tag:theconversation.com,2011:/fr/topics/gas-prices-7587/articlesGas prices – The Conversation2023-08-20T20:04:13Ztag:theconversation.com,2011:article/2112612023-08-20T20:04:13Z2023-08-20T20:04:13Z5 tips for getting off gas at home – for a cleaner, cheaper, healthier all-electric future<figure><img src="https://images.theconversation.com/files/543177/original/file-20230817-23-84peqv.jpg?ixlib=rb-1.1.0&rect=124%2C7%2C5052%2C3437&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/induction-cooking-home-on-black-portable-1477848773">Elena M. Tarasova, Shutterstock</a></span></figcaption></figure><p>Burning gas in our homes to cook food or heat air and water has become a contentious issue. Gas is an expensive, polluting fossil fuel, and there’s mounting evidence to suggest it’s also <a href="https://www1.racgp.org.au/ajgp/2022/december/health-risks-from-indoor-gas-appliances">bad for our health</a>. </p>
<p>Five million existing Australian households will need to <a href="https://grattan.edu.au/report/getting-off-gas/">get off gas</a> within the next 30 years. But for homeowners, the upfront cost can be a major barrier to action. Renters rarely get a say over the appliances installed in their homes. And apartment owners can struggle to make individual changes too. </p>
<p>In most cases it’s worth making the switch, for the energy bill savings alone. For example, analysis suggests a household in Melbourne switching from gas to electricity can save <a href="https://theconversation.com/all-electric-homes-are-better-for-your-hip-pocket-and-the-planet-heres-how-governments-can-help-us-get-off-gas-207409">up to A$13,900</a> over a decade.</p>
<p>If you’re contemplating upgrading gas appliances in your home, or even disconnecting from the gas network altogether, here are a few handy tips and resources to cut through the confusion. </p>
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<figcaption><span class="caption">Homes must switch away from gas by 2050, says policy think tank (ABC News)</span></figcaption>
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Read more:
<a href="https://theconversation.com/keen-to-get-off-gas-in-your-home-but-struggling-to-make-the-switch-research-shows-youre-not-alone-209589">Keen to get off gas in your home, but struggling to make the switch? Research shows you're not alone</a>
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<h2>Tip 1 – Find trusted, independent information</h2>
<p>There is no shortage of information on how to make the switch from gas to all-electric appliances. The challenge is finding <a href="https://theconversation.com/we-need-a-lemon-law-to-make-all-the-homes-we-buy-and-rent-more-energy-efficient-204369">trusted and independent information</a>. </p>
<p>Not-for-profit organisation <a href="https://renew.org.au/">Renew</a> has compiled a range of <a href="https://renew.org.au/resources/how-we-can-help/efficient-electric-homes/how-we-can-help-going-off-gas/">presentations, guides, case studies and research</a>. <a href="https://www.choice.com.au/">Choice</a> provides independent reviews of household appliances, including operating costs. The Australian government’s <a href="https://www.energyrating.gov.au/">Energy Rating website</a> provides information on appliances to help consumers compare performance. Some <a href="https://www.yarracity.vic.gov.au/services/take-climate-action">local councils</a> and <a href="https://totallyrenewableyack.org.au/">community groups</a> also provide information, support and bulk-buying schemes.</p>
<p>You could also visit some of the all-electric homes open to the public for <a href="https://sustainablehouseday.com/">Sustainable House Day</a>. This can help you learn what works from people who have already made the change. </p>
<p>The <a href="https://www.facebook.com/groups/MyEfficientElectricHome">My Efficient Electric Home</a> group on Facebook is another active and helpful forum. </p>
<p>If you are going all-electric as part of a wider retrofit, consider an independent <a href="https://www.homescorecard.gov.au/">Residential Efficiency Scorecard assessment</a>. This will help you understand what to else you can do to maximise <a href="https://theconversation.com/the-other-99-retrofitting-is-the-key-to-putting-more-australians-into-eco-homes-91231">thermal comfort, environmental benefits and financial outcomes</a>.</p>
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<h2>Tip 2 – Plan your approach</h2>
<p>Once you understand what to do, the next step is planning how to go about it. Think about what is most important to your household. What is driving the change? If it’s your health, you might like to start by eliminating indoor air pollution from the gas stove. Or if you want to save money, start using reverse-cycle air conditioning to heat your home, rather than gas.</p>
<p>There are three main ways to go all-electric: </p>
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<li><p><strong>Replace all your gas appliances at once</strong>. Making the change quickly minimises disruption to your home. You may save money on installation costs by doing everything in one go. You will avoid ongoing fixed gas supply charges once you disconnect from the gas network, but you may be required to pay an “<a href="https://energy.act.gov.au/switching-off-your-gas-connection/">abolishment fee</a>” for permanent disconnection. That fee can vary significantly, depending on your location and gas provider. Costs <a href="https://www.smh.com.au/environment/sustainability/would-you-pay-1000-to-get-off-gas-consumer-dismay-over-disconnection-cost-20230223-p5cmw9.html">could be up to $1000 (or more)</a> but some states like Victoria have capped the price a <a href="https://reneweconomy.com.au/fossil-gas-death-spiral-regulator-sets-exit-fee-to-socialise-cost-of-mass-disconnection/">household can be charged at $220</a>. Renters wouldn’t be able to permanently disconnect without permission from the landlord, so they would still be open to paying the daily connection fee even if they found alternative electric options for everything else. </p></li>
<li><p><strong>Replace your gas appliances one at a time</strong>, as finances allow. However, there will come a point where <a href="http://www.ata.org.au/wp-content/projects/CAP_Gas_Research_Final_Report_251114_v2.0.pdf">financially you will be better off</a> replacing all the remaining gas appliances. This is largely because it will not be affordable to keep paying the daily connection cost for gas if you just have one gas appliance remaining. </p></li>
<li><p><strong>Just stop using gas appliances</strong> in favour of existing electric appliances that do the same job, such as a <a href="https://reneweconomy.com.au/the-traps-laid-by-the-fossil-gas-industry-for-uninformed-households/">reverse cycle air conditioner for space heating</a>. You may have – or can buy – plug-in electric alternatives, such as a microwave ovens, portable induction cooktops, air fryers and heaters. These can be a good option for renters when landlords won’t make changes.</p></li>
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Read more:
<a href="https://theconversation.com/cooking-and-heating-without-gas-what-are-the-impacts-of-shifting-to-all-electric-homes-210649">Cooking (and heating) without gas: what are the impacts of shifting to all-electric homes?</a>
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<p>You could even borrow portable appliances to see how they work before committing to buying your own. </p>
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<figcaption><span class="caption">Households share their electrification journey (Renew)</span></figcaption>
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<h2>Tip 3 – Access available rebates and resources</h2>
<p>Most states offer various rebates for households to reduce the upfront cost of replacing gas appliances. These could reduce costs by thousands of dollars. Some rebates also target rental housing. Here is a list of key rebates available in different states:</p>
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<li><a href="https://www.epw.qld.gov.au/about/initiatives/household-energy-savings-program">Queensland</a></li>
<li><a href="https://www.energy.nsw.gov.au/households/rebates-grants-and-schemes">New South Wales</a></li>
<li><a href="https://www.climatechoices.act.gov.au/policy-programs/home-energy-support-rebates-for-homeowners">ACT</a></li>
<li><a href="https://www.energy.vic.gov.au/for-households/victorian-energy-upgrades-for-households">Victoria</a></li>
<li><a href="https://recfit.tas.gov.au/household_energy/energy_saver_loan_scheme">Tasmania</a></li>
<li><a href="https://www.sa.gov.au/topics/energy-and-environment/using-saving-energy/retailer-energy-productivity-scheme">South Australia</a></li>
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<p>Some not-for-profit organisations (such as the <a href="https://www.bsl.org.au/services/energy-assistance/">Brotherhood of St Laurence</a>) offer financial and other support for lower-income households struggling to pay their energy bills.</p>
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Read more:
<a href="https://theconversation.com/want-an-easy-400-a-year-ditch-the-gas-heater-in-your-home-for-an-electric-split-system-201941">Want an easy $400 a year? Ditch the gas heater in your home for an electric split system</a>
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<h2>Tip 4 – Wait for a sale or negotiate a better deal</h2>
<p>It might sound simple but you can always save money by waiting until these electric appliances are on sale. If you are buying multiple appliances you can try to negotiate a better price. Factory seconds outlets offer lower prices as well.</p>
<h2>Tip 5 – Know the issues</h2>
<p>While the shift to all-electric will likely provide many benefits there are some things you need to consider:</p>
<ul>
<li>The carbon emissions from electricity are falling fast, and many homes have rooftop solar. Combining <a href="https://grattan.edu.au/report/getting-off-gas/">all-electric with solar panels</a> will maximise returns. </li>
<li>You may have to adjust to how new technologies operate and perform. For example, you may need <a href="https://www.theage.com.au/goodfood/tips-and-advice/do-you-really-have-to-buy-new-cookware-all-your-burning-questions-about-induction-cooking-answered-20230810-p5dvd0.html">new, metallic cookware for an induction cooktop</a> and become familiar with their fast response. Additionally, some people find heat from reverse cycle air conditioners to be drier and/or draughtier than gas heating. Floor-mounted units heat more effectively. </li>
<li>It is not just the energy performance of appliances that matters. For example, noise from heat pump hot water services can vary across different brands. They can also require more space for installation.</li>
<li>Undertaking a wider energy retrofit (for example, increasing insulation in walls, ceiling and underfloor, upgrading windows to double glazing) may mean you can buy a smaller, cheaper reverse cycle air conditioner when replacing gas heating.</li>
<li>Electric appliances also need maintenance to make sure they perform optimally. For example, reverse cycle air conditioners have filters that must be regularly cleaned. While this can be done by households, it can be hard for people with mobility issues.</li>
<li>Depending on the capacity of your electricity switchboard or wiring, extra electric appliances may require upgrades.</li>
<li>For renters, while you could use portable appliances, you may not be able to disconnect from gas completely, meaning you would still have to pay a daily connection fee.</li>
<li>Gas and electricity prices can change over time, for many reasons. For example, if fixed gas distribution costs are spread over fewer customers.</li>
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<h2>A worthwhile investment</h2>
<p>Australian states and territories have started banning gas in new builds. Victoria and the ACT will soon require <a href="https://theconversation.com/cooking-and-heating-without-gas-what-are-the-impacts-of-shifting-to-all-electric-homes-210649">new housing and major renovations to be all-electric</a>. Others are likely to follow. </p>
<p>For people in existing housing around Australia, it can be daunting to make the switch. Many of us have grown up with gas in our homes and when one appliance breaks, the easiest thing to do is replace like-for-like. But the weight of evidence shows it’s worth taking the time to look at the alteratives and invest in upgrading to all-electric appliances. The benefits far outweigh the costs. </p>
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Read more:
<a href="https://theconversation.com/all-electric-homes-are-better-for-your-hip-pocket-and-the-planet-heres-how-governments-can-help-us-get-off-gas-207409">All-electric homes are better for your hip pocket and the planet. Here's how governments can help us get off gas</a>
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<p class="fine-print"><em><span>Trivess Moore has received funding from various organisations including the Australian Research Council, Australian Housing and Urban Research Institute, Victorian Government and various industry partners. He is a trustee of the Fuel Poverty Research Network.</span></em></p><p class="fine-print"><em><span>Alan Pears consults to and advises a number of not-for-profit organisations involved in transition from gas issues such as the Australian Alliance for Energy Productivity, Energy Efficiency Council, Renew. He has received funding from A2EP, EEC and Energy Consumers Australia for work in this area. He writes a regular column for Renew magazine, and for other websites such as Reneweconomy and thefifthestate. </span></em></p><p class="fine-print"><em><span>Nicola Willand receives or has received funding for research from various organisations, including the Australian Research Council, the Victorian State Government, the Lord Mayor’s Charitable Foundation, the Australian Housing and Urban Research Institute, the Future Fuels Collaborative Research Centre, the Australian National Health and Medical Research Centre and the British Academy. She is affiliated with the Australian Institute of Architects.</span></em></p>Thinking about getting your home off gas, but don’t know where to begin? Here’s a few handy tips to get you on your way.Trivess Moore, Senior Lecturer, School of Property, Construction and Project Management, RMIT UniversityAlan Pears, Senior Industry Fellow, RMIT UniversityNicola Willand, Senior Lecturer, School of Property, Construction and Project Management, RMIT UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1999042023-02-23T12:51:38Z2023-02-23T12:51:38ZGas prices are falling but your energy bills still won’t be affordable any time soon<figure><img src="https://images.theconversation.com/files/510176/original/file-20230214-18-as6jr0.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C5321%2C3175&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Irina Gutyryak / shutterstock</span></span></figcaption></figure><p>Wholesale gas prices – the price paid by the company that then sells it on to you – are at last <a href="https://www.cornwall-insight.com/press/drop-in-wholesale-energy-prices-sees-price-cap-predictions-fall-below-the-energy-price-guarantee-for-second-half-of-2023/">starting to fall</a> to levels below where they were before Russia invaded Ukraine in February 2022, though not back to levels before the global economy restarted after COVID lockdowns. </p>
<p>In the UK, these wholesale gas prices directly affect both the cost of heating homes and other properties that run on gas boilers, and the price of electricity, because of how supply and demand are balanced on the national grid. So are energy bills likely to become more affordable this year?</p>
<p>A crucial premise for any discussion on the energy costs faced by consumers is that, although Britain has an energy price cap for residential users, it was never designed to <a href="https://theconversation.com/britains-energy-price-cap-was-never-designed-to-keep-your-gas-and-electricity-affordable-188547">keep electricity and gas affordable</a>. </p>
<p>The cap doesn’t actually put a cap on your bill, just how much you pay per unit of energy you use. Business and other non-domestic users have only benefited from a (unit) cap this winter, when price pressures have been at their worst. </p>
<p>In this sense, capping only focuses on keeping things “fair” between retail suppliers and users – it does not affect production and wholesale prices. Soaring gas wholesale prices have been at the root of rising energy bills – and pretty much all goods and services – because everything requires energy. </p>
<p>Now, with those wholesale prices starting to fall, the regulator Ofgem is due to announce a new price cap at the end of this month. The <a href="https://www.cornwall-insight.com/winter-2023-24-price-cap-forecasts-fall-further-below-2022-23-epg-but-long-term-prospects-remain-uncertain/">latest analysis from Cornwall Insights</a> predicts that, while wholesale gas prices are falling, the cap will remain relatively high. </p>
<p>The projections involve caps on unit electricity and gas prices that would mean the much-quoted “average” annual household bill dropping to £3,208 from April, and then to £2,200 for the remaining six months of the year. </p>
<p>These predictions suggest that the UK government’s <a href="https://www.gov.uk/government/publications/energy-bills-support/energy-bills-support-factsheet-8-september-2022">energy price guarantee</a> won’t play a role after June. This was the additional cap <a href="https://www.bbc.co.uk/news/business-62833623">announced in September 2022</a> by then prime minister Liz Truss, which did keep bills below the Ofgem cap this winter. </p>
<p>The price guarantee will rise from April to a level that equates to an average annual household bill of £3,000, which, from July, is higher than the projected Ofgem cap of £2,200. </p>
<h2>It’s not just about your energy bill</h2>
<p>At the end of last year, <a href="https://www.nea.org.uk/news/8-4-million-uk-households-will-be-in-fuel-poverty-from-april-says-national-energy-action/">National Energy Action</a> warned that by April 2023 8.4 million households would be in fuel poverty. The dialling back of government support will further exacerbate these challenges. </p>
<p>There have been calls for <a href="https://www.theguardian.com/business/2023/feb/09/act-now-energy-bills-subsidy-fuel-poverty-martin-lewis?CMP=Share_AndroidApp_Other">energy prices to be frozen</a>, <a href="https://www.theguardian.com/money/2023/jan/17/uk-energy-bills-social-tariff-government-jeremy-hunt?">“social tariffs” for low-income households</a>, and for energy suppliers to stop the practice of enforced switching households to (higher cost) pre-payment meters which disproportionately affects lower-income households.</p>
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<a href="https://images.theconversation.com/files/511160/original/file-20230220-20-pal7lo.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Vegetables on a market stall" src="https://images.theconversation.com/files/511160/original/file-20230220-20-pal7lo.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/511160/original/file-20230220-20-pal7lo.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/511160/original/file-20230220-20-pal7lo.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/511160/original/file-20230220-20-pal7lo.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/511160/original/file-20230220-20-pal7lo.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/511160/original/file-20230220-20-pal7lo.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/511160/original/file-20230220-20-pal7lo.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Energy costs are one reason food has become a lot more expensive.</span>
<span class="attribution"><span class="source">Octus_Photography / shutterstock</span></span>
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<p>But household gas and electricity bills aren’t the only way that expensive energy hits household budgets. Businesses producing all the other things people need either have to pass on higher costs through their prices – part of the reason inflation has been so high – or reduce activity levels, perhaps even shutting down, so that people lose their jobs and sources of income. </p>
<p>Indeed when rising energy costs are driving price increases all across the economy, our research at Strathclyde’s Centre for Energy Policy suggests that the <a href="https://www.strath.ac.uk/humanities/centreforenergypolicy/newsblogs/2022/energypriceshocksaug22/">lowest-income households</a> suffer most. This is because the largest part of their spending is on energy and things like food, which use a lot of energy in their production and distribution.</p>
<p>Support for business through the <a href="https://www.gov.uk/guidance/energy-bill-relief-scheme-help-for-businesses-and-other-non-domestic-customers">energy bill relief scheme</a> is due to end in March 2023. For one year, it will be replaced by an energy bills discount scheme. But as the name suggests, this will involve discounting rather than capping energy prices faced by businesses, and has received a very <a href="https://www.theguardian.com/business/2023/jan/09/business-energy-bill-support-to-be-reduced-from-march-treasury-confirms">cautious welcome</a>. </p>
<p>In addition to the implications for prices of goods and services for UK households, there could be real risks to UK competitiveness since other countries have <a href="https://www.euronews.com/next/2022/10/26/energy-bills-are-soaring-in-europe-what-are-countries-doing-to-help-you-pay-them">more generous support</a> around energy bills. For example, part of the <a href="https://www.theguardian.com/world/2022/oct/10/germany-to-pay-december-gas-bills-for-households-and-businesses">German government’s</a> support package involved entirely subsidising the energy bills of households and small- to medium-sized businesses in the month of December. </p>
<h2>So what can be done?</h2>
<p>First, serious action is needed to help households reduce their energy demand in ways that doesn’t involve cutting necessary services such as heating, lighting and eating. That is, we need substantial improvements in energy efficiency – not just the energy conservation most households have been doing this winter by simply <a href="https://theconversation.com/energy-bills-how-much-money-does-turning-down-the-thermostat-actually-save-194756">turning things off or down</a>.</p>
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<span class="caption">In 2022, 38.5% of Britain’s electricity was generated from gas. Wind was next, at 26.8%.</span>
<span class="attribution"><span class="source">Christopher Chambers / shutterstock</span></span>
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<p>But it is also crucial to address critical issues of how energy prices are set, and to reform the energy market. Electricity produced in gas-powered plants – which are now so expensive to fuel – is used to balance supply and demand so that it determines <a href="https://theconversation.com/renewables-are-cheaper-than-ever-so-why-are-household-energy-bills-only-going-up-174795">the price charged for all electricity</a>.</p>
<p>This needs to end, involving both reform of wholesale pricing and building up renewable generation capacity and energy storage in ways that allow lower costs to be passed to consumers. Fixed daily payments known as standing charges also need to be addressed, not least in terms of how <a href="https://www.bbc.co.uk/news/business-60878314">they vary across regions</a> with households in north Wales and Merseyside paying the most while <a href="https://www.moneysavingexpert.com/utilities/what-are-the-price-cap-unit-rates-/">Londoners pay the least</a>. </p>
<p>Standing charges apply regardless of use, and so account for a bigger share of the bills of less well-off who tend to use less energy. They are also <a href="https://www.forbes.com/uk/advisor/energy/standing-charges/#:%7E:text=What%20if%20I%20have%20a,meters%20costs%20energy%20suppliers%20money">higher for those on pre-payment meters</a>, because of installation and maintenance costs, than those able to pay monthly tariffs on standard meter.</p>
<p>These are challenges that the new <a href="https://theconversation.com/how-climate-change-could-fare-in-the-uks-new-department-for-energy-security-and-net-zero-199448">Department of Energy Security and Net Zero</a> must act on, and provide a more fitting framework for Ofgem to respond to the persistent pricing and market failures that cause energy to be unaffordable for so many.</p>
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<img alt="Imagine weekly climate newsletter" src="https://images.theconversation.com/files/434988/original/file-20211201-21-13avx6y.png?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/434988/original/file-20211201-21-13avx6y.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=600&fit=crop&dpr=1 600w, https://images.theconversation.com/files/434988/original/file-20211201-21-13avx6y.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=600&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/434988/original/file-20211201-21-13avx6y.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=600&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/434988/original/file-20211201-21-13avx6y.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=754&fit=crop&dpr=1 754w, https://images.theconversation.com/files/434988/original/file-20211201-21-13avx6y.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=754&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/434988/original/file-20211201-21-13avx6y.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=754&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<p class="fine-print"><em><span>Karen Turner receives funding from the European Climate Foundation, InnovateUK and EPSRC. </span></em></p>Household gas and electricity bills aren’t the only way that expensive energy hits your budget.Karen Turner, Professor and Director of the Centre for Energy Policy, University of Strathclyde Licensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1977702023-01-12T23:56:10Z2023-01-12T23:56:10ZInflation report is a mixed bag – an economist explains why some items are rising faster than others<figure><img src="https://images.theconversation.com/files/504331/original/file-20230112-69985-mrta08.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C5991%2C3979&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Oeuf! Egg prices are rising faster than a souffle.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/photo/homemade-souffle-with-sugar-powder-royalty-free-image/680175794?phrase=souffle&adppopup=true">Getty Images</a></span></figcaption></figure><p><em>Economists worried about soaring inflation got some good news to start the year: The rate of inflation has eased. The <a href="https://www.reuters.com/markets/us/us-consumer-prices-fall-december-weekly-jobless-claims-edge-down-2023-01-12/">first report card of 2023 on consumer prices</a>, released on Jan. 12, showed that the overall cost of goods and services decelerated to an annual pace of 6.5% in December, the <a href="https://fred.stlouisfed.org/series/CPIAUCSL#">slowest in over a year</a> and down from 7.1% in November.</em></p>
<p><em>But there’s bad news too, especially if you are an <a href="https://fred.stlouisfed.org/series/APU0000708111#0">egg-munching</a> <a href="https://fred.stlouisfed.org/series/CUUR0000SAS2RS#0">renter</a> fond of frequent <a href="https://fred.stlouisfed.org/series/CUUR0000SEGB#0">regular haircuts</a>. In quite a few categories, the cost of living rose at an even faster pace.</em></p>
<p><em>That’s because price inflation isn’t uniform. Different products and services are affected by myriad factors. So while some prices may have fallen during December, slowing the annual rate of inflation, other items kept getting more expensive.</em></p>
<p><em>The Conversation asked Edouard Wemy – an <a href="https://www2.clarku.edu/faculty/facultybio.cfm?id=1080">economist from Clark University</a> who never sets off to work without his morning breakfast of two eggs, sunny side up – to explain how different items in the consumer price basket fared in the latest inflation report.</em></p>
<h2>Energy</h2>
<p>When you look at the detail of the latest report on the consumer price index, you’ll see that overall energy costs declined. That’s because there was a steep decline in gasoline prices – <a href="https://fred.stlouisfed.org/series/CUSR0000SETB01">down 9.4% in the month of December</a> after dropping 2% in November.</p>
<p>While that’s good news, it’s a bit puzzling. AAA was <a href="https://newsroom.aaa.com/2022/12/nearly-113-million-people-will-travel-from-december-23-to-january-2/">expecting demand for gasoline to be very high</a> over the month, which usually happens in winter. This typically pushes prices up. My best guess is either demand wasn’t as strong as expected due to fears of a coming recession or there has been an easing on the supply constraints that has contributed to pushing the price of gas up.</p>
<p>An exception to this downward energy price trend was in energy services – that is, electricity and piped gas – where prices actually ticked up. The reason is largely due to the rising cost of doing business. Utility companies and pipeline services are suffering as a result of higher labor costs and are passing on the added cost to consumers through higher prices. The <a href="https://www.bls.gov/news.release/empsit.nr0.htm">latest jobs report</a> shows average hourly earnings rose 4.6% in December from a year earlier.</p>
<h2>Groceries</h2>
<p>Overall food inflation slowed in December, with the cost of groceries rising just 0.2% in the month – down from 0.5% in November.</p>
<p>But there is a lot of variation in the cost of grocery items. While the price of fruits and vegetables fell in December, the cost of eggs jumped by 11.1%. That’s due to an <a href="https://www.reuters.com/world/us/us-nears-record-poultry-deaths-bird-flu-virus-type-complicates-fight-2022-10-18">outbreak of bird flu</a> that could well last until into the summer.</p>
<p>In addition to that, farms are seeing the same wage pressures as other businesses, which are then passed on to consumers.</p>
<h2>Housing</h2>
<p>The cost of shelter, whether from renting or owning, <a href="https://fred.stlouisfed.org/series/CUSR0000SAH1#0">rose 0.8% in December</a> – the biggest one-month gain since the 1980s. </p>
<p>This is understandable given the <a href="https://theconversation.com/federal-reserve-just-hiked-interest-rates-for-the-7th-time-this-year-so-why-are-mortgage-rates-coming-down-195779">numerous interest rate hikes</a> during 2022. Rising interest rates means that taking out a home loan is more costly, which in turn pushes more people into renting. Added demand on rental properties in turn pushes the prices that landlords demand up. </p>
<p>When interest rates eventually drop, it should bring the overall cost of shelter down, as it would encourage more people to buy homes. But I’m not optimistic that rates will fall until 2024, so don’t expect any downward movement on shelter in the coming months.</p>
<h2>Hospital visits</h2>
<p>The cost of going to the hospital was another category that saw a big increase. Average prices for hospital and related services jumped 1.5% in December, the <a href="https://fred.stlouisfed.org/series/CUSR0000SEMD#0">biggest gain since 2015</a>. </p>
<p>Again, this is due to the rising cost of doing business – that is, <a href="https://www.bloomberg.com/news/articles/2023-01-12/us-hospitals-continue-to-cope-with-elevated-labor-costs-from-the-pandemic">upward pressure on wages</a> – coupled with still-high energy costs. </p>
<h2>Used cars and trucks</h2>
<p>Another category that helped the overall pace of inflation slow down is used cars and trucks. </p>
<p>After soaring throughout the initial phase of the COVID-19 pandemic, used car prices have been plunging in recent months. They fell 2.5% in December, <a href="https://fred.stlouisfed.org/series/CUUR0000SETA02#0">putting the annual decline at 8.8%</a>. The cost of new cars also dropped in December.</p><img src="https://counter.theconversation.com/content/197770/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Edouard Wemy does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>A drop in gas prices helped tame inflation in December 2022. But grocery prices and housing costs continued to rise.Edouard Wemy, Assistant Professor of Economics, Clark UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1969862023-01-04T14:47:46Z2023-01-04T14:47:46ZGlobal economy 2023: how governments could make the energy crisis worse this year<figure><img src="https://images.theconversation.com/files/502813/original/file-20230102-22-ce3hqt.jpg?ixlib=rb-1.1.0&rect=35%2C62%2C5586%2C3880&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Energy price crisis.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/concept-energy-crisis-increasing-demand-electricity-2164901677">i am adventure / Shutterstock</a></span></figcaption></figure><p><em>This is the second instalment in our series on where the global economy is heading in 2023, which started with <a href="https://theconversation.com/global-economy-2023-why-central-banks-face-an-epic-battle-against-inflation-amid-political-obstacles-197088">this article</a> on global inflation.</em></p>
<p>As 2022 drew to a close, EU energy ministers finally reached an agreement <a href="https://www.reuters.com/business/energy/eu-countries-make-final-push-gas-price-cap-deal-this-year-2022-12-19/">to cap gas prices</a> at €180 (£159) per megawatt hour (MWh) following months of volatility that piled pressure on European businesses and households. </p>
<p>The cap, according to EU policymakers, is an attempt to control the unruly market forces that saw <a href="https://www.bbc.co.uk/news/business-64032130">gas prices spike to nearly €340/MWh</a> last summer, driving electricity prices close to a record €1,000/MWh. But by winter, <a href="https://www.reuters.com/business/energy/europes-gas-stocks-comfortable-despite-cold-snap-kemp-2022-12-14/">Europe had enough gas in storage</a> for the season and was enjoying increasing imports of liquefied natural gas (LNG) through new floating regasification terminals in Germany and Holland.</p>
<p>While this government intervention might create the impression that the energy crisis caused by Russia’s February 2022 <a href="https://www.weforum.org/agenda/2022/11/russia-ukraine-invasion-global-energy-crisis/">invasion of Ukraine</a> is finally in the rear view mirror, it’s not. The recent gas price cap set by EU policymakers was set <a href="https://www.theice.com/products/27996665/Dutch-TTF-Gas-Futures/data?marketId=5477499">well over key LNG prices and the cost of gas</a> bought ahead of time on the futures market for delivery this winter, which is currently trading around €70/MWh. </p>
<p>This matters because suppliers often hedge their price risk in the futures markets and so the cap will introduce uncertainty as the hedges may not reflect real market movements. This could lead to more price volatility.</p>
<p>In fact, it was the high gas prices in 2022 that actually kept the lights on in the UK and Europe this winter. China’s strict zero-COVID policy considerably slowed the country’s demand for energy in 2022. </p>
<p>This meant that more gas supplies from the US, west Africa, Qatar and even Australia headed for Europe, where both demand and prices were higher. Indeed, Europe might have lost about 70 billion cubic meters (bcm) of Russian gas supply in 2022, <a href="https://www.oxfordenergy.org/publications/quarterly-gas-review-issue-19/">but it gained</a> over 50bcm of additional LNG imports.</p>
<p>This shows how markets can work to solve problems. Next winter, however, a perfect storm of unfavourable weather and a resurgence of Chinese energy demand could make prices even higher and more volatile for all gas and power users. </p>
<p>If so, energy users may not only have to worry about Putin and extreme weather events in 2023, but also about increasingly assertive government policies potentially causing energy shortages. </p>
<h2>Better energy crisis solutions</h2>
<p>By meddling with markets, the politicians that set these caps risk repeating mistakes made by the US during the 1970s oil price shocks. Attempts to control energy cost increases by Richard Nixon – who was hoping for reelection as US president in 1972 – with price freezes, discouraged the usual stockpiling of seasonal petroleum products in the US. This led to <a href="https://energyhistory.yale.edu/units/oil-shocks-1970s">shortages and misery</a> for the American people. </p>
<p>With increasing government intervention in markets, such shortages could happen again in regions such as Europe. Subsidies, retail price caps and tax reductions are being applied across the world in order to shelter consumers from high energy prices. </p>
<p>But such actions only really support the rich (<a href="https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1018725/efus-Household-Energy-Consumption-Affordability.pdf">who consume disproportionately more energy</a>) and support the continued use of damaging fossil fuels. This is bad news for innovators looking for better and cleaner ways to produce energy. It also subsidises the Russian war in Ukraine. </p>
<p>By attempting to shield consumers from high prices, governments will only encourage consumption via lower prices, prolonging the energy crisis. Targeted money transfers to the households in need would be less costly for governments and would also allow the market to do its job of rationing energy. </p>
<figure class="align-center ">
<img alt="Hand refilling the car with fuel." src="https://images.theconversation.com/files/502815/original/file-20230102-18-i91ujr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/502815/original/file-20230102-18-i91ujr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=440&fit=crop&dpr=1 600w, https://images.theconversation.com/files/502815/original/file-20230102-18-i91ujr.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=440&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/502815/original/file-20230102-18-i91ujr.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=440&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/502815/original/file-20230102-18-i91ujr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=553&fit=crop&dpr=1 754w, https://images.theconversation.com/files/502815/original/file-20230102-18-i91ujr.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=553&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/502815/original/file-20230102-18-i91ujr.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=553&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Rising oil prices feed into the cost of petrol.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/hand-refilling-car-fuel-155233571">hxdbzxy / Shutterstock</a></span>
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<h2>The outlook for oil</h2>
<p>The oil market will be a very different story in 2023. The EU’s <a href="https://www.consilium.europa.eu/en/press/press-releases/2022/12/03/russian-oil-eu-agrees-on-level-of-price-cap/">Russian oil sanctions</a> came into effect on December 5 2022 for crude and will start on February 5 2023 for petroleum products. </p>
<p>This plan had a very good chance of hurting the Putin regime until the G7 countries set the cap at US$60 (£50) per barrel. Since this is <a href="https://foreignpolicy.com/2022/12/15/russia-ukraine-war-sanctions-oil-embargo-price-cap-putin-revenue-energy/">above the going price for Russian oil</a>, it makes the sanctions redundant. </p>
<p>Oil is a homogeneous commodity, mainly traded via ships and so virtually impossible to sanction globally. Supplies outside Opec are <a href="https://www.icis.com/explore/resources/news/2022/12/13/10835180/us-to-drive-2023-non-opec-crude-supply-growth/https://www.icis.com/explore/resources/news/2022/12/13/10835180/us-to-drive-2023-non-opec-crude-supply-growth/">plentiful and growing</a> and the fear of recession and poor Chinese demand have stopped prices from rising too rapidly in recent months. This means the short-term outlook is for lower oil prices, with likely increases coming only later in 2023.</p>
<p>But even the mighty global oil market has been affected by the long arm of government policy. In addition to the G7 sanctions, the Biden administration started releasing oil from the US Strategic Petroleum Reserve before the mid-term elections last November. </p>
<p>This was to keep domestic gas prices low – <a href="https://abcnews.go.com/Business/gas-prices-decide-midterms/story?id=92057805">an established US vote-winner</a> – but this additional supply also kept international prices low. As the price of US crude fell towards US$80 a barrel in the past month, the administration started filling its reserves again. </p>
<p>As a result, the US government has effectively become a trader and a swing producer in the oil market, giving it the power to affect prices. We can expect another turbulent year in energy markets in 2023, but such government actions and their consequences may turn out to be the biggest factor moving markets.</p>
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<img alt="" src="https://images.theconversation.com/files/502930/original/file-20230103-20-riy0if.png?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/502930/original/file-20230103-20-riy0if.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=600&fit=crop&dpr=1 600w, https://images.theconversation.com/files/502930/original/file-20230103-20-riy0if.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=600&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/502930/original/file-20230103-20-riy0if.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=600&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/502930/original/file-20230103-20-riy0if.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=754&fit=crop&dpr=1 754w, https://images.theconversation.com/files/502930/original/file-20230103-20-riy0if.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=754&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/502930/original/file-20230103-20-riy0if.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=754&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<p><em>This article is part of <a href="https://theconversation.com/topics/global-economy-2023-132115">Global Economy 2023</a>, our series about the challenges facing the world in the year ahead. You might also like our Global Economy Newsletter, which you can <a href="https://theconversation.com/uk/newsletters/global-economy-and-business-115?utm_source=Global+Economy&utm_medium=linkback&utm_campaign=2023">subscribe to here</a>.</em></p><img src="https://counter.theconversation.com/content/196986/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Adi Imsirovic does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Government attempts to manage energy prices could actually create more volatility in oil and gas markets.Adi Imsirovic, Senior Research Fellow, Oxford Institute for Energy Studies, University of SurreyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1962922022-12-09T09:18:31Z2022-12-09T09:18:31ZPower package: $3 billion for ‘targeted and temporary’ relief on bills<figure><img src="https://images.theconversation.com/files/499970/original/file-20221209-29029-eo32y0.jpg?ixlib=rb-1.1.0&rect=56%2C9%2C6199%2C4154&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">original</span> <span class="attribution"><span class="source">Dan Himbrechts/AAP</span></span></figcaption></figure><p>The federal government will provide up to $1.5 billion – to be matched by states and territories – for “targeted and temporary” relief on power bills for low and middle income households and small businesses. </p>
<p>Under a four-part package announced by Prime Minister Anthony Albanese after Friday’s national cabinet, the assistance will be built into households’ bills rather than being a cash handout. </p>
<p>Albanese said this was so it was deflationary, rather than inflationary. </p>
<p>The help, lasting a year, will be delivered by states and territories. </p>
<p>It will go to people receiving Commonwealth income support, pensioners, Commonwealth Seniors Health Card holders, and those receiving Family Tax Benefit A and B. It will also be directed to small-business customers of electricity retailers. </p>
<h2>‘Hundreds of dollars’ in bill relief</h2>
<p>The government says it will provide hundreds of dollars in bill relief to eligible families and businesses. </p>
<p>Amounts will vary between jurisdictions, with details still to be worked out. “It will not be the same plan in each state and territory, given each of them have different systems,” Albanese told a news conference. Power prices are not as high in some jurisdictions. </p>
<p>After the details are signed off by national cabinet by March, the assistance will start in the second quarter of next year, as winter looms. </p>
<p>In other measures, the federal government will impose a 12-month gas price cap of $12 a gigajoule on new wholesale gas sales by east-coast producers.</p>
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Read more:
<a href="https://theconversation.com/will-price-caps-on-gas-bring-power-prices-down-an-expert-isnt-so-sure-196277">Will price caps on gas bring power prices down? An expert isn't so sure</a>
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<p>There will be a mandatory code of conduct for the wholesale gas market that includes a “reasonable pricing” provision. </p>
<p>Federal parliament, which had finished for the year, will be recalled on Thursday to pass the necessary legislation.</p>
<p>NSW and Queensland will introduce a temporary price cap on coal used for electricity generation of $125 a tonne. Where the cost of production is higher, the federal government will provide support. </p>
<p>In a statement, Albanese, Treasurer Jim Chalmers and Energy Minister Chris Bowen said the average family would be $230 worse off next year without the government’s energy price relief plan.</p>
<p>They said that combined, the gas and coal measures were estimated to: </p>
<ul>
<li><p>dampen predicted gas price rises by 2 percentage points in 2022-23 and 16 percentage points in 2023-24</p></li>
<li><p>reduce the impact of forecast electricity price rises of 36% in 2023-24 by 13 percentage points – preventing the $230 increase an average household would have seen otherwise </p></li>
<li><p>reduce expected inflation in 2023-24 by about a half percentage point.</p></li>
</ul>
<h2>Extraordinary times, and measures</h2>
<p>Albanese said these were extraordinary times requiring extraordinary measures. </p>
<blockquote>
<p>These are actions that wouldn’t have been contemplated by governments in normal times. </p>
</blockquote>
<p>He hailed the agreement as an example of the “Commonwealth working hand in hand with states and territories”. </p>
<p>The deal has involved much wrangling with the NSW and Queensland governments, which stood to lose revenue. The NSW government, facing an election early next year, agreed to forgo royalties provided there was cost of living assistance. </p>
<p>Previously the federal government has resisted giving cost of living relief citing budget pressures as well as high inflation.</p>
<p>Albanese stressed the funding would not be inflationary.</p>
<blockquote>
<p>The appropriate way to pay it is through state governments because that is how you take money off people’s bills, rather than provide cash payments. And that is important so that you have a deflationary impact, rather than inflationary.</p>
</blockquote>
<p>Asked how much of the budget’s forecast two-year 56% rise in power prices the package would undo, Albanese said: </p>
<blockquote>
<p>What it will do is put downward pressure on those increases which were envisaged. </p>
</blockquote>
<p>He said there had already been some downward pressure as a result of the Commonwealth flagging it would act.</p>
<p>The final part of the package includes a capacity investment scheme agreed by energy ministers on Thursday, to ensure supply reliability. The federal government has agreed to underwrite investment in dispatchable renewable storage and generation.</p>
<p>Friday’s national cabinet was held virtually, with Albanese isolated at Kirribilli House with COVID. </p>
<h2>Industry groups respond</h2>
<p>The Business Council of Australia welcomed the help for households and small businesses. But it warned that “without careful management the long-term consequences of dramatic intervention could end up making the problem much worse”. </p>
<p>The Australian Industry Group described the deal as “messy but good for users”. </p>
<p>The Australian Petroleum Production & Exploration Association’s chief executive, Samantha McCulloch, said: “A gas price cap will force prices higher for households and businesses because it will kill investment confidence and reduce future supply.</p>
<p>"This heavy-handed, radical intervention has been conducted with no prior consultation with industry to consider specific measures and warn of potential risks to Australia.”</p>
<p>Chalmers said it “was a pretty remarkable effort by Albanese to line all that up from iso”.</p><img src="https://counter.theconversation.com/content/196292/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michelle Grattan does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Under a four-part package announced by Prime Minister Anthony Albanese after national cabinet, the assistance will be delivered through the states and territories.Michelle Grattan, Professorial Fellow, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1948892022-12-01T18:55:29Z2022-12-01T18:55:29ZDespite soaring profits, oil companies are not paying enough for their environmental damage<figure><img src="https://images.theconversation.com/files/498076/original/file-20221129-24-gs4o1p.JPG?ixlib=rb-1.1.0&rect=215%2C35%2C3694%2C2485&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">A pumpjack draws out oil and gas from a well head near Calgary in October 2022. There are thousands of inactive oil and gas wells in the province that have not been properly decommissioned.</span> <span class="attribution"><span class="source">THE CANADIAN PRESS/Jeff McIntosh</span></span></figcaption></figure><iframe style="width: 100%; height: 100px; border: none; position: relative; z-index: 1;" allowtransparency="" allow="clipboard-read; clipboard-write" src="https://narrations.ad-auris.com/widget/the-conversation-canada/despite-soaring-profits--oil-companies-are-not-paying-enough-for-their-environmental-damage" width="100%" height="400"></iframe>
<p>At the end of the third quarter reporting season in October, the Big Four oilsands producers continued to report record profit levels. Collectively, <a href="https://www.cenovus.com/News-and-Stories/News-releases/2022/2546247">Cenovus</a>, <a href="https://investingnews.com/canadian-natural-resources-limited-announces-2022-third-quarter-results/">CNRL</a>, <a href="https://news.imperialoil.ca/news-releases/news-releases/2022/Imperial-announces-third-quarter-2022-financial-and-operating-results/default.aspx">Imperial Oil</a> and <a href="https://sustainability-prd-cdn.suncor.com/-/media/project/suncor/files/news-releases/2022/2022-11-02-news-release-earnings-q3-2022-en.pdf?modified=20221103001118">Suncor</a> earned $5.8 billion in the third quarter and $23.1 billion in the first nine months of 2022. The average return on capital during the period was almost 25 per cent. </p>
<p>The only minor hiccup was <a href="https://globalnews.ca/news/9246922/suncor-3q-report-net-loss-fort-hills-writedown/">Suncor’s reported loss</a> — primarily due to a <a href="https://sustainability-prd-cdn.suncor.com/-/media/project/suncor/files/news-releases/2022/2022-11-02-news-release-earnings-q3-2022-en.pdf">non-cash impairment charge of $3.4 billion</a> against its Fort Hills assets. Despite the write-down, Suncor still <a href="https://globalnews.ca/news/9229869/suncor-teck-deal-fort-hills-oilsands/">spent $1 billion buying Teck Resources’ stake in the Fort Hills oilsands project</a>.</p>
<p>However, apart from Suncor’s purchase, these companies are not reinvesting in their core businesses. This cash bonanza has implications for Canadian consumers, government taxation and royalty policies and environmental policy.</p>
<h2>Consumers left in the lurch</h2>
<p>Unlike bank prime lending rates <a href="https://wowa.ca/banks/prime-rates-canada">that change every six weeks or so</a>, Canadians heavily dependent on their gas-motored cars or trucks face difficult choices in balancing their budgets with higher housing costs.</p>
<p>According to <a href="https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=1810000701&pickMembers%5B0%5D=1.1&pickMembers%5B1%5D=3.1&pickMembers%5B2%5D=4.1&cubeTimeFrame.startYear=2020&cubeTimeFrame.endYear=2021&referencePeriods=20200101%2C20210101">Statistics Canada</a>, housing accounts for more than 30 per cent of a household’s expenses, and transportation accounts for 16 per cent. </p>
<p><a href="https://www150.statcan.gc.ca/n1/daily-quotidien/221116/dq221116a-eng.htm">Year-over-year inflation for gasoline in October 2022 was 17.8 per cent</a>. The homeowners’ replacement cost index, a proxy for the price of new homes, increased by 6.9 per cent. Mortgage interest costs <a href="https://www.ctvnews.ca/business/how-the-relationship-between-interest-rate-hikes-and-inflation-plays-out-in-canada-1.6155914">increased 11.4 per cent over last year</a> — the highest increase since February 1991.</p>
<figure class="align-center ">
<img alt="A person fuels up their car at an Esso gas station" src="https://images.theconversation.com/files/498071/original/file-20221129-24-6psrvz.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/498071/original/file-20221129-24-6psrvz.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=393&fit=crop&dpr=1 600w, https://images.theconversation.com/files/498071/original/file-20221129-24-6psrvz.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=393&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/498071/original/file-20221129-24-6psrvz.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=393&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/498071/original/file-20221129-24-6psrvz.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=494&fit=crop&dpr=1 754w, https://images.theconversation.com/files/498071/original/file-20221129-24-6psrvz.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=494&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/498071/original/file-20221129-24-6psrvz.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=494&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">A motorist fuels up a vehicle at an Esso gas station after the price of a litre of regular gasoline reached a new high of $2.40 in Vancouver in October 2022.</span>
<span class="attribution"><span class="source">THE CANADIAN PRESS/Darryl Dyck</span></span>
</figcaption>
</figure>
<p>Canadians who have personal vehicles, those who rely on natural gas for heating and people who have mortgages are under enormous strain. <a href="https://toronto.citynews.ca/2022/07/01/ontario-gas-fuel-tax-cut-in-effect/">Ontario</a> and <a href="https://www.theglobeandmail.com/canada/alberta/article-danielle-smith-inflation-plan/">Alberta</a> have reduced gasoline taxes, but these are short-term political measures that support the fossil fuel industry by maintaining demand for gas and diesel. </p>
<p>The wait times for electric vehicles is up to one year <a href="https://www.thestar.com/news/canada/2022/10/29/want-to-buy-an-electric-vehicle-in-toronto-good-luck-star-investigation-finds-wait-times-of-up-to-a-year.html">in Toronto</a> and well into 2024 for <a href="https://vancouver.citynews.ca/2022/11/11/canada-electric-car-delays/">buyers in Vancouver</a>.</p>
<p>Oilsands shareholders, who are mostly foreigners, are enjoying huge profits while consumers are bearing the brunt of rising energy prices. </p>
<p>The majority of the shares <a href="http://abpolecon.ca/2022/09/07/who-owns-the-big-four/">for Canada’s biggest oil companies are held by institutional investors</a>. These Canadian institutional investors, like TD Investment Management, hold anywhere from a mere three per cent of the shares of Imperial, to nearly 20 per cent of CNRL’s shares.</p>
<h2>Big Oil isn’t reinvesting profits</h2>
<p>During the first nine months of 2022, $6.7 billion was paid out in dividends, with <a href="https://investingnews.com/canadian-natural-resources-limited-announces-2022-third-quarter-results/">nearly two-thirds by CNRL</a>. During the same period, $15.6 billion shares were repurchased. These share buybacks reward shareholders because reducing the shares outstanding means higher earnings per share for shareholders.</p>
<p>These buybacks also signal to the market that the company’s board and management feel these purchases are the best way to manage capital and cash flow. Significantly it also means that the company is not investing to either increase or sustain operating cash flow. </p>
<figure class="align-center ">
<img alt="A high angle shot of a building that says Suncor Energy Centre on it" src="https://images.theconversation.com/files/498068/original/file-20221129-9456-m120p3.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/498068/original/file-20221129-9456-m120p3.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=341&fit=crop&dpr=1 600w, https://images.theconversation.com/files/498068/original/file-20221129-9456-m120p3.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=341&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/498068/original/file-20221129-9456-m120p3.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=341&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/498068/original/file-20221129-9456-m120p3.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=428&fit=crop&dpr=1 754w, https://images.theconversation.com/files/498068/original/file-20221129-9456-m120p3.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=428&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/498068/original/file-20221129-9456-m120p3.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=428&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Despite Suncor’s net loss in the third reporting quarter, it still bought out Teck Resources’ stake in the Fort Hills oilsands project for approximately $1 billion.</span>
<span class="attribution"><span class="source">THE CANADIAN PRESS/Jeff McIntosh</span></span>
</figcaption>
</figure>
<p>In addition to share buybacks and dividends, Cenovus, CNRL, Imperial Oil and Suncor have collectively repaid $10 billion in debt. Based on their financial statements, I estimate $32.5 billion of available cash flow was not reinvested in the business. In fact, during 2022, all four companies’ depreciation, depletion, and amortization — which measures the non-cash costs of assets aging — exceeded capital investment by about $1.5 billion.</p>
<p>According to an <a href="https://arcenergyinst.wpenginepowered.com/wp-content/uploads/221115-Energy-Charts.pdf">ARC Energy Research Institute report</a>, in 2015, the Canadian industry’s after-tax cash flow was $30 billion and $55 billion was reinvested in conventional and bitumen production. In 2022, with an estimated after-tax cash flow of $152 billion, ARC Energy Research Institute estimates that only $32 billion and $10 billion will be reinvested in conventional and bitumen production, respectively.</p>
<h2>Governments are benefiting</h2>
<p>The federal and Alberta governments are enjoying a bonanza due to higher taxes on profits and royalties. I estimate the Big Four paid about $15.2 billion in royalties to provincial governments so far this year.</p>
<p><a href="http://abpolecon.ca/2022/09/02/is-oil-sands-consolidation-a-threat-to-alberta-democracy/">I have estimated that these four companies</a> will be responsible for at least a quarter of Alberta’s own source revenue (excluding federal transfers) this fiscal year. Based on financial statements from each oil company, I estimate their taxes, as a per cent of net income for the period, run from 13 per cent for Suncor (due to its write-downs) to 36 per cent for Cenovus.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/the-big-four-oilsands-companies-influence-threatens-alberta-democracy-argues-political-scientist-188567">The Big Four oilsands companies' influence threatens Alberta democracy, argues political scientist</a>
</strong>
</em>
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<p>Some of the CEOs of the Big Four have not been shy at pointing out how much tax and royalties they are paying to governments. <a href="https://www.jwnenergy.com/article/2022/11/4/canadian-natural-touts-its-economic-contribution-a/">CNRL president Tim McKay</a> and the leaders of Cenovus and Imperial Oil have also stressed the size of their companies’ contributions to government coffers. </p>
<p>The Alberta treasury’s dependence on the royalties and taxes from only four companies present a major problem, as identified by Alberta Premier Danielle Smith last year in a <a href="https://www.policyschool.ca/wp-content/uploads/2021/06/AF16_AB-Key-Challenges_Smith.pdf">paper for the School of Public Policy</a> when she was <a href="https://albertaenterprisegroup.com/2021/04/23/press-release-aeg-appoints-danielle-smith-president/">head of the Alberta Enterprise Group</a>. It will be interesting to see how Smith approaches this problem in next February’s budget. </p>
<h2>Environmental liabilities</h2>
<p>While the oilsands industry divests, it hopes to have federal taxpayers — and possibly those in Alberta — pay the cost of <a href="https://www.bennettjones.com/Blogs-Section/Canadian-Budget-Proposes-New-Investment-Tax-Credit-For-Carbon-Capture-Utilization-and-Storage">subsidizing carbon capture and underground storage</a>. This capital investment, now promised by the <a href="https://www.theglobeandmail.com/business/article-oil-sands-net-zero-projects/">Pathways Alliance to invest $24 billion</a>, remains the industry’s sole hope of continuing to operate past 2030.</p>
<p>At the same time, the industry has booked $10.6 billion in decommissioning liabilities for oil and gas wells, pipelines and facilities. There are <a href="https://www.alberta.ca/oil-and-gas-liabilities-management.aspx">thousands of abandoned oil wells and decommissioned pipelines</a> in Alberta alone. </p>
<p>However, annual expenditures by the Big Four to address environmental liabilities run less than $1 billion and are not separately recorded in the statement of expenses. There is a clear gap between the costs of environmental damage done by these companies and the amount they are required to mitigate.</p>
<figure class="align-center ">
<img alt="A close-up shot of a man in a suit and glasses speaking into a microphone" src="https://images.theconversation.com/files/498072/original/file-20221129-14-blhiqv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/498072/original/file-20221129-14-blhiqv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=413&fit=crop&dpr=1 600w, https://images.theconversation.com/files/498072/original/file-20221129-14-blhiqv.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=413&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/498072/original/file-20221129-14-blhiqv.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=413&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/498072/original/file-20221129-14-blhiqv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=519&fit=crop&dpr=1 754w, https://images.theconversation.com/files/498072/original/file-20221129-14-blhiqv.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=519&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/498072/original/file-20221129-14-blhiqv.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=519&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Alberta Auditor General Doug Wylie speaks about the findings from an independent investigation related to the International Centre of Regulatory Excellence at the Alberta Energy Regulator in Edmonton in October 2019.</span>
<span class="attribution"><span class="source">THE CANADIAN PRESS/Jason Franson</span></span>
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</figure>
<p>According to <a href="https://www.oag.ab.ca/news/oag-news-release-june-2021-reports/">a June 2021 news release from Alberta’s auditor general</a>:
“After six years of analysis, the department has not decided if and how the security calculation should change.”</p>
<p>The auditor general <a href="https://www.oag.ab.ca/wp-content/uploads/2021/06/oag-aep-aer-trans-env-liabilites-fs-june-2021-report.pdf">also found a lack of clarity between the Department of Energy and the Alberta Energy Regulator</a>. The Alberta government reportedly “has not adopted a consistent ranking system for contaminated sites to determine which are a priority to clean up.”</p>
<p>The Alberta government has failed to ensure environmental liabilities are adequately accounted for and that progress is being made to <a href="https://thenarwhal.ca/oilsands-tailings-ponds-growth/">address the province’s massive tailings ponds made up of byproducts from oilsands mining</a>. Incredibly, when asked about the oil industry’s record cash flows and remediation liabilities, <a href="https://globalnews.ca/news/8254763/alberta-oil-price-spike-abandoned-well-cleanup/">former energy minister Sonya Savage stated</a>:</p>
<blockquote>
<p>“The current spike in oil prices isn’t enough reason to require the industry to spend more on cleaning up the tens of thousands of abandoned oil and gas wells in the province.”</p>
</blockquote>
<p>As a recent <a href="https://www.theglobeandmail.com/business/commentary/article-alberta-oil-economic-boom/"><em>Globe and Mail</em> article</a> pointed out, Alberta’s present good fortune is a mirage because the industry is not re-investing. This has serious ramifications for Alberta’s rural economy, and the Fort McMurray region in particular. </p>
<p>The main driver in Alberta’s economy over the past two decades has been the oilsands industry — <a href="https://theconversation.com/a-provincial-sales-tax-is-the-solution-to-albertas-fiscal-roller-coaster-191147">if bitumen’s future is uncertain, so is Alberta’s economy</a>. </p>
<p>Alberta, like a one-company town, faces a clear and present danger. Is there a Plan B to tilt Alberta away from its bitumen addiction? How will Smith reduce reliance on oilsands royalties? These are pressing questions that must be answered by the Alberta government.</p><img src="https://counter.theconversation.com/content/194889/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Robert L. Ascah does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The Alberta government is failing to ensure environmental liabilities are adequately accounted for and that progress is being made to address the province’s massive tailings ponds.Robert L. Ascah, Research Fellow, The Parkland Institute, University of AlbertaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1934372022-11-29T13:33:58Z2022-11-29T13:33:58ZStill recovering from COVID-19, US public transit tries to get back on track<figure><img src="https://images.theconversation.com/files/492863/original/file-20221101-25191-x6w1v8.jpg?ixlib=rb-1.1.0&rect=0%2C8%2C5615%2C3724&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Ridership on public transit had been declining even before the spread of the virus.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/photo/elevated-subway-train-and-new-york-city-skyline-royalty-free-image/1216197405?phrase=new%20york%20city%20subway%20train&adppopup=true">Leo Patrizi/E+ via Getty Images</a></span></figcaption></figure><p><em>U.S. commuters take approximately <a href="https://www.apta.com/news-publications/public-transportation-facts/">10 billion trips on public transit every year</a>. SciLine asked <a href="https://scholar.google.com/citations?user=gkID6ccAAAAJ&hl=en">Kari Watkins</a>, an associate professor of civil and environmental engineering at the University of California, Davis, what cities can do to increase public transportation ridership and how people can make better use of this environmentally friendly mode of transportation.</em></p>
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<iframe src="https://player.vimeo.com/video/761600611" width="500" height="281" frameborder="0" webkitallowfullscreen="" mozallowfullscreen="" allowfullscreen=""></iframe>
<figcaption><span class="caption">Kari Watkins discusses why public transit matters to communities throughout the United States.</span></figcaption>
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<p><em>Below are some highlights from the discussion. Answers have been edited for brevity and clarity.</em></p>
<p><strong>Why is transit a sustainable mode of transportation?</strong></p>
<p><strong>Kari Watkins:</strong> Economically, it’s <a href="https://www.vtpi.org/tranben.pdf">easier on people’s pocketbooks</a>. Environmentally, transit has <a href="https://www.transit.dot.gov/regulations-and-programs/environmental-programs/transit-and-sustainability">less emissions per trip</a>. </p>
<p>From an equity point of view, transit is more sustainable than other modes because you’re <a href="https://nap.nationalacademies.org/catalog/26264/racial-equity-addendum-to-critical-issues-in-transportation">more able to serve all people</a>. This service is out there – you don’t have to afford a vehicle in order to be able to take it.</p>
<p><strong>How does public transit affect traffic congestion?</strong></p>
<p><strong>Kari Watkins:</strong> We save about 24% of our congestion levels <a href="https://static.tti.tamu.edu/tti.tamu.edu/documents/umr/archive/mobility-report-2012.pdf">by having transit in our 15 largest cities</a>. </p>
<p><strong>What has research shown us about transit’s safety?</strong></p>
<p><strong>Kari Watkins:</strong> Transit is the <a href="https://www.apta.com/news-publications/public-transportation-facts/">safest mode of transportation</a> because of the professional drivers and because of the nature of how the services are provided. They’re often in their own corridors with really, really high factors of safety in how those corridors are designed. </p>
<p>When we look at cities where more people take transit as opposed to driving themselves, we always have lower crash rates, both internationally and across the U.S.</p>
<p><strong>What are some trends of ridership on public transit systems in recent years?</strong></p>
<p><strong>Kari Watkins:</strong> Over the past approximately five years before COVID, we were <a href="https://nap.nationalacademies.org/catalog/26320/recent-decline-in-public-transportation-ridership-analysis-causes-and-responses">seeing declines in both bus and rail</a> in ways that we had not seen before and could not be attributed to things like population decreases or lower employment rates. We saw declines that could be largely attributed to the rideshare companies. Uber and Lyft were <a href="https://doi.org/10.1016/j.tra.2022.04.006">taking a pretty heavy toll on transit ridership</a>. </p>
<p>In addition to this, before COVID, low <a href="https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=emm_epm0_pte_nus_dpg&f=m">gas prices were a factor</a>. When gas prices go down, transit ridership is going to go down. And a little bit of increases in fares on transit systems was also hitting transit ridership. </p>
<p><a href="https://www.apta.com/wp-content/uploads/APTA-POLICY-BRIEF-Transit-Ridership-09.28.2022.pdf">And then COVID hit</a>. </p>
<p>What happened during COVID was a lot of the people who rely on transit on a day-to-day basis – those critical workers, folks who were keeping our society going during the early parts of COVID – they still had to get to work. And many of those folks are bus riders as opposed to rail riders, because of the way we’ve set up these systems. And so we saw bus ridership decline, but it was still at significant portions of what it was before COVID. </p>
<p>Rail, <a href="https://www.urban.org/urban-wire/transit-ridership-dropped-heavy-rail-stations-during-covid-19-pandemic-ridership-change-depended-neighborhood-characteristics">on the other hand, was decimated</a>, especially commuter rail. </p>
<p>Most commuter rail agencies are even still today nowhere close to what they were pre-COVID. In the early days of the pandemic, they were at 10% <a href="https://www.apta.com/wp-content/uploads/APTA-POLICY-BRIEF-Transit-Ridership-09.28.2022.pdf">of the ridership levels that they once were</a>. </p>
<p>We’re seeing some agencies, like Los Angeles Metro, where they’re predicting that in the next year or two, they’re going to be back up to the levels that they were pre-COVID. But there’s a lot of cities that have been permanently hit, <a href="https://www.bloomberg.com/news/articles/2022-09-23/la-looks-to-beat-new-york-back-to-pre-pandemic-transit-ridership#xj4y7vzkg">such as San Francisco and New York</a>. </p>
<p><strong>Why are some transit agencies facing a ‘fiscal cliff’?</strong></p>
<p><strong>Kari Watkins:</strong> What happened during COVID was that many of these agencies were rescued through government programs where <a href="https://www.cbo.gov/publication/57636">they got extra operating funds</a> because the federal government and state governments knew that these agencies were going to be facing such dramatic declines in ridership that they wouldn’t be able to provide their services without some sort of extra support. </p>
<p>But all of that extra operating funding is disappearing over time. And with some agencies, they expect it’ll last another year, maybe two, but they’re not sure if their ridership is projected to be back at the same levels that it once was.</p>
<p><strong>How could transit become more environmentally friendly?</strong></p>
<p><strong>Kari Watkins:</strong> There’s actually a lot that can be done to our system <a href="https://www.weforum.org/agenda/2022/03/five-transit-policies-cities-should-prioritize-to-become-more-sustainable/">if we electrify transit further</a>. For decades, we’ve had transit lines that had overhead systems to power it, or a third rail system, where it’s powered from underneath, like our subway systems. </p>
<p>All of those are really expensive to build. But battery technology that is <a href="https://www.cnet.com/roadshow/news/the-new-batteries-that-will-make-you-an-electric-car-believer/">coming around for our passenger vehicles</a> is also coming around and <a href="https://www.reliableplant.com/Read/27709/Electric-bus-of-future">improving greatly for larger-scale vehicles</a>, such as trucks and buses. This gives us the ability to start to electrify routes that are running on pavement in streets. The hang-up is simply that we have to run these routes for an entire day and the window to charge them is just a small window overnight.</p>
<p><em>Watch the <a href="https://sciline.org/social-sciences/public-transit/">full interview</a> to hear more about public transit.</em></p>
<p><em><a href="https://www.sciline.org/">SciLine</a> is a free service based at the nonprofit American Association for the Advancement of Science that helps journalists include scientific evidence and experts in their news stories.</em></p><img src="https://counter.theconversation.com/content/193437/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Kari Edison Watkins is an Associate Professor for the University of California at Davis and has received funding from the US Department of Transportation, the Transportation Research Board, the National Science Foundation, and multiple state and local agencies. </span></em></p>Public buses, subways and trains are relatively safe, fast and cheap. But competition from rideshares and concerns over COVID-19 will soon see some local agencies short of funds.Kari Edison Watkins, Associate Professor of Civil and Environmental Engineering, University of California, DavisLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1937152022-11-02T05:42:55Z2022-11-02T05:42:55ZPolitics with Michelle Grattan: Energy expert Bruce Mountain on what to do about the gas crisis<p>The aftermath of the Albanese government’s first budget has seen the political and policy debate turn sharply onto the spectre of households and businesses facing sky-high power prices over the next 18 months. </p>
<p>The government is now scrambling to craft a policy to bring the domestic price of gas down.</p>
<p>In this podcast, Michelle Grattan talks with Professor Bruce Mountain, Director of the Victoria Energy Policy Centre at Victoria University, about this power price crisis, and the options available to deal with what he calls “a weeping sore”.</p>
<p>Mountain offers four key ways to address gas policy. </p>
<p>“First and foremost, a proper resource tax must be on the table […] a levy on exported gas may be a useful proposition,” he says.</p>
<p>“Secondly, there are some trade-exposed industries that are facing very great pain as a result of the extraordinary surge in gas prices. </p>
<p>"This has an economic impact on employment, on profits, on industries that have been built up over time. And I think some price refuge for those industries will have an economic benefit that is likely to be a good deal higher than the cost.”</p>
<p>“Third, there are still many Australian households that use gas for heating water and for heating spaces, most notably in Victoria. I think a means-tested bill, not a price relief, for those households that battle to afford gas for these purposes, would be worthwhile. </p>
<p>"But I don’t think at the expense of effort in drawing those households off gas. There are cheaper […] ways of heating water and heating spaces and also much, much cleaner ways of doing that. </p>
<p>"Fourthly, I think a more realistic price cap in our various spot gas markets [is] likely to do more good than harm. Some of the absurdly high prices we see in the spot markets have not been useful, and I don’t think there’s much harm in capping them at a low level.”</p><img src="https://counter.theconversation.com/content/193715/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michelle Grattan does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>In this podcast, Michelle Grattan talks with Professor Bruce Mountain, Director of the Victoria Energy Policy CentreMichelle Grattan, Professorial Fellow, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1934162022-10-31T19:23:40Z2022-10-31T19:23:40ZWhy inflation will likely stay sky-high regardless of which party wins the midterms<figure><img src="https://images.theconversation.com/files/492405/original/file-20221030-24414-vdacq6.jpeg?ixlib=rb-1.1.0&rect=98%2C0%2C2802%2C1836&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The U.S. government can’t do much about rising food prices, which are primarily caused by supply chain problems.</span> <span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/ConsumerSpending/6cb35bfb70fa43049ac1c8ce7c3728e6/photo?Query=inflation&mediaType=photo&sortBy=arrivaldatetime:desc&dateRange=Anytime&totalCount=8239&currentItemNo=0">AP Photo/Nam Y. Huh</a></span></figcaption></figure><p>Soaring inflation <a href="https://www.cnbc.com/2022/10/03/economy-inflation-top-of-mind-for-midterm-voters-giving-gop-slight-edge-in-new-monmouth-poll.html">is the top issue</a> for a lot of voters heading into the midterms, with most saying Republicans <a href="https://news.gallup.com/poll/1675/most-important-problem.aspx">would do a better job</a> of handling the problem. </p>
<p>Indeed, Republican candidates <a href="https://www.cnbc.com/2022/10/03/economy-inflation-top-of-mind-for-midterm-voters-giving-gop-slight-edge-in-new-monmouth-poll.html">are taking full advantage of voter concern about inflation</a> by hammering Democrats on the issue and pushing their own ideas to fight inflation, such as cutting both government spending and taxes. </p>
<p>As a <a href="https://scholar.google.com/citations?hl=en&user=eP0xZ1kAAAAJ">finance and economics expert</a>, I have studied inflation, what causes it and what can bring it down. That’s why I doubt a Republican Congress would have much, if any, effect on inflation. </p>
<h2>Two drivers of inflation</h2>
<p>Inflation, or a sustained rise in consumer prices, is created in two main ways.</p>
<p>The first is by way of an increase in demand for products and services. For example, at the beginning of the pandemic, <a href="https://hothardware.com/news/covid-19-webcam-shortage-prices-skyrocketing">demand for webcams soared</a>, as lots of employees were required to work remotely. As a result, the prices of webcams increased significantly.</p>
<p>Or take leisure travel, which has increased significantly as COVID-19 infections have come down. People are flying more, <a href="https://www.bankrate.com/personal-finance/travel-inflation-statistics">which has led to higher ticket prices</a>. </p>
<p>When these types of demand-driven price increases occur across a large number of products and services, the result is rising inflation.</p>
<p>Inflation can also result from higher production costs.</p>
<p>For instance, gas prices are on the rise because it has become a lot more expensive to produce it. The war in Ukraine <a href="https://fred.stlouisfed.org/series/DCOILWTICO">sent oil prices soaring</a> at the beginning of 2022. They’ve come down, but a recent supply cut by OPEC+ oil-producing nations <a href="https://www.nbcnews.com/business/consumer/higher-gas-prices-why-and-where-costco-gas-prices-rcna51458">caused another spike</a>. As oil prices increase, the higher costs are passed on to refiners, which leads to higher prices at the pump. </p>
<p>The increase in the price of eggs is another example of this type of inflation. <a href="https://www.marketwatch.com/story/why-egg-prices-are-sizzling-and-when-they-could-cool-off-11660320801">Bird flu caused the deaths</a> of about 10% of egg-laying hens <a href="https://www.cdc.gov/flu/avianflu/data-map-commercial.html">beginning in January 2022</a>. In addition, farmers <a href="https://www.tastingtable.com/1042132/the-unfortunate-truth-about-egg-prices">faced higher fuel and fertilizer costs</a>. These factors have caused the average price of eggs to <a href="https://fred.stlouisfed.org/series/APU0000708111">soar to an all-time high</a>.</p>
<h2>The Fed can fight only half the battle</h2>
<p>An economy’s central bank – not Congress or the president – is typically the first line of defense when it comes to battling inflation. Central banks set monetary policy, and their primary way of combating inflation is by raising interest rates. </p>
<p>In the U.S., the Federal Reserve focuses on the so-called <a href="https://www.forbes.com/advisor/investing/federal-funds-rate/">federal funds rate</a>, which is the base rate that banks use in setting their own deposit and loan rates. The Fed <a href="https://www.federalreserve.gov/monetarypolicy/openmarket.htm">has raised this benchmark five times in 2022</a>, from <a href="https://fred.stlouisfed.org/series/DFF">about 0% in March to 3%</a> – and <a href="https://www.bankrate.com/banking/federal-reserve/fomc-what-to-expect/">is expected to lift rates</a> another 0.75 percentage point on Nov. 2, 2022.</p>
<p>The main goal of the rate hikes is to increase borrowing costs and thus drive down demand – the first driver of inflation that I noted above. The idea is that higher interest rates lead people and businesses to borrow less. The less people and businesses borrow, the less they will spend.</p>
<p>The impact of higher interest rates is already being felt in the housing market, for example. Current 30-year mortgage rates are over 7% on average, <a href="https://fred.stlouisfed.org/series/MORTGAGE30US">more than double the rates of a year ago</a> and the highest since 2002. This is resulting in <a href="https://www.nar.realtor/blogs/economists-outlook/existing-home-sales-fall-for-the-seventh-straight-month-and-decline-0-4-in-august-2022">fewer home sales</a> and <a href="https://www.texastribune.org/2022/09/01/texas-housing-market-cooling/">falling prices</a>. </p>
<p>The problem is that this approach has absolutely no effect on the other main generator of inflation, rising production costs. </p>
<p>The Fed’s higher rates will not stop the war in Ukraine or prompt hens to lay more eggs. Therefore, energy and egg prices won’t drop as a result. This is also true for all products and services whose production costs are increasing because of supply chain issues. </p>
<p>These issues have affected the prices of everything from <a href="https://www.lairedigital.com/blog/the-effects-of-the-supply-chain-crisis-on-manufacturing-and-construction">bicycles to bathroom tissue</a>. Higher interest rates will not affect the demand for and thus the prices for bikes, toilet paper or any other goods feeling supply chain strains.</p>
<figure class="align-center ">
<img alt="For sale sign sits atop a white post in front of a cream/brown multi-floor house" src="https://images.theconversation.com/files/492623/original/file-20221031-7897-klp6rc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/492623/original/file-20221031-7897-klp6rc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/492623/original/file-20221031-7897-klp6rc.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/492623/original/file-20221031-7897-klp6rc.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/492623/original/file-20221031-7897-klp6rc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/492623/original/file-20221031-7897-klp6rc.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/492623/original/file-20221031-7897-klp6rc.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The Fed’s interest rate hikes are starting to sap demand for new homes – the one way policymakers can fight inflation.</span>
<span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/California-Jobs/a4b41f5edbd7435980dffea5fbc19632/photo?Query=inflation%20home%20sale&mediaType=photo&sortBy=arrivaldatetime:desc&dateRange=Anytime&totalCount=10&currentItemNo=2">AP Photo/Rich Pedroncelli</a></span>
</figcaption>
</figure>
<h2>Congress’ fiscal tools are also limited</h2>
<p>Congress and the White House do have some tools they can use in the inflation fight. One problem is they’re <a href="https://www.nytimes.com/2011/07/03/business/economy/03view.html">not very popular</a> and so hard to pass. Another is that, like the Fed’s rate hikes, they address only one kind of inflation.</p>
<p>The main thing the government can do is take money out of the pockets of consumers and businesses, either by raising taxes or cutting spending – or both.
A reduction in money in the economy <a href="https://www.itsuptous.org/US-fiscal-policy?gclid=Cj0KCQjwteOaBhDuARIsADBqReiA_wGVv35FLtu0PaIVV4vAxzQpEmXG0KppBeXtp-SUg8tqKuK6a0caAuRtEALw_wcB">leads to lower demand</a> for goods and services, both as the government spends less and individuals and businesses give more or get less from the government. </p>
<p>But as with higher rates, it won’t do anything to fix the global economy’s ongoing supply chain problems or lower production costs. Changes in taxes or government spending will not reduce food prices or the cost of heating your home this winter.</p>
<p>So even while a Republican Congress might want to do more about inflation, whatever it does will affect only one of the drivers.</p>
<figure class="align-center ">
<img alt="an elderly white man with gray hair and a suit stands behind a lectern" src="https://images.theconversation.com/files/492406/original/file-20221030-68119-aorh0d.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/492406/original/file-20221030-68119-aorh0d.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/492406/original/file-20221030-68119-aorh0d.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/492406/original/file-20221030-68119-aorh0d.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/492406/original/file-20221030-68119-aorh0d.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/492406/original/file-20221030-68119-aorh0d.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/492406/original/file-20221030-68119-aorh0d.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Republicans hope they can pin the blame for inflation on President Biden, though the data shows that which party is in the White House doesn’t make that much of a difference to the rate of inflation.</span>
<span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/Biden-JunkFees/3b56f3bed2614aac9212c3ef7d923bb7/photo?Query=inflation&mediaType=photo&sortBy=arrivaldatetime:desc&dateRange=Anytime&totalCount=8239&currentItemNo=25">AP Photo/Patrick Semansky</a></span>
</figcaption>
</figure>
<h2>Who’s better on inflation</h2>
<p>Taking a step back, does either political party have a better track record on inflation? </p>
<p>The short answer is no, <a href="https://theconversation.com/biden-is-inheriting-a-wrecked-economy-but-democrats-have-a-record-of-avoiding-recession-and-reducing-unemployment-153106">based on my analysis</a> of economic data from 1953 to 2020. From Presidents Dwight D. Eisenhower through Donald Trump, <a href="http://dx.doi.org/10.2139/ssrn.3542494">inflation has averaged 3.35%</a> under Democratic administrations and 3.5% under Republicans. </p>
<p>One caveat, however. When the House and Senate are controlled by Republicans while the president is a Democrat, inflation averaged 2 percentage points less than than when everything was in Democratic hands. There are fewer data points, so it’s not as strong a finding, but it suggests divided government has an upside. </p>
<p>Another way to look at this is to examine the parties’ current or proposed policies. Democrats have touted their “Inflation Reduction Act,” a package of climate, health care and tax measures passed in August, as proof that they are tackling the problem. But despite the name, <a href="https://www.npr.org/2022/08/11/1116229743/inflation-reduction-act-questions-answered">economists expect it to have very little impact</a> on inflation anytime soon, because most of the measures will take years to go into effect. </p>
<p>Republicans, meanwhile, <a href="https://www.nytimes.com/2022/10/26/us/politics/midterms-gop-republican-inflation-plans.html">have proposed cutting spending</a> – such as on America’s social safety net – and lowering taxes for wealthier individuals and businesses. While spending cuts could reduce demand – and inflation – the lower taxes would work at cross purposes and drive up prices by pumping more money into the economy. </p>
<p>In other words, expect inflation to stay high regardless of which political party is in the majority of the House and Senate. And then, turn to hope – that the Fed’s rate hikes work, and the supply chain problems driving up costs begin to ease.</p><img src="https://counter.theconversation.com/content/193416/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>William Chittenden does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Many voters say inflation is the issue that matters to them most as they head to the polls. The problem is, the people they choose can’t do much about it.William Chittenden, Associate Professor of Finance, Texas State UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1930622022-10-28T12:32:51Z2022-10-28T12:32:51ZAmerican voters are angry – that is a good thing for voter turnout, bad thing for democracy<figure><img src="https://images.theconversation.com/files/492155/original/file-20221027-41745-9x1dnd.jpg?ixlib=rb-1.1.0&rect=54%2C199%2C5984%2C3811&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Thousands of demonstrators gather in Washington, D.C., to support women's rights on Oct. 8, 2022.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/demonstrators-march-past-the-us-capitol-during-the-annual-news-photo/1243828110?phrase=abortion%20protests%20us&adppopup=true">Roberto Schmidt/AFP via Getty Images</a></span></figcaption></figure><p>Regardless of whether they live in a red state or a blue state, identify as Democrats or Republicans, or claim to be ideologically liberal or conservative, Americans have one thing in common.</p>
<p>They are <a href="https://www.csmonitor.com/USA/Society/2021/1022/Americans-are-angry-about-everything.-Is-that-bad">angry</a> – especially about this year’s <a href="https://www.nbcnews.com/meet-the-press/video/americans-are-angry-and-worried-about-u-s-future-new-nbc-news-poll-shows-146665029978">midterm elections</a>.</p>
<p>Americans’ anger is driven by contemporary political events. </p>
<p>Republicans are enraged by troubling <a href="https://www.nytimes.com/2022/10/26/us/politics/midterms-gop-republican-inflation-plans.html">economic indicators</a> and <a href="https://www.nytimes.com/2022/09/26/us/politics/republicans-crime-midterms.html">perceived spikes in crime</a>. Democrats, meanwhile, are angry about the U.S. Supreme Court’s landmark decision in <a href="https://www.supremecourt.gov/opinions/21pdf/19-1392_6j37.pdf">Dobbs v. Jackson Women’s Health Organization</a>, which <a href="https://www.npr.org/2022/10/19/1130031998/how-abortion-is-affecting-midterm-elections">overturned</a> abortion rights enshrined by <a href="https://www.law.cornell.edu/supremecourt/text/410/113">Roe v. Wade</a>.</p>
<p>Politicians on both the left and the right are eager to capitalize on this anger. In fact, Democratic and Republican politicians alike deliberately and repeatedly seek to elicit voters’ anger. And, predictably, this anger leaves voters in a sour mood.</p>
<p>Recent polls reflect this reality. </p>
<p>Whipped into an emotional frenzy, Americans are likely to believe that things in the country have pretty seriously gotten off on the <a href="https://morningconsult.com/right-direction-wrong-track/">wrong track</a>. So, too, do Americans believe that their preferred political party loses <a href="https://www.pewresearch.org/fact-tank/2022/10/03/growing-share-of-americans-say-their-side-in-politics-has-been-losing-more-often-than-winning/">more often than not</a> in legislative disputes.</p>
<p>Why, then, do politicians provoke anger if this emotional state leads to such pessimism? As a scholar who studies American politics and the author of “<a href="http://www.stevenwwebster.com/americanrage.html">American Rage: How Anger Shapes Our Politics</a>,” I believe the reason for this is quite simple: Anger provides ample benefits to those politicians who are able to use it most skillfully.</p>
<h2>Angry voters, loyal voters</h2>
<p>To begin, anger encourages Americans to vote.</p>
<p>Across a range of political settings, angry people are <a href="https://doi.org/10.1017/S0022381610000939">more likely</a> to participate than those who are not angry. With elections increasingly being determined by which side can best motivate its base into showing up to vote, anger has become a powerful tool in a politician’s arsenal.</p>
<figure class="align-center ">
<img alt="A middle-aged white man dressed in a business suit and wearing a red baseball cap walks on stage as hundreds of people in nearby grandstands applaud in support." src="https://images.theconversation.com/files/492173/original/file-20221027-37112-b5e8uo.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/492173/original/file-20221027-37112-b5e8uo.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/492173/original/file-20221027-37112-b5e8uo.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/492173/original/file-20221027-37112-b5e8uo.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/492173/original/file-20221027-37112-b5e8uo.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/492173/original/file-20221027-37112-b5e8uo.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/492173/original/file-20221027-37112-b5e8uo.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Former U.S. President Donald Trump attends a ‘Save America’ rally on Oct. 22, 2022, in Robstown, Texas.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/former-u-s-president-donald-trump-speaks-to-a-supporter-news-photo/1435732533?phrase=trump%20supporters%202022&adppopup=true">Brandon Bell/Getty Images</a></span>
</figcaption>
</figure>
<p>In addition to its propensity to boost participation, anger has been shown to play a role in shaping individuals’ decisions at the ballot box. </p>
<p>The angrier voters are at the opposing political party, the more likely they are to vote for their own party. Guided by the mantra that <a href="https://centerforpolitics.org/crystalball/articles/how-anger-shapes-american-politics/">an angry voter is a loyal voter</a>, politicians have a strong incentive to agitate the American public – incumbents and challengers alike.</p>
<p>Anger and negativity, rather than adoration and optimism, drive contemporary American political behavior.</p>
<h2>Political anger and social consequences</h2>
<p>Though politicians’ strategy of appealing to the public’s anger brings them electoral benefits, this anger is not without costs. In fact, anger can cause Americans to <a href="https://theconversation.com/angry-americans-how-political-rage-helps-campaigns-but-hurts-democracy-145819">lose trust in the government</a> and alter their views about the opposing political party’s legitimacy.</p>
<p>Alarmingly, political anger has consequences that extend beyond how Americans view their governing institutions or the opposing political party. </p>
<p>When American voters are angry about politics, they are inclined to <a href="https://www.journals.uchicago.edu/doi/10.1086/718979">avoid social interactions or social events</a> where they are likely to come into contact with those whose political leanings differ from their own. </p>
<p>I have found that anger leads Americans to avoid assisting neighbors with various chores, such as watering houseplants or watching over property when the neighbor is out of town, if the neighbor supports the opposing political party. </p>
<figure class="align-center ">
<img alt="A cartoon depicts a blue character behind a red lectern and a red character behind a blue lectern, both wildly gesturing at each other." src="https://images.theconversation.com/files/492179/original/file-20221027-37683-h6sm0m.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/492179/original/file-20221027-37683-h6sm0m.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=375&fit=crop&dpr=1 600w, https://images.theconversation.com/files/492179/original/file-20221027-37683-h6sm0m.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=375&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/492179/original/file-20221027-37683-h6sm0m.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=375&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/492179/original/file-20221027-37683-h6sm0m.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=471&fit=crop&dpr=1 754w, https://images.theconversation.com/files/492179/original/file-20221027-37683-h6sm0m.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=471&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/492179/original/file-20221027-37683-h6sm0m.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=471&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">In this illustration, two angry politicians from opposing sides are screaming at each other.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/illustration/woman-and-man-are-debating-standing-behind-a-royalty-free-illustration/1265103851?phrase=politics%20anger%20illustration&adppopup=true">Alashi</a></span>
</figcaption>
</figure>
<p>Political anger also can lead Americans to refuse requests to go on a date with those whose <a href="https://time.com/5896607/dating-political-ideology/">political leanings are opposed</a> to their own.</p>
<p>Most concerning, political anger has the <a href="https://www.washingtonpost.com/news/politics/wp/2017/10/05/only-about-1-in-10-americans-have-a-lot-of-friends-of-the-opposing-political-party/">ability to alter Americans’ friendships</a> and familial ties.</p>
<p>When angry about politics, Americans are more likely to express a desire to end friendships with those who support the other political party. So, too, do angry individuals express a desire to reduce – or completely eliminate – <a href="https://www.nytimes.com/2022/10/18/us/politics/political-division-friends-family.html">contact with family members</a> whose political preferences deviate from their own.</p>
<h2>Wither democracy?</h2>
<p>Anger’s ability to cause individuals to socially polarize has potentially drastic ramifications for the health of American democracy. Crucially, social polarization precludes opportunities to form <a href="http://bowlingalone.com/">ties and build relationships</a> with people from diverse backgrounds. </p>
<p>In societies divided along many lines, these interactions and relationships are <a href="https://yalebooks.yale.edu/book/9780300024944/democracy-in-plural-societies/">essential</a> to a healthy and functioning democracy. Among other things, such relationships forge bonds of mutual understanding and facilitate a climate in which good-faith cooperation is possible.</p>
<p>As American politics becomes increasingly <a href="https://press.uchicago.edu/ucp/books/book/chicago/P/bo8212972.html">fragmented</a> along <a href="https://www.amazon.com/Great-Alignment-Party-Transformation-Donald/dp/0300207131">racial</a>, <a href="https://press.uchicago.edu/ucp/books/book/chicago/F/bo28246146.html">religious</a> and <a href="https://www.journals.uchicago.edu/doi/abs/10.1017/S0022381608090014?journalCode=jop">ideological</a> lines, the need to form these cross-partisan social ties will become more pressing. </p>
<p>Anger’s ability to induce social polarization, combined with politicians’ overwhelming incentives to appeal to our emotional fury, means that this will be no easy task. </p>
<p><em>This story incorporates material from a <a href="https://theconversation.com/angry-americans-how-political-rage-helps-campaigns-but-hurts-democracy-145819">story originally published</a> on Sept. 10, 2020.</em></p><img src="https://counter.theconversation.com/content/193062/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Steven Webster does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Americans voters are angry about everything from abortion to inflation. While anger is good for voter turnout, it’s ultimately bad for solving problems in a democracy.Steven Webster, Assistant Professor of Political Science, Indiana UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1912482022-10-18T20:09:41Z2022-10-18T20:09:41ZSanctions on Russia are increasing, not decreasing, its revenue<figure><img src="https://images.theconversation.com/files/490461/original/file-20221018-18-c9mlap.jpg?ixlib=rb-1.1.0&rect=0%2C366%2C4815%2C3386&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Gas prices are displayed at a gas station in Frankfurt, Germany. OPEC countries have decided to cut oil production by 2 million barrels per day in response to rising global interest rates.</span> <span class="attribution"><span class="source">(AP Photo/Michael Probst)</span></span></figcaption></figure><iframe style="width: 100%; height: 100px; border: none; position: relative; z-index: 1;" allowtransparency="" allow="clipboard-read; clipboard-write" src="https://narrations.ad-auris.com/widget/the-conversation-canada/sanctions-on-russia-are-increasing--not-decreasing--its-revenue" width="100%" height="400"></iframe>
<p>The European Union has just <a href="https://www.reuters.com/world/europe/eu-set-reach-agreement-new-sanctions-proposal-wednesday-borrell-2022-10-05/">approved new sanctions against Russia</a>, including a price cap on oil sales, following the United States’ Sept. 30 announcement of new economic sanctions. Both announcements are in response to <a href="https://www.cbc.ca/news/world/russia-law-annex-ukraine-regions-war-1.6606535">Russia’s annexation of four regions of Ukraine</a>. </p>
<p>The <a href="https://www.consilium.europa.eu/en/policies/sanctions/restrictive-measures-against-russia-over-ukraine/sanctions-against-russia-explained/">goal of sanctions against Russia</a> is to cripple Russia’s capacity to wage war and reduce Vladimir Putin’s access to the materials and financing necessary to fight. </p>
<p>However, because there are still countries willing to purchase Russia’s petroleum products, <a href="https://cdn.theconversation.com/static_files/files/2353/Russia's_Urals_price_figure.pdf?1665691011">sanctions are increasing Russia’s revenue, not decreasing it</a>.</p>
<p>Worse yet, the sanctions are driving up global oil and natural gas prices, causing spikes in inflation worldwide and, ironically, reducing the world’s access to <a href="https://www.energypolicy.columbia.edu/research/commentary/supply-critical-minerals-amid-russia-ukraine-war-and-possible-sanctions">the metals</a> <a href="https://pubs.usgs.gov/periodicals/mcs2022/mcs2022-cobalt.pdf">and minerals</a> <a href="https://www.bloomberg.com/news/articles/2022-03-05/russia-energy-chaos-triggers-the-biggest-market-shock-in-decades">necessary for the transition away from oil and natural gas</a>.</p>
<h2>Widespread impact from sanctions</h2>
<p>In early March, the sanctions on Russia’s oil sector had driven <a href="https://www.goldmansachs.com/insights/pages/squaring-russias-missing-barrels.html">oil price estimates up to US$185 per barrel</a> and the price of natural gas in Europe <a href="https://www.energypolicy.columbia.edu/sites/default/files/file-uploads/OilPrices+Sanctions_CGEP_Commentary_033122-4.pdf">nearly reached US$500 per barrel</a>. In late August, the price of natural gas lowered to <a href="https://oilprice.com/Energy/Natural-Gas/Europes-Gas-Price-Is-Now-Equivalent-To-410-Per-Barrel-Of-Oil.html">US$410 per barrel</a>. </p>
<p>As the winter approaches, <a href="https://www.energypolicy.columbia.edu/columbia-global-energy-summit-2022?utm_source=2022+Columbia+Global+Energy+Summit+Survey&utm_campaign=e457f27c13-EMAIL_CAMPAIGN_2020_07_15_01_21_COPY_01&utm_medium=email&utm_term=0_e73da6f2bb-e457f27c13-102626725">Anne-Sophie Corbeau</a>, Global Research Scholar at the Center on Global Energy Policy of Columbia University, stated that current natural gas prices of US$300 per barrel could generate not only a natural gas crisis, but also a power crisis. </p>
<p>This increase has had widespread effects beyond the oil and natural gas industry, impacting <a href="https://doi.org/10.1787/e01ac7be-en">agricultural products</a>, <a href="https://www.bloomberg.com/news/articles/2022-03-05/russia-energy-chaos-triggers-the-biggest-market-shock-in-decades">minerals and rare metals needed for green technologies</a>, <a href="https://doi.org/10.1787/dc825602-en">manufacturing industries</a> and <a href="https://doi.org/10.1787/e01ac7be-en">fertilizer production</a>.</p>
<p>There’s concern that the monetary policies implemented to contain those inflationary effects could <a href="https://oecd-development-matters.org/2022/04/28/collateral-damage-the-russia-ukraine-conflict-and-energy-transitions-in-least-developed-countries/">squeeze the amount of money and assistance</a> that have been previously directed to green energy investments. </p>
<p>Another concern is that some countries will <a href="https://www.ief.org/news/energy-market-impacts-of-russias-invasion-of-ukraine">revise their short- and long-term energy security policies</a>, putting energy security before energy transition. </p>
<h2>Sanction picking is ineffective</h2>
<p>Unlike previous “one-size-fits-all” sanctions on Iran and Venezuela, countries boycotting Russia are <a href="https://www.energypolicy.columbia.edu/sites/default/files/file-uploads/OilPrices+Sanctions_CGEP_Commentary_033122-4.pdf">only picking the restrictions they can afford</a>. All major oil importers will need to reject Russia’s oil exports for the sanctions to be effective, <a href="https://www.crystolenergy.com/the-crude-reality-of-oil-trade/">but so far this has not happened</a>. </p>
<p>Christof Rühl, a senior research scholar at Columbia University, has described this “sanction-picking” as a reckless gamble. He’s warned that energy sanctions will backfire, causing oil prices to surge, which will be economically detrimental to sanctioning countries. </p>
<p>The perception that sanctions on Russia’s oil will economically restrain Russia <a href="https://www.crystolenergy.com/the-crude-reality-of-oil-trade">does not account for the dynamics of the global oil market</a>. The <a href="https://www.ft.com/content/0738a816-cb3c-44f9-9257-7a8489bf4c9c">U.S. Treasury Secretary cautioned Europe against imposing full sanctions on Russia’s energy exports</a>, warning that it could result in elevated oil prices that would benefit Russia but be detrimental to the global economy. </p>
<figure class="align-center ">
<img alt="An elderly woman in a blazer speaking into a microphone from behind a podium" src="https://images.theconversation.com/files/490148/original/file-20221017-25-agz52n.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/490148/original/file-20221017-25-agz52n.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/490148/original/file-20221017-25-agz52n.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/490148/original/file-20221017-25-agz52n.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/490148/original/file-20221017-25-agz52n.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/490148/original/file-20221017-25-agz52n.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/490148/original/file-20221017-25-agz52n.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">U.S. Treasury Secretary Janet Yellen speaks after touring the IRS New Carrollton Federal Building in September 2022 in Lanham, Maryland.</span>
<span class="attribution"><span class="source">(AP Photo/Alex Brandon)</span></span>
</figcaption>
</figure>
<p>Although Russia’s crude oil has been sold at a discount this year, the price is still higher than before the pandemic. This means Russia is still making more than the <a href="https://econpapers.repec.org/bookchap/sprsprchp/978-3-030-79713-3_5f11.htm">minimum price needed to finance its government budget</a> and international financial obligations.</p>
<p>There is also the issue of Russian oil being traded under the radar. This could result in the emergence of three distinct groups: countries that are willing to trade with Russia, countries that are energy-independent of Russia and countries that are not energy secure and must take a neutral position. This would support further sanction-picking and <a href="https://unsdg.un.org/latest/announcements/countries-bound-cop27-must-make-climate-action-top-global-priority-un-chief">set us back from our global energy security and transition goals</a>.</p>
<h2>Reorienting international trade</h2>
<p>Despite the sanctions, <a href="https://www.freightwaves.com/news/russian-oil-exports-still-booming-eu-still-reliant-on-russia">Russia’s exports are still flowing into the global economy</a>. This is because although trading firms have ceased new business with Russia, they continue to <a href="https://www.bnnbloomberg.ca/ukraine-urges-commodity-traders-to-stop-buying-russian-oil-1.1750710">honour their contracts from before the conflict</a>. Those contracts <a href="https://www.reuters.com/business/energy/commodities-trading-houses-help-keep-russian-oil-flowing-2022-03-25/">give trading firms the flexibility to purchase as much oil as they can every month</a>.</p>
<p><a href="https://www.bakerinstitute.org/media/files/files/5090f474/wp-ukrainerussiaoil-030822.pdf">Although some of Russia’s exports will be lost, export flows are likely to change</a>. Some of Russia’s crude oil intended for Europe will be <a href="https://www.csis.org/analysis/sanctions-drive-russian-oil-shadows">redirected to Asia because of the EU’s reluctance to purchase Russia’s oil</a>. Refineries, <a href="https://www.bloomberg.com/news/articles/2022-03-24/china-is-quietly-taking-cheap-russian-crude-as-india-buys-more">particularly in China and India</a>, are still willing to buy discounted Russian oil. </p>
<p>To wean itself off Russian exports, <a href="https://www.bakerinstitute.org/media/files/files/5090f474/wp-ukrainerussiaoil-030822.pdf">Europe is seeking to replace Russian petroleum imports</a> with supplies from the Middle East and Asia to the extent that their contractual commitments, refining configuration and import capacity permit. One outcome of this trade reshuffling is that <a href="https://www.crystolenergy.com/the-crude-reality-of-oil-trade">diesel prices in Europe will increase due to higher transportation costs</a>.</p>
<figure class="align-center ">
<img alt="A man in a blue and yellow polo shirt fills a car with gas at a gas station" src="https://images.theconversation.com/files/490458/original/file-20221018-14-wrdx92.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/490458/original/file-20221018-14-wrdx92.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=408&fit=crop&dpr=1 600w, https://images.theconversation.com/files/490458/original/file-20221018-14-wrdx92.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=408&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/490458/original/file-20221018-14-wrdx92.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=408&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/490458/original/file-20221018-14-wrdx92.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=513&fit=crop&dpr=1 754w, https://images.theconversation.com/files/490458/original/file-20221018-14-wrdx92.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=513&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/490458/original/file-20221018-14-wrdx92.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=513&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">An employee fills petrol in a vehicle in Mumbai, India, in June 2022. India is still a vital source of oil revenue for Moscow as the U.S. and other Western countries cut their energy imports from Russia.</span>
<span class="attribution"><span class="source">(AP Photo/Rajanish kakade)</span></span>
</figcaption>
</figure>
<h2>Russia is resilient against sanctions</h2>
<p>While <a href="https://twitter.com/ntsafos/status/1500636596420243457">some experts have argued that imposing sanctions on Russia’s oil sector</a>, rather than their gas sector, will be more effective, this isn’t the case. The argument that oil is Russia’s biggest source of income is not supported by <a href="https://cdn.theconversation.com/static_files/files/2354/GDP_Share.pdf?1665698079">data on Russia’s GDP</a> <a href="https://cdn.theconversation.com/static_files/files/2355/Federal_Government_Revenue_figure_v2.pdf?1665698133">and government revenue</a>.</p>
<p><a href="https://cdn.theconversation.com/static_files/files/2356/Crude_Oil_and_Refined_Products_Share_of_Russia's_Total_Goods_and_Services_Exports_figure.pdf?1665698323">Russia’s crude oil and refined products exports markets are well diversified.</a> The World Bank concentration index indicates that <a href="https://tcdata360.worldbank.org/indicators/conc.dvsct.idx.ex?country=RUS&indicator=3000&countries=SAU,USA&viz=bar_chart&years=2020&indicators=944">Russia’s economy was relatively diversified in 2020, with a 0.26 concentration index</a>. To put that in context, Saudi Arabia was in the top 20 per cent of least diversified economies with a 0.55 concentration index.</p>
<p>Russia has also <a href="https://econpapers.repec.org/bookchap/sprsprchp/978-3-030-79713-3_5f11.htm">shifted away from western markets, toward the Chinese market,</a> since <a href="https://cdn.theconversation.com/static_files/files/2357/Share_of_Russia's_Total_Crude_Oil_Exports_Proceeds_%28Value_of_Exports%29__Top_8_Countries_fig.pdf?1665698355">the imposition of sanctions in 2014</a> <a href="https://www.consilium.europa.eu/en/policies/sanctions/restrictive-measures-against-russia-over-ukraine/">following its annexation of Crimea</a>. </p>
<p>This <a href="https://cdn.theconversation.com/static_files/files/2358/Share_of_Russia's_Total_Refined_Products_Exports_Proceeds_%28Value_of_Exports%29_%E2%80%93_Top_9_Countries_fig.pdf?1665698383">diversification away from the West</a> means that imposing sanctions on Russia’s oil sector will have limited effects on Russia’s economy. </p>
<h2>What can be done?</h2>
<p>The sanctions against Russia are strangling an important international source of energy, critical metals and minerals, causing non-renewable and green energy shortages, and driving up inflation. Given the role Russia plays in energy supply, the global economy <a href="https://www.goldmansachs.com/insights/pages/squaring-russias-missing-barrels.html">could soon be faced with one of the largest energy supply shocks ever</a>.</p>
<p>Ultimately, the impact of oil sanctions on Russia is limited, while repercussions on the global economy and countries’ <a href="https://foreignpolicy.com/2022/07/22/global-energy-crisis-natural-gas-fuel-shortage-power-cut/">abilities to achieve energy security</a> and transition are severe. </p>
<p>As Nikos Tsafos, the previous energy chair at the Center for Strategic and International Studies <a href="https://www.csis.org/analysis/energy-weapon%E2%80%94revisited">wrote in March</a>: </p>
<blockquote>
<p>“A weapon is most useful when aimed at something — it is not clear what the western weaponization of energy exports is meant to accomplish exactly.”</p>
</blockquote>
<p>It is time to evaluate the economic costs of the sanctions on the world and on Russia. <a href="https://www.weforum.org/agenda/2022/07/inflation-cost-of-living-economics-ipsos-survey-july-2022/">Polls show inflation is the most pressing issue</a> for the public in many countries. There is room for political leaders to make the case that some sanctions are not working and should be changed.</p><img src="https://counter.theconversation.com/content/191248/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Brian McQuinn receives funding from SSHRC.</span></em></p><p class="fine-print"><em><span>Noha Razek does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The impact of oil sanctions on Russia is limited compared to the severe repercussions they have on the global economy and other countries’ abilities to achieve energy security and transition.Noha Razek, Assistant Professor of Economics, University of ReginaBrian McQuinn, Co-Director of the Centre for Artificial Intelligence, Data, and Conflict and Assistant Professor, International Studies, University of ReginaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1923982022-10-13T09:42:24Z2022-10-13T09:42:24ZGrattan on Friday: We must find a way to get gas prices down, but how?<p>Senior ministers this week have dramatically raised the stakes in the Albanese government’s face-off with gas producers, amid escalating energy prices and dire warnings of worse to come. The question now is: how does the government follow through with effective action to match the rhetoric? </p>
<p>Bringing gas prices down in the eastern part of the country is vital in reducing the cost pressures many businesses and households are confronting. Coal and gas prices are the main drivers of soaring electricity bills. </p>
<p>Dealing with gas prices is also important for reinvigorating Australian manufacturing, one of Anthony Albanese’s promises at the election. </p>
<p>And, despite the opposition to gas from some environmental critics, it has a necessary role in the transition to a clean energy future and thus to the government being able to deliver on its ambitious climate policy. </p>
<p>Shaping up as an outspoken protagonist in the current “gas wars”, Industry Minister Ed Husic this week launched a barrage of criticism at the producers. </p>
<p>Husic accused the companies of acting in a way that “would make a locust swarm proud”, bent on an “absolutely rabid pursuit of profit above all else”. </p>
<p>They are “sucking up an Australian resource and selling it at phenomenal prices overseas and doing so in such a way that is putting pressure on manufacturers and households in this country,” he told Sky.</p>
<p>Husic is one of four federal ministers in the front line of trying to bring down local prices. </p>
<p>Treasurer Jim Chalmers highlighted the issue when he told a Tuesday news conference power prices were expected to play “a bigger and bigger part” in Australia’s inflation problem in coming months. </p>
<p>Chalmers said he, Husic, Resources Minister Madeleine King and Energy Minister Chris Bowen were working on what could be done to get gas prices down, declaring action would be taken. </p>
<p>But to what extent all four are on the same page is a moot point. </p>
<p>Traditionally, resources ministers are more sympathetic to producers and industry ministers speak up for the users. </p>
<p>Thus Martin Ferguson, when resources minister in the Rudd government, opposed a Queensland plan for a gas “reservation” scheme. (Ferguson, who went into the industry after retiring from parliament, later changed his mind.)</p>
<p>Such a scheme already operated in Western Australia. The WA policy requires LNG producers to reserve a certain proportion (15%) of their production for domestic use. The state is not part of the eastern states’ national energy market and has some of the lowest gas prices in the OECD. </p>
<p>One wrinkle in the present ministerial mix is that King is from WA. She is charged with trying to deal with a problem that her home state, thanks to its policy setting, doesn’t have. </p>
<p>King recently negotiated a new so-called “heads of agreement” with the gas producers. It was a light-touch deal.</p>
<p>The companies undertook to provide enough gas in the domestic market to avoid any supply problem. </p>
<p>But the rub is that the price at which they supply it won’t be lower than the international price. And that foreign price is very high and rising, driven by the energy crisis in Europe. The international parity price has risen from about $10 a gigajoule a year ago to about $60 for 2023. </p>
<p>The national secretary of the Australian Workers’ Union, Daniel Walton, this week was scathing about King’s “dud” agreement. </p>
<p>The government had a choice, Walton said. “Defend the insane super profits gas exporters are making from the Ukraine war or defend the future of Australian manufacturing and the hundreds of thousands of jobs it supports.” </p>
<p>The government has declined to pull the “trigger” that the Turnbull administration set up to give some potential control over gas supplies in the event of export demands leaving the local market short. The trigger has never been used.</p>
<p>This trigger allows a government to order the companies to set aside a certain amount of gas for domestic use. But it does not go to price, which is at the heart of the present problem. </p>
<p>The government’s challenge is how to separate the domestic market from the international price. But the options available to it are limited, and some involve hurdles too high to surmount. </p>
<p>It has a review of the trigger under way. The mechanism could be made more flexible and fit-for-purpose by removing the long lead time required to activate it and by extending it to include price. </p>
<p>Another course is to strengthen the “code of conduct” that regulates standards in the marketing of gas to industrial customers. Husic said the government would examine having price factored into that code. </p>
<p>The government has ultimate power in that it controls export licences, but to even contemplate using that threat against recalcitrants would send the worst of messages to investors. </p>
<p>A bold option that many experts and others advocate is introducing a super profits tax on the companies. An alternative would be to change the existing petroleum resource rent tax. </p>
<p>But they run into the same brick wall that suggestions of recalibrating the stage 3 tax cuts did – an election undertaking. The then opposition’s pre-election economic plan said “Labor is not proposing tax reforms beyond multinationals”. In recent days, Chalmers has firmly ruled out a super profits tax.</p>
<p>An amended code of conduct and an amended trigger would seem the easiest options. Whatever is done needs to be quick and effective, but there are difficulties and no guarantees. The issue also poses a test for maintaining discipline within the government, given the contending ministerial views. </p>
<p>Husic said: “We cannot be more clear: if these gas companies think that this is the end of the story and the heads of agreement is all done and dusted, they’ve got another [think] coming”.</p>
<p>Strong words. It would be interesting to know what the companies will be saying to King and what King and Husic will be saying to each other as the government grapples with its next step.</p><img src="https://counter.theconversation.com/content/192398/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michelle Grattan has shares in the resources sector.</span></em></p>Shaping up as an outspoken protagonist in the current “gas wars”, Industry Minister Ed Husic this week launched a barrage of criticism at the producers.Michelle Grattan, Professorial Fellow, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1923402022-10-13T02:15:49Z2022-10-13T02:15:49ZPolitics with Michelle Grattan: Rod Sims on the gas price crisis<p>The government has flirted with, and now ruled out, changing the Stage 3 tax cut in the October 25 budget, which appears set to be dominated by some deep spending cuts. In the longer term, however, debate will continue over the need to reform Australia’s tax system, as the calls on revenue to finance big programs increase. </p>
<p>Meanwhile, the government is locked in a battle to get high domestic gas prices down, with its light touch policy towards the gas producers not having much impact.</p>
<p>In this podcast, Michelle Grattan talks with Rod Sims, former chair of the Australian Competition and Consumer Commission (ACCC), and now a professor at the Australian National University’s Crawford School for Public Policy, on tax, gas and privatisation. </p>
<p>Sims says tax reform should look beyond income tax. “We have plenty of other ways to raise taxation […] we should be altering the existing petroleum resource rent tax because I think it’s flawed and we can get more money out of that pretty well straight away”. This change could raise “billions per year”.</p>
<p>Advocating a more robust taxing of resources, Sims says: “You’ve got high mineral prices, high gas prices all around the world. That’s causing harm in Australia as well as elsewhere. Yet we’re not getting enough tax from them. I think that’s a really unhealthy situation to be in.” </p>
<p>Sims also criticises the way privatising state assets has been done, and urges changes for the future to ensure competition.</p>
<p>“We should stop privatising assets in ways that see monopolies in private hands without any regulation and often with arrangements to stop them facing competition. I think we’ve got to have tests for making sure we do these things in a competitive way with proper regulation […] if you have three bread shops that you can buy bread from, you get a much better deal than if the only choice you have is one bread shop.”</p><img src="https://counter.theconversation.com/content/192340/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michelle Grattan does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Michelle Grattan talks with Rod Sims, former chair of the ACCC, now a professor at the Australian National University's Crawford School for Public Policy, on tax, gas and the budget.Michelle Grattan, Professorial Fellow, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1922142022-10-11T10:17:17Z2022-10-11T10:17:17ZInflation: why France is holding up better than its neighbours (for now)<p>Both the Covid pandemic and the energy crisis have put global financial stability in an unenviable position. Faced with rising uncertainty, policy-makers around the world have imposed a range of policies and restrictions. These, in turn, have rocked businesses and supply chains, causing the global economy to contract.</p>
<p>Due to the convergence of large economic deficits, historic levels of <a href="https://data.oecd.org/corporate/non-financial-corporations-debt-to-surplus-ratio.htm">corporate debt</a> and stimulus measures adopted by governments, countries now find themselves fighting <a href="https://theconversation.com/us/topics/inflation-645">inflation</a>. In its simplest definition, inflation is a rise in prices and can result in a fall in purchasing power. Indeed, it is a reaction to a number of economic factors.</p>
<p>It is also an area where France appears to be more resilient than its neighbours. In August 2022, the country’s inflation rate (measured by the consumer price index) <a href="https://tradingeconomics.com/france/inflation-cpi">was 5.8%</a>, compared with <a href="https://tradingeconomics.com/germany/inflation-cpi">7.9% in Germany</a>, <a href="https://tradingeconomics.com/italy/inflation-cpi">9.1% in Italy</a> and <a href="https://tradingeconomics.com/united-kingdom/inflation-cpi">9.9% in the UK</a>.</p>
<h2>Tariff shield and nuclear power</h2>
<p>The main challenge facing countries, and contributing to inflation – or even <a href="https://theconversation.com/1970s-style-stagflation-now-playing-on-central-bankers-minds-185868">stagflation</a> (which refers to a combination of inflation and low economic growth) in the case of some economies – is the huge increase in energy prices. Faced with this rise, the total state budget devoted to mitigating household energy bills is set to reach at <a href="https://www.lemonde.fr/energies/article/2022/09/14/crise-energetique-l-executif-debloque-45-milliards-d-euros-pour-prolonger-le-bouclier-tarifaire_6141645_1653054.html">least 75 billion euros</a> across the years 2022-2023, with schemes such as the <a href="https://www.service-public.fr/particuliers/actualites/A15480?lang=en">energy voucher or the tariff shield</a>.</p>
<p>These actions have kept the inflation rate well below that of most European economies. In addition, independent energy sources have made France less reliant on fossil fuel products, and therefore less vulnerable to energy price fluctuations.</p>
<p>For example, as indicated in Figure 1, from 2021 onward 69.33% of French electricity comes from nuclear power, compared to 14.8% in the UK and 11.8% in Germany.</p>
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<p>At the same time, Figure 2 shows that Italy, Germany and the UK depend on fossil fuels for power generation.</p>
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<h2>Rising rates</h2>
<p>Energy issues aside, countries are also <a href="https://link.springer.com/article/10.1023/A:1009782809329">impacted by the global market</a> in a similar way that companies are by their <a href="https://journals.openedition.org/fcs/8844">institutional environment</a>. As a result, future developments could lead to changes in public policy that could influence the inflation rate, which may or not have peaked.</p>
<p>For example, the <a href="https://theconversation.com/us/topics/european-central-bank-ecb-128260">European Central Bank</a>’s decision to raise interest rates for the first time in a decade last July could weigh on countries’ balance of payments and thus give governments less room for manoeuvre in their policies to contain price increases.</p>
<p>Unless we achieve some sort of regional stability in terms of politics and economics, we cannot guarantee that France will be able to continue to outperform its neighbours in the coming months.</p><img src="https://counter.theconversation.com/content/192214/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Les auteurs ne travaillent pas, ne conseillent pas, ne possèdent pas de parts, ne reçoivent pas de fonds d'une organisation qui pourrait tirer profit de cet article, et n'ont déclaré aucune autre affiliation que leur organisme de recherche.</span></em></p>France’s nuclear energy supply and public support schemes for households have in particular helped to limit the rise in prices.Mohamad Hassan Shahrour, Maître de Conférences en Finance, Université Côte d'Azur, IAE Nice - Université Côte d'AzurAymen Smondel, Maître de conférences en finance, IAE de Nice, Université Côte d’AzurLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1922512022-10-11T06:59:18Z2022-10-11T06:59:18ZChalmers flags gas action, with escalating power prices a cost-of-living nightmare for government<p>High and rising power prices will become a bigger part of Australia’s inflation problem over time, Treasurer Jim Chalmers has warned, as he foreshadowed more government action to combat high gas prices. </p>
<p>Ahead of leaving for the United States on Tuesday night, Chalmers also said he would use the information from briefings he receives there to make any needed changes to the October 25 budget – now in the final stages of preparation. </p>
<p>And he continued to prepare the public for large, but selective, spending cuts in the budget. </p>
<p>Chalmers painted a dark picture of probable recession in key economies. He remained optimistic the Australian economy could avoid going backwards, but it would not be immune from the global downturn, he said. </p>
<p>The treasurer’s Tuesday appearances were his first after receiving a major rebuff when Anthony Albanese at the weekend quashed any prospect of rejigging the Stage 3 tax cuts in the budget. </p>
<p>Chalmers had pushed hard to have the controversial tax cuts reconfigured, but Albanese – who’d given him a licence to test the water – decided he couldn’t afford to risk breaking an election promise to deliver them. </p>
<p>On his US visit, Chalmers will talk with the US Federal Reserve, the International Monetary Fund, the World Bank, private investment banks and his counterparts from other countries who will be there at the same time for briefings.</p>
<p>“The world is bracing for another global downturn,” he told a news conference. </p>
<p>“The deteriorating global situation combined with high and rising inflation here at home and the ongoing, persistent structural spending pressures on the budget […] are the three most important factors which provide the backdrop for the budget.”</p>
<p>The budget would not be “fancy” or “flashy”, Chalmers said. </p>
<p>He made it clear its spending cuts, expected to be substantial, would focus on “wasteful” Coalition programs rather than including areas such as the NDIS (National Disability Insurance Scheme), the cost of which has been rapidly rising. “The burden won’t fall completely equally across portfolios.”</p>
<p>The increasing price of power is now a major problem for the government, which promised at the election a saving by 2025. Ministers are now mostly dodging questions about that undertaking, although the Deputy Prime Minister, Richard Marles, said on Tuesday “we continue to stand by the modelling” that indicated the price saving. </p>
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Read more:
<a href="https://theconversation.com/albanese-insists-tax-position-hasnt-changed-as-the-government-targets-defence-delays-192155">Albanese insists tax position 'hasn't changed', as the government targets defence delays</a>
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<p>Alinta Energy’s boss, Jeff Dimery, at an Australian Financial Review Energy summit this week predicted retail electricity prices, on current market prices, would rise at least 35% next year.</p>
<p>Andrew Richards, CEO of the Energy Users Association of Australia, said, “It appears that some people think [the energy transition] will be easy and cheap, but I think most people in this room understand it’s hard and expensive and likely to drive energy bills [up] in the near term”.</p>
<p>Chalmers told his news conference: “We are very concerned about what’s happening with power prices”. It was due to a combination of international factors, extreme weather and policy delay.</p>
<p>He said that “even as inflation eases in aggregate […] the treasury’s expectation is that a bigger and bigger part of this inflation problem over time will be what happens with power prices.</p>
<p>"Shipping costs have been a concern, supply chains have been a concern, the labour shortages are an ongoing concern that we’re addressing in the budget. But electricity is the one that I think most about. I think it is going to be the most problematic aspect […] of our inflation problem over the course of the next six or nine months.” </p>
<p>Chalmers said there was more that governments could and would do to deal with high gas prices. He was working with Industry Minister Ed Husic, Resources Minister Madeleine King and Energy Minister Chris Bowen on what can be done. </p>
<p>“I think all of those ministers recognise that the way that our gas industry regulation is set up has not been delivering the kinds of outcomes that we want to see and so if you recognise that, and I do, then you recognise that if more can be done, it should be done - and I’m a part of that work.”</p>
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Read more:
<a href="https://theconversation.com/grattan-on-friday-jim-chalmers-plays-the-tease-as-he-pushes-to-change-stage-3-tax-cuts-192022">Grattan on Friday: Jim Chalmers plays the tease as he pushes to change Stage 3 tax cuts</a>
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<p>He did not say what was contemplated. The government has not pulled the “trigger” (the Australian Domestic Gas Supply Mechanism) under which it could order companies to put aside a certain amount of gas for the domestic market, but it has that trigger being reviewed. </p>
<p>Companies have recently agreed with the government to supply gas for local consumption at prices no higher than the international price. But that is little comfort domestically given the soaring overseas price. </p>
<p>Husic this week accused companies of “milking gas prices”.
He told Nine newspapers: “The gas companies can either be part of team Australia or they can be part of team greed. They will make the choice.”</p>
<p>Husic said the trigger legislation needed to be reformed, as did the code of conduct which is supposed to help local buyers of gas.</p><img src="https://counter.theconversation.com/content/192251/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michelle Grattan does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The treasurer’s Tuesday’s appearances were his first after receiving a major rebuff when Anthony Albanese at the weekend quashed any prospect of rejigging the Stage 3 tax cuts in the budget.Michelle Grattan, Professorial Fellow, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1905862022-09-14T15:27:58Z2022-09-14T15:27:58ZHow the UK energy crisis plan will affect bills and price inflation — an economist explains<figure><img src="https://images.theconversation.com/files/484648/original/file-20220914-11-y0sihp.jpg?ixlib=rb-1.1.0&rect=17%2C43%2C5810%2C3835&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The government wants to ease the burden of the rising cost heat and power on households and businesses this winter.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/one-man-worried-about-bills-reading-2125548260">tommaso79 / Shutterstock</a></span></figcaption></figure><p><em>A rapid rise in energy prices for households and businesses this year has led the UK government to outline its <a href="https://www.gov.uk/government/speeches/pm-liz-trusss-opening-speech-on-the-energy-policy-debate">energy price guarantee</a> plan, designed to ensure a typical household will pay no more than £2,500 annually for two years from October 1 2022. Businesses will have their energy costs guaranteed for six months from the same date. After this, the government says it will target “vulnerable sectors” such as hospitality with more help, but has not yet provided more details.</em></p>
<p><em>Any additional energy costs beyond the government’s guarantee will be covered by the government. And while it has not yet released any financial information about the plan, this could cost more than £100 billion in the first year alone, according to <a href="https://ifs.org.uk/articles/response-energy-price-guarantee">figures</a> based on 2019 consumption from the Institute for Fiscal Studies.</em></p>
<p><em>We asked an economist to explain the plan and its likely impact on inflation, as well as who will foot the bill for the guarantee.</em> </p>
<h2>How will the new plan address the UK energy crisis?</h2>
<p>While this new plan is a notable action and an improvement on Ofgem’s previous <a href="https://www.ofgem.gov.uk/publications/ofgem-updates-price-cap-level-and-tightens-rules-suppliers">£3,549 price cap</a>, it is important to remember that both figures are only examples. The government <a href="https://www.moneysavingexpert.com/news/2022/09/energy-bills-price-freeze-cost-of-living-government-liz-truss-/#:%7E:text=standing%20charges%20and%20unit%20rates">will freeze</a> the price per unit used and the standing charge (the price you pay for your supplier to maintain wires and send someone out to read your meter, among other things). This means there is no overall cap on what a consumer can be charged – your bill will depend on what you use. So, any potential savings from the £2,500 guarantee – the government says an average user will save <a href="https://www.gov.uk/government/publications/energy-bills-support/energy-bills-support-factsheet-8-september-2022">at least £1,000 per year</a> – are hypothetical and will depend on individual household and business energy use.</p>
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<span class="caption">Energy costs will still rise above current levels under the government’s new plan.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-illustration/photo-realistic-energy-price-rise-sign-68213851">Becky Stares / Shutterstock</a></span>
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<h2>Will the government’s plan cut inflation? If so, by how much?</h2>
<p>By cushioning the blow of high gas prices in this way, the government hopes to curb inflation – currently close to a 40-year high at 9.9% – by up to 5%. Energy’s contribution to total inflation was around 1.5% in 2021. Russia’s invasion of Ukraine earlier this year caused gas prices to rise by 95.7% (subsequently pushing electricity prices up by 54% due to the amount of gas-fired power generation used in the UK). This pushed energy’s contribution to annual inflation to 1.9% in April 2022.</p>
<p>If the government had frozen energy costs based on the current average household bill of £1,971, the rate of inflation would have been reduced by 3.9%, according to the <a href="https://www.ippr.org/blog/freezing-the-energy-price-cap-could-fight-inflation-and-support-households">Institute for Public Policy Research</a>. But under the new plan, a typical household will now see a 7% increase in energy costs in the first year from current levels, due to a previous <a href="https://www.bbc.co.uk/news/business-61592496">£400 rebate</a>, followed by a 27% increase in the second year.</p>
<p>Without firm figures from the government, it’s difficult to pinpoint the exact impact of its plan, particularly since there are other factors at play. Inflation is also affected by shocks such as the supply chain disruption caused by the pandemic. Along with Russia’s invasion of Ukraine and the resulting effect on the supply of certain commodities, such issues have caused the UK to experience demand-pull inflation. This is when supply cannot meet growing demand, causing prices to increase. A change in any of these factors would affect the rate of inflation.</p>
<p>The plan could also indirectly affect inflation. Businesses have been offered an “equivalent guarantee”, according to Truss. As such, we can assume they may also still see an average price rise over the next six months, followed by further uncertainty in the future. Some will push additional energy costs on to consumers through higher prices for goods and services. This will create what is called cost-push inflation, where prices rise as a result of the costs of materials and labour. Those businesses that do not pass on energy cost increases may have to close.</p>
<h2>How long will any effects take to feed through to the inflation rate, and why?</h2>
<p>The plan could have an impact on people’s finances in the short term by setting an average energy cost. But the effects will take time to feed through into price inflation as households and businesses adjust consumption and investment in response to the policy. The government’s monthly inflation estimates could start to show results around three quarters from now.</p>
<h2>Who will pay for the plan?</h2>
<p>Liz Truss has stated that the government will borrow to fund its energy crisis plan. At present, 85% of <a href="https://commonslibrary.parliament.uk/coronavirus-government-debt-an-explainer/">government borrowing</a> comes from selling gilts and bills – investment products that are essentially loans to the seller, in this case the government – to investors like pension funds and insurers.</p>
<p>Repaying these loans will mean raising taxes and essentially asking future generations to fund today’s consumption. Each extra £1 households spend on energy is likely to cost the taxpayer 75p over the next year, according to the <a href="https://ifs.org.uk/articles/response-energy-price-guarantee">Institute for Fiscal Studies</a>.</p>
<p>Instead, some argue that energy firms should be taxed to cover the cost. These companies are expected to generate <a href="https://www.reuters.com/business/energy/uk-gas-electricity-industry-may-make-170-bln-pounds-excess-profits-bbg-2022-08-30/">£170 billion</a> in extra profits over the next two years as a result of rising prices.</p>
<p>Alternatively, adjusting the unit cost cap based on different levels of use, rather than applying a blanket cap based only on average usage, would require high energy users to pay more per unit and could encourage a drop in consumption.</p>
<h2>Will this additional borrowing affect inflation?</h2>
<p>The policy will certainly increase the supply of money in the UK by pumping an estimated £100 billion into the energy sector through borrowing in its first year. It will be an expansionary fiscal policy, which is good for growth but may create more demand-pull inflation. </p>
<p>At the same time, the Bank of England is likely to continue to try to control inflation by raising interest rates. Higher interest rates mean rising borrowing costs for everyone, including the government. </p>
<p>The government already has a lot of loans already. Its <a href="https://www.ons.gov.uk/economy/governmentpublicsectorandtaxes/publicspending/bulletins/ukgovernmentdebtanddeficitforeurostatmaast/march2022">gross debt</a> currently stands at £2,365.4 billion, equal to 99.6% of gross domestic product. With the <a href="https://www.ons.gov.uk/economy/governmentpublicsectorandtaxes/publicsectorfinance/bulletins/publicsectorfinances/june2022">current inflation rate</a> already raising the cost of borrowing, further unplanned borrowing will add more pressure. </p>
<p>While the energy crisis plan creates a little breathing room for the government, it is a blanket solution. A more targeted approach could have had better results. It will take much more unconventional policy making than this to solve the current cost of living crisis.</p><img src="https://counter.theconversation.com/content/190586/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Nasir Aminu does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>How Liz Truss’s energy cost freeze could affect what you pay for heat, power and even other goods and services.Nasir Aminu, Senior Lecturer in Economics and Finance, Cardiff Metropolitan UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1906162022-09-13T22:18:17Z2022-09-13T22:18:17ZFed likely to stay the course on interest rate hike as inflation ticks up but gas prices ease<figure><img src="https://images.theconversation.com/files/484416/original/file-20220913-20-683yx2.jpg?ixlib=rb-1.1.0&rect=16%2C16%2C5447%2C3620&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Lower gas prices will put downward pressure on inflation.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/gas-prices-are-displayed-at-a-loves-gas-station-on-news-photo/1423171717?adppopup=true">Scott Olson/Getty Images</a></span></figcaption></figure><p>The Federal Reserve received mixed news in the <a href="https://www.bls.gov/news.release/cpi.nr0.htm">latest data on U.S. inflation</a> as it mulls another <a href="https://www.reuters.com/markets/us/fed-seen-delivering-75-basis-point-hike-next-week-with-more-come-2022-09-13/">rate hike</a>.</p>
<p>Consumer prices <a href="https://www.reuters.com/markets/us/monthly-us-consumer-prices-unexpectedly-rise-august-core-inflation-picks-up-2022-09-13/">rose 8.3%</a> in August from a year earlier, data released on Sept. 13, 2022, shows. While this pace is down from the 8.5% annual gain experienced in July, it’s still higher than what <a href="https://www.cnbc.com/2022/09/12/inflation-report-could-show-cpi-moderating-as-gas-and-travel-costs-fall.html">some economists had expected</a>.</p>
<p>The increase comes despite efforts by the U.S. central bank to tamp down the rising cost of living by <a href="https://www.cnbc.com/2022/07/27/fed-decision-july-2022-.html">repeatedly upping baseline interest rates</a> to slow the economy. </p>
<p>It will give the Fed encouragement to opt for a third straight 0.75 percentage point interest rate hike when it meets Sept. 20-21. But despite suggestions that the rate-setters might apply the economy’s brakes more aggressively – by means of a <a href="https://www.reuters.com/markets/us/fed-seen-delivering-75-basis-point-hike-next-week-with-more-come-2022-09-13/">full 1 percentage point rate jump</a> – I believe this is unlikely based on which goods went up in price and which did not in the latest data.</p>
<p>On a month-to-month basis, the categories of <a href="https://www.reuters.com/markets/us/monthly-us-consumer-prices-unexpectedly-rise-august-core-inflation-picks-up-2022-09-13/">food and shelter</a> <a href="https://www.bls.gov/news.release/cpi.t01.htm">saw some of the steepest gains</a>. Food prices increased by 0.8% in August, with eating out jumping at a higher rate than buying groceries. Although this will disappoint consumers hoping to see a drop in food prices, <a href="https://fred.stlouisfed.org/series/CPIUFDSL">August’s data</a> does at least show that the rate of increase is slowing – down from gains of over 1% in recent months.</p>
<p>The same isn’t true for shelter, which rose 0.7% in August, the <a href="https://fred.stlouisfed.org/series/CUSR0000SAH1">biggest one-month increase since 1990</a>. </p>
<p>On their own, these increases would be cause for concern for the Fed – suggesting that attempts to cool inflation through rate hikes haven’t worked. But elsewhere there is one big indicator that overall inflation may soon be heading south: gas prices.</p>
<p>The <a href="https://fred.stlouisfed.org/series/CUUR0000SETB01/">gasoline index dropped by 10.6% in August</a>, one of the biggest one-month declines ever, following a drop of 7.7% in July. </p>
<p>This is likely the result of a number of factors, both global in the shape of an <a href="https://www.reuters.com/business/energy/prices-ease-attention-turns-europes-gas-stores-2022-09-06/">easing in the supply issues</a> that had driven costs up, and national with Americans <a href="https://www.autoweek.com/news/industry-news/a40770031/high-summer-gas-prices-vacation-travel/#:%7E:text=A%20new%20survey%20from%20AAA,habits%20to%20higher%20gas%20prices.">changing their travel habits and driving less</a> to minimize the effects of earlier gas price increases. This change in behavior has translated into lower demand and contributed to an overall decline in prices. </p>
<p>And the thing about gas prices is that any change has a knock-on effect on the prices of other commodities. Lower gas prices should mean <a href="https://www.ers.usda.gov/webdocs/publications/45165/41076_err160-summary.pdf?v=0">the cost of transporting goods</a>, including food, will go down over time. This should eventually bring down grocery bills.</p>
<p>Similarly, lower gas prices will eventually filter into energy costs. Lower energy bills may be a relief to renters and homeowners alike. As to rent inflation, that is <a href="https://www.marketplace.org/2022/07/12/higher-interest-rates-may-not-make-a-dent-in-rising-rents-for-more-than-a-year/">trickier for the Fed to manage</a>. More interest rate hikes should dampen the property market, but making it harder for people to buy homes means the demand for rental units increases – something that would put more upward pressure on rents. All this puts the Fed in a very tricky situation. </p>
<p>Although the latest inflation report wasn’t exactly what monetary policymakers at the Fed would have been looking for, I don’t believe it suggests that its policy of late hasn’t worked.</p>
<p>Overall the consumer price index increased at a slower pace than in recent months. And given that gas prices have declined, the Fed will likely want to wait and see what effect this has on inflation before deciding to get more aggressive with rate increases.</p><img src="https://counter.theconversation.com/content/190616/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Edouard Wemy does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Inflation remained near a 40-year high due to a jump in the cost of food and shelter. But that might not mean the Federal Reserve will get more aggressive when it comes to monetary policy.Edouard Wemy, Assistant Professor of Economics, Clark UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1900012022-09-05T16:02:49Z2022-09-05T16:02:49ZUK energy crisis: why rationing is likely to happen this winter, whether Liz Truss likes it or not<figure><img src="https://images.theconversation.com/files/482759/original/file-20220905-2253-yx6v5t.jpg?ixlib=rb-1.1.0&rect=44%2C22%2C4947%2C3300&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Managed blackouts or rationing or power could be required to address the energy crisis this winter.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/young-woman-studying-by-candlelight-blackout-2066342720">Enrique Micaelo / Shutterstock</a></span></figcaption></figure><p>In <a href="https://www.history.co.uk/articles/the-three-day-week-britains-failed-response-to-the-1970s-energy-crisis">the 1970s</a>, the UK government used a series of planned blackouts to manage energy shortages. The result was a <a href="https://www.dailymail.co.uk/news/article-10012345/When-lights-DID-1970s-Britain-plunged-darkness-three-day-working-week.html">three-day week</a> for commercial use of electricity, with work and leisure often happening by torch or candlelight. Without widespread demand reduction to tackle the impact of high gas prices, European countries could be forced to take similar action this winter. </p>
<p>Spikes in wholesale gas prices this year are largely due to severe supply restrictions. Most recently, Russia shut down delivery of gas to Europe through the Nord Stream pipeline, perhaps <a href="https://www.dw.com/en/nord-stream-1-russias-gazprom-announces-indefinite-shutdown-of-pipeline/a-63006660">indefinitely</a>, but this follows months of reduced flows. The news has caused the most recent of many price increases this year as European countries continue to scramble to secure enough energy for this winter.</p>
<p>And price volatility is likely to continue until Europe is able to secure a more stable long-term supply of energy. The European Commission has <a href="https://www.euractiv.com/section/energy/news/leak-the-eus-emergency-measures-to-tackle-rising-energy-prices/">proposed</a> how to manage scarcity using subsidies for gas and electricity use by businesses and households, as well as government intervention to ration energy usage. EU countries will decide on the Commission proposals in the coming weeks.</p>
<p>The new Conservative Party leader and UK prime minister, Liz Truss, has <a href="https://www.theguardian.com/politics/2022/aug/31/liz-truss-rules-out-energy-rationing-this-winter-at-final-tory-hustings">ruled out</a> rationing UK power. But whether it’s <a href="https://www.bbc.co.uk/news/uk-wales-62727373">due to high prices</a>, compensation for reduced consumption, or <a href="https://www.ft.com/content/a0ef9b60-e3ce-4888-b9e4-5bfd6b5055af">last minute blackouts</a>, British consumers should expect some form of energy rationing this winter.</p>
<h2>Gas market connections</h2>
<p>The EU and UK imported more than 30% of their gas from Russia in 2021, with the amount varying by country from around 4% in the UK to more than 50% in Germany. But regardless of individual imports, Europe’s <a href="https://globalenergymonitor.org/projects/europe-gas-tracker/tracker-map/">interconnected</a> gas supplies, <a href="https://theconversation.com/energy-crisis-why-the-uk-will-be-at-the-mercy-of-international-gas-prices-for-years-to-come-186069">reliance</a> on global gas markets and limited capacity to import and store means gas supply and demand changes affect every European country’s ability to secure enough energy.</p>
<p>We saw this recently when Germany announced it had filled its storage faster than expected and UK gas prices fell <a href="https://www.cityam.com/gas-prices-plunge-as-germany-closes-in-on-storage-targets/">by a whopping 29%</a>. Similarly, when Germany was on a buying spree to fill its storage, prices soared for everyone. As the UK has <a href="https://www.reuters.com/business/energy/britain-allows-centrica-reopen-rough-gas-storage-facility-2022-08-30/">very limited storage capacity</a>, it is particularly subject to such ups and downs.</p>
<p><strong>UK gas price volatility</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/482762/original/file-20220905-2378-fj41yr.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/482762/original/file-20220905-2378-fj41yr.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/482762/original/file-20220905-2378-fj41yr.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=377&fit=crop&dpr=1 600w, https://images.theconversation.com/files/482762/original/file-20220905-2378-fj41yr.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=377&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/482762/original/file-20220905-2378-fj41yr.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=377&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/482762/original/file-20220905-2378-fj41yr.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=474&fit=crop&dpr=1 754w, https://images.theconversation.com/files/482762/original/file-20220905-2378-fj41yr.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=474&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/482762/original/file-20220905-2378-fj41yr.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=474&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">The UK has experienced significant gas price volatility in recent months.</span>
<span class="attribution"><a class="source" href="https://tradingeconomics.com/commodity/uk-natural-gas">Trading Economics</a></span>
</figcaption>
</figure>
<p>Without further government intervention, supply shortages will force prices upwards until demand starts to decrease. EU countries estimate that demand would have to go down by 15% of current natural gas consumption levels to balance out supply shortages. This figure is an estimate, of course, and depends on the temperatures this winter and uncertainties around French nuclear production.</p>
<p>Facing up to the risk of widespread energy poverty, all European countries have implemented <a href="https://www.bruegel.org/dataset/national-policies-shield-consumers-rising-energy-prices">some form of support</a> for consumers. While direct payments to consumers are included in most packages, <a href="https://www.bruegel.org/dataset/national-policies-shield-consumers-rising-energy-prices">almost every government</a> has also implemented a price subsidy.</p>
<p>These support schemes are not a long-term fix because they tax the solution (cheap renewable energy) to finance the problem (dependence on fossil fuels). But they can help relieve the immediate pressure on consumers. For instance, Spain and Portugal have managed to <a href="https://cepr.org/voxeu/columns/iberian-electricity-market-intervention-does-not-work-europe">cut consumer bills by 15% </a> by <a href="https://ec.europa.eu/commission/presscorner/detail/en/ip_22_3550">subsidising</a> gas power stations. But their subsidies have also led to a need for much higher LNG imports, something Europe as a whole <a href="https://www.eea.europa.eu/data-and-maps/figures/lng-facilities-in-the-eu">does not have the capacity to do</a>. As such, subsidies alone will not work for the EU.</p>
<h2>A new plan</h2>
<p>Instead, the European Commission has issued a set of <a href="https://www.euractiv.com/section/energy/news/leak-the-eus-emergency-measures-to-tackle-rising-energy-prices/">proposals</a> that includes a tax on the revenue of renewable, nuclear and coal-generated electricity. The proceeds of this would be used, not only to reduce consumers’ bills directly, but also to incentivise demand reduction of both gas and electricity for different scenarios of energy scarcity. It relies heavily on techniques developed in a field of economics called <a href="https://cepr.org/voxeu/columns/nobel-prize-what-mechanism-design-and-why-does-it-matter-policy-making">mechanism design</a>.</p>
<p>So how does this strategy work? Industrial firms are invited to submit a bid with two elements: the amount by which they would be prepared to cut their energy use and the lowest payment they would accept for this reduction. Governments then look at the current supply and demand picture to set an overall demand reduction goal, if needed. </p>
<p>If one business asks for £400 to reduce its electricity use by 1 megawatt-hour (MWh), for example, but the government needs to reduce demand by 5 MWh, it would select a few more businesses to also reduce their energy use. So, let’s say the next smallest amount offered by four different businesses is £600 per MWh. By choosing all five companies to reduce their demand by 1 MWh, the government could reach its goal. All selected businesses would receive a payment of £600 per MWh of demand reduction. Businesses who asked for more than £600 per MWh would not receive any compensation and would be free to continue using as much energy as required for their normal activities. </p>
<p>On the other hand, some of the selected firms may stop production altogether during the winter to meet the promised reduction, while others may change their consumption patterns and continue to operate by using less energy. All would receive the amount they requested or more, at the <a href="https://www.aeaweb.org/articles?id=10.1257/jep.3.3.3">smallest possible cost</a> for taxpayers. </p>
<p>The EC proposal also suggests using financial incentives to encourage small businesses and even households to reduce consumption. This idea has already been <a href="https://www.bbc.com/news/business-62626908">put forward by National Grid</a> for the UK. A household would get paid for postponing laundry until there is less demand for power, such as during the night, for example. This would mean that, instead of forcing the generation of a very expensive unit of gas-produced electricity at a peak time for energy use, your appliance would use cheaper renewable power at a time of less demand. This would decrease the cost of electricity for everyone.</p>
<p>While Truss has ruled out the use of rationing to address the current energy crisis, there are few alternatives that are not radical or interventionist, or both. For example, the government could tell some businesses to close or make it illegal to heat some buildings above a given temperature. Another option is to organise restrictions at the country level, as the UK was forced to do in the 1970s.</p>
<p><a href="https://www.theguardian.com/politics/2022/aug/31/liz-truss-rules-out-energy-rationing-this-winter-at-final-tory-hustings">Delaying</a> a transparent public discussion on important contingency plans is not a viable alternative, however. It will only make the problem of managing demand for subsidised energy more complicated to solve in the coming winter months.</p><img src="https://counter.theconversation.com/content/190001/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Renaud Foucart does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Why UK energy rationing is increasingly likely this winter, whether Truss likes it or not.Renaud Foucart, Senior Lecturer in Economics, Lancaster University Management School, Lancaster UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1894062022-08-30T14:52:29Z2022-08-30T14:52:29ZEnergy price freezes and business support are sticking plasters – here’s how to protect UK families and companies from future crises<figure><img src="https://images.theconversation.com/files/481762/original/file-20220830-18781-2at5m9.jpg?ixlib=rb-1.1.0&rect=0%2C23%2C7789%2C5161&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Businesses also face higher costs this winter.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/serious-young-bakery-owners-sitting-small-1761104399">Dragon Images / Shutterstock</a></span></figcaption></figure><p>The UK is bracing itself for a dark winter following the recent announcement of an <a href="https://www.independent.co.uk/news/uk/home-news/martin-lewis-energy-bills-ofgem-b2153183.html">80% increase</a> in the government’s energy price cap from October 1 2022. This will raise the annual bill for an average UK household to £3,549. The cap is expected to go up again by up to 50% in January 2023, and some forecasters even fear bills could almost top <a href="https://inews.co.uk/news/energy-price-cap-average-uk-bill-forecast-7700-april-2023-1819925?ico=most_popular">£8,000 by the end of that year</a>.</p>
<p>The energy price cap does not apply to businesses or public sector organisations such as schools and the NHS, however. There is no limit to what these organisations can be charged for their energy use. As heavy users of energy, exorbitant energy costs threaten their <a href="https://www.independent.co.uk/news/education/education-news/school-energy-costs-pay-increase-shorter-week-b2145109.html">daily operations</a>. </p>
<p>Concerns over energy supply have also raised the very real prospect of <a href="https://www.bloomberg.com/news/articles/2022-08-09/uk-braces-for-blackouts-gas-cuts-in-january-in-emergency-plan">power cuts and blackouts</a> this winter. Manufacturers and small businesses (who <a href="https://www.gov.uk/government/statistics/business-population-estimates-2021/business-population-estimates-for-the-uk-and-regions-2021-statistical-release-html#:%7E:text=Nonetheless%2C%20SMEs%20account%20for%20three,%C2%A32.3%20trillion%20(52%25)">employ around three-fifths</a> of the UK workforce) are especially vulnerable and thousands are already reported to have <a href="https://www.thisismoney.co.uk/money/news/article-11138015/Small-firms-closing-crushed-big-energy-bills.html">closed down</a>. </p>
<p>What’s more, some energy companies are now <a href="https://www.theguardian.com/business/2022/aug/25/big-energy-firms-refuse-to-supply-small-uk-businesses-bankruptcy-fears-contracts">refusing to supply</a> small businesses or asking for large upfront payments, out of fear these companies will be unable to pay their energy bills. If these refusals start to occur on a wider scale, we should expect some supply chain disruption as companies literally struggle to keep the lights on. </p>
<p>The crisis is also acute in the hospitality sector, which is already finding it difficult to <a href="https://www.ft.com/content/027ea2e9-d6c3-4a18-a735-87f92ace95a4">hire workers</a> due to post-Brexit immigration rules. Pub owners have <a href="https://www.theguardian.com/business/2022/aug/30/thousands-of-uk-pubs-face-closure-without-energy-bills-support">issued warnings</a> about potential closures across the sector. Even the traditional British chip shop is <a href="https://www.bbc.co.uk/news/uk-england-somerset-62650572">under threat</a> – several have already closed in recent months due to the high costs of cooking oils and energy. </p>
<p>The prospect of business closures and shutdowns threatens to raise unemployment and exacerbate the <a href="https://www.bbc.co.uk/news/business-62405037">expected recession</a>. But the government has arguably failed to offer any <a href="https://www.theguardian.com/politics/2022/aug/26/liz-truss-tories-disarray-energy-crisis-urged-spell-out-plans-help">adequate solutions</a>. </p>
<p>The <a href="https://www.britishchambers.org.uk/news/2022/08/government-is-running-out-of-time-to-support-businesses-in-urgent-need">British Chambers of Commerce</a> has written to government leaders with a five-point action plan to help business through the crisis. This includes calls for a COVID-style emergency energy grant for small- and medium-sized enterprises (SMEs), as well as stronger regulation of the energy market. </p>
<p>Opposition parties have also put forward proposals to tackle the crisis. Both <a href="https://www.afzalkhan.org.uk/news/2022/08/23/labours-plan-for-energy-costs-for-business/">Labour</a> and the <a href="https://www.theguardian.com/politics/2022/aug/08/ed-davey-calls-for-energy-furlough-scheme-to-avoid-october-price-cap-rise">Liberal Democrats</a> have called for a six-month price freeze on bills. </p>
<p>Labour have also suggested a £1 billion contingency fund to support energy intensive industries like steel, chemicals and ceramics, as well as business rate cuts for SMEs. Alongside a price freeze, the Green Party have called for <a href="https://www.theguardian.com/politics/2022/aug/17/green-party-calls-for-nationalisation-of-big-five-energy-firms">renationalisation</a> of the big five energy firms at a cost of around £2.5 billion. </p>
<p>There is some merit in these proposals although, in truth, they are largely sticking plasters. The UK <a href="https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1086781/Energy_Trends_June_2022.pdf">imports around 60% of gas</a> for household and business energy use and so prices are determined on global wholesale markets. </p>
<h2>What’s gone wrong?</h2>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/481778/original/file-20220830-6748-z8b9ue.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/481778/original/file-20220830-6748-z8b9ue.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/481778/original/file-20220830-6748-z8b9ue.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=344&fit=crop&dpr=1 600w, https://images.theconversation.com/files/481778/original/file-20220830-6748-z8b9ue.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=344&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/481778/original/file-20220830-6748-z8b9ue.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=344&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/481778/original/file-20220830-6748-z8b9ue.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=432&fit=crop&dpr=1 754w, https://images.theconversation.com/files/481778/original/file-20220830-6748-z8b9ue.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=432&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/481778/original/file-20220830-6748-z8b9ue.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=432&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">The price of gas on the wholesale market in GB for delivery in Winter 2022.</span>
<span class="attribution"><a class="source" href="https://www.catalyst-commercial.co.uk/wholesale-gas-prices/">Catalyst Digital Energy</a></span>
</figcaption>
</figure>
<p>This energy crisis sheds light on the UK’s vulnerability and lack of energy security. Privatisation in the 1980s and 1990s led to a highly fragmented energy market and an over-reliance on short-term markets and imported oil and gas. Poor <a href="https://www.mirror.co.uk/news/politics/liz-truss-facing-questions-over-27774728">policy choices</a> over the last decade have left the UK with some of the <a href="https://www.theguardian.com/business/2021/sep/24/how-uk-energy-policies-have-left-britain-exposed-to-winter-gas-price-hikes">lowest energy storage capacity</a> in Europe. </p>
<p>Scrapping the <a href="https://www.theguardian.com/environment/2015/jul/10/uk-scraps-zero-carbon-home-target">zero-carbon homes plan</a>, reducing <a href="https://www.theguardian.com/environment/2019/jun/05/home-solar-panel-installations-fall-by-94-as-subsidies-cut">incentives and subsidies</a> for solar power and onshore wind, and more than a <a href="https://www.thetimes.co.uk/article/a-decade-of-energy-failures-fz35xxplw">decade of inaction</a> on home insulation now means the <a href="https://neweconomics.org/2020/07/a-national-house-retrofitting-programme">UK wastes more household energy</a> than any other country in western Europe. Lower energy efficiency puts greater pressure on the National Grid and raises energy costs for both business and households. </p>
<h2>Long-term solutions</h2>
<p>There are no easy or quick solutions to this energy crisis. External energy shocks mean that countries become poorer and governments must decide how to best to distribute the pain among different groups. </p>
<p>A co-ordinated and strategic package of policy support is now required. In the short term, most economists would agree that it makes sense to target financial support on <a href="https://www.theguardian.com/money/2022/aug/25/economists-urgent-action-energy-bills-winter-policies-price-freezes-taxes-cost-of-living-crisis?pc=dailybrief">poorer households</a>, while also providing some assistance to businesses to safeguard the economy. </p>
<p>But this crisis is also an opportunity to rethink the UK’s long-term energy needs and to build resilience. In particular, the UK needs to get serious about a “<a href="https://neweconomics.org/about/our-missions/green-new-deal">Green New Deal</a>” that weans both consumers and businesses off (imported) fossil fuels, and instead focuses on developing more renewable energy sources and reducing energy waste. </p>
<p>For households, this means more subsidies for better home insulation. This is something <a href="https://www.euronews.com/green/2021/10/25/italy-pays-homeowners-110-of-costs-to-eco-proof-their-homes">Italy has done </a>. It would cut <a href="https://lordslibrary.parliament.uk/home-insulation-and-the-net-zero-target/">carbon emissions</a> and deliver long-term savings. </p>
<p>For business, <a href="https://www.tandfonline.com/doi/full/10.1080/14693062.2021.1957665">industrial policy</a> can also play a critical role, providing funding for research into new industrial processes that reduce waste and improve energy efficiency. Some <a href="https://www.digitalrefining.com/article/1002769/digital-twins-heat-up-the-capabilities-of-energy-storage-plants#.YwoGm9PMKUk">industries</a> are already taking this step by experimenting with new digital technologies such as <a href="https://www.sciencedirect.com/science/article/pii/S136403212200315X">“digital twins”</a>– simulations to help companies to better anticipate and optimise their energy use. </p>
<p>If successful, such energy efficiencies could be applied across a range of sectors, including aerospace, automotive and medical technologies. This is a welcome first step in terms of rethinking our long-term energy needs to ensure UK businesses and consumers avoid future energy crises.</p><img src="https://counter.theconversation.com/content/189406/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Phil Tomlinson currently receives funding from the Engineering and Physical Sciences Research Council (EPSRC) for the Made Smarter Innovation: Centre for People-Led Digitalisation.</span></em></p><p class="fine-print"><em><span>David Bailey receives funding from the Economic and Social Research Council’s UK in a Changing Europe programme.</span></em></p>UK businesses are also suffering from the rising cost of living and doing business.Phil Tomlinson, Professor of Industrial Strategy, Deputy Director Centre for Governance, Regulation and Industrial Strategy (CGR&IS), University of BathDavid Bailey, Professor of Business Economics, University of BirminghamLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1887672022-08-16T10:14:04Z2022-08-16T10:14:04ZWhy are gas prices still high despite oil getting cheaper – and what will happen next? Energy expert Q&A<figure><img src="https://images.theconversation.com/files/479371/original/file-20220816-14-tb3u6a.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">While Putin reduces Russian gas supplies, Europe has become more dependent on shipments of LNG. </span> <span class="attribution"><a class="source" href="https://www.alamy.com/a-liquid-natural-gas-tanker-lng-in-japans-tokyo-bay-at-sunrise-image383809078.html?imageid=42917FA9-72A4-4608-80AE-1CB0DFBBA9EA&p=377368&pn=1&searchId=9f5d9624ee7d56757ebb50fe16ef7660&searchtype=0">Bill Chizek Photography/Alamy</a></span></figcaption></figure><p><em>While thermometers have been well into the red across the northern hemisphere, people are panicking about the cost of energy bills once winter starts to bite. According to the <a href="https://www.theguardian.com/money/2022/aug/09/uk-energy-bills-forecast-to-hit-4266-from-january">latest forecasts</a> in the UK, the minimum price cap for households’ electricity and heating costs is set to more than double over the winter.</em> </p>
<p><em>Other commentators <a href="https://www.telegraph.co.uk/business/2022/08/12/next-pm-should-not-bounced-stupid-energy-policies-mood-near/">have suggested</a> that these fears are being overdone, and that the weakening global economy and moves to fix energy supply issues will bring down prices. We asked energy expert Adi Imsirovic for his view on where things are heading.</em></p>
<h2>The price of oil has been falling recently – why?</h2>
<p>Energy prices don’t like two things: recessions and higher interest rates. At present, the prospects for the global economy are <a href="https://news.un.org/en/story/2022/07/1123342">getting gloomier</a> and <a href="https://www.global-rates.com/en/interest-rates/central-banks/central-banks.aspx">interest rates</a> are going up. </p>
<p>When interest rates are low, speculators can borrow money cheaply to make bets on energy prices going up, but this becomes less attractive as rates rise. Commodities also always have the disadvantage that you are not paid to hold them, unlike dividends on shares or interest payments on bonds. </p>
<p>The yields on these other assets tend to go up when interest rates rise, which makes commodities relatively less attractive to investors. Even compared to another commodity like gold, oil is much more expensive to store, so you are also paying a lot to hold the investment. </p>
<p><strong>Brent crude (US$/barrel)</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/479183/original/file-20220815-16-vgkvdr.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Graph of crude oil prices" src="https://images.theconversation.com/files/479183/original/file-20220815-16-vgkvdr.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/479183/original/file-20220815-16-vgkvdr.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=349&fit=crop&dpr=1 600w, https://images.theconversation.com/files/479183/original/file-20220815-16-vgkvdr.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=349&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/479183/original/file-20220815-16-vgkvdr.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=349&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/479183/original/file-20220815-16-vgkvdr.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=439&fit=crop&dpr=1 754w, https://images.theconversation.com/files/479183/original/file-20220815-16-vgkvdr.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=439&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/479183/original/file-20220815-16-vgkvdr.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=439&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="source" href="https://www.tradingview.com">Trading View</a></span>
</figcaption>
</figure>
<h2>Why has natural gas held up better than oil?</h2>
<p>Because oil can easily be sold elsewhere. If Europe doesn’t buy Russian oil, it can instead be shipped to Asia. It might be a different story when the <a href="https://theconversation.com/how-the-ukraine-war-is-benefiting-russian-insurers-and-pushing-up-insurance-premiums-everywhere-184965">European restrictions</a> on insuring ships carrying Russian exports come into force at the end of the year, but that’s for the future. </p>
<p>On the other hand, when Russia decides not to sell its gas to <a href="https://www.npr.org/2022/04/28/1095113387/what-russia-cutting-off-energy-to-poland-and-bulgaria-means-for-the-world?t=1660566563125">Bulgaria or Poland</a> or <a href="https://www.aljazeera.com/news/2022/5/21/russia-cuts-off-finland-gas-flows-over-payment-dispute">Finland</a>, the gas broadly either stays in the ground or gets burned in Russia. In effect, you are losing the supply to the world market, whereas the <a href="https://www.theguardian.com/world/2022/aug/11/russia-oil-production-sanctions-limited-effect-ukraine-war">overall drop</a> in oil exports from Russia during the war has been small. </p>
<p>Europe also doesn’t have many alternatives to Russian gas. It has to buy LNG (liquefied natural gas) from Asia on the spot market, bidding up the price shipment by shipment. </p>
<p>This is very visible to everyone else in the market and therefore increases the sense of panic. It’s a very similar situation to oil in 1979, during the Iran hostage crisis, when majors like BP had too little to fulfil supply contracts and had to go to the spot market and bid for barrels. </p>
<h2>What will determine what happens next to gas prices?</h2>
<p>Several variables, the first of which is weather. If the winter is mild, then given current <a href="https://www.reuters.com/business/energy/european-gas-storage-track-meet-target-cost-2022-08-04/">European stock levels</a> we might be fine. If it’s very cold, that’s a different situation. </p>
<p>The war in Ukraine will be crucial. Were there to be some kind of peace agreement, gas prices could change overnight. But I doubt that will happen when the stakes are so high. If Putin loses the war, he’s finished. </p>
<p>Then there is China, which is a very big consumer of gas. Europe has been extremely fortunate that China has been struggling <a href="https://www.aljazeera.com/economy/2022/8/15/chinas-economy-slows-as-zero-covid-drags-down-sales-industry">with COVID</a> and <a href="https://www.cnbc.com/2022/07/20/chinas-homebuyers-are-running-out-of-patience-with-the-real-estate-slump.html">subprime property difficulties</a>. The <a href="https://www.reuters.com/world/china/chinas-retail-factory-sectors-unexpectedly-slow-july-2022-08-15/">most recent news</a> was very poor, suggesting it is heading for recession. </p>
<p>As a result, Chinese demand for LNG across 2022 looks set to fall <a href="https://www.woodmac.com/press-releases/chinas-lng-imports-to-see-unprecedented-decline-in-2022/#:%7E:text=After%20a%20solid%20growth%20in,%25%20year%2Don%2Dyear.">by at least 10%</a> from the 2021 level. If Chinese demand bounces back and it starts buying more LNG again, prices still have the potential to go up a lot. </p>
<p>As for the US, its LNG production has been reduced by the temporary closure of a <a href="https://www.bloomberg.com/news/articles/2022-08-03/us-natural-gas-surges-on-deal-for-october-lng-terminal-restart">major terminal</a> in Texas following an explosion. The <a href="https://www.bloomberg.com/news/articles/2022-08-03/us-natural-gas-surges-on-deal-for-october-lng-terminal-restart">latest news</a> suggests it will be back onstream by October, making more gas available to Europe. </p>
<p>But don’t assume that demand in the US stays as strong as it has been. It’s highly unlikely that the US will avoid a recession. </p>
<p>Even if inflation is on a <a href="https://www.ft.com/content/9d0cc752-9e65-45aa-8fc2-de0999cf632d">downward trajectory</a>, you still probably need four or five large increases in benchmark interest rates to get to positive real rates [meaning a positive rate after you subtract the rate of inflation], which many would argue is necessary to get inflation under control. Maybe benchmark rates have to double to over 5%. There’s no way the economy is going to stand still while you are doing that. </p>
<h2>So some potential pulls in both directions. What’s your best guess about where the price goes?</h2>
<p>Whereas oil is very sensitive to economic growth, this is less true of gas because a large amount of it is used for domestic heating and power (the UK is particularly dependent in these respects). Yes, demand for gas falls during a recession but it’s difficult to substitute on the domestic front.</p>
<p>So I come back to Putin. For him the key was to avoid an oil embargo, but that will happen one way or the other by early 2023. That makes it all the more important for him to continue to use gas as a weapon. We’ve seen how he has cut off countries to the east of Europe, and <a href="https://www.euractiv.com/section/energy/news/putin-warns-of-nord-stream-1-gas-capacity-cuts-over-turbine-repairs/">played games</a> over Germany’s supply. We’re very likely to see more of this, and uncertainty makes markets more volatile. </p>
<p>As long as Putin stays in power, prices are likely to stay elevated simply because he will make sure that they do. I think we’re going to continue to see the market trading above prices equivalent to <a href="https://www.cmegroup.com/markets/energy/natural-gas/dutch-ttf-natural-gas-usd-mmbtu-icis-heren-front-month.html">about US$60</a> (£50) per British thermal unit, which is crazy when you realise that the equivalent US price is US$9.</p>
<p><strong>European vs US gas prices</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/479185/original/file-20220815-21-ql9a3.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="European vs US gas prices" src="https://images.theconversation.com/files/479185/original/file-20220815-21-ql9a3.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/479185/original/file-20220815-21-ql9a3.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=365&fit=crop&dpr=1 600w, https://images.theconversation.com/files/479185/original/file-20220815-21-ql9a3.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=365&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/479185/original/file-20220815-21-ql9a3.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=365&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/479185/original/file-20220815-21-ql9a3.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=459&fit=crop&dpr=1 754w, https://images.theconversation.com/files/479185/original/file-20220815-21-ql9a3.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=459&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/479185/original/file-20220815-21-ql9a3.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=459&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Orange = Dutch TTF gas futures; Blue = US gas futures.</span>
<span class="attribution"><a class="source" href="https://www.tradingview.com">Trading View</a></span>
</figcaption>
</figure>
<h2>Are there any reasons for hope besides weather?</h2>
<p>We have seen the problem relatively early, so that maximises our chances of addressing it. I do worry when I see Labour and the Lib Dems in the UK, and politicians in places like Italy and Spain, calling for price freezes. That will just encourage more fossil fuel use at a time when we need to be bringing it down. Much better to help poorer people with handouts. </p>
<h2>Where do you see oil heading?</h2>
<p>All other things being equal, I think it stays around US$100 per barrel plus or minus US$10. I predicted prices would go higher in the early stages of the Ukraine war, which they did, but inflation and the economic outlook have since made a big difference. It’s now more obvious that the growth after the COVID lockdowns was thanks to the stimulus packages, and as I say, benchmark interest rates have to rise higher. </p>
<p>Over the longer term, there are those like <a href="https://www.marketwatch.com/story/why-goldmans-commodity-guru-jeff-currie-is-bullish-on-oil-despite-julys-pullback-11659113648">Goldman Sachs</a> who say we’re in the early stages of a super-cycle in oil which will see prices go much higher, due to the COVID stimulus packages and a long-term lack of investment in new oil production. But I do not quite agree. </p>
<p>I come at it from the other direction: by 2030 we need to reduce oil production from about 100 million to 70 million barrels per day to be on track to meet net zero commitments. In view of all the policies being put in place to make that happen, I think a decline in demand is inevitable.</p><img src="https://counter.theconversation.com/content/188767/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Adi Imsirovic does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Hopes that prices will ease are probably wishful thinking.Adi Imsirovic, Senior Research Fellow, Oxford Institute for Energy Studies, University of SurreyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1885472022-08-15T15:11:22Z2022-08-15T15:11:22ZBritain’s energy price cap was never designed to keep your gas and electricity affordable<figure><img src="https://images.theconversation.com/files/479155/original/file-20220815-15-ql9a3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/jonmould/5469416596/">Jon Mould / flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-sa/4.0/">CC BY-NC-SA</a></span></figcaption></figure><p>The price of gas and electricity is soaring in Britain and many millions of people are likely to be pushed into <a href="https://www.bloomberg.com/news/articles/2022-07-21/a-third-of-uk-homes-seen-falling-into-energy-poverty-by-october">fuel poverty</a>. And this is even with an “energy price cap”. Perhaps weirdly to many, nothing has actually gone wrong in terms of what the price cap was designed to do. But something clearly <em>is</em> going wrong since energy is becoming more and more unaffordable.</p>
<p>In short, the cap prevents the retail part of the energy supply chain (the companies that send you a bill) from making excessive profits, but places no restrictions on the production and wholesale parts. And massive increases in wholesale costs since the pandemic and the Ukraine invasion have been passed on to households (and businesses, who are not protected by the cap).</p>
<h2>A problem upstream</h2>
<p>To understand why there has been such a rapid rise in the “price cap”, which after all sounds like something that should be keeping prices under control, we should go back to its origins. In January 2019 the UK government <a href="https://www.bbc.com/news/business-46720908">introduced a price cap</a> in the British energy retail market, applying to household users and the companies who bill them for gas and electricity (often referred to as “suppliers”). It means those companies cannot set their prices above a stated level, which is reviewed periodically (every six months so far) by the regulator, Ofgem.</p>
<p>Generally, the price cap has held the average annual household bill at less than £1,200. But the the cap – and therefore household bills – is now rising rapidly and, if there is no change, is expected to be <a href="https://inews.co.uk/inews-lifestyle/money/bills/energy-price-cap-rise-5000-2023-forecast-bills-1789438">more than £4,000</a> by early 2023. </p>
<p>We need to be clear about what the energy price cap was designed to do: to protect households who hadn’t secured a fixed priced contract and find themselves on a supplier’s basic variable default energy tariff. However, this protection is only in terms of ensuring people pay a “fair” retail market price (even if relative to an unfair or unaffordable wider energy market), with bills falling when suppliers’ costs do. </p>
<p>But there are two crucial points. First, the price cap doesn’t apply further upstream, where energy is actually produced and where most of the price rise comes from. Second, it was never designed to keep gas and electricity affordable or to offer any specific protection for those in danger of slipping into <a href="https://www.nea.org.uk/articles/what-is-fuel-poverty/">fuel poverty</a>. The price cap is the same for every household, regardless of income.</p>
<h2>What’s gone wrong?</h2>
<p>Just as the price cap forces suppliers to lower the default tariff when their costs fall, it allows them to increase it when their costs rise. This flip-side is important – the first big impact of rising wholesale gas prices earlier in 2022 was when a number of smaller British energy companies providing fixed price deals went <a href="https://www.bbc.co.uk/news/business-58662667">out of business</a>, because they couldn’t pass on rising costs in time and didn’t have the financial resilience to weather the storm. </p>
<p>Ofgem has now decided to revisit the price cap more frequently – <a href="https://www.ofgem.gov.uk/publications/ofgem-confirms-changes-price-cap-methodology-and-frequency-ahead-new-rate-be-announced-later-month">every three rather than every six months</a> from the start of 2023. If supplier costs were falling, that would work better for households. When those costs are rising, due to factors further up the supply chain, regular updates to the cap will help stop suppliers going out of business but will do little to help their customers pay their bills.</p>
<h2>How the supply chain works</h2>
<p>Gas prices are the main problem as they affect not just gas bills, but <a href="https://www.goodenergy.co.uk/why-does-the-price-of-gas-drive-electricity-prices-including-renewables/">also electricity bills</a>, even when only a small share of electricity is generated using gas. We’ve all heard about numerous and complex constraints on energy supply, not least what’s happened to Europe’s gas supply since Russia – a major supplier of gas – invaded Ukraine. Britain doesn’t actually get much from Russia (<a href="https://www.gov.uk/government/news/russia-ukraine-and-uk-energy-factsheet">about 4% in 2021</a>). But that doesn’t matter, because wholesale gas prices are set on global markets and when supply is constrained, global prices rise.</p>
<p>Those high prices do contribute to <a href="https://www.bbc.co.uk/news/business-62382624">huge profits</a> being declared by some big energy firms – when there are supply shortages, those involved in extracting and trading fossil fuels can increase profits simply by securing a high price for their gas (and oil) on global markets. Crucially, the price cap does not apply at this stage of the supply chain, and there is no requirement to “share the gain” along with the costs. </p>
<h2>So, what can be done?</h2>
<p>Unfortunately, not much under the current price cap system. It only applies to the retail market, that part of the energy supply chain that households have their contracts with. The price cap is also a flat rate cap applying to all households, and it’s not designed to act as some kind of social tariff.</p>
<p>Our own analysis at the Centre for Energy Policy shows that <a href="https://www.strath.ac.uk/humanities/centreforenergypolicy/newsblogs/2022/energypriceshocksaug22/">lower income households are being hit hardest</a> by the current energy price shock. The £400 Energy Grant Payment due to roll out from autumn 2022 could offset much of the direct impacts on them under the current price cap but will fall far short when the price cap and bills rocket in September and again in January.</p>
<p>To prevent rising poverty and an increased chance of severe recession, more direct help must be provided in the near term, perhaps along with wider emergency action. However, it is also time to revisit what the energy price cap is designed to do, and how it does it.</p><img src="https://counter.theconversation.com/content/188547/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Karen Turner receives funding from EPSRC and InnovateUK. </span></em></p>The cap prevents energy retailers from making excessive profits, but places no restrictions on other parts of the supply chain.Karen Turner, Professor and Director of the Centre for Energy Policy, University of Strathclyde Licensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1877572022-08-04T12:22:06Z2022-08-04T12:22:06ZInflation rates are rising in the US – an economist explains why<figure><img src="https://images.theconversation.com/files/476152/original/file-20220726-11-9wu23p.jpg?ixlib=rb-1.1.0&rect=80%2C17%2C5910%2C3970&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">A variety of factors have caused the U.S. inflation rate to increase over the past few years, from the pandemic to the war in Ukraine.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/photo/green-rising-arrow-and-dollar-bills-royalty-free-image/1325296925">Javier Ghersi/Moment via Getty Images</a></span></figcaption></figure><p><em>Consumer prices in the U.S. are rising due to inflation at the fastest rate they have in decades. Earlier this summer, <a href="https://www.sciline.org/economics/inflation/">SciLine</a> interviewed <a href="https://www.econ.berkeley.edu/profile/martha-olney">Martha Olney</a>, a teaching professor emerita of economics at the University of California, Berkeley, about what’s causing prices to rise and what the government can do to encourage a return to stable prices.</em></p>
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<p><em>The Conversation has collaborated with SciLine to bring you highlights from the discussion, which have been edited for brevity and clarity.</em></p>
<p><strong>What factors are contributing to inflation?</strong></p>
<p><strong>Martha Olney:</strong> If more people want to buy things – that is, if there’s an increase in demand – that’s going to make prices go higher. The other thing that can drive prices up is a decrease in supply – for example, if it becomes more difficult to produce goods. This happens if there are supply chain disruptions or disruptions in transportation.</p>
<p>In the last couple of years, we’ve had both of those things. At the beginning of the pandemic, <a href="https://apps.bea.gov/iTable/iTable.cfm?reqid=19&step=3&isuri=1&nipa_table_list=19&categories=survey">demand shifted and we started buying more goods, rather than services</a>. We were buying more cars, more electronics, more goods for the home. And we saw that price impact. At the same time, we had supply chain disruptions. So, the demand for goods went up, but the things needed to produce those goods were not as available, and so those prices went up.</p>
<p><strong>How has the war in Ukraine made inflation worse?</strong></p>
<p><strong>Olney:</strong> As we were still dealing with the pandemic, the war started in Ukraine. This impacted both <a href="https://fred.stlouisfed.org/graph/?g=Spok">energy prices</a> and <a href="https://thedocs.worldbank.org/en/doc/5d903e848db1d1b83e0ec8f744e55570-0350012021/related/CMO-Pink-Sheet-August-2022.pdf">food prices</a>. Energy prices increased because of sanctions on Russia – Russia provides oil to the global market. The price of oil is set in a <a href="https://www.eia.gov/finance/markets/crudeoil/spot_prices.php">global market</a>, so any disruption to the oil supply impacts the oil price worldwide. Ukraine and Russia also provide a <a href="https://www.wilsoncenter.org/blog-post/forty-percent-world-food-programs-wheat-supplies-come-ukraine">large share of the world’s wheat exports</a>, and their ability to grow, harvest and export their grain has been impacted by the war as well. </p>
<p><strong>How can previous periods of inflation help us understand what’s happening right now?</strong></p>
<p><strong>Olney:</strong> In the 1970s, the <a href="https://history.state.gov/milestones/1969-1976/oil-embargo">OPEC oil crisis</a> led to a reduction in the oil supply, which sent oil and fuel prices up. And that was, again, a supply restriction. At the time, that led to increases in the prices of many things because fuel was an important ingredient in so many things that we produced, and inflation took off.</p>
<p>So that’s the historical period that I think is particularly relevant because it leads into how our expectations of inflation are changing. There is a <a href="https://data.sca.isr.umich.edu/">survey</a> that’s conducted every month where folks from the University of Michigan go out and ask a bunch of consumers what they think the inflation rate is going to be in the next month and the next year. Those answers are called our <a href="https://fred.stlouisfed.org/graph/?g=SppN">“inflationary expectations.”</a></p>
<p>The <a href="https://research.stlouisfed.org/publications/review/2005/04/15/origins-of-the-great-inflation/">inflation of the 1970s</a> followed a 15- to 20-year period of stable inflation, where people’s answers to that question had not changed much from month to month. This episode we’re going through right now is following <a href="https://www.usinflationcalculator.com/inflation/historical-inflation-rates/">30 years of stable inflation</a>, where people’s answers to that question have not changed much from month to month either. And so, the parallels are rising prices, driven at first by supply constraints, as well as people’s inflationary expectations. People are expecting a higher inflation rate than they were a few months ago. </p>
<p><strong>Who is responsible for reducing inflation, and what tools do they have?</strong></p>
<p><strong>Olney:</strong> The primary agency in the United States for fighting inflation is the Federal Reserve. The <a href="https://www.federalreserve.gov/monetarypolicy/reserve-balances.htm">tool</a> that the Federal Reserve has is <a href="https://doi.org/10.1080/00036840600749623">changing interest rates</a>. There are some regulatory agencies that may be able to adjust their regulations and bring prices down a little, but the real changes that matter are the Federal Reserve and its use of interest rates. The Federal Reserve will either slow the economy by increasing interest rates, or boost the economy by decreasing interest rates.</p>
<p><strong>What stabilized prices after that similar period in the 1970s?</strong></p>
<p><strong>Olney:</strong> The Federal Reserve broke that inflation by undertaking extraordinarily tight, conservative and <a href="https://www.businessinsider.com/personal-finance/what-is-contractionary-monetary-policy">contractionary monetary policies</a>. They <a href="https://www.businessinsider.com/every-interest-rate-cycle-since-1970s-2015-12#august-7-1980-to-mid-june-1981-6">increased interest rates</a> as high as 18%. So, to get a mortgage to buy a house, the interest rates were 16% to 18%. That brought demand to a screeching halt, made the economy contract and triggered the most <a href="https://fred.stlouisfed.org/graph/?g=Scgc">severe recession</a> we’d had since the 1930s. And that reduced demand for products and led to, ultimately, a decrease in prices.</p>
<p>The other piece of the inflation puzzle is what’s happening to people’s expectations. In the early 1980s, President Ronald Reagan <a href="https://www.reaganlibrary.gov/archives/speech/address-nation-economy-february-1981">went on camera</a> from the White House and assured everyone that he was in control and the Federal Reserve was going to solve this problem. Together with the changes in interest rates that caused unemployment to soar, Reagan’s reassurances led to a drop in people’s expectations that <a href="http://www.nber.org/papers/w28005">some economists believe</a> was key in lowering inflation in the early 1980s. </p>
<p><strong>Is it possible to stabilize prices without causing a recession?</strong></p>
<p><strong>Olney:</strong> A recession is when the total amount of goods and services that are produced in a month is less than it was the month before. So, the amount of goods and services that we’re producing is getting smaller and smaller, month by month.</p>
<p>What the Fed is <a href="https://www.federalreserve.gov/newsevents/speech/powell20220321a.htm">hoping to do</a> is slow the rate of increase – that’s what they mean by a <a href="https://crsreports.congress.gov/product/pdf/IN/IN11963">“soft landing.”</a> </p>
<p>So instead of increasing the production rate at, say, 2% per year from month to month, maybe we could increase it 1% per year. In that case, we wouldn’t have a recession; we would just have a decrease in the amount of growth.</p>
<p><em><a href="https://www.sciline.org/economics/inflation/">Watch the full interview</a> to hear more about how examining historical periods of inflation can help us understand what’s happening to markets now.</em></p>
<p><em><a href="https://www.sciline.org/">SciLine</a> is a free service based at the nonprofit American Association for the Advancement of Science that helps journalists include scientific evidence and experts in their news stories.</em></p><img src="https://counter.theconversation.com/content/187757/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Martha Olney does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Rising inflation rates due to supply-side factors – COVID-19, Ukraine and supply chain shortages – make countering inflation difficult for the central bank.Martha Olney, Teaching Professor Emerita of Economics, University of California, BerkeleyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1857102022-07-31T20:05:40Z2022-07-31T20:05:40ZHey minister, leave that gas trigger alone – it may fire up a fight with foreign investors<figure><img src="https://images.theconversation.com/files/470976/original/file-20220626-7096-aivb3u.jpg?ixlib=rb-1.1.0&rect=0%2C532%2C4288%2C2137&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>With the Australian Energy Market Operator (AEMO) warning consumers of huge price hikes ahead, further calls for the federal government to pull its so-called “gas trigger” seem inevitable.</p>
<p>But that could be a very big mistake – leading to the type of trade dispute Australia fought for years against <a href="https://theconversation.com/when-even-winning-is-losing-the-surprising-cost-of-defeating-philip-morris-over-plain-packaging-114279">Big Tobacco</a> over plain packaging laws.</p>
<p>The gas trigger (officially the <a href="https://consult.industry.gov.au/adgsm-extension">Australian Domestic Gas Security Mechanism</a>) was created by the Turnbull government in 2017 when there were fears of a gas shortage in eastern Australia. </p>
<p>It allows the federal resources minister to direct gas exporters to limit their gas exports or find new sources of gas to meet domestic demand instead of exporting gas overseas.</p>
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<a href="https://theconversation.com/why-did-gas-prices-go-from-10-a-gigajoule-to-800-a-gigajoule-an-expert-on-the-energy-crisis-engulfing-australia-184304">Why did gas prices go from $10 a gigajoule to $800 a gigajoule? An expert on the energy crisis engulfing Australia</a>
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<p>To trigger the mechanism, however, requires predictions of insufficient supply, not just higher prices. It is therefore useless for dealing with the sort of short-term issues besetting eastern Australian gas markets, and has never been triggered. </p>
<p>The mechanism had been due to expire at the end of 2022. It was meant to be a temporary measure, not a permanent crutch in lieu of more sustainable solutions. But the government is keen to keep it. Resources Minister Madeleine King said it will be extended to 2030. </p>
<p>But should it?</p>
<p>There’s no doubt the trigger gives the government some leverage over the gas industry, in much the same way that pointing a gun at someone gets their attention. </p>
<p>Actually pulling the trigger, however, is a different matter. It may have serious unintended consequences, potentially breaching Australia’s commitments under various trade and investment treaties.</p>
<h2>How the gas trigger works</h2>
<p>An example of the extra regulatory leverage the gas trigger has given the federal government is its <a href="https://www.industry.gov.au/sites/default/files/2021-01/australian-east-coast-domestic-gas-supply-commitment-heads-of-agreement.docx">2021 agreement</a> with three major east-coast liquefied natural gas (LNG) plants: Australia Pacific LNG, Gladstone LNG and Queensland Curtis LNG.</p>
<p>Under this deal, the suppliers promised not to sell uncontracted gas internationally without first offering equivalent volumes to the domestic market. </p>
<p>What would happen if the gas trigger was actually pulled? </p>
<p>Then the mechanism becomes an export control measure, compelling gas companies to limit their exports or find new sources of gas to offset the shortfall. </p>
<p>In that circumstance, foreign-owned gas companies could use free-trade agreements to take Australia to a notoriously expensive “investor-state dispute settlement” process to claim compensation for what is known as indirect expropriation. </p>
<h2>What is indirect expropriation?</h2>
<p>Simply put, expropriation is any interference by governments with the rights and properties of foreign investors. </p>
<p>It can be direct, such as outright seizure of investors’ properties, or indirect, through enactment of laws or regulations that interfere with investors’ capacity to generate revenue or do business. </p>
<p>Australia has signed several investment treaties and free-trade agreements that contain investor-state dispute settlement provisions. If the government pulls the gas trigger, a foreign-owned gas company could seek compensation for interference with the company’s right to export gas to its overseas buyers. </p>
<p>That is a concern, given Australia’s LNG sector is 95.7% owned by foreign investors <a href="https://australiainstitute.org.au/post/lng-export-companies-95-7-foreign-owned-research-report/">according to the Australia Institute</a>. </p>
<p>For example, Malaysia’s Petronas and Korea’s KOGAS are major shareholders in Gladstone LNG. </p>
<p>These foreign companies have rights under international trade and investment rules, multilateral agreements such as the <a href="https://www.dfat.gov.au/trade/agreements/in-force/aanzfta/asean-australia-new-zealand-free-trade-agreement">ASEAN-Australia-New Zealand free trade agreement</a>, and bilateral free-trade agreements signed with <a href="https://www.austrade.gov.au/australian/export/free-trade-agreements/mafta#:%7E:text=Malaysia-Australia%20Free%20Trade%20Agreement%20%28MAFTA%29%201%20MAFTA%20Tariff,into%20account%20including%20culture%2C%20politics%20and%20business%20etiquette.">Malaysia</a> and <a href="https://www.austrade.gov.au/australian/export/free-trade-agreements/kafta">Korea</a>. </p>
<h2>The results won’t be pleasant</h2>
<p>Disputes involving indirect expropriation are expensive and time-consuming. </p>
<p>The classic example is Australia’s six-year defence of its tobacco plain-packaging laws against the global tobacco giant Philip Morris.</p>
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Read more:
<a href="https://theconversation.com/when-even-winning-is-losing-the-surprising-cost-of-defeating-philip-morris-over-plain-packaging-114279">When even winning is losing. The surprising cost of defeating Philip Morris over plain packaging</a>
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<p>Among other things, Philip Morris <a href="http://classic.austlii.edu.au/au/journals/VicULawJJl/2017/9.html">claimed</a> the labelling regulations indirectly expropriated its brand assets, intellectual property and goodwill associated with its products. Australia eventually won the dispute, but at a <a href="https://theconversation.com/when-even-winning-is-losing-the-surprising-cost-of-defeating-philip-morris-over-plain-packaging-114279#:%7E:text=Australia%20scored%20a%20victory%20over,pay%20all%20of%20Australia's%20costs.">reported A$24 million cost</a> along with internal expenditures. </p>
<p>The risk of foreign gas investors making indirect expropriation claims is quite real. They have invested in extracting Australian gas to meet demand in markets such as South Korea and Malaysia. </p>
<p>For example, Santos, the lead developer of the Gladstone LNG project, signed a <a href="https://www.hydrocarbons-technology.com/projects/gladstone-project/">20-year agreement</a> with KOGAS in 2010 to supply 3.5 million tonnes a year of LNG. This amounts to 11% of Korea’s domestic LNG supply. </p>
<p>Electricity generators have already lodged <a href="https://www.abc.net.au/news/2022-07-29/aemo-reports-record-wholesale-power-price-customer-nightmare/101279554">claims for compensation</a> over AEMO interventions in the energy market. We shouldn’t expect gas suppliers to do less.</p>
<h2>So what now?</h2>
<p>We need a better solution to provide affordable gas and electricity prices along with reliable supply. </p>
<p>Some experts have <a href="https://theconversation.com/want-a-solution-for-the-energy-crisis-gripping-australias-east-look-west-185124">advocated</a> for a Western Australian-style gas reservation model to be implemented nationally. This model requires gas producers to reserve supplies for the local market before other transactions.</p>
<p>It will take time to introduce the model nationally without also inviting expropriation claims. Existing supply contracts will need to be exempt – and these, such as the Gladstone LNG contract to supply Korea, are often decades long. </p>
<p>But as new contracts are signed, the reservation model can eventually provide the benefits it now gives to West Australian consumers.</p>
<p>It’s not the short-term solution we’d all like. But it is a better solution than extending the gas trigger. The work to introduce it should begin now.</p>
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Read more:
<a href="https://theconversation.com/3-key-measures-in-the-suite-of-new-reforms-to-deal-with-australias-energy-crisis-184554">3 key measures in the suite of new reforms to deal with Australia's energy crisis</a>
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<img src="https://counter.theconversation.com/content/185710/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Umair Ghori does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The Australian Domestic Gas Security Mechanism may have serious unintended consequences if used, potentially breaching trade and investment treaties.Umair Ghori, Associate Professor, Bond UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1848962022-06-10T20:11:55Z2022-06-10T20:11:55ZInflation hits fresh 40-year high, pushing Fed to get more aggressive with interest rates – and the ‘Beveridge curve’ should give it courage to do so<figure><img src="https://images.theconversation.com/files/468302/original/file-20220610-20-uw1iqj.jpg?ixlib=rb-1.1.0&rect=107%2C62%2C5883%2C3305&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Consumers are perhaps feeling inflation pain most at the pump.</span> <span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/ConsumerPrices/5c2f781e1ce049c3ab69bfdf3cad740b/photo?Query=prices&mediaType=photo&sortBy=arrivaldatetime:desc&dateRange=Anytime&totalCount=50765&currentItemNo=2">AP Photo/Rick Bowmer</a></span></figcaption></figure><p>Inflation <a href="https://www.bloomberg.com/news/articles/2022-06-10/hot-inflation-and-flagging-sentiment-up-the-ante-for-fed-biden?srnd=premium#xj4y7vzkg">surged at the fastest pace</a> in over 40 years in May 2022, pushing the Federal Reserve toward a more aggressive pace of interest rate increases to slow it down. While <a href="https://theconversation.com/fed-hopes-for-soft-landing-for-the-us-economy-but-history-suggests-it-wont-be-able-to-prevent-a-recession-182270">there’s concern</a> it could cause unemployment to spike, a little-known economics indicator suggests the Fed can do so without causing too much economic pain. </p>
<p>The Fed <a href="https://fred.stlouisfed.org/series/FEDFUNDS">has already raised interest rates twice</a> in recent months – including a half-point hike in early May – in an effort to tame inflation. Yet the consumer price index <a href="https://www.bls.gov/news.release/cpi.nr0.htm">rose to an annualized rate of 8.6%</a> from 8.3% in April, the Bureau of Labor Statistics reported on June 10. That’s <a href="https://fortune.com/2022/06/10/may-cpi-inflation-bitcoin-consumer-price-index-crypto/">above economic forecasts of 8.2%</a> and the <a href="https://fred.stlouisfed.org/series/CPIAUCNS">highest reading since December 1981</a>, which is the tail end of the last time the U.S. economy wrestled with ferocious inflation. </p>
<p>In other words, the actions by the central bank so far don’t appear to have had much of an effect.</p>
<p>But lifting rates further could come at a cost. Economists fear that raising rates too fast and too steeply would likely put the brakes on economic growth, resulting in an economic recession and soaring unemployment. Yet as <a href="https://scholar.google.com/citations?user=GyTN5PYAAAAJ&hl=en&oi=ao">an economist who studies inflation</a>, I believe there are several reasons the Fed can more fiercely fight inflation without worrying so much about unemployment.</p>
<h2>Slow at the switch</h2>
<p><a href="https://knowledge.wharton.upenn.edu/article/fighting-inflation-why-the-fed-needs-to-be-more-aggressive/">Economists</a> and <a href="https://www.institutionalinvestor.com/article/b1y58pxpsrmrm1/Bill-Ackman-Says-the-Fed-Needs-to-Be-More-Aggressive-Citing-Specter-of-Stagflation">investors</a> have been urging the Fed to get more aggressive for many weeks. </p>
<p>Their main argument is that soaring inflation is at least partly the fault of the Fed – and the federal government. U.S. policymakers pursued <a href="https://washingtonspectator.org/will-inflation-crush-biden/">very aggressive stimulus programs</a> to cushion the <a href="https://www.thebalance.com/how-covid-19-has-affected-the-us-economy-5092445">economy-pummeling effects of COVID-19</a>. The roughly <a href="https://www.usaspending.gov/disaster/covid-19">US$4.6 trillion in stimulus money</a> eventually led to an <a href="https://thehill.com/policy/finance/554004-pent-up-consumer-demand-fuels-post-pandemic-spending-spree/">increase in overall demand for goods and services</a>, which drove up prices at the same time that <a href="https://www.weforum.org/agenda/2022/01/5-ways-the-covid-19-pandemic-has-changed-the-supply-chain/">supply chains were a mess</a>. </p>
<p>Compounding matters, Russia’s invasion of Ukraine has caused a <a href="https://www.weforum.org/agenda/2022/03/how-does-the-war-in-ukraine-affect-oil-prices/">spike in oil and gas prices</a>.</p>
<p>Meanwhile, the Fed <a href="https://theconversation.com/fed-hopes-for-soft-landing-for-the-us-economy-but-history-suggests-it-wont-be-able-to-prevent-a-recession-182270">has been accused of being slow</a> to take policy actions that could have helped tamed inflation sooner. Even the 0.5 percentage point rate increase in May seems weak in retrospect.</p>
<h2>Reasons for caution</h2>
<p>In the Fed’s defense, it has good reason to be cautious. The Fed has <a href="https://www.federalreserve.gov/monetarypolicy/monetary-policy-what-are-its-goals-how-does-it-work.htm">what is known as a dual mandate</a> to not only keep inflation in check but to promote maximum employment. </p>
<p>The trouble is, actions intended to reduce inflation <a href="https://theconversation.com/fed-hopes-biggest-rate-hike-in-22-years-tames-inflation-without-recession-or-stagflation-3-essential-reads-on-what-it-all-means-182471">can cause unemployment to rise</a>. </p>
<p>And so the Fed has been focused on executing a so-called <a href="https://www.foxbusiness.com/economy/what-is-soft-landing-why-does-fed-keep-talking-about-it">soft landing</a>, in which it raises interest rates enough to slow inflation but not so much it sends the economy into recession – which would likely result in fewer job vacancies and more Americans without work. </p>
<p>But I think the Fed now has two big reasons to throw its caution to the wind. </p>
<h2>Introducing the ‘Beveridge curve’</h2>
<p>The first is what the latest inflation data tells us. Runaway inflation is terrible for an economy, and <a href="https://www.nytimes.com/article/inflation-definition.html">very painful for consumers</a>, and so the Fed has no choice but to bring it down at whatever cost.</p>
<p>The other has to do with what is known as the Beveridge curve, a tool economists use to analyze the labor market and one increasingly being monitored by <a href="https://www.federalreserve.gov/mediacenter/files/FOMCpresconf20220504.pdf">Fed Chair Jerome Powell</a> and <a href="https://www.federalreserve.gov/newsevents/speech/waller20220530a.htm">others</a>.</p>
<p>The Beveridge curve looks at the statistical relationship between the level of unemployment and the number of open job vacancies. The idea behind this curve is pretty straightforward: When there are many unfilled vacancies, the labor market is extremely tight, and it is easy to find work, leading to an extremely low level of unemployment. On the other hand, in a slack market, the number of vacancies is low and it is more difficult to find jobs and the unemployment is high.</p>
<p>In May, there were <a href="https://www.bls.gov/news.release/jolts.nr0.htm">11.5 million job vacancies</a> in the U.S. for 6 million unemployed people. This nearly <a href="https://www.onlineu.com/magazine/record-job-vacancies-two-years-into-pandemic">2-1 ratio is wildly high</a> – the highest ever recorded. In contrast, before the pandemic, when the labor market was in very solid shape, there was <a href="https://www.bls.gov/web/jolts/jlt_labstatgraphs.pdf">one vacancy for every two unemployed people</a>. The Beveridge curve uses rates, so <a href="https://www.bls.gov/charts/job-openings-and-labor-turnover/job-openings-unemployment-beveridge-curve.htm">it currently shows a 7.3%</a> job opening rate over a 3.6% unemployment rate. </p>
<p>Historically, a drop in job openings – prompted by a slowing economy, for instance – corresponds with a rise in unemployment, and vice versa. But the pandemic has changed the existing pattern dramatically, and it looks as if unemployment is less responsive to changes in the job opening rate. This means the Fed could get more aggressive about hiking interest rates to curb inflation without worrying so much that a drop in job vacancies due to an economic slowdown will cause unemployment to jump dramatically. </p>
<p>That said, we should also keep in mind that the latest numbers represent <a href="https://www.gobankingrates.com/money/economy/economy-explained-leading-lagging-indicators-what-they-are-why-matter/">a lagging indicator</a>. It takes time for the Fed’s policies to be seen in the data, and for all we know the rate hikes are already having an effect. </p>
<p>Still, I believe the Fed has a strong case for more aggressive action - so don’t be surprised if the U.S. central bank lifts <a href="https://www.bloomberg.com/news/articles/2022-06-10/fed-seen-extending-steep-rate-hike-path-to-cool-heated-inflation?srnd=premium#xj4y7vzkg">rates by 0.75 percentage point</a> at its next meeting in mid-June. That would be the <a href="https://www.federalreserve.gov/monetarypolicy/openmarket_archive.htm">biggest increase since 1994</a>.</p><img src="https://counter.theconversation.com/content/184896/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Veronika Dolar does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>A bigger-than-expected jump in inflation means the Fed may have to get more aggressive about interest rate hikes. An obscure economic indicator suggests it has room to do so.Veronika Dolar, Assistant Professor of Economics, SUNY Old WestburyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1845542022-06-09T01:30:46Z2022-06-09T01:30:46Z3 key measures in the suite of new reforms to deal with Australia’s energy crisis<p>With electricity prices surging to <a href="https://theconversation.com/australias-energy-crisis-3-ways-the-albanese-government-can-ease-pressure-on-your-power-bills-184134">previously unimaginable levels</a>, state and federal energy ministers met yesterday to consider how to respond to Australia’s energy crisis. </p>
<p>The market is pricing electricity at over A$300 per megawatt hour, more than three times what it traded at the beginning of this year. </p>
<p>In yesterday’s meeting, ministers agreed on <a href="https://www.energy.gov.au/sites/default/files/2022-06/Energy%20Ministers%20Meeting%20Communique%208%20Jun.docx">11 actions</a> for lowering gas bills and to ensure a crisis like this doesn’t happen again. Here we take a closer look at three key ones. </p>
<p>None will address prices immediately, so all consumers should look for the best deal on electricity through excellent comparison sites, such as the <a href="https://www.energymadeeasy.gov.au/">Energy Made Easy</a> website. </p>
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<a href="https://theconversation.com/australian-energy-market-operator-to-have-power-to-acquire-gas-for-emergencies-174962">Australian Energy Market Operator to have power to acquire gas for emergencies</a>
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<h2>Three important measures on the table</h2>
<p>Power bills are set to remain high for months to come. Wholesale electricity makes up one third of a typical household retail bill, and the Australian Energy Regulator recently approved household electricity price rises of <a href="https://www.theguardian.com/australia-news/2022/may/26/households-face-steep-power-bill-increases-as-generation-costs-soar">up to 20%</a>. </p>
<p>If wholesale prices stay at current levels, Australians will have to pay even more for their electricity during the second half of the year. </p>
<p>So what key measures have the ministers proposed to address this? First, the ministers will allow the market operator to purchase gas and hold it in reserve. </p>
<p>If done well, holding reserves to release in times of supply shortage could smooth out extreme prices. Holding reserves of gas won’t be costless, but the cost of that insurance may be worth it to taxpayers. It will be important to see the detail of how this will be implemented.</p>
<p>The second action is to develop a national plan for growth in renewables, hydrogen, and transmission. </p>
<p>Accelerating new renewables will be key to reducing our exposure to fuel prices. A new wind or solar project can provide energy for <a href="https://publications.csiro.au/publications/publication/PIcsiro:EP2021-3374">$50-80 per megawatt hour</a>, compared to $300-500 per megawatt hour from fossil fuel plants today. </p>
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Read more:
<a href="https://theconversation.com/4-reasons-our-gas-and-electricity-prices-are-suddenly-sky-high-184303">4 reasons our gas and electricity prices are suddenly sky-high</a>
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<p>Having a clear plan is a good start, but ministers will need to work out how to deliver it. Expanding the national <a href="http://www.cleanenergyregulator.gov.au/RET/Scheme-participants-and-industry/the-renewable-power-percentage">Renewable Energy Target</a> would be a good first step. </p>
<p>This target, legislated by the Rudd government, currently requires roughly 20% of electricity to come from new renewable energy. This could be increased significantly. </p>
<p>Indeed, state targets in place now could be more efficiently delivered if they were amalgamated into a stronger national target. Ministers could also consider similar targets for green gas or hydrogen. </p>
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<a href="https://images.theconversation.com/files/467880/original/file-20220609-20-duny2g.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Wind turbines on a hill, behind a gum tree" src="https://images.theconversation.com/files/467880/original/file-20220609-20-duny2g.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/467880/original/file-20220609-20-duny2g.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/467880/original/file-20220609-20-duny2g.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/467880/original/file-20220609-20-duny2g.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/467880/original/file-20220609-20-duny2g.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/467880/original/file-20220609-20-duny2g.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/467880/original/file-20220609-20-duny2g.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">The renewable energy target in national legislation must be strengthened.</span>
<span class="attribution"><span class="source">Shutterstock</span></span>
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<p>The third action is the most contested. Ministers have recommended implementing a capacity mechanism that would pay units to be available even if they’re not used, which may be similar to a capacity market. It’s not clear what this proposal will look like in detail or how this proposal would address the current crisis. </p>
<p>The <a href="https://www.energy.gov.au/sites/default/files/2022-06/Energy%20Ministers%20Meeting%20Communique%208%20Jun.docx">communique</a> doesn’t explicitly rule out coal. But there are reasons to be hopeful that what ministers have actually asked for is a capacity reserve, which will facilitate more renewables accompanied by modern technologies such as battery storage.</p>
<h2>What is a capacity market and why should it exclude coal?</h2>
<p>A traditional capacity market is designed to pay all power stations (including existing coal) for being available, even if they’re not used. </p>
<p>This sort of capacity market won’t build the type of capacity we urgently need. Our grid requires generation that can turn on and off quickly, adjusting to consumers’ increasing appetite for installing their own solar panels. </p>
<p>A traditional capacity market that pays inflexible capacity such as coal will delay investment in new flexible capacity such as hydro, batteries, and hydrogen-ready gas peakers. Coal is considered inflexible because it takes hours to ramp up to full production, whereas “flexible” capacity can ramp to full production in seconds or minutes.</p>
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Read more:
<a href="https://theconversation.com/the-end-of-coal-is-coming-3-times-faster-than-expected-governments-must-accept-it-and-urgently-support-a-just-transition-173591">The end of coal is coming 3 times faster than expected. Governments must accept it and urgently support a 'just transition'</a>
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<p>Locking in existing inflexible generation can reduce the reliability of the grid, a risk now possible in <a href="https://www.energycouncil.com.au/media/xlab4zma/mja-final-report-generator-revenue-adequacy.pdf">Western Australia</a>. </p>
<p>Paying coal power stations to stay around longer also exposes Australia to fuel price spikes as we’ve seen recently, as well as continued shortfalls of capacity. This is because, as federal Energy Minister Chris Bowen pointed out, the current crisis is due to an unexpected shortage of coal, not gas. </p>
<p>Paying coal power stations twice – once for their capacity, and again for their energy – means it’s harder to build new, flexible capacity. A capacity market like this wouldn’t have avoided our current crisis or reduced consumers’ bills: the cost of coal and gas would still be high.</p>
<p>Coal is also increasingly unreliable. Currently <a href="https://www.afr.com/companies/energy/nearly-25pc-of-coal-capacity-remains-offline-despite-energy-crunch-20220606-p5argd">up to 25% of coal is offline</a> for maintenance, and unplanned outages are <a href="https://www.aemo.com.au/-/media/files/electricity/nem/planning_and_forecasting/inputs-assumptions-methodologies/2020/aep-elical-assessment-of-ageing-coal-fired-generation-reliability.pdf">rising</a>. Ironically, some coal generators are simultaneously asking to be <a href="https://www.afr.com/policy/energy-and-climate/power-providers-struggle-with-coal-closure-plan-20220419-p5aecq">paid to close</a> their power stations.</p>
<p>Governments also need to consider the very significant financial assistance already paid to coal-fired generators when the <a href="https://archive.budget.gov.au/2012-13/ministerial_statements/ms_climate_change.pdf">Clean Energy Future</a> package was introduced in 2012 and repealed only two years later. </p>
<p>None of the over $5 billion in assistance provided to coal-fired generators was paid back to taxpayers. Asking consumers to pay again for these power stations to “stay in the market” via a capacity market payment doesn’t seem fair or equitable.</p>
<h2>So what should ministers do?</h2>
<p>Our current market already provides strong signals for investment in the right mix of capacity. </p>
<p>The <a href="https://aemo.com.au/en/energy-systems/electricity/national-electricity-market-nem/nem-forecasting-and-planning/forecasting-and-planning-data/generation-information">market operator</a> says there are around 1.2 gigawatts (GW) of new gas, 1.2 GW of battery, and 2.3 GW of hydro projects entering the market in coming years. Total new capacity entering the market is over 11 GW. </p>
<p>With electricity prices as high as they are, investors such as Snowy Hydro say it’s <a href="https://reneweconomy.com.au/youll-make-ridiculous-amounts-of-money-snowy-hydro-eyes-more-gas-generators/">simply incorrect</a> that the existing market doesn’t incentivise new storage such as batteries and pumped hydro. </p>
<p>However, a well designed “<a href="https://www.energy.gov.au/sites/default/files/2022-02/Iberdrola%20Australia%20Response%20to%20Capacity%20Mechanism%20Project%20Initiation%20Paper.pdf">capacity reserve</a>” would smooth out the market. New capacity, such as batteries and pumped hydro, could be brought into a “waiting room” and held until it’s needed.</p>
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<a href="https://images.theconversation.com/files/467882/original/file-20220609-12-fwa0vz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/467882/original/file-20220609-12-fwa0vz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/467882/original/file-20220609-12-fwa0vz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/467882/original/file-20220609-12-fwa0vz.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/467882/original/file-20220609-12-fwa0vz.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/467882/original/file-20220609-12-fwa0vz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=501&fit=crop&dpr=1 754w, https://images.theconversation.com/files/467882/original/file-20220609-12-fwa0vz.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=501&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/467882/original/file-20220609-12-fwa0vz.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=501&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">2.3 gigawatts of hydro projects are projected to enter the market in coming years.</span>
<span class="attribution"><span class="source">Shutterstock</span></span>
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<p>This could be implemented very quickly. The <a href="https://www.energy.nsw.gov.au/government-and-regulation/electricity-infrastructure-roadmap">New South Wales roadmap</a> provides a somewhat similar approach - underwriting new investments to ensure they’re built sooner rather than later. </p>
<p>Importantly, ministers make it clear in their communique that they’re only really wanting the mechanism to support <em>new</em> investment in fast-start zero emissions technologies. As such, it may be that the “capacity mechanism” they have in mind is actually more akin to the “capacity reserve” we have articulated here.</p>
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Read more:
<a href="https://theconversation.com/australias-energy-crisis-3-ways-the-albanese-government-can-ease-pressure-on-your-power-bills-184134">Australia's energy crisis: 3 ways the Albanese government can ease pressure on your power bills</a>
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<p>In the near-term, governments need to ensure all energy companies are doing their fair share to address costs and reliability. </p>
<p>The government has <a href="https://ministers.treasury.gov.au/ministers/jim-chalmers-2022/media-releases/letter-accc-electricity-and-gas-price-rises">asked the ACCC</a> to consider this, as we <a href="https://theconversation.com/australias-energy-crisis-3-ways-the-albanese-government-can-ease-pressure-on-your-power-bills-184134">suggested</a> last week. </p>
<p>But for now, the best option to keep warm this winter without breaking the bank is to shop around for the best electricity deals.</p><img src="https://counter.theconversation.com/content/184554/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Tim Nelson is an Associate Professor at Griffith University and the EGM, Energy Markets at Iberdrola Australia, that develops renewable projects and batteries.</span></em></p><p class="fine-print"><em><span>Joel Gilmore is an Associate Professor at Griffith University and General Manager Energy Policy & Planning at Iberdrola Australia, that develops renewable projects and batteries.</span></em></p>None will address prices immediately. For now, the best option to keep warm this winter without breaking the bank is to shop around for the best electricity deals.Tim Nelson, Associate Professor of Economics, Griffith UniversityJoel Gilmore, Associate Professor, Griffith UniversityLicensed as Creative Commons – attribution, no derivatives.