What impact will rising and fluctuating energy prices have on the transition to clean energy?

• Producing more oil can be a response to temporarily higher energy prices.
• In the long run, rising and fluctuating energy prices will drive the need for individuals and nations to reduce carbon emissions in their energy systems, which is crucial for achieving climate change objectives.
• The decarbonization required to achieve climate objectives cannot be achieved solely through the increase in energy prices.

As a result of Russia's invasion of Ukraine, energy prices surged. On March 6, U.S. crude oil prices reached their highest point since July 2008, at $130. A week later, U.S. gasoline prices reached a record high of $4.33 per gallon. At the same time, natural gas futures in the European Union hit a record high of €345 per megawatt-hour.

Although gas prices and natural gas have decreased since, it is unlikely that they will drop as quickly as President Joe Biden desires.

Experts suggest that while higher and more volatile energy prices may motivate efforts to decarbonize energy grids, it is not enough to shift society towards cleaner energy sources. Government intervention and widespread education are also necessary.

Oil producers will drill more

If oil prices continue to rise, oil companies may drill more oil to capitalize on the higher prices, as predicted by John Larsen, a partner at the Rhodium Group who heads the firm's US energy system and climate policy research.

If the supply of goods increases, it could eventually lead to a decrease in prices.

When oil was $109 a barrel and gas cost $4.25 at the pump, Secretary of Energy Jennifer Granholm called for a shift towards renewable energy sources.

"We are in an emergency and must increase short-term supply to stabilize the market and minimize harm to American families," Granholm stated to energy executives in Houston in March. She further urged executives to produce more oil and gas.

While increasing fossil fuel production goes against the need to reduce carbon emissions and combat global warming, Larsen believes it is a short-term measure that is acceptable, provided there is a strong commitment to transitioning to a low-carbon economy in the long run.

The oil and gas industries are experiencing the same tight labor market as the rest of the nation, which may hinder their ability to quickly increase oil well digging and production.

As Ryan Kellogg, a faculty affiliate at EPIC and a professor at the Harris School of Public Policy, stated to CNBC, labor is extremely scarce in the U.S. Hiring individuals and obtaining equipment are both challenging. The strain on supply chains is also evident. Despite this, the overall unemployment rate fell to 3.8% in February, as reported by the Labor Department.

Consumers will look for more efficiency

Kellogg stated on CNBC that high gas prices will drive consumers to opt for alternative transportation methods, such as fuel-efficient cars or electric vehicles.

Kellogg stated that being exposed to higher price volatility, even if it's only temporary, will cause consumers to consider alternatives.

Despite their desire for electric vehicles, consumers may struggle to find them due to low inventory levels caused by supply chain problems and other issues.

Telemark, a luxury construction services business founded by Frank Dalene and his brother Roy in 1978, specializes in energy efficiency and renewable energy home construction on Long Island in New York. As energy prices rise, interest in their services increases, but educating consumers about the money they can save by increasing inefficiency is more crucial.

Dalene stated to CNBC that education is the most significant factor. They emphasize the importance of cost-justification, which involves explaining the number of years it will take for customers to recoup their investment. This approach has proven successful.

Investors will take a new look at renewables

In the medium term, higher prices benefit clean energy, according to Larsen's statement to CNBC.

Investments in clean energy are increasingly appealing as a means of safeguarding the American economy from the volatility of energy prices resulting from geopolitical fluctuations, in addition to their environmental advantages.

Decarbonization will help protect against geopolitical oil shocks, but drilling drill drill won't help with prices now or in the next year, according to Kellogg.

Although the conditions make new energy infrastructure more appealing, changing existing technology is met with resistance due to its novelty and the need for change. According to Steve Crolius, president of Carbon Neutral Consulting and a former climate advisor at the Clinton Foundation, higher energy prices can alleviate the anxiety and risk associated with investing in new technologies. Crolius provides advice to entrepreneurs and project developers interested in investing in alternative fuel sources.

"If any of them feel anxious, they probably feel less anxious because the mountain to climb becomes a lot smaller," Crolius said.

Government is necessary

Although higher energy prices will encourage more investments in renewable energy, the price difference won't fully shift the economy towards clean energy.

According to Larsen, the only way to significantly increase technology deployment on a large scale is through serious regulations from the EPA on vehicles and power plants, along with tax credits, such as those in the Build Back Better plan. However, this bill has been stalled in Congress due to opposition from Sen. Joe Manchin, D.-W.Va.

To achieve the White House's goal of 100% clean energy by 2035, Rhodium's projections indicate that investments in renewable energy must increase by a factor of two every year from 2021 to 2030, with a total reduction of CO2 emissions from electricity generation of 80%.

Larsen stated that he didn't understand how a change in the price of fossil fuels could bring about the desired change.