Energy

IMF Warns Affordable Energy Is Undermining Global Warming Talks

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Michael Bastasch Contributor
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The International Monetary Fund’s economists are worried that coal, oil and natural gas prices are so cheap, they’ll reduce the willingness to invest in politically-favored green energy technologies they say are necessary to fight global warming.

“Fossil fuel prices are likely to stay ‘low for long,’” wrote two IMF economists for the organization’s blog.

“Notwithstanding important recent progress in developing renewable fuel sources, low fossil fuel prices could discourage further innovation in and adoption of cleaner energy technologies,” wrote IMF economists Rabah Arezki and Maurice Obstfeld. “The result would be higher emissions of carbon dioxide and other greenhouse gases.”

Arezki and Obstfeld write as United Nations delegates meet in Paris to hash out a successor agreement to the Kyoto Protocol. President Barack Obama has made signing a global climate treaty a top priority this year and has promised $10 billion for green energy over the next five years — though it’s unclear exactly where this money will come from.

In total, 20 countries are promising $20 billion in green energy spending to encourage investors to  go green instead of using fossil fuels that emit carbon dioxide. Obama and other world leaders pledged in 2009 to give poor countries $100 billion a year in climate welfare by 2020 — the U.N. says rich countries gave poor ones $62 billion in climate welfare.

But low, and falling, fossil fuel prices have frustrated efforts by politicians to create a green energy boom. The International Energy Agency said in 2012 the world needs to spend $36 trillion more on green energy by 2050 to fight global warming. “Low for long” fossil fuel prices, however, make this scenario much less likely.

price-of-oil-chart1

Source: IMF

Arezki and Obstfeld say countries need to tax carbon dioxide emissions to make green energy more competitive with fossil fuels.

“Policymakers should not allow low energy prices to derail the clean energy transition,” the economists wrote. “Action to restore appropriate price incentives, notably through corrective carbon pricing, is urgently needed to lower the risk of irreversible and potentially devastating effects of climate change. That approach also offers fiscal benefits.”

But even with a carbon tax, green energy suffers hurdles that make it hard for such sources to compete with fossil fuels. Wind and solar, for example, aren’t dispatchable energy because it only creates power when the sun is shining and the wind is blowing.

Hydropower and nuclear are much more reliable than wind and solar, but hydropower is site specific because they rely on rivers and dams to generate power. Nuclear power plants are expensive and have met with vehement political opposition from opponents.

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