How higher and more volatile energy prices will affect the move to clean energy

How higher and more volatile energy prices will affect the move to clean energy


Wind power in Texas. Interstate 40, Adrian, Texas

Paul Harris | Archive Photos | Getty Images

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

In the time since, gas prices and natural gas have come off their highs and gas prices should come down eventually, though slower 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, critical for meeting climate change goals. But energy prices alone aren’t going to be a tipping point that gets society to embrace cleaner energy sources, experts say. Government intervention and widespread education are also critical.

Oil producers will drill more

If oil prices remain elevated, that could lead to a rush to drill more oil, as hydrocarbon companies look to cash in on the higher price, according to John Larsen, a partner at the Rhodium Group where he leads the firm’s US energy system and climate policy research.

In turn, that could flood the supply and eventually bring prices back down.

That’s exactly what Secretary of Energy Jennifer Granholm called for when oil was $109 a barrel and gas cost $4.25 at the pump.

“We are on a war footing — an emergency — and we have to responsibly increase short-term supply where we can right now to stabilize the market and to minimize harm to American families,” Granholm said, speaking to an industry of energy executives in Houston earlier in March. She went on to call on executives to produce more oil and gas.

Ramping up fossil fuel production runs counter to urgent calls to decarbonize to slow global warming. But it’s temporary, and therefore reasonable, according to Larsen. “I personally don’t think that’s going to jeopardize meeting long-term climate targets, so long as there is double-down serious commitment to getting from here to that transition,” he told CNBC.

Also, the oil and gas industries are facing the same tight labor market that the rest of the nation is, and so they may face challenges to ramping up oil well digging and production as fast as they’d like.

“Just like almost everything else in the U.S., labor is really scarce. It’s hard to hire people, it’s hard to get equipment. Supply chains are really strained,” Ryan Kellogg, a faculty affiliate at the Energy Policy Institute at the University of Chicago (EPIC) and a professor at the Harris School of Public Policy, told CNBC. The overall unemployment fell to 3.8% in February, according to the Labor Department.

Consumers will look for more efficiency

High gas prices at the pump will motivate consumers to switch from a conventional car to other kinds of transportation, whether that’s a fuel-efficient car or an electric vehicle, Kellogg told CNBC.

“These higher prices — even if they’re short lived, just being exposed to this higher price volatility — is going to make consumers think about alternatives,” Kellogg said.

Consumers may have a hard time finding an electric vehicle even if they want to. Inventories of new cars and trucks including electric vehicles are running very low, due to supply chain woes, among other issues.

Frank Dalene, the president and CEO of Telemark, a luxury construction services business he co-founded with his brother Roy in 1978, specializes in energy efficiency and renewable energy home construction on Long Island in New York. Increases in energy prices drive interest in his services, but educating consumers about the money they can save by increasing inefficiency is more important.

“Education is, I believe, the biggest thing,” Dalene told CNBC. “We cost-justify everything,” Dalene said, meaning they clearly explain how many years it will take before the customer makes their money back. “And that’s been very successful.”

Investors will take a new look at renewables

Government is necessary



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