Climate setbacks from cheap oil show need to price carbon

gas price

Climate setbacks from cheap oil show need to price carbon

By Stephanie Doyle

While gas continues to hover around $2 a gallon, thanks to a glut of oil on the market, car companies and consumers butt heads over what to buy.

Cheap oil prices are mainly the result of a surplus of product on the market. With sanctions lifted, Iran can now export oil again, adding to the extremely high production from OPEC. Last week, Russia and Saudi Arabia struck a deal to freeze production at January levels, but their actions will do little since January levels were record highs for both countries.

While oil markets are in a tailspin and efforts to stabilize them continue with a huge energy industry conference in Houston this week, the effects on American purchasing habits are clear.

While consumers have been moving back to SUVs and gas guzzling cars thanks to the continued presence of cheap gas, car companies are still forced to meet rising  fuel-efficiency standards, and so continue to turn out new hybrid and electric models, despite a lack of demand and purchasing. Fuel economy standards are set to rise in 2017, meaning car companies must pay fines or meet the new standards despite a lack of consumer demand.

More SUVs and trucks were bought last year than passenger cars, and an increase in cars that consume oil means (of course) more oil consumed. For Toyota’s top-selling efficiency vehicle, the Prius, the past year has seen a noticeable decrease in sales, with 65,400 cars sold in 2015 as opposed to 122,800  in 2014 and 145,000 in 2013. When oil was $4 a gallon (in 2012) Prius sales were the highest ever in the U.S., topping out at 147,000 sold.

Plug-in electric vehicle sales have been affected as well. The total number of electric vehicles sold in the United States was down in 2015 from 2014, from 122,000 to 116,000, despite a steady increase in sales in the years before.

So what does this flood of cheap gas on the market mean for emissions? Because of the influx of oil on the markets, consumers in 2015 were able to purchase cheap gas in record amounts. According to the Carbon Tax Center, increased gas consumption in 2015 produced carbon emissions equivalent to a year’s worth of emissions from nine coal-fired power plants. But perhaps the biggest problem with low gas prices, besides loss of jobs, failing economies worldwide, and loss of investors in green energy, is that it undermines the work of Paris and makes it harder for countries to stick to their promised goals to reduce emissions.

With the price of gas  expected to remain low for at least another year or two, the best way to counter the effects and to ensure countries (especially the U.S.) stick to their goals, is to take the opportunity to initiate a revenue-neutral Carbon Fee and Dividend. Even Republicans, who fought the CAFÉ standards in 2012, may see a benefit in a market-based mechanism of encouraging higher fuel economy standards.

Because of low gas prices, the fee would inflict a less painful rise in prices for the average household and would allow a relatively easy transition over to a low-carbon economy. The price signal from this policy would encourage green-energy investments. Big business, shaken by the boom-and-bust nature of the oil market, is likely to welcome the predictability that a rising carbon fee brings to oil prices.

The United States and China are doing what they can to keep emissions reductions on track. The U.S. is keeping its increased fuel-economy standards and China is forcing oil to artificially cost at least $40 a barrel. But even the world’s two largest greenhouse gas emitters cannot fight cheap oil prices with regulation alone. To truly ensure that the downside of low prices of oil does not continue, we need an effective federal policy — Carbon Fee and Dividend -– to bring oil prices back up and emissions back down where they both belong.

Stephanie Doyle
Stephanie is the Outreach Liaison for CCL and is located in Washington, D.C. Energy policy is both her job and her passion, and she's currently pursuing a Masters at Johns Hopkins in that very subject. She also loves the outdoors, including hiking with her pup and scuba diving whenever she gets the chance.