The relationship between supply and demand, a fundamental economic concept, holds that when the price of something rises, people use less of it. Similarly, when prices fall, they use more.
And it may seem logical that low oil prices benefit consumers, countries, even the world. When consumers save money on gas, they can spend it elsewhere.
Yet, I argue that climate change makes this view obsolete.
That’s because cheap oil has two big downsides along with its short-term gains. It erodes the advantages of vehicles that get more miles to the gallon, making consumers less apt to do their share to reduce emissions by buying vehicles that use less fuel – or none at all.
It also makes the case for energy innovation seem less urgent to policymakers and the automotive industry.
Burning fossil fuels, the main source of manmade carbon dioxide, is the biggest cause of climate change. In the U.S. and other wealthy countries, oil is the single largest source of these emissions.
But relatively low prices are boosting petroleum sales worldwide. Consumption is climbing particularly in Asia, where a sustained economic boom has lifted billions out of poverty and put millions more people behind steering wheels.
Those new middle-class and wealthy consumers and the industries spawned by meteoric economic growth are burning millions of barrels of petroleum every day. This includes transport of goods by road, rail, water and air. But it is passenger vehicles that dominate global mobility, and they are consuming the greatest volume of fuel in the US, China and everywhere else.
To be sure, petroleum is the raw material for a great many products besides gasoline, diesel and other fuels – from lipstick to asphalt. The economic benefits of cheap oil can be widely distributed, bolstering growth and keeping inflation down.
President Donald Trump, expressed this view when he likened low oil prices to “a big tax cut for America and the world” in a tweet.
Donald J Trump
Oil prices getting lower. Great! Like a big Tax Cut for America and the World. Enjoy! $54, was just $82. Thank you to Saudi Arabia, but let’s go lower!
But cheap oil has other effects as well. After improvements in fuel economy during the 1970s and early 80s, two decades of low gasoline prices reversed this trend, causing average miles per gallon to actually decrease a little in some years. Only in 2004, when prices rose, did fuel economy again become an issue.
After years of hovering around and even topping US$100 per barrel, aside from a brief peak during the Great Recession, oil prices collapsed. They fell to less than $50 by the end of 2014 and sank even lower in early 2015.
Oil prices are still nowhere near $100 a barrel.
Americans responded as economists would expect them to: by driving more. The lower prices fell, the less it cost to fill their tanks. Summertime gas consumption hit an all-time high.
Unsurprisingly, US emissions from transportation rose by 10 percent between 2014 and 2017, even as they fell for electricity generation and other sectors.
In addition, drivers bought bigger vehicles. Sales of SUVs, minivans and small pickups soared, while passenger car sales plummeted.
By 2018, Americans were buying two SUVs or pickups for every sedan. The trend, also present in Europe, is a core reason why emissions have risen from advanced nations for the first time in five years.
Automakers are responding by phasing out passenger car production and manufacturing more SUVs and trucks in a trend that reaches beyond U.S. borders. SUV sales are surging around the world.
Partly due to the extra miles driven and the size of the vehicles involved, carbon dioxide emissions from wealthy nations rose by 0.5 percent in 2018, following five years of decline.
But who controls oil prices? As an energy scholar and former petroleum geoscientist, I believe that it’s clear that no one does.
Governments can establish climate policies, such as carbon pricing, stiff fuel taxes and other measures, that raise gasoline prices. But, as the recent French protests and two defeats in a row in Washington state for a carbon fee or tax have shown, there are limits to how far or fast they can go, even in rich countries.
And low-income nations view such measures as damaging and intrusive. Raising fuel prices has inspired massive resistance, even riots, in nations as diverse as India, Iran, Mexico and Haiti.
The Organization of Petroleum Exporting Countries has teamed up with Russia to create an oil-exporting alliance known as OPEC+. Those countries can cut supplies to increase prices, as they agreed to do in December 2018. They can also increase output, should they wish to lower prices.
Yet that doesn’t mean that exporters have the power to call all the shots. For example, if China – the world’s largest oil importer – were to have a big recession, Saudi Arabia and Russia would probably have trouble finding buyers for all of the oil they want to export. Overproduction in that scenario would make oil prices sink.
There is another reason the group can’t dominate. They must compete against the world’s largest oil producer and most rapidly growing crude exporter: the U.S.
Advances in drilling technology have made it easier than ever to produce petroleum at a time when humanity should use less of it for the planet’s sake.
Until and unless electric vehicles become dominant, it will prove extremely hard to wean the world off of oil.
I believe that governments and automakers should for this reason be working together for the long term. By providing strong incentives for consumers and industries to make the jump, they can stop letting cheap oil stymie climate action.
Otherwise, as hundreds of millions more people become drivers in coming decades, the laws governing supply and demand could steer all of us down a road to devastating degrees of global warming.
World Bank pushes G-20 to extend debt relief to 2021
World Bank Group President David Malpass has urged the Group of 20 rich countries to extend the time frame of the Debt Service Suspension Initiative(DSSI) through the end of 2021, calling it one of the key factors in strengthening global recovery.
“I urge you to extend the time frame of the DSSI through the end of 2021 and commit to giving the initiative as broad a scope as possible,” said Malpass.
He made these remarks at last week’s virtual G20 Finance Ministers and Central Bank Governors Meeting.
The World Bank Chief said the COVID-19 pandemic has triggered the deepest global recession in decades and what may turn out to be one of the most unequal in terms of impact.
People in developing countries are particularly hard hit by capital outflows, declines in remittances, the collapse of informal labor markets, and social safety nets that are much less robust than in the advanced economies.
For the poorest countries, poverty is rising rapidly, median incomes are falling and growth is deeply negative.
Debt burdens, already unsustainable for many countries, are rising to crisis levels.
“The situation in developing countries is increasingly desperate. Time is short. We need to take action quickly on debt suspension, debt reduction, debt resolution mechanisms and debt transparency,” said Malpass.
Kenya’s Central Bank Drafts New Laws to Regulate Non-Bank Digital Loans
The Central Bank of Kenya (CBK) will regulate interest rates charged on mobile loans by digital lending platforms if amendments on the Central bank of Kenya Act pass to law. The amendments will require digital lenders to seek approval from CBK before launching new products or changing interest rates on loans among other charges, just like commercial banks.
“The principal objective of this bill is to amend the Central bank of Kenya Act to regulate the conduct of providers of digital financial products and services,” reads a notice on the bill. “CBK will have an obligation of ensuring that there is fair and non-discriminatory marketplace access to credit.”
According to Business Daily, the legislation will also enable the Central Bank to monitor non-performing loans, capping the limit at not twice the amount of the defaulted loan while protecting consumers from predatory lending by digital loan platforms.
Tighter Reins on Platforms for Mobile Loans
The legislation will boost efforts to protect customers, building upon a previous gazette notice that blocked lenders from blacklisting non-performing loans below Ksh 1000. The CBK also withdrew submissions of unregulated mobile loan platforms into Credit Reference Bureau. The withdrawal came after complaints of misuse over data in the Credit Information Sharing (CIS) System available for lenders.
Last year, Kenya had over 49 platforms providing mobile loans, taking advantage of regulation gaps to charge obscene rates as high as 150% a year. While most platforms allow borrowers to prepay within a month, creditors still pay the full amount plus interest.
Amendments in the CBK Act will help shield consumers from high-interest rates as well as offer transparency on terms of digital loans.
Scope Markets Kenya customers to have instant access to global financial markets
NAIROBI, Kenya, Jul 20 – Clients trading through the Scope Markets Kenya trading platform will get instant access to global financial markets and wider investment options.
This follows the launch of a new Scope Markets app, available on both the Google PlayStore and IOS Apple Store.
The Scope Markets app offers clients over 500 investment opportunities across global financial markets.
The Scope Markets app has a brand new user interface that is very user friendly, following feedback from customers.
The application offers real-time quotes; newsfeeds; research facilities, and a chat feature which enables a customer to make direct contact with the Customer Service Team during trading days (Monday to Friday).
The platform also offers an enhanced client interface including catering for those who trade at night.
The client will get instant access to several asset classes in the global financial markets including; Single Stocks CFDs (US, UK, EU) such as Facebook, Amazon, Apple, Netflix and Google, BP, Carrefour; Indices (Nasdaq, FTSE UK), Metals (Gold, Silver); Currencies (60+ Pairs), Commodities (Oil, Natural Gas).
The launch is part of Scope Markets Kenya strategy of enriching the customer experience while offering clients access to global trading opportunities.
Scope Markets Kenya CEO, Kevin Ng’ang’a observed, “the Sope Markets app is very easy to use especially when executing trades. Customers are at the heart of everything we do. We designed the Scope Markets app with the customer experience in mind as we seek to respond to feedback from our customers.”
He added that enhancing the client experience builds upon the robust trading platform, Meta Trader 5, unveiled in 2019, enabling Scope Markets Kenya to broaden the asset classes available on the trading platform.