The drastic fall in global crude oil prices over the past six months could reduce the chance of a universal agreement on climate change policy this year, according to HSBC.
Environmentalists hope the widely-anticipated Paris Climate Summit in December will bring about two key outcomes: a universal accord that enables the world to transition to a low-carbon future as well as concrete measures to limit global warming to 2 degrees Celsius above pre-industrial times. Discussions in Peru last month saw all participating countries commit to lowering greenhouse gas emissions for the first time ever.
However, falling oil prices will challenge countries' ability to implement climate policy, HSBC said in a recent report. Oil benchmarks Nymex and Brent are trading below $50 a barrel, levels not seen in over five years.
Lower oil prices suggest a deflationary pattern, which means the world economy remains in relatively poor shape, the bank said. Its economists forecast 2.6 percent global gross domestic product growth for 2015, well below the International Monetary Fund's 3.8 percent forecast.
Sluggish economic growth translates to lower public sector funding for low-carbon energy, HSBC said. Major oil exporting countries like Venezuela and Canada are expected to see the biggest funding declines given their reliance on crude oil revenues.
"Lower economic growth means lower national income generation. This leads to difficult choices on capital resource allocation, which in turn could mean high carbon lock-in over the long run as a result of the less immediate focus on low-carbon infrastructure scale-up," the bank said.
Furthermore, tepid growth could also see poor deployment of energy efficient technologies, the bank added.