant amounts of waste water, which contains chemicals and other hazardous compounds that require treatment before recycle or disposal.

Since the quantity of water utilized and intricacy of treating particular waste water, treatment and disposal are crucial and challenging. In most cases, disposal of sewage entails injecting it into deep wells, which can contribute to earthquakes, in turn, lead to adverse effects on the environment. However, the perpetual oil price drop will mean less activity in this sector hence less hazardous substance will be generated.


Committee on Oil in the Sea, National Research Council. (COSNRC) (2003). Oil in the Sea III: Inputs, Fates, and Effects. Washington, D.C.: The National Academies Press. Available from

Kurtz, Rick S. (2004). Coastal oil pollution: Spills, crisis, and policy change. Review of Policy Research 21, no. 2: 201-19.

U.S. Department of Energy (2016). “Energy Efficiency and Renewable Energy.” Available from

Plummeting Oil Prices

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