How Lower Oil Prices Impact the Competitiveness of Oil with Renewable Fuels

DESCRIPTION: The dramatic fall in oil prices since mid-2014 has raised questions about whether the availability of cheap crude could derail the movement toward lower carbon energy sources, which has been gathering momentum in the last decade and is important to the stabilization of the world’s climate. In a new paper for the Center on Global Energy Policy, Dr. Geoffrey Heal, Donald C. Waite III Professor of Social Enterprise at Columbia Business School, and his co-author Karoline Hallmeyer explore the ways in which oil competes with renewable fuels and examine the impact a lower oil price environment may have on them.

OUTCOMES: Key Findings:
• Low oil prices could in principle affect the progress of renewable energy in several ways, by competing with biofuels to displace gasoline in transportation, by making vehicles powered by internal combustion engines more competitive with electric vehicles, and by potentially lowering natural gas prices.
• In the United States, low gasoline prices make it hard to justify the use of electric vehicles on economic grounds. However, the fact that in the United States most gasoline-powered vehicles return very low gas mileage boosts the competitiveness of EVs.
• Because little oil is used to generate electricity, the primary impact oil prices will have on the competitiveness of different electricity fuels is through its impact on natural gas, which is used to generate 27 percent of electricity in the United States and around 22 percent globally. The impact of low oil prices on natural gas prices cuts in both directions.
• While oil is used in only a small fraction of power generation in the United States and globally, a comparison of costs shows that even at current lower levels, oil will not compete with renewable energy sources in the generation of electric power.