9 år sedan
New report from ABBBA: Cheap oil: The threefold effect on Africa – and how to mitigate it
The current low oil price and its’ political and economic consequences are subjects of intense debate. But what implications do the low oil prices have on the transition to a low-carbon world? This was the theme of a seminar organized by the think tank Fores last week. Global Challenge’s project ABBBA (African Biofuel & Bioenergy Business Assessment) presented a new report during the seminar, which focuses on the consequences that lower oil prices have on Africa’s transition to a renewable energy economy.
Increased supply and reduced demand the main reasons for the current low oil price
There are generally two main causes that lie behind the low oil prices that we witness today. Firstly, there was a significant increase in production output during 2014, where increased production volumes of shale oil in the US accounted for the largest share of the increased supply. Secondly, the global demand growth has been low ever since the financial crisis while at the same time major energy efficiency measures have been implemented in China, the United States and Europe, which further have reduced the demand. The oil cartel OPEC, primarily driven by Saudi Arabia, has not undertaken any measures to reduce production and tightening supply, which all together has created a situation where the global supply exceeds demand, with the consequence of falling prices.
Oil price effects on Africa
What are the consequences of the low oil price for the African region? Mattias Goldmann, project manager for ABBBA, highlighted three main conclusions based on the new ABBBA report.
The cheaper oil has reduced the general interest to new investment in oil production. This has in particular affected the willingness to invest in high-risk projects, which particularly applies to African countries. While a reduced willingness to invest in oil can be positive from a climate perspective, there are several drawbacks from an African public finance perspective. Many African countries use large shares of their export earnings to finance imports of oil. With a reduced willingness to invest in domestic oil production these countries’ ability to secure their own energy supply and reduce their import dependency are hereby deteriorated.
The cheaper oil has further implications for producers of renewable fuels as cheap fossil fuels reduce the appetite for renewable alternatives. ABBBA, together with the World Bioenergy Association, made a compilation of how more than 50 biofuel producers in 25 countries (whereof many in Africa) consider themselves to be affected by low oil prices. The vast majority expressed a concern that the production of renewable fuels will be knocked out and further emphasized that the low price of today has led to reduced turnover, workforce reductions and a shrinking scope for future investments.
The third consequence of the low oil price relates to the African countries’ reduced competitiveness compared to other countries. Most African economies are less exposed to oil price fluctuations compared to other parts of the world, partly because of the lower use of oil-based products. As the consumer power is generally weaker in many African countries, and as these countries’ state apparatus has a weaker bargaining position towards multinational oil companies, the consumers are not expected to benefit from lower oil prices as much as consumers in other countries.
The challenges are great – but the solutions are out there
The current low oil price thus brings several challenges for the African continent. What can then be done to tackle these challenges while at the same time promote a transition to renewable energy? ABBBA’s report presents four concrete policy measures that would favour the production of renewable fuels. This concerns the abolition of subsidies for fossil fuels, increased investment in renewable energy, blending mandates for biofuels and a CO2 tax on fossil fuels in African countries (currently such a tax does not exist in any African country, even though discussions are underway about a possible introduction in South Africa). In this way, the low oil price might even implicate an opportunity to bring about changes that would benefit Africa’s renewable energy sector and yet at the same time enhance the transition to a low-carbon world..
Click here to see the seminar on SVT Play (the ABBBA report is presented an hour into the video)
Click here to download the report.
