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What do higher, volatile energy prices mean for the transition to clean energy?

Wind energy in Texas. Interstate 40, Adrian, Texas

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After Russia invaded Ukraine, energy prices rose. U.S. crude oil prices reached $ 130 on March 6, the highest since July 2008. About a week later, gasoline prices in the US reached a record high of $ 4.33 per gallon. Around the same time, natural gas futures in the European Union reached a record 345 euros per megawatt-hour.

Since then, gas and natural gas prices have reached their highs, and gas prices should eventually fall, albeit more slowly than President Joe Biden would have liked.

Higher and volatile energy prices will catalyze individual and global efforts to decarbonise energy grids, which is crucial to achieving climate change goals. But energy prices alone will not be a turning point in forcing society to adopt cleaner energy sources, experts say. Government intervention and broad education are also crucial.

Oil production will drill more

If oil prices remain high, it could lead to haste with oil drilling as hydrocarbon companies seek to make money at a higher price, says John Larsen, a partner at Rhodium Group, where he manages research on the U.S. energy system and climate policy.

In turn, this could overwhelm the supply and eventually lower prices.

That’s what Energy Secretary Jennifer Grenholm called for when oil cost $ 109 a barrel and gas $ 4.25 per pump.

“We are in a state of war – an emergency – and we must responsibly increase short-term supplies where we can right now to stabilize the market and minimize harm to American families,” Grenholm told Houston’s energy executives. earlier in March. She further urged executives to extract more oil and gas.

Increasing fossil fuel production contradicts the urgent call for decarbonisation to slow global warming. But it is temporary, and therefore reasonable, says Larsen. “I personally don’t think it will jeopardize the achievement of long-term climate goals as long as there is a strong commitment to moving from here to that transition,” he told CNBC.

In addition, the oil and gas industry is facing the same tough labor market as the rest of the country, and so they may face the challenge of scaling up digging and extracting oil wells as quickly as they would like.

“Like almost everything else in the U.S., the workforce is very small. It’s hard to hire people, it’s hard to buy equipment. The supply chain is really tight, ”said Ryan Kellogg, an employee of the Institute of Energy Policy at the University of Chicago. (EPIC) and a professor at Harris School of Public Policy, told CNBC. The overall unemployment rate fell to 3.8% in February, according to the Department of Labor.

Consumers will look for more efficiency

High gas prices at the pump will motivate consumers to switch from a regular car to other modes of transport, whether it is a fuel-efficient car or an electric vehicle, Kellogg told CNBC.

“These higher prices – even if they are short-lived, just by being exposed to this higher price volatility – will make consumers think about alternatives,” Kellogg said.

Consumers may find it difficult to find an electric vehicle, even if they want to. Stocks of new cars and trucks, including electric vehicles, are very low, among other problems due to supply chain problems.

Frank Dalin, president and CEO of Telemark, a luxury construction services business he founded with his brother Roy in 1978, specializes in building homes using renewable energy on Long Island, New York. Rising energy prices arouse interest in its services, but it is more important to inform consumers about the money they can save by increasing inefficiencies.

“I think education is the most important thing,” Dalin told CNBC. “We’re all justifying prices,” Dalin said, meaning they explain exactly how many years it will take before a customer gets their money back. “And it was very successful.”

Investors take a new look at renewable energy

“All other things being equal in the medium term, higher prices are good for clean energy,” Larsen told CNBC.

In addition to the benefits of decarbonisation, investment in clean energy is also becoming attractive as a way to protect the U.S. economy from fluctuations in energy prices due to geopolitical changes.

“The Drill-Drill will help with prices now, next year,” Kellogg said. “It won’t help us every time the next crisis comes in 10 years or if it doesn’t happen.” But decarbonisation will help protect against geopolitical oil shocks.

While conditions make new energy infrastructure more attractive, changing existing technology is facing resistance, just to make it new and in need of change. Higher energy prices reduce the worries and risks associated with investing, says Steve Crolius, president of Carbon Neutral Consulting and a former climate adviser at the Clinton Foundation. Crolius advises entrepreneurs and project developers interested in investing in alternative fuels.

“If any of them are feeling anxious, they’re probably feeling less anxious,” Crolius said. “The mountain you have to climb is getting much smaller.”

Government is needed

Although more volatile and higher energy prices tend to be a catalyst for renewable energy investment for consumers and large investors, the price difference will not be enough to fully transition to a clean energy economy.

“The only thing that really increases the deployment of technology to the scale you really need is something like the EPA’s strict rules on vehicles and power plants combined with tax breaks like Build Back Better,” Larsen said. referring to Biden’s policy, which included more aggressive climatic conditions. The bill slowed in Congress after it was opposed by Senator Joe Manchin, D.-W.Va.

Although the installation of renewable energy is accelerating, Rhodium forecasts show that investment should be twice the record level of 2021, each year until 2030, to reduce CO2 emissions from electricity production by 80 percent – a milestone on the White House’s proposed path to 100% clean energy by 2035.

“I don’t see how a change in fossil fuel prices can be the catalyst for that,” Larsen said.

What do higher, volatile energy prices mean for the transition to clean energy?

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