In the UK it is now costs more than 100 pounds for refueling a typical family car with gas and oil prices could increase further. But are fossil fuel prices that high a bad thing? While attention has focused on measures to deal with the global cost of living crisis, much less attention has been paid to a very inconvenient truth – that solving the climate crisis requires fossil fuel prices to stay high for consumers forever.
Saying something like that might seem unmusical. Millions of households in rich countries are faced with a choice between heating and eating. In poorer countries the situation is immeasurably worse. Soaring gas prices have dramatically increased the cost of fertilizers, while the war in Ukraine is hampering wheat exports.
Together, these lead to rising food prices worldwide, triggering a surge in inflation and worsening the situation anyway grim food situation in places like Yemen, the Horn of Africa and Madagascar. We are already witnesses widespread foot riots as it did between 2008 and 2011, when citizens around the world protested against it failure of their states to fulfill their most basic right – the right to food.
To mitigate the impact of high prices, we’ve seen a screeching about-face in energy policies around the world. In November 2021, governments made a commitment to this at the COP26 climate conference in Glasgow Tax carbon and end fossil fuel subsidies. But in the face of dramatic increases in fuel and electricity costs, those same governments have gambled reduce energy taxesset price caps and introduce new subsidies.
However, keeping global warming below 1.5°C requires: a dramatic reduction in fossil fuel consumption, starting now. The unfortunate reality is that one of the most effective ways to get people to use less fossil fuels is to make them expensive.
Of course, the best way to get off fossil fuels is when there are better (and preferably cheaper) alternatives. However, investment in these renewable alternatives will only happen if people are clearly switching to them, and that requires consumer fossil fuel prices to remain high.
Of course, high fossil fuel prices are typically unpopular and can even lead to civil unrest. Between 2005 and 2018, 41 countries had at least one riot directly linked to popular demand for fuel. In 2019 alone, there have been major energy-related protests in Sudan, France, Zimbabwe, Haiti, Lebanon, Ecuador, Iraq, Chile and Iran – many of which have ended in riots.
Colleagues and I recently released research This shows that these riots are caused by price spikes, often after fuel subsidies have been removed. These price spikes sparked fuel riots when citizens felt they had no other options for expressing anger at government policies and actions (or when states attempted to use force to prevent them from doing so).
High prices, happy citizens
Is it possible to keep fossil fuel prices high without sparking riots? The key is to keep consumer prices high by raising fuel taxes when international oil and gas prices eventually fall. To make this politically acceptable, two things need to happen.
First, consumers will not accept high prices if it means high profits for fossil fuel companies. Maintaining high prices for consumers needs to be complemented by a radical overhaul of the tax system facing fossil fuel companies, not only one-time windfall taxes. These taxes would keep consumer prices high, even though the fossil fuel companies wouldn’t actually get much – enough to cover reasonable costs but not enough to invest in continued fossil fuel production. As stressed by the International Energy Agency, achievable Net zero by 2050the investment amount for the new oil and gas production is zero.
Second, consumers will be much more willing to accept higher fossil fuel prices if the additional tax they pay is returned to citizens as an equivalent carbon credit. Alaska did something similar and put a portion of the oil proceeds into a “permanent fund‘, which it then distributes through a check to each household each year (although that approach can go wrong—Politicians ended up in Alaska cuts in public services to maintain payments from the sovereign wealth fund).
Receiving an annual payment equal to the taxes levied to keep fossil fuel prices high would cushion the damage from higher prices. It would also be progressive, as those using the most fossil fuels would pay more in taxes, while those using little would pay less but receive the same payment from the fund, thus making a profit in the end. Additional compensation for poor groups with high fossil fuel consumption might also be needed, such as B. People on lower incomes who need to use their car for work.
Rising energy costs are a disaster for poor consumers around the world. But ironically, they also present an opportunity to rid the world of its dependence on fossil fuels. If we seize this opportunity to keep fossil fuel prices high, we can accelerate the clean energy transition in a way that is fair for all and avert deeper crises in the years to come.
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