The fossil fuel industry’s grip on the global economy has made it harder for us to move to a sustainable future. Dr Andrew Venter looks at the oil price collapse and why we shouldn’t let this crisis go to waste.
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While the world fixates on the Covid-19 pandemic, another crisis has been playing out largely in the background.
We are talking here about the 2020 oil crisis – a crash in (inflation-adjusted) prices to levels not seen since immediately after World War II.
And like Covid-19, this is a crisis likely to have far-reaching consequences for people and the planet.
Crude oil benchmarks lost roughly two-thirds of their value in the last quarter, with March’s declines accounting for the lion’s share of this – a record fall, according to Reuters.
The price crash has been driven by a spectacular collapse in demand, as the effects of the pandemic worked its way through the global economy. This was exacerbated by the production and price war between Russia, Saudi Arabia and the United States.
Oil crises are a familiar part of our economic language, with the 1973, 1979, 1990 and 2008 crises triggering global economic recessions.
In those years, however, the crises were the consequence of a rapid increase in the oil price. This time around it’s quite the opposite with the crisis a consequence of the rapid decrease in the oil price as a result of the Covid-19 disruption to the global economy.
The current oil crisis is likely to be far deeper and long lasting, with signs of a collapse in oil futures markets
Back to the oil wars.
Oil has underpinned US wealth creation and power for over a century.
The country’s reliance on oil gives it a vested interest in the commodity and explains its determination to secure its own supplies and strengthen its economic independence.
Fracking, a process that pumps water and chemicals deep into the ground to force out oil and gas, has allowed the US to unlock shale oil reserves on its own soil.
This has restored its position in the world as a primary producer.
In doing so, it has disrupted the economic influence of the other major oil producers, namely Saudi Arabia and Russia.
Oil remains the bedrock of all modern economic activity, given the importance of energy and mobility — cars, trains, planes and ships — to our daily lives.
It’s just that we don’t need as much of it under lockdown.
Hopefully, though, the 2020 oil crisis will shift our dependency, accelerating a decoupling of our global economy from fossil fuels – oil, natural gas and coal.
We have to do this, as the alternative will be climate change, bringing economic and social disruption on a scale likely to dwarf our current Covid-19 troubles.
Our unabated dependency on fossil fuels is directly responsible for the growing climate change threat.
As we use fossil fuels, we release carbon dioxide into the atmosphere, sparking global warming and a shift in climate patterns.
Most world leaders recognise this, underscored by the Paris Agreement, with the unprecedented commitment of 127 nation states.
The agreement is aimed at limiting global temperature rise this century to less than 2oC, and ideally less than1.5oC, above pre-industrial levels.
While the commitment of some signatory nations has been called into question, the agreement does reflect the importance the majority of global leaders attach to climate change.
The European Union is leading the way in driving climate change policy and law. The proposed introduction of the European Climate Law aims to make Europe the first climate neutral continent by 2050. And the European Commission President, Ursula von der Leyen, has pledged to put a European Green Deal at the centre of the EU’s Covid-19 recovery plan.
But this shift will only be possible if we stop using fossil fuels and this requires we find other ways of powering our economies.
Globally, financial institutions have begun to embrace this challenge. They are adopting ever more stringent environmental, social and governance criteria.
Investment is shifting away from fossil fuels towards alternative energy.
In this regard, the collapse in the Sasol share price, from over R 470 to under R 70 in 12 months, has been a massive wake-up call for South Africa’s financial sector, which has stubbornly continued to invest in Sasol despite growing resistance to its petrochemical business.
At the same time, businesses are driving innovation globally.
Tesla has demonstrated that it may be possible to produce and sell electric vehicles at a commercially viable scale, with every major motor vehicle manufacturer following suit.
It’s likely we’ll all be able to drive electric vehicles within a decade and that petrol or diesel vehicles will have left our roads within 30 years.
In parallel, the energy storage sector is rapidly developing large-scale solutions which will remove our reliance on coal and gas-fired power plants for peak-time energy. Meanwhile, the Hydrogen and Fuel Cell economy is emerging as the likely global successor to the Fossil Fuel economy.
These innovations mean a carbon-free economic future is possible, if we want it.
We just need to embrace the opportunity, support bold, visionary and creative leaders and work together towards a new fossil fuel free future.
Covid-19 has demonstrated we have the ability and leadership to work together for our common good.
Let’s hope we are able to continue doing so, embracing change for a sustainable future.
• Dr Andrew Venter is the director of the Cambridge Institute for Sustainability Leadership’s operations in South Africa. Venter joined CISL SA from WILDTRUST, where he was chief executive for 19 years. Over this period, he led the development of WILDTRUST into one of the region’s largest and most influential environmental organisations. This story forms part of The Future We Want Series launched by the CISL and Roving Reporters in response to the Covid-19 pandemic.
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