“Fossil fuels are driving up consumer energy costs, in part as a result of the industry’s exposure to the very climate disruptions it is continuing to worsen. These rising costs are yet another great reason to invest in clean energy now. Yet in a darkly ironic twist, fuel prices have been used as an excuse to delay the popular Build Back Better Act, despite the fact that its investments in clean energy are the ideal response to high fossil fuel costs.
Indeed, investing in clean energy would directly reduce household energy costs by an average of $500 per year, protect the economy from volatile fossil fuel markets, and slow the pace of climate disruption.
Fossil fuels are increasing consumer costs
The consumer price index (CPI) has been making headlines in recent months, leading to arguments about inflation risks and avoiding new federal spending even if it is fully paid for. Such claims allow transitory price changes to obscure deeper questions of affordability and ignore the value of the federal investments themselves in promoting economic growth.
Abstract discussions of inflation miss another important detail: the degree to which price changes in general are being driven by specific changes in energy prices. As the U.S. Bureau of Labor Statistics reports, energy costs contributed more to the increase in consumer prices this past month than did any other category—with energy up 25 percent but all other items excluding food up only 4 percent. For four months in a row, energy prices have pushed up the CPI.
Sen. Joe Manchin (D-WV) seemed to reference this recently when he said, “We are in the middle of an energy crisis.” However, it is important to examine what is causing the increase in energy cost—unsurprisingly, it involves climate change—as well as what can be done to protect consumers: investing in clean energy.
In a typical year, the cost of fossil fuel constitutes roughly three-quarters of all energy expenditures. Indeed, in 2019, the most recent year reported, the U.S. economy spent $25 billion on coal, $150 billion on natural gas, and $700 billion on petroleum, which amounted to 72 percent of all energy expenditures. Since then, the price of natural gas per million British thermal units of energy has more than doubled, from $2.05 to more than $5.50, and the price of crude oil has risen by a third, from $61 per barrel to more than $80 per barrel. This has driven the CPI for energy up 16 percent since January 2020 and, more recently, up 36 percent since the COVID-19-era minimum in May 2021.
Energy costs can present a significant financial hardship for households, causing some families to take out high-interest short-term loans to pay their bills, face having their utilities disconnected, and risk using hazardous space heaters or ovens for heat. In the past year, more than a quarter of low-income households—including disproportionate shares of Black and Hispanic households—reported that they were unable to pay all of their energy bills.
Policymakers must support these households with direct financial assistance and by examining the root causes of fossil fuel price volatility.
The fossil fuel industry is vulnerable to extreme weather
One of the major reasons why fossil fuel prices have been rising is the industry’s vulnerability to extreme weather. Even as fossil fuels continue to contribute to climate change, the industry is taking a beating from erratic arctic weather patterns in the winter, extreme heat in the summer, and stronger hurricanes—all stressors that are being exacerbated by climate change.
So far this year, 18 major weather and climate disasters have killed 538 people and cost more than $100 billion in damages in the United States. It should perhaps come as little surprise, then, that these disasters rank as some of the most significant events cited by the federal government’s analysts as influencing energy costs this year:
- In February 2021, the arctic cold front that reached Texas cut natural gas production in half across Texas, Oklahoma, and Louisiana. This loss of fuel supply knocked out 357 natural gas power plants in Texas, the Southwest, and the Midwest. Another 247 natural gas power plants were interrupted by freezing or other issues on-site. The staff of the Federal Energy Regulatory Commission found that, taken together, problems with natural gas supply and power plants caused the majority of the power outages that left Texas with half the power it needed.
- The Energy Information Administration (EIA) found that “largely as a result of more electricity consumption in June due to hot weather,” high summer demand for natural gas has reduced storage inventories heading into winter, which means prices in the coming months will remain volatile and sensitive to winter temperatures.
- At the end of August, “Hurricane Ida led producers to close more than 90% of natural gas and crude oil production capacity in the Gulf of Mexico region as the storm approached,” a significant setback that caused EIA to raise forecasted natural gas prices 16 percent nationwide through the end of the year and predict upward pressure on gasoline prices.
The forecast for this winter is for high fossil fuel prices to continue. If fossil fuels no longer deliver in the extreme cold nor deliver in the extreme heat, it is time to stop relying on them so exclusively. It is also time to stop pushing the weather to ever greater extremes….”