$100+ Oil Barrel Break-even in Low Carbon Economy

The billions being invested in renewable energy, nuclear and 'clean' coal will pay off financially if oil is over $100 a barrel in 2020, says the energy and climate change secretary-

UK-Break-even for low-carbon economy is $100 a barrel oil, says Chris Huhne

Traders set the crude oil price in the options pit at the New York Mercantile Exchange. Illustration: Mario 

 

The UK's ambitious low-carbon energy plans will mean energy consumers paying lower bills in 2020 if oil is over $100 per barrel, compared to a fossil-fuelled future. That price is the break-even point, said the energy and climate change secretary, Chris Huhne, today.
I think it is an important number, because it clearly shows why a failure to invest the large sums of money needed into renewable energy, nuclear power and carbon capture and storage would be a false economy.

Here's what he told a conference at the Royal Geographical Society in London today. Bear in mind the price of oil (Brent crude) is $104 as I write:

If we relied on oil and gas, and the price stayed relatively low at $80 a barrel then consumers will pay more under our policies – about an extra 1% on their bills by 2020.

At the oil price reached this month - $100 a barrel or more – consumers will pay less through the low carbon energy policies than they would pay for fossil fuel policies.

And if the US administration is right, and the price is $108 a barrel in 2020, then our consumers are winning hands down.

So, as Huhne put it, when people say the energy policies his government are pursuing are far too costly, the reply is "hang on, what is this other world?" Predicting oil prices is a black art of course, but the question is do you think the price of oil is going to remain flat for the next nine years?

He also made another argument for low carbon energy investment: insulation from oil and gas price shocks. He said:

I asked economists at DECC to look at how a 1970s style oil price shock would play out today. They found that if the oil price doubled, it could lead to a cumulative loss of GDP of around £45 billion over 2 years. [The oil price rose fivefold in the 1970s].

And this is not just far-off speculation: it is a threat here and now. The Office of Budget Responsibility forecast that if oil prices rose by 20% - as they have since October – the total cost to the economy would be £4.5bn.

Oil and gas will play an important role in the low-carbon shift. But in the long term, getting off the oil hook will make our economy more independent, more secure and more stable.

We rightly hear a lot about the need to reduce greenhouse gas emissions, and are promised that the UK's economic recovery should include an industrial resurgence based on clean technology. In terms of the three crucial tests of energy policy - low carbon, security and cost - it's the latter that had been least convincing, making the arguments above significant.
One other part of the speech stuck out for me: more startling numbers from China, which just might change the world with its new five year economic plan. China is undoubtedly running fastest in the race for leadership in green technology.

Huhne reeled the numbers off - China's $34bn pumped into the low-carbon economy in 2009 - by way of arguing that even if the UN climate talks look like dragging on for years, some countries were acting anyway. These two stuck out for me:

China will build 24 nuclear power stations in the time it takes us to build one. By 2020, their nuclear capacity will have increased tenfold.

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They will complete 16,000km of high-speed rail in the time it takes us to go from London to Birmingham.

Does a low carbon future really look so scary?