The plan ensures that the prices of oil deviate from their predicted high prices and drop.

To assess the effects of the green transition on energy prices in the future, international bodies such as the NGFS and the International Energy Agency (IEA) have turned to scenario analysis. I will refer to two contrasting scenarios.

The first is an orderly scenario which assumes ambitious climate policies are introduced immediately. This scenario limits global warming to 1.5 °C through stringent climate policies and innovation, reaching global net-zero emissions by 2050 in line with the Paris Agreement. It nevertheless requires ambitious policy action and technological change across all sectors of the economy. The NGFS does not provide detailed and granular information on the overall cost of energy production (including from renewable energy sources), which would give a more complete picture. But it does provide estimates for the price of oil, gas and coal, which would only increase moderately over the next decade under the net-zero scenario (Chart 3). In particular, oil prices are predicted to increase by around 6 per cent cumulatively from 2020 to 2030, reflecting increasing costs of extraction.

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The impact of developments in renewable energy is only partly taken into account in these estimates. The models used by the NGFS capture the fact that more renewables mean slower oil use, and this in turn decreases oil prices. However, potential developments in the market for renewables are excluded for simplification purposes.

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Gas prices, in turn, are expected to increase faster as gas demand is expected to remain relatively strong, although in annual terms the magnitudes are also contained. In a similar scenario constructed by the IEA, prices for fossil fuel (except gas) would even decline, as channels that reduce demand dominate price dynamics.