Commodity prices, particularly for fossil fuels, are falling. Falling prices are good for consumers. Decreases in demand, or at least decreases in the growth of demand, are good for the environment. Falling prices are bad, however, for the companies involved in extracting, buying, distributing, and selling the fossil fuels. The falling prices are additionally bad because many of the companies were leveraged, taking on debt for business operations, and based the value of their assets on higher prices. As the prices drop, their revenues drop, the value of their assets drop, yet the debt payments remain – a pattern similar to what happened to millions of homeowners during the Great Recession. The result is an increase in the number of bankruptcies.
“At current prices, trillions of dollars ($30 trillion in fact) of fossil fuel reserves will not be economic, and not exploited.” – ReNew Economy
As business conditions degrade for conventional companies, business conditions may improve for innovative companies, particularly those involved in renewable energy where price drops are beneficial because they open up markets and market share.
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