On 28 October, a barrel of crude oil traded at roughly $63, or just under €51, down from an all-time high of $147 in July. The dip comes in stark contrast to earlier projections that oil prices could reach over $200 by 2009. Meanwhile, a tonne of CO2 is trading at just €19 under the EU Emissions Trading Scheme (EU ETS).
The low carbon and crude oil prices may be an incentive for new EU ETS entrants, who would prefer to pay for emissions permits rather than invest in technologies that reduce emissions. Most analyses indicate that CO2 needs to trade at above €25 per tonne at the very least to make efficiency upgrades profitable in the long term.
But it could be a "chilly winter" for renewable energy project developers and clean technology firms, according to Angus McCrone, chief editor of New Energy Finance, a London-based information service focused on renewables and clean technology investments.
While oil has become cheaper due to lower global demand following the financial crisis, the collapse of global money markets has also created a shortage of financing for renewables projects, which are often capital intensive, McCrone told EurActiv. Meanwhile, smaller firms in the 'low carbon' sector could go under or face buyouts by larger companies and utilities, he said.
"The outlook is clearly not as good as two months ago," admits Christian Kjaer, chief executive of the European Wind Energy Association (EWEA). But Kjaer notes that the order books of most turbine manufacturers are full for the next two years, and any potential defaults on orders could be bought up by larger utilities, many of which remain solvent.
The renewables industry may also have another reason to be more upbeat. National renewable energy support schemes and binding uptake targets bolster the sector, shielding it from the impact of a lower carbon price, says McCrone. And once financing flows return, project developers are likely to find a more favourable response from banks, which are "certainly not getting cold feet about investing in renewables" as a stable bet for the future, according to McCrone, who expects an improvement in the situation as early as spring 2009.
Peak oil saves the day?
The European Commission has repeatedly used high oil prices as a justification for investing in more costly renewable energy or other low carbon technologies. Ferran Tarradellas, spokesperson for the Commission's energy directorate, suggested the EU executive's views on the matter had not changed.
In response to inquiries about whether or not lower prices have changed Brussels' thinking on the matter, he referred to the International Energy Agency's upcoming World Energy Outlook.
This year's outlook, due to be published in November, predicts that the global output of oil is set to decline faster than previously estimated, indicating that prices could significantly rsie again as suppliers struggle to meet the world's thirst for oil even in the context of declining demand, the FT reported on 29 October.
