Oil Prices Increase May Lead to Decrease in Green Energy Development

20:15, August 1, 2022

The reason is that oil is needed to create clean facilities and infrastructure

An increase in oil prices may lead to a reduction in the development of green energy as it is also required in the transition to a carbon-free electricity supply. Precisely, oil is needed for deploying clean energy capacity or infrastructure. This relationship was revealed by an international team of scientists from Russia, Bangladesh and Malaysia using a сross-sectional autoregressive distributed lag (CS-ARDL) method. The scientists obtained the data by analyzing the experience of nine leading mineral-importing countries. These included Russia, Australia, USA, Brazil, Canada, Chile, Mexico, South Africa, and Ukraine. The results of the study are published in the international reputed journal Resources Policy.

"On the one hand, oil can be considered the substitute for mineral driven clean energy. For example, in the form of cheaper fuel for cars than the creation of electric lithium batteries for electric cars. and on the other hand, oil is used for transportation, maintenance of energy-intensive technologies for building equipment necessary for green energy. Making solar panels, for example, requires oil, battery production requires transportation of materials and equipment for extraction of minerals. Therefore, in the process of providing renewable electricity, non-renewable resources also incur serious financial costs," explains Kazi Sohag, Head of the Laboratory for International and Regional Economics, Senior Researcher and Associate Professor at the School of Economics and Management, Ural Federal University.

In addition, the magnitude of demand for minerals depends on the countries' installed solar and wind capacity. For example, in producing solar energy the main tool is photovoltaic panels, films created from various fossil metals - copper, tellurium, cadmium, etc. Researchers predict that after 2022 the capacity of solar energy in electricity production will increase by 45% annually. Consequently, the demand for these and other minerals will increase because of the massive use of solar technology in the production process. 

"It should be noted that this fact can be useful for Russia as a country - the main exporter of oil and at the same time a major importer of minerals. The Russian Federation imports copper needed for solar energy as well as lithium, chromium, cobalt, and nickel used for electric vehicle batteries. Given the potential growth in demand and rising prices for minerals, now the reallocation of oil revenues could increase the amount of imported metals and accelerate the transition to clean electricity," says Dr. Kazi Sohag.

Economists have calculated that the demand for imports of minerals used in different technologies and sectors of green energy depends on a few variable factors. The price of oil is one of the key. In addition, the demand for minerals depends on the average prices for metals, primarily copper and nickel, as well as on the exchange rate. Thus, fluctuations in prices for mineral resources and an unstable exchange rate limit the volume of imports of minerals. 

"At the moment, the volume of consumption and production of renewable energy in Russia is very small, despite the large volume of imports of minerals. To increase the share of green energy in the country, more attention should be paid to the development of intra-regional cohesion to use renewable energy sources, creating solar and wind farms using imported minerals. This strategy will enable Russia to meet its 2030 Sustainable Development Goals," adds Dr. Kazi Sohag.

Reference

Renewable energy sources require more raw materials than traditional ones. For example, a photovoltaic solar power plant contains approximately 5.5 tons of copper per megawatt of electricity generation, while a conventional power plant needs only one ton. In addition to copper, solar panels require other minerals such as indium or tellurium, cadmium, and silver. Lithium is also used in electric vehicles, while cobalt or nickel is used to store energy in car batteries. Thus, the import of minerals has become a priority for those economies that intend to achieve their goal of producing renewable energy in line with the global clean energy agenda.

In 2021 the Accounts Chamber estimated the volume of imports of strategic types of mineral raw materials for 2018–2020 in Russia. Experts noted a high share of imports of minerals that can meet the needs of the economy. So, in 2020, the demand for lithium was covered by imported metals by 100%, in copper - by 45.9%. Due to the absence of separation production, compounds, and oxides of separated rare earth metals, individual metals and their mixtures are also imported (100% of the needs are met by their imports).