Wind Power in Texas. Interstate 40, Adrian, Texas
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Energy prices rose after Russia invaded Ukraine. US crude oil prices reached as high as $130 on March 6, the highest since July 2008. About a week later, US gasoline prices hit a record high of $4.33 a gallon. Around the same time, natural gas futures in the European Union hit a record high of €345 per megawatt hour.
Since then, gas prices and natural gas have fallen from their highs, and gas prices should eventually decline, albeit more slowly than President Joe Biden would like.
Higher and more volatile energy prices will be a catalyst for individual and global efforts to decarbonize energy grids, which are critical to meeting climate change goals. But energy prices alone won’t be a tipping point that pushes society to embrace cleaner energy sources, experts say. Government intervention and widespread education are also crucial.
Oil producers will drill more
If oil prices stay high, it could prompt a rush to drill more oil as hydrocarbon companies try to take advantage of the higher price, according to John Larsen, a partner at Rhodium Group, where he is leads the company’s US energy systems and climate policy research.
This, in turn, could flood supply and eventually drive prices back down.
That’s exactly what Energy Secretary Jennifer Granholm was demanding when oil was $109 a barrel and gas was $4.25 at the pump.
“We are in a war situation — an emergency — and we must responsibly increase near-term supply wherever we can to stabilize the market and minimize the damage to American families,” Granholm said, speaking to an industry of energy executives in Houston earlier in March. She urged executives to produce more oil and gas.
Increasing fossil fuel production runs counter to urgent calls for decarbonization to slow global warming. But it’s temporary, according to Larsen, and therefore reasonable. “Personally, I don’t think this will jeopardize the achievement of long-term climate goals as long as there is a double serious commitment to get from here to this transition,” he told CNBC.
Also, the oil and gas industry faces the same tight job market as the rest of the nation, and as such they may face the challenge of ramping up oil well drilling and production as quickly as possible.
“Like almost everything else in the US, labor is really scarce. Difficult to hire people, difficult to get equipment. Supply chains are really strained,” Ryan Kellogg, a faculty member at the University of Chicago’s Energy Policy Institute (EPIC) and a professor at the Harris School of Public Policy, told CNBC. Overall unemployment fell to 3.8% in February, according to the Labor Department.
Consumers will be looking for more efficiency
High gasoline prices at the pump will motivate consumers to switch from a traditional car to other modes of transportation, be it an economical car or an electric vehicle, Kellogg told CNBC.
“These higher prices — albeit short-lived because of their exposure to this higher price volatility — will get consumers thinking about alternatives,” Kellogg said.
Consumers can have a hard time finding an electric vehicle even if they want one. Inventories of new cars and trucks, including electric vehicles, are running low, partly due to supply chain issues.
Frank Dalene, the President and CEO of Telemark, a luxury construction services company he founded with his brother Roy in 1978, specializes in building energy efficient and renewable energy homes on Long Island in New York. Rising energy prices are increasing interest in its services, but it’s more important to educate consumers about how much money increasing inefficiency can save them.
“Education is the biggest thing for me,” Dalene told CNBC. “We justify the cost of everything,” Dalene said, meaning they clearly explain how many years it will take for the customer to get their money back. “And that was very successful.”
Investors will take a fresh look at renewable energy
“In the medium term, all else being equal, higher prices are good for clean energy,” Larsen told CNBC.
In addition to the benefits of decarbonization, clean energy investments are also becoming attractive to protect the American economy from energy price fluctuations due to geopolitical shifts.
“‘Drill Drill’ will now help with prices next year,” Kellogg said. “It won’t help us whenever the next crisis comes in 10 years or whenever it happens.” But decarbonization will help protect against geopolitical oil shocks.
While conditions make new energy infrastructure more attractive, changing existing technologies is met with resistance, just for the sake of it being new and requiring change. Higher energy prices serve to reduce the fear and risk of investing, says Steve Crolius, president of Carbon Neutral Consulting and a former climate advisor to the Clinton Foundation. Crolius advises entrepreneurs and project developers interested in investing in alternative fuel sources.
“If one of them is anxious, they probably feel less anxious,” Crolius said. “The mountain to be climbed becomes much smaller.”
government is necessary
While more volatile and higher energy prices in general will be a catalyst for renewable energy investments for consumers and larger investors, the price differential will not be enough to fully transition to a clean energy economy.
“The only thing that really pushes the technology deployment to the level that you really need is something like serious EPA regulations for vehicles and power plants coupled with tax credits, like the one in Build Back Better,” Larsen said, referring to the Bidens policy agenda that included more aggressive climate regulations. This bill withered away in Congress after Senator Joe Manchin, D.-W.Va.
Even as renewable energy installation has accelerated, Rhodium’s projections show that investments will need to double the record 2021 levels each year through 2030 to reduce CO2 emissions from power generation by 80 percent — a milestone on the path proposed by the White House to 100% clean energy by 2035.
“I don’t see how changing fossil fuel prices can catalyze that,” Larsen said.
https://www.cnbc.com/2022/03/17/what-higher-volatile-energy-prices-mean-for-clean-energy-transition.html What higher, volatile energy prices mean for the clean energy transition