Rising energy prices create global climate conundrum

By Jeremy Lovell - Analysis

LONDON (Reuters) - The price of carbon is rising, which is what governments wanted in the fight against global warming, but now it is here no one is quite so sure anymore.

Energy prices have risen sharply in recent months, driving up domestic gas and electricity prices, an effect governments had said would help promote increased energy efficiency and therefore reduce emissions of climate warming carbon gases.

But demand has barely twitched, fuel poverty has mushroomed and instead of carbon emissions falling, they are all set to boom as coal becomes everyone's favorite fuel once more.

"The paradox here is that what looks like an increase in energy prices is in fact feeding through to an increase in carbon emissions rather than a reduction," said Oxford University economist and government adviser Dieter Helm.

"That is because the oil price is not a genuine carbon tax. Far from cutting demand for carbon, the high energy prices have prompted a rush for coal -- the dirtiest fuel," he told Reuters.

While known reserves of oil are expected to last only to around mid-century, and gas is in relatively plentiful but still finite supply, coal reserves are estimated to last for several centuries more.

There are big increases in coal burn in China, India and the United States where even tar sands have started to look attractive to investors again.

Even in Europe, which has set itself the tough target of getting 20 percent of its energy from renewable like wind, waves, solar and biomass by 2020, utility operators are starting to talk about building new coal power stations.

"This is a catastrophe," said Helm. "The big story is that around the world because of the rising price of oil we are driving towards the dirtiest form of fuel available."

Britain last month gave the go-ahead to a new coal-fired power station, the first to be built in the country in quarter of a century.

After strong lobbying by operator E.ON EONG.DE, the plant will be built without carbon capture and storage technology -- one of the main but expensive and largely untried techniques of preventing carbon from power plants entering the atmosphere.

UNINTENDED CONSEQUENCES

"The contradiction is that governments are trying to drive down the price of electricity to maintain competitiveness at the same time they are trying to solve climate change by driving up the price of carbon," said Tom Burke of the E3G environment lobby group.

"There are a lot of unintended consequences. What happened when the price of oil went up from $40 to $100 a barrel was not a drive to cut consumption it was a massive drive to make megabucks from coal to liquids, biofuels and tar sands."

Scientists say global average temperatures will rise by between 1.4 and 4.0 degrees Celsius this century due to burning fossil fuels for power and transport, causing floods and famines and putting millions of lives at risk.