Gas Prices and Energy Bills Are Going Up. Will COP26 Help Bring Them Down Again?
You are likely to see an increase in your energy costs. The current average cost of gasoline in the U.S. at $3.38 per gallon is 56% less than one year ago. About half of U.S. households that heat their homes with natural gas will see a rise in their monthly bills this winter. The increases could be as high as 30% for homeowners who use propane or heating oil.
The energy price crisis is not just for the U.S.: European consumers, who rely more on natural gas imports than the U.S., are currently paying four times as much per megawatt hour now than they did in January. This panicked governments about the possible impact of falling temperatures on heating costs. China’s booming demand for coal has caused severe shortages in power plants and industry and skyrocketing costs.
Politicians and business leaders believe that rising prices for fossil fuels is a sign the world is not moving fast enough to eliminate them from our energy system as we reduce greenhouse gas emissions. In the U.S., Republicans have tried to link the rising fuel costs to the Biden Administration’s push for climate action. The head of Saudi Arabia’s state oil company, which does not plan to end production for decades, told Sky News last week that the world needs to stop “demonizing” the fossil fuel sector and work with it to prevent “a global economic crisis due to lack of supplies.” China’s latest national climate plan, published Sunday, said that going forward, officials must balance emissions reduction with energy security to “prevent overreaction and ensure safe carbon reduction.”
There is not enough evidence to suggest that we are rapidly phasing out fossil-fuels. In fact, a U.N. report published Tuesday found that, under current plans, the world’s largest economies will be producing more than double the amount of coal, oil and gas in 2030 than would be compatible with the goal of the 2015 Paris Agreement of limiting global warming to 1.5°C over the preindustrial era.
Climate advocates say today’s energy price hikes are exposing the volatility of fossil fuel prices, and strengthen the case for a rapid transition to non-polluting and cheaper renewable energies.
The main issue at COP26 is speeding up the transition from fossil fuels and clean energy. It starts in Glasgow, Oct. 31, 2016. COP26 is a meeting of leaders and negotiators from nearly 200 countries. They will seek to come to an agreement about how to reduce greenhouse gas emissions in order to prevent the worst effects of climate change. The deals they strike could have lasting consequences for the way people heat their homes, power their cars and charge their cell phones—and how much they pay to do so.
Here’s what to know about how the energy transition—and decisions made about it in November at COP26—will affect the price of energy.
Do efforts to reduce fossil fuels cause price rises?
It is not. According to energy experts, the primary reason global oil prices are rising is because of the pandemic and the volatility in the gas-and-oil markets. As a result of the COVID-19 lockdowns that shut down global economic activity in 2021, energy demand plummeted and prices also fell. The result was a drop in production. “In the U.S., for example, our natural gas system is very price responsive, so nobody drilled when prices were so low,” says Samantha Gross, director of the Energy Security and Climate initiative at the Brookings Institution. “So now the gas that would have been produced from those wells isn’t there, meanwhile demand is just skyrocketing as the economy is recovering. And the system is just not quite balanced yet.”
Others have contributed to the worsening of the crisis. Cold springs in Europe and China, as well as the cold winter of last year in China, have increased demand and depleted most of those reserves. Also, the weather has affected the production and use of renewable energy. A drought in South America for instance has lowered hydropower output. Turbines have been slower during windless periods.
Gross believes that renewables have been stabilizing prices overall. Though wind and solar production in particular fluctuate with the weather, that doesn’t have nearly as large an impact on their price as shifts in the global oil and gas markets have on those fuels. The cost of wind, solar and hydropower (which together provide 18% of U.S. electricity generation) have remained stable—and low—throughout 2021.
Is there any way to predict how the switch to renewable energy will impact prices?
This will most likely bring them down. With the price of solar energy producing electricity down 89%, analysts are seeing renewable energy prices fall much quicker than they expected. “It’s already cheaper to build new solar or wind projects than to continue operating most coal plants around the world,” says Morgan Rote, a senior manager on U.S. climate policy at the Environmental Defense Fund.
Consumers will benefit from the increased use of renewable energy sources. A report published this month by the Rhodium Group, a New York-based research firm, found that policies put in place to curb U.S. emissions in line with President Biden’s 2030 target would save households an average of $500 a year in energy costs.
There’s evidence that renewables are already having a positive impact on prices: a 2016 report by the U.S. Department of Energy and Berkeley University of California found that policies to encourage the production of renewables in 29 states and Washington, D.C., had reduced wholesale electricity prices, saving consumers up to $1.2 billion. These policies also decreased natural gas demand and prices, saving customers up to $3.7billion.
Rote notes that there are some things businesses and governments can do to help ensure the smooth transition to cleaner energy for their customers. To use renewables like wind and solar at a much larger scale, countries need to invest in modernizing their electricity grids and in developing technologies to store large amounts of energy, to deal with longer periods when the sun isn’t shining and the wind isn’t blowing.
And, though fossil fuel advocates today are wrong to blame current price hikes on a rush to stop burning oil and gas, it’s true that we can’t shut down fossil fuel supplies before we have adequate supply of renewables available. “That is clearly from an economic perspective, from a price and equity perspective all around the world, just not what you want to do,” Gross says. “But as long as somebody is assuring adequate supply, I don’t think it necessarily has to involve giant price spikes.”
Is COP26 a solution to the energy crisis currently facing us?
It is not. It will take many years to develop clean energy sources that can meet more global demand. Governments cannot do anything right now to lower the cost of oil or gas. They can only get more oil in circulation. That’s why President Biden has appealed to Saudi Arabia and other oil producing nations to step up drilling this year and why E.U. Russian President Vladimir Putin directed Gazprom state gas company to fill European storage tanks. This triggered a welcomed fall in European prices.
Leaders at COP26 may find it difficult to reconcile the conflict between long-term needs to reduce fossil fuels and short-term requirements for them to continue to be lit. Russia, Saudi Arabia and other countries whose economies are dependent on fossil fuels, and have not come up with alternative plans, may try to make the price crunch work for them. They will also use weaker emission targets and a slowing down of their phase-out. Oil lobbyists in the U.S., meanwhile, are framing Biden’s calls for the industry to cut prices as ironic, given recent decisions seen as hostile to the sector, such as scrapping the Keystone XL pipeline from Canada.
Experts say COP26 offers a chance to put the world on a path for lower and longer-term energy costs. COP26 is focused on expanding investment in renewables. It would be a good opportunity to create momentum for this sector if a few countries used the summit as a platform for announcing large spending plans. On Thursday, the Biden Administration announced a $555 billion package of tax credits, grants and other policies to boost clean energy—the largest such investment in U.S. history—which it hopes to pass through reconciliation.
“The decisions being made right now in congress and at COP 26, are going to have dramatic changes to how we consume energy, and how we supply energy around the world,” Rote says. “We can’t delay making the right decisions, and expect the situation to get better.”