The Environmental Consequences of Rising Oil Prices

The primary focus of this research is the environmental consequences of higher oil prices. Environmental consequences are taken to be the impact on the level of greenhouse gas emissions. The premises of the study are that an understanding of these consequences requires a prior understanding of the causes of the rise in oil prices, and both (the causes and consequences) in turn require an understanding of the nature of the rise in prices i.e., whether the rise has been nominal or real – whether they rose relative to other prices. The major finding of the study is that high oil price per se have thus far not had much of a positive impact on the environment (although it is as yet perhaps too early to have any decisive conclusions regarding these). On the one hand, it was found that higher oil prices have not had much of a dampening impact on the demand for oil, and correspondingly not much of an impact in terms of shifts in demand towards alternative energies. On the other hand, it was found that higher oil prices may have had some consequences in terms of a shift in supply, but the shift has thus far been towards non-friendly alternatives, mostly coal. If there are signs of a shift towards more friendly alternatives, it is in terms of investments. However, as the literature also suggests, it would seem that what has been most important in terms of these developments is government support. With regards to trends, the study found that there has been a long upward movement in oil prices in absolute and relative terms, which could be broken down into five distinct sub-periods of rising, falling and stable price trends, and culminating in a period of rapidly rising prices beginning from 1999. It was noted that there is no single explanation for the long-upward movement in oil prices, but that the recent (post-1998) increase is mostly explained by institutional factors, particularly changes which allowed the oil majors, producers and speculators to exert a continuous upward pressure on prices. It was argued that possible strategic (promotion of alternative energy sources which were located in more stable and controllable parts of the world for energy security) and environmental considerations (particularly for global climate change by increasing supply and demand from environmentally friendly sources) led to governments of advanced countries acquiescing to these increases. The widespread belief that higher oil prices were due to demand pressure by emerging economies was shown to have had little or no empirical support, and doubt was also cast on the cost-push thesis, whether emanating from peak-oil or other sources.