The rise in oil prices will lead to less carbon emissions, right? No, not right. There is another force at work according to research results published by Daniel Gros on VoxEU. That force is the relative low price of coal in comparison to oil. This point is also made in the latest World Energy Outlook 2007. Despite a nominal rise in the price of coal in recent years, the even higher price increases in oil leads to a substitution away from hydrocarbon (e.g oil) to pure carbon (e.g coal).
Just look at the speed at which China is adding coal-fired power stations to their grid and one could see this force in action. China become a net coal importer in the first half of 2007.
This is bad news for anyone interested in curbing CO2 emissions and good news for those with coal reserves and trade links with rapidly growing developing nations. It is time that these two interest groups start discussing in earnest the apparently very different roads they have started to trod on.