Future Energy Prices Depend on Best Policies
The Science
What’s Inspiring
“From the supply side, green energy would be produced relatively more efficiently under the orderly transition scenario, which would allow energy prices to swiftly take a downward trend. That would translate into energy prices under the baseline scenario eventually falling below those associated with the hot house world scenario. By contrast, a delayed and abrupt adoption of green technologies would translate into projected energy prices under the disorderly transition case being comparatively higher over most of the forecast horizon…” European Central Bank economy-wide climate stress test, ECB Occasional Paper Series No. 281/September 2021 3.1 Scenario narrative.
The ECB paper (and above graph) considers three alternative scenarios: (i) an “orderly transition” - “..climate policy measures are well calibrated and implemented in a timely and effective manner, thus the costs stemming from transition and physical risks are comparatively limited…”; (ii) a “hot house world” in which “…no regulation or policy aimed at limiting climate change is introduced, thus leading to extremely high physical risks…”; and (iii) a “disorderly transition” which ”… assumes delayed implementation of the requisite policy measures…”
“…The results show that there are clear benefits to acting early: the short-term costs of the transition pale in comparison to the costs of unfettered climate change in the medium to long term. Additionally, the early adoption of policies to drive the transition to a zero-carbon economy also brings benefits in terms of investing in and rolling out more efficient technologies…” (ECB paper - Abstract)
