OPINION: Until alternative energy sources can start to substitute more fully for fossil fuels, it is unrealistic to think that rich-country voters will re-elect leaders who allow energy costs to blow up overnight.
CAMBRIDGE, Mass. — Over the past 2½ years, world oil and gas prices have been subject to demand shocks and supply shocks—and sometimes both simultaneously. The resulting volatility in energy markets is both a reflection and a microcosm of a careening global economy.
One reason why oil CL00, +1.51% and gas NG00, +1.22% prices are so volatile is that short-term demand for energy responds much faster to changes in growth than to price changes. So, when there is an energy shock, it can take a huge price change to clear the market. “ Until alternative energy sources can start to substitute more fully for fossil fuels, it is unrealistic to think that rich-country voters will re-elect leaders who allow energy costs to blow up overnight. ”
Laudable ambitions, flawed strategy Oil, coal MTFC00, +0.66%, and natural gas still account for 80% of global energy consumption, roughly the same share as at the end of 2015 when the Paris climate agreement was adopted. Policy makers in Europe and now the U.S. have laudable ambitions to fast-track green energy during this decade.
Europe, at least, had a semi-coherent plan until the Ukraine war brought home just how far the continent—especially countries like Germany that have taken nuclear power out of the equation—is from achieving a clean-energy transition. For the moment, oil and gas prices seem likely to remain elevated, despite fears of a recession in the U.S. and Europe. As the Northern Hemisphere’s summer driving season gets under way, and with the Chinese economy potentially rebounding from zero-COVID lockdowns, it is not difficult to imagine energy prices continuing to rise, even if the Federal Reserve’s interest-rate hikes sharply curtail U.S. growth.
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