Here we go again! Just when I thought things were returning to normal with COVID dropping off, another global event has taken our attention. Russia took the terrible step of attacking their neighbor, and our news feeds were overtaken by the coverage. I’ve read stories of courageous Ukrainians volunteering to defend their homeland, and tragedies of civilian areas getting bombed indiscriminately. There is news of economic sanctions against the wealthy Russian ruling class, and of the economic consequences we the consumers will be paying. Keeping track of it all gets dizzying!
One of the most compelling story lines has been on energy security, and the outsized influence held by oil-rich countries over the rest of the planet. Some oil exporters like Russia are run by governments that shun our ideals of freedom and equality, where journalists can be murdered and opposition leaders can be imprisoned, without consequences.
It’s been inspiring to see so many countries come together in response to the Russian aggression. First Germany halted their plans to import Russian gas, even though they had just completed a major pipeline infrastructure project. And now that the U.S. has stopped imports of Russian oil, private companies like BP and Shell followed suit, even at great financial loss. By cutting Russia off from their only income stream, these countries/companies have shown integrity but they also will result in higher fuel prices the world over.
I would never claim to be an economist because it is such a complex field. But the way I understand it, the higher prices are caused by lower global supplies of oil; market instability surrounding the war in Ukraine; and even the preexisting COVID supply chain issues on workforces. Add to all of this the problem of rising inflation, due to all the federal spending on COVID relief payments to States and households alike ($32 million to Mississippi, $11,000 per capita), and we find ourselves in a tangled mess.
Since I’m not an economist, I needed to look up an actual definition of the word inflation: “a decline in purchasing power as prices rise.” Apparently we are at the highest level of inflation in decades, and as usual it will be we the individual consumers who feel the burden. Prices for food, fuel, and goods are rising regardless of whether our income follows suit or not. Already we can see gasoline prices topping $4/gallon in Mississippi, but much higher in other states with higher gasoline taxes, and these price hikes always disproportionately affect working class people.
Some leaders are using this opportunity to call for increased production of domestic oil and gas to keep prices in check in the short term, but a better approach might be toward long-term sustainability and energy security. Prior to the invasion, Russia had supplied nearly 40% of the European Union’s gas and over 25% of EU crude oil. But within a week, EU leaders vowed to wean their continent off of Russian fuel and invest more broadly in renewable energy and modernized electricity grids. By taking steps like renovating old, leaky buildings to reduce energy demand, and promoting installation of heat pumps and rooftop solar, the EU is approaching energy independence.
While the Russian sanctions taken by the huge EU and U.S. markets will promote international security and a shift toward renewable energy, the higher prices will be hard on consumers. But fortunately we also have another tool available to offset that problem; carbon pricing.
A bill called the Energy Innovation and Carbon Dividend Act (EICDA) is currently under review by the Senate Finance Committee, and a key feature of this bill is to return dividend payments to American households as a way of addressing rising energy costs during the shift to renewable energy. Particularly for middle and lower income Americans, the dividends will equal or overcompensate consumers for the subsequent rise in fuel prices.
According to modeling conducted by the Columbia Center on Global Energy Policy, the EICDA would cause just 0.24% inflation per year, well under the 2% /year which is targeted by the Federal Reserve. They also found that an initial carbon price of $20/ton would raise U.S. electricity prices about 1 cent per kilowatt-hour, or only $4-8 per month, but the dividend payments would easily offset those costs. And a 2021 report from the Centre for Economic Policy Research found that carbon pricing systems in other countries actually have led to an increase in purchasing power for consumers.
The U.S. and EU bans on Russian fossil fuels will make the world a safer place by depriving bad actors of their revenue stream, but they also will spur adoption of renewable energy and create a better future for the next generation. And if we can convince Congress to pass the Energy Innovation and Carbon Dividend Act, the financial burdens will not be placed on the backs of the working class. Let’s get it done!
Chris Werle of Lamar County is Mississippi state coordinator for the Citizens’ Climate Education. Write him at chriswerle@cclvolunteer.org.
