Why don't countries welcome high energy prices to fight climate change?

Question

There're lots of people who believe climate change is happening and think governments should take action to curb emissions.

Given that, it seems natural to welcome high fossil fuel prices - in fact, the higher the better. That's because high prices should dampen demand, which leads to less carbon emissions.

However, I see news articles such as this and this where countries are taking steps to cap/lower fossil fuel prices. This applies even when the government/political party say they consider climate change a major problem. Why?

The obvious explanation (and the one given by the US in one of the links above) is that they want to lower energy prices to lower Russian state revenue, which in turn makes Russia less able to prosecute the war in Ukraine. However, this explanation seems dubious because the US has tried to lower fossil fuel prices since before February 2022 (example).

Another possible explanation is that high fossil fuel prices does not lead to less carbon emissions, but I can't see why that wouldn't be the case. Demand for energy might be inelastic to some extent, but only to some extent (c.f. how world energy usage dropped during Covid).

The only other explanation I can think of is very cynical: the electorate support curbing emissions as long as someone else is paying for it. If they have to pay for it (by higher energy bills) then they don't support it anymore. By extension, governments (at least those that are democratically elected) must try to lower fossil fuel prices even if it leads to more carbon emissions.

I'm looking for an explanation why climate-conscious governments (and climate change activists for that matter) aren't welcoming high energy prices with open arms.

Answer 1

On the long run, maybe. But not on the short run.

If gasoline prices are higher for a long time, people buy smaller and more efficient cars. Something like that could be seen if one compares the European and US car market since the 1970s oil shock, but then came the SUV (which, admittedly, defies this explanation).

If the price rises quickly, people can't just junk their old cars and buy a new one. Not financially, and it would be bad for the environment as well if everybody purchased new smaller cars. So either they pay the higher prices and grumble, or they drive less -- but few people drive for fun. Trips are to the workplace, for shopping, to bring children to school.

Same with gas or oil for heating. On the long run, people buy ground source heat pumps, they insulate their windows, etc. On the short run, they pay more or shiver. And there are two more problems with this. For one, the amortization on heating systems is at least as long as for cars. For another, often the decision what to install belongs to a landlord while tenants pay the bill. (On the long term, more-expensive-to-heat apartments should have lower rents, but the housing market is stressed in much of the world).

Finally, by conflating climate and the energy price spike, one would make it look as if one could trade one sector for the other. If one needs to reduce my carbon footprint by a certain amount, one might be able to make the choice between housing, transportation, and diet composition. So if one really wants to eat plenty of red meat, one would have to give in to Russia. But accepting Russian aggression that way is a dangerous precedent.

Answer 2

Countries don't want to stop climate change, because their electorates are over-leveraged.

You say:

the electorate support curbing emissions as long as someone else is paying for it.

but even this is too generous. Actually, only a minority support stopping climate change. Allow me to introduce "NPC theory": The majority of the electorate consists of people who don't really care to think about such things as climate change, and just want to be able to follow their established routines. Anything which threatens the routine is a threat.

Why? Because a developed-country lifestyle is a house of cards, which is expensive and difficult to maintain. Anyone who's found a way to keep one would like to keep it. A misstep can result in the entire thing crashing down. Maintaining the status quo is much easier than finding an alternative route to keeping a similar lifestyle.

Consider a suburbanite who commutes by car to the city center for work. What happens if the gasoline price spikes 10x? Then on Saturday they can't buy gasoline according to the routine (unless they do it by credit card). On Monday they can't go to work. On Tuesday they don't have a job. Next week they can't pay rent. Next month the police show up to kick them out of their landlord's house. Next month after that, they are found dead under a bridge. Or, they can push it back by a month or two by buying gasoline on their credit card.

In the long run they should either live in the city center near their work, or commute by good public transit. Either of those would also be an acceptable lifestyle routine. But because there aren't enough apartments in the city center, and the best available public transit route includes a 45-minute stopover each way, and you already agreed to mortgage payments that you calculated based on being able to drive each day, you can't get from here to there without going through the intermediate state of dying under a bridge.

This is similar to the financial concept of leverage. The more leveraged a person's financial position is, the more they have to gain from favourable price changes, but the smaller of an unfavourable price change would make them bankrupt. Westerners' lifestyles, just like organizations in the western financial system, tend to be very leveraged and therefore completely intolerant of disruption. A few weeks ago, the UK's entire pension fund system nearly went bankrupt due to the snowball effect of an interest rate increase of only a few percent.

The mechanism by which high prices result in change is by trying to kill everyone (and bankrupt every business) that hasn't already made the change. Since the majority of people have not made the change, and don't want to (change is haaaaard!) they are strongly opposed to high prices.

People with more under-leveraged, flexible lifestyles - such as single young professionals - tend to be much more supportive of anything which changes the system, as they can accommodate the change, but this group is a relative minority.

Answer 3

Existing answers are very good, but a couple of further thoughts:

On the political side: Climate change kills. But for now, it largely kills people in the developing world, whose grieving relatives don't get a vote in the elections of developed countries. Hypothermia associated with unaffordable energy prices this winter will kill rather fewer people, but many of them will be people whose grieving relatives do get a vote in the elections of developed countries.

On the technical side: Yes, high gas prices incentivize people and businesses to invest in improved energy efficiency and in decarbonized energy generating capacity, and that's good. Unfortunately, they also incentivize people and businesses to switch from burning natural gas to coal, which is even more dangerous to the climate system; and they incentivize oil and gas companies to invest more in exploration for new oil and gas resources, and in technology for more complete extraction of already-known resources (e.g. fracking), which may actually lead to more oil and gas being extracted and burnt in the long run.

Answer 4

Because there are no viable alternatives on the market to existing sources of energy

Environmentalists don't necessarily want expensive energy, they just want to price the existing cheap solutions (coal, oil, natural gas, etc) out of the market so they can replace them with renewable solutions like solar and wind. The catch is you can't just yank existing options off the market. California, one of the places trying to do the most in this area, had to keep its Diablo Canyon nuclear reactor running because it represents a not-insignificant source of non-carbon electricity

The plant, which provides about 10% of the state’s electricity, is a clean source of energy that supporters say is needed to help the state meet its carbon neutral goals. Carbon neutrality means achieving a balance between the carbon added to the atmosphere and the carbon removed.

And this from a state that has half its power from non-carbon sources

California's non-CO2 emitting electric generation categories (nuclear, large hydroelectric, and renewables) accounted for 49 percent of its in-state generation, compared to 51 percent in 2020. The change is attributable to the continued impacts from California’s ongoing drought.

The US isn't building much in the way of nuclear power, and renewable energy sources in the US are not up to the task

In 2021, renewable energy sources accounted for about 12.2% of total U.S. energy consumption and about 20.1% of electricity generation.

And as for consumer uses, electric cars in the US only account for 1% of the market

Currently, it's estimated that around 1 percent of the 250 million cars, SUVs, and light-duty trucks on American roads are electric.

Some smaller European countries are getting better results in the consumer car market, but that doesn't even touch the largest emaining problem: diesel to power trucks that deliver goods to markets. Tesla (which is the only company apparently actively building electric semi trucks) might get the first electric semi trucks on the road by Dec 2022 (assuming delivery dates don't slip again).

In today’s tweet, Musk announced that Pepsico would get the first Tesla Semi deliveries on December 1. After the launch of Tesla Semi in 2017, PepsiCo placed one of the biggest orders for Tesla Semi: 100 electric trucks to add to its fleet. The company planned to use 15 of those trucks for a project to turn its Frito-Lay Modesto, California, site into a zero-emission facility. Last year, PepsiCo said that it expected to take deliveries of those 15 Tesla Semi trucks by the end of the year before it was delayed again.

Elon Musk claims the semis will get 500 miles per charge. Consumer electric pickup trucks have not fared well in towing, however

Car and Driver hitched a 6,100-pound camper to each of the three electric pickups on the market: the F-150 Lightning, GMC Hummer EV, and Rivian R1T. At 70 mph in 85-degree conditions, maximum range dropped to 100 miles for the Ford, 140 miles for the Hummer, and 110 miles for the Rivian.

Remember that semi trucks make most of the deliveries around the world. The price of fuel directly impacts consumers, regardless of whether or not you drive an EV.

TL;DR

1. Most places still use non-renewable energy for a significant source of their electrical generation
2. Most of the consumer vehicle market is still using gas or diesel
3. There are no in-use electric semi trucks. Even if Tesla meets their Dec 1, 2022 delivery, that still means the vast majority of all semis will be using diesel for the foreseeable future

Answer 5

Because high energy prices don't fight climate change directly. All the higher prices do is hurt the economy as it makes everything more expensive to buy. It is the same reason they can't just shift over to green energy as the impact would be very bad for the economy.

What is needed to fight climate change is to reduce the costs and increase output of green energy so that it can replace existing sources.

This question shows why higher energy prices are not a way to fight climate change. Germany (and other countries) are trying to find ways to help their citizens pay for the energy they use after the sharp increases in prices. Those higher prices only reduce the use of that energy so far. It also increases the profits of the companies involved allowing them to spend more money on the same fuels.

Why is Germany subsidizing the cost of electricity for everyone rather than only the poorest households?

As long as those fuels are profitable they will still continue to be used.

EDIT:

As a note I have seen Germany and the energy prices pop up on my social media feed as well as various chat programs as a reason why going green is bad. Claims that green energy can't keep up and if they had focused more on coal/nuclear they would not have this problem. I have also seen claims that because Greta Thunberg saying nuclear power is better then coal is her endorsing nuclear power for the future

Answer 6

Assume that your family has an income of $1000/month with:
Gas: $200
Fuel: $200
Food: $100

And after your idea, you will spend:
Gas: $400
Fuel: $400
Food: $200

Would you accept this price? In the past, every month you would save 500$, but now you would run out of money.

Answer 7

I think your cynical view is essentially correct but I wouldn't see it as negatively as you do.

Goverments do use higher prices on fossil fuels through taxes combined with subsidies on greener forms of energy to encourage people to reduce their carbon dioxide emission. Most european countries have high taxes on petrol and at the same time give generous subsidies to electric cars. So they are explicitly using high fossil fuel prices to fight climate change. But these are long term projects and the question of how high the prices should be is controlled by the governments (and discussed intensively with vastly differing opinions). The goal here is a gradual move to a more climate friendly ecomony without any significant reductions in wealth or quality of live.

What happened now was a significant increase in raw (meaning before taxes) energy prices. So in the short term the only way people can react to these prices increases is by consuming less. They can't just switch to an electric car because petrol become more expensive or switch to non-fossil heating because gas is much more expensive this year compared to last year. They can only drive less and heat less which is unpopular. It also means that instead of everybody driving and heating as much as before but using more environmentally friendly ways to do it, the poor need to drastically restrict themselves whereas the more wealthy can continue as before, which is also politically unpopular.

So governments try to reduce the (hopefully) short term impact of very high prices somewhat while at the same time trying to encourage long term reductions in fossil fuel use.

Answer 8

For electricity, fossil fuel price surges cause consumers to be priced out of potentially life-critical energy by the merit order/economic dispatch market utilized in most countries.

Economic dispatch works by asking every provider to commit to the lowest price they're willing to sell their electricity for (usually in a short time interval, like the next 5 minutes), sorting the offers lowest-to-highest, and accepting the offers in that order until demand is met. The catch though is that lower-cost offers get to benefit from the price set by the highest-cost accepted offer.¹

This means that if a solar plant and a coal plant both offer their energy at a 1% margin, but the coal plant's costs are twice as high as the solar plant's due to surging fuel prices, the solar plant collects an absurdly large ~100% margin. The theory is that this incentivizes producing lower-cost energy, and gives renewables companies capital they can re-invest.

The problem is that the savings of the lower-cost energy don't reach the consumer until that lower-cost energy represents 100% of the demand. As long as a single kilowatt is supplied by fossil fuels, consumers still pay fossil fuel prices and renewable producers pocket a massive windfall when fuel prices soar. (You may notice that this incentivizes renewables companies to not fill 100% of demand.)

This is a problem because people often die when they can't afford energy to heat their homes in the winter or cool their homes in the summer. This isn't good for the government's interests.

Answer 9

The abstract answer is: Any shock is bad for the economy.¹ Economies work best if developments are predictable so that resource use can be planned. Any change causes "friction": Adaptation is costly. The cost of change grows fast with its speed.

An energy price shock is exactly this kind of sudden, unpredicted, costly change: Previous investments become obsolete, resources must be diverted to new energy sources, the price spike lets companies go bankrupt (i.e., the resources invested in them are lost), unemployment rises, consumption drops, more ripple effects wreck havoc on the normally nicely balanced interplay of economic forces.

The transition to clean energy is urgent, but governments in democratic countries depend on their electorate. Creating economic insecurity and hardship is a fool-proof way for a government to lose the next election, so they cannot do that except as a heroic gesture which will be reverted by their successors.

Consider that one of the most straight-forward and most sustainable ways to reduce emissions is to simply shrink the economy², but of course no sane government would do that on purpose.

That's why governments fight quick rises in energy prices, even those governments that in principle aim at higher prices for the future, as probably all Green parties do. They dampen price spikes in order to dampen the economic and social disruptions caused by them.

---

¹ As an example we can look at the shrinking of the Russian armed forces after the end of the Cold War, ending vast unproductive resource use and freeing hundreds of thousands of men in their productive prime. In principle, this should result in an economic boost. In reality though, hundreds of thousands of veterans returning home were actually a burden. Even this change which should exclusively cause economical benefits hurt the economy because of the disruptive nature of change itself.

² The main reason why Germany doesn't lag behind its climate goals even more than it already does is the collapse (or, if you want, the accounting for an already ongoing collapse) of the East German economy after the reunification.

Answer 10

There are very good answers in this post, but a side note, on the perspective of the electorate (i.e. just the people in the streets).

This question assumes that the common people who complain about fossil fuels want a solution driven by the free market economy, as that is the premise of the question (higher prices->less use).

However, firstly this is not real, as many services of the world require energy. Trains, healthcare etc. Increasing the price may impact these heavily with no lowering of supply.

But mostly, many of the people complaining about fossil fuels do not necessarily want a "free market" solution. They want the government to own energy generation and distribution as a service, and to governments to take responsibility for the sources of this energy. If it was like that, the increase of energy prices may have an increased support on the electorate. But currently, increased energy prices for fossil fuel companies would translate mostly to them getting the same profits by providing less services, which obviously people do not agree with. Common people worried about climate change don't tend to like to subsidize the companies that caused it in order to keep their profits up.

Answer 11

Frame Challenge: Increased prices don't dampen demand, they shift who can afford the supply to a smaller subset of the demand.

One issue that might be worth noting is the presumption you're basing the idea of welcoming increased prices on:

That's because high prices should dampen demand, which leads to less carbon emissions.

This, as I understands, presumes a few considerations:

1. People's demand for energy is flexible, and driven by the cost of energy.
2. If energy costs go up, people's demand for that same amount of energy they used to demand would adjust.
3. The cost of energy will have to eventually adjust to a build of energy not being actively utilized, preventing it from going higher without any reduction soon in response.

These may not be correct:

1. Most energy consumption is for aspects of life people need to keep going - gasoline cars to drive them to an area of work, to get groceries (Or to get groceries delivered to the store from the farms that create the goods, or the manufacturing plants, etc.), natural gas for heating during colder months -, and cutting demand for that energy leads to a lot of degradation of life. If you don't go to work, you can't make as much (If any) money to spend on anything else, if your store doesn't have groceries to buy, you run out of food, and if heating a cold place isn't done, you run the risk of frozen pipes of water pressure, cracking housing structures, or freezing to death, in certain climates. There can be an irreducible amount of demand someone has for energy, regardless of the cost.

2. Just because someone is priced out of the market doesn't mean that they still won't actually need what the market provides; they just can't afford it. You might consider this the same vein of housing - if housing prices increase significantly in a region, people may not be able to buy a house, but they still need housing; that's where the renter's market comes in to play - someone buys a housing unit because they can afford it, and then rents it out to other people who can't afford the housing unit.

3. The person who is selling something than most people who used to be able to afford the demand may have a way to stockpile the thing until others who can afford the increased price can pay for the additional cost of the supply. Thinking of housing units again - if you own one and you rent it out, ideally you might want to not let it go a month without renting it out, but if you hold to a specific rent price, you might be better off to wait a month, even if nobody is going to occupy the empty home.

Hopefully this showcases the problem a bit clearly in that context; that is, raising gas prices to try reduce demand from using gasoline would be sort of similar to a plan to reduce demand for housing units by raising the price of housing units. There's still a demand for the thing people want, but fewer people will be able to afford it - and the people who can afford it may be able to ignore the increase in cost and buy it anyways.

Which is why, despite trying to get carbon-conscious energy sources up and running to replace carbon emission linked energy sources, until that's a viable replacement for the amount of energy that is in demand, lower prices for the existing energy sources ensures that a larger segment of people who constitute the demand for energy sources can in fact actually afford the energy sources available to their means (I.e. not everyone can afford an electric car and ensure it gets powered by non carbon emitting sources - until they can, they're stuck with the existing systems available.).

Answer 12

Looks like there could be a pragmatic reason for wanting to cap energy prices: high energy prices cause deaths.

Source

The only firm conclusion our model provides is that if the patterns from 2000-19 do continue to apply in 2022-23, Russia’s energy weapon will prove highly potent. With electricity prices near their current levels, around 147,000 more people (4.8% more than average) would die in a typical winter than if those costs returned to the average from 2015-19. Given mild temperatures—using the warmest winter during the past 20 years for each country—this figure would fall to 79,000, a 2.7% increase. And with frigid ones, using each country’s coldest winter since 2000, it would climb to 185,000, a rise of 6.0%.

The size of this effect varies by country. Italy has the most predicted deaths, owing to its soaring electricity costs and big, ageing population. The model does not account for Italy’s generous new subsidies for households, which focus on poorer users. These transfers would need to be very effective to offset such high prices. Estonia and Finland also do poorly on a per-person basis. At the opposite extreme, France and Britain, which have imposed price ceilings, fare reasonably well, and predicted mortality in Spain is nearly flat. In Austria, which will cap electricity prices up to a modest usage limit at a bargain €0.10 per kilowatt-hour, deaths are expected to fall.

However, the article doesn't mention climate change, which is presumably also going to kill quite a few people, but "sometime in the future".

Answer 13

Because it remains to be seen if green solutions are actually green.

I have seen articles stating the problem (see links below) but have yet to see a refutation: green energy isn't very green. Convincing people to pay more for electricity, which is primarily a result of switching to more expensive "green" solutions such as wind and solar, when the generation sources are of dubious actual improvement to the environment is going to be a hard sell.

e.g., anchoring a wind turbine takes a lot of concrete, so you need loads of concrete to be mixed and installed (which is going to be done with diesel trucks). Wind and solar require a massive footprint compared to any other energy source so unless you can place them in desert or tundra, you could be looking at chopping down forests in order to place energy collection grids. Since they are thus distributed, you need loads of copper wiring to connect them all, creating a complex grid with many additional points of failure/maintenance. Snow and ice have to be handled (generally via self-heating, which further reduces the net energy output). The ups and downs of wind and solar also require solutions for energy storage, which typically means lithium batteries on a large scale.

And then there's the replacement schedule. Solar panels begin degrading in terms of efficiency the day they are installed, with the 20-25 year mark typically being the point where they are replaced. Wind similarly has about a 20 year life span as a standard replacement point. Replacing them is another energy intensive operation (and, again, must cover a very wide area as the whole energy grid is dispersed). Add further costs (both in money and energy expended) to anything that was installed off-shore.

In the end, you are expending an incredible amount of money, resources, and energy to create a solution that has a short life span and must be regularly replaced, almost in its entirety, and additionally requires a huge amount of land (which also faces a "NIMBY" effect. Not In My Backyard. Everyone wants wind power, but few people want it installed on the hills around their house.)

If you want people to pay more to save the environment, they need some better assurances that the environment is not actually just going to be destroyed even faster by the so-called solution.

Supporting evidence:

"Wind Turbine Blade Waste in 2050" (University of Cambridge, 2017) https://www.repository.cam.ac.uk/bitstream/handle/1810/263878/Liu_and_Barlow-2017-Waste_Management-AM.pdf?sequence=1&isAllowed=y

"Wind turbines generate mountains of waste" https://www.cfact.org/2020/09/28/wind-turbines-generate-mountains-of-waste/

"Solar panels generate mountains of waste" https://townhall.com/columnists/dugganflanakin/2020/09/17/solar-panels-generate-mountains-of-waste-n2576390

"Delving more deeply, generating 20% of US electricity with wind power would require up to 185,000 1.5-MW turbines, 19,000 miles of new transmission lines, 18 million acres, and 245 million tons of concrete, steel, copper, fiberglass and rare earths – plus fossil-fuel backup generators for the 75-80% of the year that winds nationwide are barely blowing and the turbines are not producing electricity." https://climatechangedispatch.com/monumental-unsustainable-environmental-impacts/

"Concrete: the world's third largest CO2 emitter" https://www.rte.ie/news/world/2021/1029/1256726-concrete-co2-emitter/