Thread by @davidfickling

The collapse in oil prices isn't likely to be a big problem for the global #climate -- but the attempt to recover from an economic crisis might. Some notes on my column today: #OOTT

bloomberg.com/opinion/articl…

The economics 101 view of falling oil prices is that it will inevitably mean stronger demand for crude, which will probably be bad news for alternatives -- principally, electric vehicles.

But you really need to get past economics 101 to see what's going on here!

After all, oil prices have very little to do with the attractiveness of electric vehicles.

For one thing, taxes and producer profits mean that the crude price is less than half of the pump price of motor fuel, as @harrybenham_1 points out:

https://twitter.com/harrybenham_1/status/1237146065289216001

@harrybenham_1 In fact, cheaper electric "fuel", better mechanical efficiency and reduced maintenance mean it already costs less than half as much to run an electric car as it does to run an equivalent petrol or diesel-powered one:

news.umich.edu/fuel-cost-of-d…

The barrier to adoption of electric cars isn't the price of oil but *the price of electeic cars*.

The drive-away cost is still well above internal-combustion equivalents, and won't get competitive till around 2025 when battery prices fall below $100/KWh:

One thing we know about oil is that people's tendency to consume it moves around quite a lot as their income changes, but not as the price of oil changes. (ie, it shows low price elasticity of demand)

That means a price fall isn't going to lead automatically to a demand surge.

Electric car purchases are being driven at the moment by regulation (principally in China) and principle-plus-regulation (in markets like the U.S. and Europe where there's subsidies and affluent green consumers). This industry just isn't turning on nickel-and-dime considerations.

Another aspect of the current crisis is also pretty bullish for decarbonization -- interest rates are slumping.

That makes it much cheaper to do the initial capital investment in an energy project.

This helps renewables because so much of their costs are up-front.

Fossil power is very cheap to build but gets more expensive over time because you have to buy fuel.

Renewables are more expensive to build but get cheaper over time because there's no fuel.

Lower capital costs help the players whose costs are up-front.

If low rates are sustained and extend to corporate borrowing, as we saw after 2008, they'll also generally make it cheaper to finance major capital investment.

That's good because the world needs to do a hell of a lot of capex to decarbonize over the coming decade.

So much for the good news. The bad news is that governments trying to recover from an economic slump will naturally want to carry out major stimulus -- and in China in particular that has recently been very bad news for the climate.

Have a look at this chart of energy consumption growth going back to the mid-1960s.

It absolutely surged after the 2008 financial crisis and China's 2014-2015 industrial slowdown, largely because of Beijing's immense industrial stimulus programmes.

On the eve of Xi Jinping's elevation to China's top job, his predecessor promised that the country's economy would double in size by 2020.

Beijing needs to put in a cracking pace of growth this year in spite of coronavirus if it wants to achieve this:

bloomberg.com/opinion/articl…

For all the talk of "new infrastructure" -- 5G networks, waste and healthcare, EV charging stations -- there's plenty of very traditional railways, airports, and real estate on the $3.6 trillion wishlists of major projects being circulated by Chinese provincial governments.

That could derail decarbonization efforts for years -- and at this point, that could affect the fate of the planet itself. (ends)

scmp.com/economy/china-…