Security, affordability, the environment: Britain has an energy trilemmaby Michael Grubb / January 22, 2015 / Leave a comment
What does the tumbling oil price imply for Britain and its energy policy? Energy bills in the United Kingdom have been going up for years, and newspapers have been warning of the threat of blackouts. North Sea oil and gas output is declining, and political volatility in the Middle East and the Ukrainian crisis have heightened fears about Britain’s growing dependence on unstable international energy sources. The end of the year brought news that 2014 was the warmest year on record, also bringing back to the fore concerns about the consequences of fossil fuel emissions.
What will the present collapse in oil prices—to almost half the level only six months ago—do to policy?
The energy “trilemma,” the need to deliver security, affordability and on the environment—defines the central challenge. All three must be reconciled for an efficient and long-term energy supply.
But energy policy must also reckon with the extraordinary volatility and uncertainty surrounding fossil fuel markets. What will the present collapse in oil prices—to almost half the level only six months ago—do to policy?
The price rollercoaster
Do not be fooled. Only 15 years ago, oil cost close to $10 per barrel, and the Economist predicted it could go still lower and “would be unlikely to rebound.” Just nine years later it hit an all-time high of $147 per barrel, before settling back to near $100 per barrel, a level that markets came to regard as being the “new normal.”
The danger is that when prices are low, consumers get careless, governments traditionally draw back, and companies get leery of making new investments. Use of energy goes up—but exploration of new sources goes down. The low energy prices of the 1990s led to precisely these circumstances, as the rising demand for energy outpaced discoveries of new reserves. So, during the 2000s, the oil price rose spectacularly. In turn, this caused consumers to use less energy, governments to toughen up policies on efficiency and new energy sources, and oil companies to drill in tougher environments, such as in deep waters, the arctic and in shale fields. The net effect of a decade of…