As Oil Prices Soar, New Fossil Fuel Investment Could Be Disastrous

Energy security is in the spotlight as many countries seek to reduce their dependence on foreign fossil fuels due to rising fuel prices caused by the war in Ukraine and the resulting geopolitical uncertainty.

Yet, as the recent Intergovernmental Panel on Climate Change (IPCC) report shows, existing and planned fossil fuel projects will push the world past 1.5°C, so producing more fossil fuels could be a recipe for disaster.

As oil prices hit their highest level in nearly a decade, several oil-producing countries have increased their production of fossil fuels, which, according to United Nations Secretary-General Antonio Guterres, only makes things worse long-term.

The use of strategic stocks and additional reserves could help alleviate the energy crisis in the short term. But experts say countries must push for transformational change, phasing out coal and other fossil fuels and accelerating the deployment of renewable energy.

We spoke to Mark Radka, head of the energy and climate branch of the United Nations Environment Program (UNEP) to learn more about the increase in renewable energy and what can be done to move away from combustibles fossils.

Are you surprised that we are seeing reluctance from energy companies and oil producers about reducing fossil fuel production?

Mark Radka (MR): This is not surprising, but it is important to distinguish companies because neither companies nor countries are monolithic. There will be opportunism, and it would be surprising if there weren’t. But the most thoughtful companies are committed to an energy transition, and I think they will stay the course, even if there are short-term fluctuations.

It takes time for the money invested in a new oil or gas field to produce hydrocarbons, so these are long-term investments. It’s not something that happens overnight; they require a lot of money, a lot of engineering and a lot of infrastructure to design and build. Businesses don’t make these kinds of decisions based on the politics of the day.

Are we seeing a dwindling appetite for climate action when it hits the public in the pocket?

SIR: It is a false story. To date, renewables have largely provided power in the power sector, while the use of coal in power generation has declined. There is a welcome increase in the production and acceptance of electric vehicles (EV), although the EV market is still small but growing rapidly.

There is a distinction between oil and gas and renewable energy. There is more and more convergence in the energy system. But it hasn’t happened to the point that one can say “it’s pro-climate renewable energy policies that are responsible for high gasoline prices.” This is a lie.

Some oil-producing countries have said that without energy security, countries will lose the means to fight climate change – what would you say to that?

SIR: The assumption that if you move away from fossil fuels too quickly, you will reduce your economic means of fighting climate change is a strange logic. The costs of the energetic transition will not be small. But the costs of inaction far outweigh the costs of action. We need energy, but we also need a healthy climate for the planet to work: we need a climate compatible energy transition.

The technology exists – not yet in all sectors – but we shouldn’t use that as an excuse not to act aggressively in other areas. This transition is already underway. We just need to speed it up, which can certainly be done. I would be surprised if a hydrocarbon-producing government claimed that it should stop producing hydrocarbons, but I think market forces will dictate that these producers find a shrinking market.

Are renewable energies inherently more geopolitically stable than fossil fuels?

SIR: It is clearly much easier for some countries to be self-sufficient [when it comes to renewables] that others. If you are in a very sunny location, the cost of solar power is attractive, while other countries might have better wind resources. The vast majority of countries have good sources of renewable energy. If the wind is blowing somewhere and the sky is overcast elsewhere, you can export the energy. Logically, you would like there to be a sharing of resources, allowing a balancing of the offer.

This type of power sharing is possible in the Nordic countries because their power grids are largely interconnected. There is also a high voltage power line project between Scotland and Norway which will allow the exchange of Scottish wind energy and Norwegian hydroelectricity. This type of project is good because it reduces overall costs and increases reliability. The world is increasingly electrified – but electricity is not like oil; you can’t store it in large quantities, so more interconnection is important.

Given the stark warnings of the latest IPCC report, are we in danger of going backwards this year?

SIR: There is enough momentum to keep moving forward on decarbonization, but there could be short-term reversals. I use the analogy of temperature in spring. There may be reversals, but ultimately you know the temperature only goes one way, and July will be warmer on average than April, at least in the northern hemisphere.

What opportunities exist to maximize energy efficiency and thus consume less energy to reduce dependence on imported fossil fuels?

SIR: The main frustration for people who worry about energy and climate change is the huge untapped potential for reducing energy needs through energy efficiency. Half of the short-term emission reductions in the energy sector can be achieved through energy efficiency, for example by using more energy-efficient appliances and lighting and more efficient motors.

All of these exist, but they just aren’t widely adopted enough. In large part, it is government policies that drive more efficiency. For example, in the European Union, you cannot buy a refrigerator today that would have been considered the best on the market in 1990. So these technologies have evolved, driven by regulations that drive innovation. People pay a little more for a better device, but they save money on their energy bills, often enough to pay off the increased costs quickly.

What would you say to those looking to expand fossil fuel production?

SIR: It must be emphasized that this would be a false economy. This could lead to investments that need to be withdrawn early, as the trend is towards decarbonization in the energy sector. We need arguments to fight the idea that the climate is no longer such a priority with facts. We don’t need to panic, but we don’t need to be complacent either.


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Felix J. Dixon