[Energy Shock] The 'Energy Yo-Yo Effect' Caused by Excessive Eco-Friendly Dieting

Energy Surge Sparks Hyperinflation Outlook
US-China Consumer Prices Soar
Economic Slowdown Clouds COP26 Outcomes
Nuclear Power Reconsidered Amid Green Side Effects
Some Advocate "Solving by Expanding Renewables"

[Image source=Reuters Yonhap News]

[Asia Economy Reporters Byunghee Park, Suhwan Kim] "Spain is the ‘Canary in the Mine’ for the upcoming European energy crisis."

This is Bloomberg's assessment of the recent power shortage in Spain, a representative eco-friendly country. Leading countries in Europe such as Spain, the UK, and Germany accelerated their green policies but are now facing an energy crisis. The rapid reduction of fossil fuels and nuclear power without sufficient green energy supply is analyzed as the main cause of the sharp rise in energy prices.

Experts point out that this is something South Korea, which is rapidly expanding the share of wind, solar, and natural gas power generation by benchmarking Europe’s green policies, could also experience. South Korea recently raised its greenhouse gas reduction target (NDC) to 40% compared to 2018, a significant increase from the previous target of 26.3%.

Will Energy-Driven Hyperinflation Emerge? Anxiety Rises Ahead of COP26

As energy prices soar simultaneously, some predict the possibility of hyperinflation.

International oil prices surpassed $80 per barrel for the first time in seven years. Coal prices, a major power source in China, soared to an all-time high, and natural gas prices, a key power source in Europe, have increased more than fivefold this year.

Due to the soaring energy prices, the US consumer price inflation rate has remained above 5% for four consecutive months, and China’s Producer Price Index (PPI) has surged to its highest level in 26 years. The two pillars of the global economy, the US and China, are struggling with inflation. On the 17th (local time), New Zealand announced that its third-quarter inflation rate reached 4.9%, the highest in 10 years.

Concerns that the energy crisis will trigger inflation and economic slowdown have increased doubts about whether the 26th UN Climate Change Conference of the Parties (COP26), opening in the UK on the 31st (local time), can achieve meaningful results. Some countries worried about economic slowdown are expected to show a less proactive attitude toward achieving greenhouse gas reduction targets.

It is already known that Chinese President Xi Jinping, from the world’s largest greenhouse gas emitter, will not attend COP26. India, the world’s third-largest greenhouse gas emitter after China and the US, has yet to announce its greenhouse gas reduction target (NDC).

The G20 summit is scheduled to be held in Rome on the 30th and 31st, just before COP opens. Leaders hope to reach meaningful agreements on climate change measures at this meeting. However, Bloomberg reported that no agreement was reached on carbon subsidy reductions and methane emission restrictions at a preliminary meeting attended by officials on the 15th.

Unprepared Green Energy... Nuclear Power’s Importance Reemerges

The sharp rise in energy prices is attributed to the global failure to properly prepare for the transition to renewable energy while drastically reducing investments in fossil fuels. The Wall Street Journal (WSJ) analyzed, "The energy shock still shows that the world relies on fossil fuels," and "It reveals the vulnerability of the global energy supply chain." According to The Economist, fossil fuels currently account for 83% of the world’s energy sources.

The International Energy Agency (IEA) recently released a report stating, "Since the 2010s, fossil fuel prices have plummeted, and investments in fossil fuels have drastically decreased due to regulatory uncertainties, leading to a supply contraction," and "Clean energy investments sufficient to fill the gap caused by reduced fossil fuel supply have not been made."

According to market research firm Rystad Energy, approximately $100 billion per year was invested in expanding oil and gas production from 2010 to 2015, but annual investment dropped sharply to $50 billion after 2015.

The IEA diagnosed, "The current energy shock is caused by a complex interplay of accumulated supply and demand imbalances over the past few years."

As a result, the importance of nuclear power, a low-cost and high-efficiency energy source, is being reemphasized. Foreign Policy (FP) warned, "In all countries pursuing nuclear phase-out policies, most nuclear power is being replaced by fossil fuels."

This is why there are calls to increase nuclear power investments to offset the rising demand for fossil fuels. FP emphasized, "Nuclear power can supply unlimited energy without any carbon emissions," and "It can easily meet most of the electricity demand required by modern society."

Calls to Accelerate Renewable Energy

There are also calls to expand investments in clean energy from a long-term perspective, using the current energy shock as an opportunity.

Kadri Simson, European Union (EU) Commissioner for Energy, said, "The surge in energy prices is not because renewable energy is expensive, but because fossil fuel prices have skyrocketed," adding, "We need to expand the supply of affordable renewable energy to solve this problem. The green energy transition must not be delayed."