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Consequences of the current fall in energy prices

From New Zealand Tree grower May 2015

On 17 December 2014 the New Zealand ethical investment company Prometheus collapsed and was put into receivership. The company invested in renewable energy areas such as bioenergy, solar and wind energy. The major reason behind the company collapse was the universal decrease in the global price of fossil fuels in the form of oil, gas and coal. Investors in Prometheus will get most, possibly all, of their invested capital back as the company responsibly went into receivership before taking on debt.

In the late 20th century there were many predictions that the world would soon experience an energy supply crisis. That has not happened. The world is currently awash with fossil fuel energy, especially oil and gas. There are still abundant global reserves of the fossil fuel coal. However, coal has fallen from favour because it is often a cause of greater pollution. The increased supply of oil and gas is undoubtedly the result of fracking.

Low energy prices might also be being encouraged by the large, and low cost, fossil fuel suppliers. These producers may have reduced income but lower oil and gas prices will limit, or at least slow, the development of competitive renewable energy sources.

Renewable energy companies world-wide will be under increasing financial pressure and some companies will undoubtedly collapse. There will be pressures for increased subsidies. The exchange rates of some fossil fuel producing countries, such as Australia and Canada, have fallen. The fall in energy prices, combined with the increases in supply, reduces the incentive for further fossil fuel prospecting.

Reducing the pressure to move to renewable energy sources will have serious long-term consequences. If human civilisation is to survive, and hopefully improve average living standards, the world must increasingly move from fossil fuels to renewable energy sources. We constantly hear much about the need to reduce the release of fossil fuel carbon, either as carbon dioxide or methane, as this could increase the rate of climate change. We almost never hear the moral argument supporting such a move − what right does the present global population have to access most of the readily available fossil fuels and other resources? What resource access and at what cost will be available for future generations?

While the energy price decline may be great for current energy consumers the price decline will have serious short and long-term consequences. Who is able to address these problems and what actions should we take?

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Disclaimer: Personal views expressed in this blog are those of the writers and do not necessarily represent those of the NZ Farm Forestry Association.

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