The long-term prospects of solar, wind and other clean sources of energy are tied to the cost of fossil fuels. The artificially low price of oil makes it harder for renewable sources of energy to compete. Subsidies drive down the price of petrochemicals, but the true costs are not reflected in crude oil prices.
Investors are also driving up prices. Not too long ago oil was a commodity that traded principally on the actual or the anticipated forces of supply and demand. However, new strategies are increasingly driving investments in petrochemicals which are designed to cash in on the economic recovery. (The simple logic being that coming out of recession the demand for oil will increase as the economy improves.)
Increased supply will also put downward pressure on oil prices in 2013. Although this increased production will be offset by increased consumption, particularly in the developing world.
With oil expected to hover slightly above $100 per barrel by the end of this year, the question is how can renewable energy overcome the competitive pricing of fossil fuels? A powerful first step would be to end petrochemical subsidies, the next step involves some form of cap-and-trade on carbon emissions.
The faster that renewables can be price competitive with oil the sooner we can leverage the markets to wean ourselves off of dirty sources of energy.
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