The world is entering — indeed, much of it has already entered — a massive energy crunch. Coal, natural gas, oil and gasoline prices have all spiked in countries around the globe. If this winter is severe, prices could well rise much further.
But the correct takeaway is exactly the opposite.
Many factors have contributed to the current energy crunch, including the covid-19 pandemic and recent economic rebound.
In 2020, while much of the global economy was effectively powered down, energy prices plummeted, as did energy extraction. Then, seemingly everyone around the world flipped the switch back on simultaneously. Higher demand for goods caused factory production to ramp up, increasing demand for energy as well.
Layer onto this the unusually cold winter in Europe, which drew down stocks of natural gas; storms in the Gulf of Mexico and India that disrupted supplies of oil and coal, respectively; and a diplomatic row between China and Australia that led Beijing to cut off Australian coal imports.
Additionally, slower winds blowing across northern Europe led to less wind-powered energy output. Scientists aren’t sure what’s behind the stall-out, but calmer wind conditions may be driven by the warming of the earth’s poles. In other words: Wind farms, intended to help combat climate change, may have become less effective precisely because of climate change.
This global energy crisis is poised to have excruciating economic and political consequences.
Heating homes and filling gas tanks will get more expensive. And because households cannot easily reduce their consumption of heat or gasoline, these higher prices effectively act as a tax on incomes — a drag on consumers’ ability to spend on other goods or services. Other parts of the supply chain are being disrupted by power shortages, too, particularly as China rations electricity across factories.
Higher energy prices could filter through to more broad-based inflation, which is already a serious worry worldwide, especially in the United States.
This is all happening as major economies appear thisclose to making necessary, but politically fraught, changes to their energy policies.
The United States appears on the verge of a huge investment in climate, through Democrats’ budget legislation. And at a climate conference in Glasgow this month, global leaders will hopefully make more aggressive commitments to reducing emissions.
But the near-term economic pain and potential political instability caused by high energy prices could cause leaders to lose their nerve. There are already worrisome signs that they have.
The White House recently committed to looking "at every means we have to lower gas prices.” The European Union energy commissioner has recommended that member countries cut energy taxes. Russia is taking advantage, putting pressure on Germany to accelerate regulatory approval of the Nordstream 2 pipeline that would supply more natural gas to Europe.
Hard to quit a habit if you keep asking for one more fix.
While it’s reasonable to try to shield constituents from short-term price spikes — particularly if those people might otherwise, you know, freeze to death — that does not mean that global leaders must also abandon long-term efforts to reduce carbon emissions. After all, transitory, short-term shocks cause suffering but not enough to durably change consumers’ purchasing habits or businesses’ investment decisions; long-run policy commitments do that.
Rather than prolonging reliance on dirty energy, governments could make investments that accelerate transitions to clean energy.
For instance: If British energy utilities want a bailout, the government could provide one with strings attached — specifically, conditions that would speed along the decarbonization transition, argues New York University climate economist Gernot Wagner. A similar phenomenon happened when France recently rescued a national airline, he notes.
Or: Policymakers could use this moment as an opportunity to incentivize investment in battery and storage innovations (as Democrats’ budget proposal does). In the United States, it’s already cheaper to build and operate an entirely new wind or solar plant than it is to continue operating an existing coal plant; but as the recent European wind stall-out experience illustrates, getting the wind to blow or the sun to shine at specific times is difficult. Better storage technology is critical.
To be sure, there is never a good time for an energy crisis. And in some respects, now might seem especially inconvenient. But the timing could be fortuitous — if global leaders learn the right lesson from this energy crunch. It’s one they should have learned long ago: Fossil fuels are not so resilient after all. If we want more reliable, cleaner and, yes, cheaper energy sooner, we must make policy choices that expedite the inevitable transition away from carbon.