Energy Price Stability: The Peril of Fossil Fuels and the Promise of Renewables

May 11, 2022

Americans currently face soaring gasoline and energy prices that have contributed to the highest inflation in 40 years. While the Federal Reserve and the Biden administration have spent the past year attempting to use their existing powers to address rising prices, the extreme price increases of energy commodities and services—more than any other set of items in the Consumer Price Index (CPI)—demonstrate the need for a transformation of our energy system.

In “Energy Price Stability: The Peril of Fossil Fuels and the Promise of Renewables,” authors Lauren Melodia and Kristina Karlsson demonstrate that volatile fossil fuel prices are a key driver of overall inflation and have historically triggered recessions. They argue that the Federal Reserve has little power to mitigate inflation driven by fossil fuel prices and that the solution to ongoing energy price volatility is a government-led investment in renewable energy production and deployment. Specifically, they conclude that:

  • A transition away from fossil fuels toward renewable energy will have a stabilizing effect on prices, for two reasons:
    1. Renewable energy will bring the majority of our energy consumption into the electricity sector, a highly regulated sector that has historically produced stable energy prices; and
    2. Renewables are inherently stable compared to fossil fuels. 
  • A transition to renewable energy can improve existing inequities in energy burdens among renters, and among low-income, Black, and Latinx households.

Read the rest of the “All Economic Policy Is Climate Policy” series.