Outside the Box: Soaring energy prices threaten to wreck economic recovery
Americans are alarmed over the rising cost of energy. According to new polling from Morning Consult, 85% of Americans are concerned about rising energy prices. This cuts across party lines, with 85% of Democrats and 89% of Republicans expressing concern.
All of this comes as the U.S. Energy Information Administration (EIA) warns that consumers will be paying significantly more to heat their homes this winter. Households that use propane are likely to see prices rise 54% and those using oil will see a 43% increase. For the half of Americans that heat with natural gas, their bills are likely to be up 30%—and jump 50% if it’s a colder than average winter.
Likely to get worse
There’s no debate that the global energy crisis and its inflationary pressure have arrived in the U.S. According to the Bureau of Labor Statistics’ consumer price index, the cost of food is up 4.6 percent over the past 12 months, with the cost of all other goods, less food and energy, up 4%. The cost of energy, however, is up a staggering 24.8% in the same period.
Soaring energy prices are exactly what the economy and American workers simply can’t afford as the nation attempts recovery. However, energy-induced inflation is likely to get worse before it gets better. Unfortunately, that pain will fall hardest on those who can least afford it—something that’s already happening in Europe.
As energy prices skyrocket in Britain and the European Union, policy makers are struggling to keep energy poverty from exploding. European Union Labor Commissioner Nicolas Schmit recently warned of a sharp rise in energy poverty this winter, telling a German news outlet that there are already millions of Europeans unable to sufficiently heat their homes.
With per capita energy use higher in the U.S., even modest rises in energy prices could slam households with bills they can’t afford to pay. According to an EIA analysis, nearly one-third of American homes struggle to meet energy needs. And 7 million U.S. households have experienced times when they’ve been unable to use heating equipment because of financial constraints.
Turning to coal
Fortunately, while heating costs and prices at the gas pump have jumped, the increase in electricity prices has been relatively modest. Although not immune to rising fuel costs, the U.S. power sector still maintains enough dispatchable fuel diversity to provide market options—for now. As natural gas prices have spiked, utilities have turned to the coal fleet to take pressure off consumers. The EIA expects coal generation to rise 22% year-over-year as coal takes market share from gas and serves as a price shock absorber, shielding ratepayers from higher-priced gas.
States and regions with little or no coal capacity, such as New England, are likely to face far higher prices this winter—and even fuel security and reliability challenges. Finding liquefied natural gas cargoes to meet peak demand will be exorbitantly expensive if not impossible.
This lack of fuel diversity in New England mirrors the challenges now facing Europe. A rushed pivot away from coal, and an overreliance on natural gas as a bridge fuel, is proving to be a costly mistake. Out of options, Europe is left begging Vladimir Putin for help.
As one analyst recently said, Europe’s attempt to wean itself from fossil fuels has been “management by chaos,” and high energy prices—driven by natural gas—could persist until 2025.
That should raise eyebrows in the U.S. Ever-increasing U.S. natural gas exports are exposing America’s consumers to global market pressure. Simply put, not enough is being done to preserve dispatchable fuel diversity. Policies designed to incentivize the premature closing of well-operating coal plants before replacement capacity is in place are endangering America’s energy transition by sacrificing affordability and reliability.
U.S. consumers need reliability, and they must have affordability. As policy makers grapple with the energy crisis and look for lessons learned, the need for a thoughtful, responsible approach in the energy transition is critically important. Chaos and policy-induced energy poverty can’t be the path forward.
Conor Bernstein is senior director of communications at the National Mining Association (NMA).
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