While governments fear taxing more carbon to discourage its use in the economy, the oil market sharply increases the price, ignoring the wrath of voters.
We are swimming in the middle of a paradox. For a long time, economists have been clamoring to ask governments to increase the price of carbon, through a tax or a stock market, to promote the transition to clean energies, but politicians often dare only timid steps.
However, it is the market which is currently darkening. Since the low point of the pandemic, the North American price of oil has jumped 145%, above US $ 80 a barrel, and the price of natural gas has tripled. If we go back to shortly before the pandemic, the price of oil still shows an increase of 45%, while that of gas has doubled.
The price of oil is volatile, unpredictable. It must be said that politics complicates an already complex market, where the short and the long term are entangled.
The Organization of the Petroleum Exporting Countries (OPEC) countries and Russia partially turned off the tap to support the price of oil, which briefly touched a negative price on the futures market, in April 2020. Since then, deconfinement led to an unprecedented rebound in global consumption, which no one anticipated so quickly. However, the enlarged cartel is in no hurry to reopen the floodgates, happy to take advantage of such a high price that it has not seen for seven years.
Last year, outside the cartel, the big oil companies almost halved their investment in production, also disrupted by hurricanes. And although stocks are low, they are reluctant to develop their deposits, after the International Energy Agency (IEA) said they must stop growth to limit global warming to 1.5 ° C.
In the United States, independent shale oil and gas producers who in the past drilled like crazy have become much more disciplined.
“The oil industry is investing to achieve carbon neutrality,” recently explained a Morgan Stanley analyst in the pages of Financial Times. The stake is that the demand for hydrocarbons is not yet aligned with this objective and that it could decline later than the supply, which would result in high prices.
The big oil companies are under increasing pressure from institutional investors who demand measurable progress in their conversion to sustainable energies, when they do not rock their actions outright.
President Biden, who wants to make history for his ambitious climate change agenda, has ironically appealed to OPEC – so far unsuccessful – to increase production faster. The high price of gasoline threatens the recovery, but especially the chances of Democrats to retain their slim majority in Congress next year, or even block Trump’s return in three years.
Across the Atlantic, European governments, which remember the protests of the yellow vests, are calling on President Putin to deliver more natural gas for heating this winter, while local production is declining and that stocks are depleted. In some countries the price has quintupled.
Larry Fink, CEO of fund manager BlackRock, fears oil production has been cut too quickly, long before renewable energy was plentiful enough to take over, hitting poorer countries hard.
But according to Fatih Birol, head of the IEA, the problem with the sharp rise in energy costs is that it can be falsely seen as a harbinger of a difficult transition to clean energy. “That would be wrong,” he says, “but if this is the interpretation that emerges from this situation, it can become an obstacle to the policies that must be implemented in order to succeed in the energy transition. ”
A carbon tax is preferable
A carbon tax is not the same as an increase in the price of oil and natural gas, although both encourage consumers to turn to renewable energies, which are then more competitive.
An increase in hydrocarbons enriches the shareholders of the oil companies and the producing countries. An increase in the carbon tax inflates government revenues or goes back into the pockets of consumers, if it is designed to be tax neutral, as elsewhere in Canada. In Quebec, the proceeds of the carbon exchange go more to the Electrification and Climate Change Fund, which finances the transition.
It is certainly preferable to have gradual and predictable increases in the price of carbon so that economic agents can plan their transition to clean energies, but we are rediscovering, if we had forgotten it, that the oil market does not. often than at its head. Governments will therefore have to take into account security of supply and the blow to the most vulnerable consumers.
The transition to a low-carbon economy will not be easy, especially as other imbalances, other than energy, may arise between the supply and demand of various green or dirty products.
In the short term, the current oil and gas supply difficulties are part of the great global shock that disrupts the supply of many products at the end of the pandemic, a shock that largely explains the soaring inflation. Over time, these dislocations should lessen.
However, I will not stretch my neck on an oil price forecast, knowing that even the Bank of Canada does not dare to do so. But we can think that in the longer term, OPEC discipline will crumble as in the past and that consumers will adjust their behavior. Whoever signs this article has just bought an electric car and reloaded their OPUS card.
What do you think? Express your opinion