Europe's green transport set for protection from oil price fall

Reuters News
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Posted: Feb 04, 2015 10:51 AM

By Barbara Lewis and Nina Chestney

BRUSSELS/LONDON (Reuters) - Europe's green transport sector, still in its fledgling stages, is set to receive more regulatory support as the slump in oil prices tempts drivers back to gas guzzlers.

Renewable power, such as wind and solar, is an increasingly established technology, competitive with conventional fuel and no longer affected by movements in the oil market, analysts say.

    The alternative transport sector is comparatively tiny, and more exposed as about 90 percent of transport is fueled by conventional oil.

A roughly 50 percent drop in the international oil market since June, meanwhile, lessens consumers' incentive to buy electric and hybrid vehicles.

EU sales of electrically chargeable vehicles in the last quarter of 2014 fell to 24,548 from 26,607 in the final quarter of 2013, a nearly 8 percent drop, figures from the European Automobile Manufacturers' Association revealed on Wednesday.

Over the whole year, provisional figures showed a nearly 37 percent increase.

Industry analysts caution that the market is so small, it is difficult to declare a clear trend and say that in Europe high taxes on motor fuel deadened the impact of the oil price fall in the second half of 2014.

Average fuel taxes in the European Union are 48-55 percent, according to industry figures, compared with 14-17 percent in the United States.

European policymakers, meanwhile, plan more regulatory incentives as they seek to cut dependency on imported fossil fuel and to limit carbon emissions. Electric vehicles are an environmental solution provided they use renewable power.

"Some people think that the recent decrease in oil prices will have a negative impact on electric cars. Personally, I am convinced that this will not be the case," EU Climate Action and Energy Commissioner Miguel Arias Canete said.

"New targets will trigger innovation and investments," he told a Brussels conference.

Eurelectric, which represents utilities such as E.ON and RWE, is among those to have written to all the EU commissioners, urging action to promote transport electrification.

Laszlo Varro, head of the gas, coal and power markets division of the International Energy Agency (IEA), predicted that "the overwhelming majority of renewable projects will remain in place," but that the oil price fall will have "a measurable impact" on hybrid and electric vehicles and on efficiency.

Drivers of conventional vehicles are likely to travel longer distances now fuel is cheaper. The U.S. government's Energy Information Administration in late January reported a 4.2 percent rise in U.S. petroleum product demand compared to the same four-week period a year earlier.

In Europe, overall oil demand in the final quarter of 2014 fell 2 percent compared with the previous year, IEA figures show.

The biofuel industry is at least as fragile as the electric vehicle market after EU policy U-turns in response to research that revealed the limitations of a first generation of biofuels.

More sophisticated biofuels made from waste are genuinely environmental, but cost far more than conventional fuel.

But even biofuel has powerful backers, such as aircraft maker Boeing, which is counting on it to meet a pledge to reduce aviation emissions.

"Lower petroleum prices do not change the rationale to develop sustainable aviation biofuel, which is clearly the right thing to do for the environment and business," said Julie Felgar, a managing director at Boeing Commercial Airplanes.

(Editing by Dale Hudson)