Positive Money US
Interest rate hikes are a blunt and imprecise tool that won’t tackle current sources of inflation, particularly our overdependence on volatile fossil fuels. The best way forward is to shift finance away from fossil fuels, and jump-start a transition to renewable energy.
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Europe can transition to renewables faster than the US can build additional LNG export infrastructure, and additional LNG infrastructure would lock in decades of dependence on fracked gas that will put climate targets out of reach, subject the US to continued energy and economic insecurity, and burden vulnerable Gulf Coast communities and ecosystems with increased pollution.READ THE FACT SHEET
Energy price volatility contributes significantly to overall inflation. Gasoline prices specifically accounted for 75% of energy inflation over the last year.
Skyrocketing gasoline and energy prices are contributing to a 40-year high in inflation, demonstrating the persistent challenge that fossil fuel volatility poses for price stability, economic growth, and macroeconomic health. As of April 2022, annual inflation was at 8.3 percent, with 2.1 percent of that coming from the weighted contribution of energy prices. Gas tax holidays, strategic reserve releases, and other stopgap measures fail to address the structural deficiency at the heart of our economy: fossil fuel dependency.
For the federal government to meet its commitment to long-term price stability, it must facilitate a rapid transition away from fossil fuels and toward the renewable sector.
As Lauren Melodia and Kristina Karlsson argue in “Energy Price Stability: The Peril of Fossil Fuels and the Promise of Renewables”: 1. Fossil fuel prices are inherently volatile; 2. This volatility presents a persistent threat to the stability of our economy; and 3. Transitioning to renewable energy will foster price stability and drive inclusive growth.READ THE FACT SHEET
Following Russia’s unprovoked invasion of Ukraine, oil and gas interests have launched a cynical campaign to capitalize on this global catastrophe and pad their bottom line. Claiming that increasing domestic drilling would lower prices at the pump, the fossil fuel industry has asserted that the Biden administration must lease more federal land and roll back environmental protections. But industry leaders are lying about what their so-called solutions would actually achieve.
In reality, these companies already have 9,600 unused, approved leases, and they have made it clear that they have no intention of increasing production in the short term. Corporate polluters in the fossil fuel industry are attempting to cash in on this crisis and lock Americans into dependence on a volatile, dangerous fossil fuel market. Now, energy experts and journalists are exposing Big Oil’s lies and detailing why investing in clean energy is our best option to secure affordable, reliable energy for Americans and weaken Vladimir Putin’s grip on the energy market.
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The Federal Reserve and macroeconomic analysts commonly exclude energy price changes from their evaluation of inflation as a macroeconomic phenomenon because energy (along with food) is understood to be inherently volatile and, therefore, can skew or complicate the picture of price stability in the overall economy. However, in this issue brief we argue that energy price volatility has major macroeconomic implications and must be integrated into price stability policy. We demonstrate that energy price volatility is driven by fossil fuels in particular, and that it will only be exacerbated as climate change accelerates.
Conversely, we show that renewable energy sources and the electricity sector through which they are distributed have unique qualities that can make them a stabilizing force in the economy. We then highlight the ways in which a renewable energy transition can increase equality by meeting the needs of those most vulnerable to energy price increases. In order for the federal government to meet its commitment to achieve price stability—which Congress empowered the Federal Reserve to monitor and manage—it must facilitate a rapid transition away from fossil fuels and toward the renewable sector.READ THE FACT SHEET