Oil Prices, Low-Carbon Energy, and Climate Policy

Overview

For decades, oil prices have influenced the outlook for alternatives to oil and policies that support those alternatives. Expensive oil makes substitutes more appealing; cheap oil makes the economic case for alternatives that much more difficult. High prices in the 1970s kick-started clean energy, including the first modern electric vehicles, while the oil slump beginning in the 1980s pummeled sources like wind and solar power and undermined the push for more fuel-efficient cars.

Given the sharp decline in global petroleum prices beginning in late summer 2014, which saw the cost of benchmark grades of oil fall as much as 60 percent in six months before recovering slightly, the relationship among oil, alternatives, and government policies is again of critical concern for business and policymakers. In light of that, the Maurice R. Greenberg Center for Geoeconomic Studies (CGS) at the Council on Foreign Relations convened a workshop in Washington, DC, in May 2015 with roughly two dozen participants with backgrounds in state and federal public policy, economics, energy, and the automotive and alternative-fuels sectors. The workshop set out to understand the implications of relatively cheap oil for cleaner alternatives, such as natural gas–fueled and electric vehicles and renewable energy, with a special focus on the future shape of ambitious fuel-economy standards that are slated for review in 2017 and 2018. This report, which you can download here, summarizes the discussion’s highlights. The report reflects the views of workshop participants alone; CFR takes no position on policy issues.

Framing Questions for the Workshop

The New Low Oil Price World—Assessing Drivers and Future Trends

What factors will be most important in driving future oil prices? Global supply vs. demand drivers? Structural vs. cyclical drivers?

Low-Carbon Technology Investment in the New Oil Price World

How will different future oil price scenarios influence U.S. and global private investment in alternative vehicle technologies, including electric, hydrogen-fueled, or driverless cars? What about investment in alternative transportation fuels, such as biofuels, renewable electricity generation, and storage? Should U.S. public investment compensate for changes in private investment here and globally?

Future of CAFE Standards in the New Oil-Price World

How will different future scenarios influence the 2017 midterm review of U.S. Corporate Average Fuel Economy (CAFE) standards? What role does CAFE play in U.S. global leadership on climate, and what are the implications if CAFE is frozen or rolled back? Should CAFE be used as a tool to protect electric vehicles and other alternative-vehicle technologies from increased competition from conventional vehicles when oil prices are low?

Charts and Maps From This Report

Crude Oil Prices

Percentage of Electricity Generation From Oil and Oil Products

NHTSA CAFE Standards, Model Years 2017-2025