Today, the world is witnessing how geopolitics are affecting the energy market and causing sudden shifts in the demand/ supply balance of fossil fuels energy sources. Once considered secure energy, it is now obvious how the world cannot rely on fossil fuels going forward.
The Russian/ Ukrainian war has caused the urgent need for the world to cut dependence on the Russian supply of fossil fuels. Consequently, that has caused a spike in energy prices. High oil and gas prices are pushing inflation – an aftermath of the pandemic, even higher and hurting consumer wallets.
The dependence on fossil fuels now is becoming not just a peril for the environment, it is also a threat to inflation, national security, and values of liberty.
Transitioning to a green economy is also a task urgent by the hour. The further the green transition is delayed, the greater would be the consequences caused by climate change events that are adding pressure on our pockets now and in the future.
The Renewables Solution To Alleviate Inflation
Considering issues like reliability of supply and healthy sustainable living, clean energy sources like renewables are turning into the most viable solution alleviating inflationary pressure.
That is a statement supported by the world’s largest hedge fund – Bridgewater Associates. It states that governments not only should subsidize clean technologies and infrastructure to combat climate change but such green energy investments also put less upward pressure on prices.
Investing in renewables development is also estimated to be a cheaper pathway than alternatives including carbon taxes. According to Bridgewater, tax credits and other fiscal support for things like renewable power and electric vehicles would be less inflationary than penalizing companies for emitting carbon or carbon taxes that additionally raise energy prices.
With new energy supply restrictions for Russia on the horizon and inflation at the highest level in decades, politicians are less prone to curb climate change by increasing carbon taxes and thus further raising energy prices.
“We need tools to curb climate change other than those that raise energy prices — tools that seek to reduce the cost of ‘green’ energy,” said Karen Karniol-Tambour and Carsten Stendevad, Bridgewater’s co-chief investment officers.
Green Energy Investments Cheaper Than Fossil Fuels
The hedge fund also puts forward government investing in early-stage green technologies as a way to go. They claim that at a time of rising inflation, innovation is usually deflationary, so investing into new technology tends to beat out older ones like fossil fuels through better performance at lower prices.
According to IRENA’s 2021 report, new renewables like solar and wind were the world’s cheapest source of energy in 2020, significantly undercutting the cheapest fossil fuels. Of the new wind, solar and other renewables that came online in 2020, nearly two-thirds or 62% were more affordable than the cheapest new fossil fuel.
The data shows developing countries that investing into large-scale renewable energy sources would be cheaper for them to power their growing economies than typical coal, oil and gas resources. IRENA’s report states that renewables present countries tied to coal with an economically attractive phase-out agenda that saves costs, adds new jobs and meets climate change goals.
Analysts and policymakers around the world are now discussing solving the energy supply crisis and trying to ensure security and predictability of the market going forward. Increased investments into renewables new capacity coupled with a gradual phase-out of old capacities seem to be the opportunity that could save us from high energy prices and solve the climate change crisis at the same time.