For those awaiting more aggressive action on climate change, it may look like a breaking point has finally arrived. A sudden collapse in fossil-fuel markets akin to the 2008 financial crisis has long been a scenario for how the world switches to a less carbon-intensive path. With Brent crude trading below $35 and the average yield on the U.S. energy sector’s junk debt above 15% — nearly double its levels in mid-January — it looks very much like a credit crunch is upon us.
At the same time, there’s reason to be fearful, too. Russia’s finance ministry has said it could sustain oil prices below $30 for as long as a decade. Setting aside a brief dip in the late 1990s, dollar crude hasn’t been at those levels in real terms since the 1973 oil crisis. In theory, that should be bullish for consumers of oil and bearish for purported substitutes, such as electric vehicles. The real impact is likely to be more nuanced — and positive for decarbonization.A key factor to bear in mind is that global downturns almost always throttle back energy consumption. There have only been six periods in the past half-century when annual energy demand growth has fallen below 1% on a sustained basis, and four of them resulted from slowdowns like the one we currently seem to be witnessing.
That’s only going to be a temporary help, since recessions don’t so much slow the pace of emissions growth, as defer the pre-existing path for a few years. But there’s reason to think that this time really will be different.