Policies for efficient transport will lower oil prices, create jobs, and help countries meet climate pledges
Oil market futures: Effects of low-carbon transport policies on long-term oil prices
This study, commissioned by the European Climate Foundation, evaluates the effects of transport technology and policies on oil prices and the wider economy. The study compares a Business-as-Usual (BAU) scenario with a Technology Potential scenario that considers a plausible adoption of transport technologies through 2050. It includes the strengthening of technology-forcing policies for light- and heavy-duty vehicles, passenger aviation and international marine. It assumes an extension of existing vehicle efficiency regulations, as well as an expansion of these policies to the rest of the world.
Oil prices will be lower in the future if low-carbon transport technologies are mass deployed, as these technologies will drive a significant reduction in global demand for oil. In the absence of a global technology push beyond current regulations, worldwide demand for oil is projected to grow from 94 million barrels of oil per day (mb/d) in 2015 to 112 mb/d and 151 mb/d in 2030 and 2050 respectively. However, if the climate agreement struck in Paris in December 2015 is held, global oil consumption will be tightly constrained in the medium term and reduced in the long term. The introduction of efficiency regulations, fiscal instruments, and market-based measures will drive the adoption of more efficient transport technologies alone, limit oil demand to 101 mb/d by 2030, and reduce it to 91 mb/d by 2050, while still servicing the projected increase in global demand for transport and other uses.
Unconstrained growth in global oil consumption, as the world oil market returns to long-term equilibrium position (i.e. with the price determined by supply costs rather than market sentiment) after 2020, requires oil supplies from increasingly expensive and unconventional sources that will push world prices above $90 per barrel by 2030 and $130 per barrel by 2050 (in 2014 prices). By contrast, lower demand for oil delays the need for expensive oil supplies from non-conventional sources and would allow a long-term market price of oil between $83 and $87 per barrel, which is maintained between 2030 and 2050. In other words, the global deployment of technologies to mitigate CO2 emissions would cause oil prices to be lower than they would otherwise be in a BAU scenario: by 8.5% in 2030; by 24% in 2040; and by 33% in 2050, according to the modeling results from this analysis.
The EU, as a consumer and importer of oil, typically benefits from lower oil prices. Lower oil prices reduce inflationary pressure on consumers, increasing real incomes and allowing for more expenditure on other goods and services that have larger value chains in the European economy. The situation for the US is different to that of the EU. On the one hand, lower oil prices reduce the returns to oil production in the US and will also mean that some of the current and expected US oil production is no longer economically viable. A reduction in US oil production would also reduce upstream investment, further dampening the wider economic benefit of low oil prices. On the other hand, the US will continue to consume more oil per unit of GDP than the EU and so the lower oil price has a proportionally larger positive impact on US real incomes, even in a future of low oil demand globally. Since the US also enforces lower petroleum taxes than Europe, changes in the crude oil price have a larger relative impact on the pump prices facing consumers, further extending the consumer benefits.