World leaders have a "golden opportunity" with plunging oil prices to put a price on carbon emissions since cheaper fuel makes the move less risky politically, said the International Energy Agency (IEA).

Oil fell $2 a barrel to new five-year lows on Friday after the world's energy watchdog forecast even lower prices on weaker demand and higher supplies next year.

Benchmark Brent oil tumbled to below $62 a barrel and US crude slumped to under $58 to extend Thursday's landmark fall below $60.

Oil prices have fallen by 45 per cent since June and the IEA is concerned that the fall could threaten a transition to renewable energy.
 
The IEA said last month that oil prices could fall further in 2015 and that the market had entered a new era with lower Chinese economic growth and booming US shale output.

"In fact, this is a golden opportunity," Maria van der Hoeven, the IEA's executive director, said on the sidelines of the Lima climate summit. "Policymakers can take actions unthinkable a year ago," she stated.

Van der Hoeven said the collapse in oil prices is a stimulus for consumers around the world. Leaders should respond with some sort of tax on carbon emissions or by cutting incentives for hydrocarbon production, she noted.

"We're putting $550 billion into fossil fuel subsidies," per year, she said. "Use this opportunity to phase them out!", she added.

The Lima summit is meant to come up with elements of a draft deal for fighting climate change, due to be agreed in Paris next year, including a guiding long-term goal.

Many developing nations, for instance, want a target of cutting world greenhouse gas emissions to a net zero by 2050, while some of the poorest countries say a 2050 net-zero emissions target is needed to ward off the worst effects of global warming.

Van der Hoeven said that such a target, which also has the backing of many environmental groups, may be unrealistic for a global agreement on climate change next year.

"It's 40 years from now. Energy will not be zero emissions by then," she said. "Maybe it's too ambitious."

Reports by the UN's Intergovernmental Panel on Climate Change indicate that emissions would have to fall 40 per cent to 70 per cent below 2010 levels by 2050 in the strictest scenario it assessed for greenhouse gas cuts.

Developing countries and environmental groups say that a far steeper cut is needed to limit rising temperatures that the IPCC says are stoking more heatwaves, desertification, floods and rising sea levels.-Reuters