The Price of Energy Insecurity

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The Price of Energy Insecurity

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• Authors: BOB KEEFE
• Published: November 29, 2022

Energy security and economic impacts

• Climate change and energy security produced widespread economic disruptions in 2022, affecting manufacturing, agriculture, and consumer welfare.
• Notable country examples and impacts:
  • China’s Sichuan province: power shortages from the worst heat in six decades forced manufacturers to close factories producing aircraft parts, electronics, semiconductors, solar panels, and batteries.
  • Pakistan: electricity shortages tied to extreme heat prompted load-shedding blackouts up to 16 hours a day, followed by flooding that killed more than 1,100, left a third of the country underwater, and caused more than $10 billion in economic damage.
  • United States (California): consumers and businesses were asked to conserve energy or face rolling blackouts amid record-breaking heat; California described as “the world’s fifth-biggest economy.”
  • Europe (United Kingdom): during a record summer heat wave, electricity prices in Britain were up fivefold from a year earlier, attributed in large part to reliance on foreign natural gas.
• Broader economic side effects of climate change:
  • Globally, food prices hit record highs in 2022 as crop yields plummeted and livestock died due to drought, flooding, extreme heat, and the war in Ukraine.
  • In the United States, homeowners insurance rates rose by nearly 50 percent over a decade’s time; in some fire- and hurricane-prone areas, property insurance is now impossible to buy.
  • Climate-related disasters cost more than $150 billion in the United States in 2021—up nearly 50 percent from the previous year.
  • By the end of the century, these costs are projected to reach as much as $500 billion annually.

Policy responses and renewable transition

• Europe — REPowerEU initiative:
  • Objective: end the European Union’s dependence on fossil fuels, including natural gas from Russia.
  • Target: increase renewable energy supplies to 45 percent by 2030.
  • Investment: €300 billion in new wind, solar, and other sources.
  • Commentary: EU President Ursula von der Leyen stated that “Ending our dependency on Russian fossil fuels is only the first step” and that current electricity market design “is no longer fit for purpose.”
• China:
  • In 2020, China produced more than twice as much clean energy as the United States.
  • Investment: in 2021, China invested the equivalent of $380 billion in clean energy.
  • Pledge: President Xi Jinping committed to 25 percent of the country’s energy coming from renewables by 2030.
  • Note: China continues to operate and expand coal-fired power plants.
• United States — Inflation Reduction Act (IRA):
  • Total clean energy investment under the law: $370 billion.
  • Components:
  • $27 billion for a new green bank.
  • Authorizes up to $350 billion in new U.S. Department of Energy loans and loan guarantees.
  • Goals and expected outcomes:
  • Extend and expand tax credits for renewable energy, clean vehicles, and energy efficiency.
  • Create major new sources for funding clean energy innovation.
  • Expected emissions reduction: cut US carbon emissions 40 percent by 2030.
  • Expected economic impact on climate costs: cut the costs of climate change nearly $2 trillion by 2050, according to the Office of Management and Budget.
  • Rationale: past loan programs helped jump-start Tesla and the electric vehicle industry and led to dramatic price declines in the cost of solar and wind power.

Economic benefits, jobs, and efficiency gains from clean energy

• Employment and job growth:
  • Clean energy and transportation currently employ about 3.2 million Americans (research from Environmental Entrepreneurs).
  • The Inflation Reduction Act is expected to create an additional 1.5 million jobs, labor unions predict.
  • Fastest-growing jobs in clean energy last year were in electric vehicles, where jobs soared by 26 percent.
• Cost and security benefits:
  • Solar and wind are the cheapest sources of power available in most parts of the world.
  • Electric vehicles are cheaper to operate, especially when gas prices soar.
  • Energy-efficient products (LED lighting, high-efficiency heat pumps and hot water heaters, better windows and insulation) can save consumers and businesses money on monthly power bills.
  • Producing clean energy domestically improves energy security and reduces dependence on foreign fuels.
• Climate mitigation and disaster-cost reduction:
  • Shifting to renewables will reduce carbon emissions and help blunt the growing economic costs of climate disasters.

Implementation challenges and outlook

• Legislative passage is only the first step; implementing new laws can be even harder.
• Despite implementation challenges, growing recognition of the economic costs of climate change and the economic benefits of climate action suggests progress:
  • Policymakers and the public are paying more attention as climate change becomes a pocketbook issue.
  • The global trend is toward increasing investment in renewables and policies that support the clean energy transition.

Source: F&D Magazine — "The Price of Energy Insecurity" by BOB KEEFE, December 2022.