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.