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Why coronavirus is a bigger problem for clean energy than the oil crash

Electric vehicle assembly plant in China.
China Stringer Network/Reuters
Workers are seen at the assembly line of Baojun E200 electric vehicles (EV) at a plant of SAIC-GM-Wuling, a joint venture among SAIC Motor, General Motors and Liuzhou Wuling Motors Co Ltd, in Qingdao, Shandong province China September 28, 2018.
  • Tim McDonnell
By Tim McDonnell

Climate reporter

Published Last updated This article is more than 2 years old.

Conventional wisdom holds that low oil prices are bad for clean energy—but the crash of the last few days might actually help end the world’s fossil fuel addiction sooner. 

Over the weekend, a spat about oil production between Russia and the Saudi-led Organization of Petroleum Exporting Countries—OPEC wanted to slash production to match a dropoff in demand due to coronavirus and the global economic turndown; Russia disagreed—led to the biggest oil price drop since the 1991 Gulf War. 

Cheap oil is great for anyone who buys gasoline, as US President Trump was quick to point out. But it could lead to a rise in climate-threatening emissions: Low oil prices make oil easier to burn, disrupt a revenue stream that oil companies might channel toward reducing their carbon footprint, and could undercut consumers’ transition to cleaner alternatives. On Monday, shares of Tesla and General Motors, which has staked its future on electric vehicles, both plunged. 

Still, short-term stock prices aside, cheap oil is unlikely to significantly disrupt the momentum behind the global market for electric vehicles, said Ethan Zindler, who leads analysis of the Americas for Bloomberg New Energy Finance. That market is still mostly driven by tax incentives, emissions regulations in China and Europe, and other government interventions—not so much consumers looking only to save money on gas, he said. 

That cost comparison continues to tilt in favor of EVs as the cost of batteries falls by around 20% every year. In its most recent EV market outlook, released at the end of February, Bloomberg NEF projected that 2.4 million EVs will be sold this year, accounting for 4% of global vehicle sales. That would be a record, and Zindler said he doesn’t expect cheap oil to change that outlook unless prices stay at rock bottom for more than a year.

If anything, the oil price drop is a minor factor compared to the impact of coronavirus on the global economy, Zindler said. Without the outbreak, EV sales would likely be much higher, especially since China is the world’s largest EV market. 

“The question people have now is about the purchase of any kind of vehicle, or any capital expense,” he said.

Meanwhile, cheap oil is already taking its toll on oil companies: The resulting stock price crash was so damaging to the personal fortunes of two US oil magnates, Harold Hamm and Jeff Hildebrande, that Bloomberg bumped them off its index of billionaires. And as my colleague John Detrixhe reported yesterday, cheap oil is a headache for many debt-loaded US fracking companies that are about to run into refinancing deadlines. 

That kind of volatility only serves to make investors more attracted to clean energy. It also makes it harder for oil companies to access credit, and deters investment in long-term drilling projects, said Antoine Halff, a senior researcher at Columbia University’s Center on Global Energy Policy. In other words, cheap oil could hasten the fossil fuel industry’s demise, rather than prolong it.

“The oil price collapse raises inevitable questions about the price and availability of oil in the long term, and about the viability of investments in the future,” said Halff. 

An analysis from Moody’s released Tuesday morning projected that prices would rebound by the second part of this year. But the near-term fate of the oil price is probably bound up with coronavirus, and what sort of stimulus package China rolls out once it feels ready to recover. Longer-term, the Russia-OPEC tussle might be counterproductive for both parties, squandering one of their last chances to take advantage of a decently high price, according to University of Warwick global energy professor Michael Bradshaw.

Ultimately, Bradshaw said, the industry’s boom-bust cycles are doomed to be overshadowed by terminal decline, brought on by global climate policies.

“In that context, engaging in a short term price war is folly,” he said, “akin to arguing about who owns the deck chairs on the Titanic.”

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