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Policy makers and experts have been arguing that the transition away from fossil fuels could support price stability while also fighting climate change. Panetta (2022) calls that possible outcome a “divine coincidence”. While the divine coincidence hypothesis is widely discussed, we are not aware of published empirical research studying how renewable energy affects the sensitivity of inflation to changes in fossil energy prices.

Our empirical results are inconsistent with the divine coincidence hypothesis. That result is robust to sub-periods, country sub-samples and alternative metrics of inflation, fossil prices and renewable energy. This result seems counter-intuitive at first. Indeed, one would expect to see a positive relationship between a country’s consumption of a commodity and that commodity’s impact on the country’s inflation. Three reasons could explain why the empirical results are inconsistent with a dampening effect of renewable energy on the fossil energy price-inflation relationship in this study: national energy policies, threshold effects induced by marginal pricing and trade-linkage spillovers.

The effects of the third category of shocks, “greenflation”, are more subtle.

Many companies are adapting their production processes in an effort to reduce carbon emissions. But most green technologies require significant amounts of metals and minerals, such as copper, lithium and cobalt, especially during the transition period.

You’ve probably seen ads promoting gas and oil companies as the solutions to climate change. They’re meant to be inspiring and hopeful, with scenes of a green, clean future.

But shiny ads are not all these companies do to protect their commercial interests in the face of a rapidly heating world. Most also provide financial support to industry groups that are spending hundreds of millions of dollars on political activities, often to thwart polices designed to slow climate change.

"American voters are watching." This is what the president of the American Petroleum Institute had to tell the federal government at an API event this week. Voters are watching, and they are less than thrilled with the current administration's energy policies.

The American Petroleum Institute is not known to sit back and shut up when the federal government pursues its transition-focused energy policies. Yet this is perhaps the bluntest warning from the lobby group yet as election year begins.

Administrative agencies are strikingly absent from leading accounts of contemporary polarization. 3 The focus instead is on Congress, the President, and voters. 4 To the extent agencies appear, they surface largely as acted-upon entities who bear the fallout from the congressional–presidential confrontations that polarization fuels. Scholars emphasize how congressional polarization has held up appointments of top agency officials, 5 created budget uncertainty for agencies, 6 and subjected them to increased investigations. 7 Agencies play a somewhat more active role in accounts of presidential unilateralism, but here, too, they feature primarily as tools of the President rather than as policy initiators in their own right. 8 Hence, the ongoing rulemaking by the Environmental Protection Agency (EPA) on power plant emissions is portrayed and attacked as President Barack Obama’s climate change plan, 9 while the recent immigration enforcement initiatives promulgated by the Department of Homeland Security (DHS) are commonly referred to as President Obama’s immigration executive actions—including by the White House—despite being embodied in memoranda issued by the Secretary of Homeland Security, Jeh Johnson. 10

In the closest federal races, the oil & gas industry has spent an estimated average of $4.3 million per Senate seat and $490,000 per House seat through direct contributions, funding for party committees, and funding for super PACs.

During this election cycle, 20 oil & gas companies and industry trade associations contributed more than $52 million to right-wing super PACs and party fundraising committees, and more than $4 million to candidate PACs. Much of the spending was used to support Republican candidates running in competitive Senate and House districts.

Fossil fuel executives and oil and gas industry political action committees have poured millions into the campaigns of lawmakers now criticizing the Biden administration’s efforts to move the country away from fossil fuels and build a clean energy future.

Public Citizen analyzed campaign finance data for the 29 lawmakers in the nearly 70-member Congressional Western Caucus who issued a late January joint statement denouncing the Biden administration’s pause on new oil and gas leases. The analysis of data from the Center for Responsive Politics shows these 29 members received a combined $13.4 million over their careers from oil and gas interests and $23.6 million from energy and natural resources interests. These House lawmakers, all Republicans, include House Minority Leader Kevin McCarthy (R-Calif.), the second-ranking House Republican, Rep. Steve Scalise (R-La.) and lawmakers from such oil-producing states as Alaska, Oklahoma, Texas, Colorado and New Mexico.

Tactic 2: Manipulate democratic systems to defeat climate action and serve industry interests

With its disproportionate financial and lobbying influence, the fossil fuel industry manipulates democratic functions to undermine popular views and hamstring climate action proposals that would serve the public interest. In the United States alone, the fossil fuel industry spends tens of millions of dollars to influence policymakers to keep the system rigged for itself. So far in 2023, oil and gas companies and associations have spent almost $93 million on lobbying; and in 2022, it was more than $125 million. Between lobbying, political contributions, and advertising efforts, these interests spent 27 times as much as climate advocacy groups from 2008 to 2018 to obstruct climate action.

If history is any guide, Vladimir Putin's iron grip on Russia could be threatened by the lowest oil prices in a decade. It also partly explains his increasingly belligerent stance toward the West.

Crude oil and natural gas prices have been central to Russian prosperity for decades. As they fluctuated, so did the country's fortunes. And they have led Russia to outward aggression before and could again.

Part 2: Russia’s Aggressive Oil Tax Regime—the Mainstay of State Finances

As oil prices rise above $25 a barrel, 80% of each incremental dollar goes to the State

There is a simple explanation for the apparent reluctance of Russian policy-makers to prepare for a world in which demand for hydrocarbons either plateaus or declines: they simply do not believe that there is a significant chance of this taking place, at least not in the next few decades. This should not have surprised observers. Russia's most recent draft energy strategy, published in 2014, stressed the need to expand hydrocarbon production and Russia's exports to rapidly-growing non-Western markets with the aim of maintaining Russia's position as one of the world's top-three hydrocarbon exporting countries [78].27 According to the draft strategy, the main threat to Russia will come not from a decline in demand, but instead from greater competition from other suppliers, most notably the US [85]. What is needed to deal with this competition, according to the authors, is to diversify the customer base for Russian hydrocarbon exports, and, more specifically, to expand deliveries to rapidly-growing Asian economies. As the document states, expanding exports will require developing new deposits in Russia, primarily in the Arctic – both off-shore and on-shore – and in Russia's Far East. This corresponds with another oft-stated objective of the Russian government: to develop the Arctic. For Russian officials, climate change and the shrinking of polar ice offers the opportunity to extract more natural resources and to utilise the Northern Sea Route (NSR), both as a transit route in its own right, and to facilitate the more intensive exploitation of the Arctic [86].

It is clear from reading the full range of official strategic planning documents – from those dealing with energy and the Arctic to those dealing with national security and naval strategy – that Russian officials envisage an intensification of competition over natural resources in the years ahead [87]. As a result, it is imperative that Russia exploits its resource base to both survive and thrive in a world that is likely to be characterised by resource scarcity, not abundance. This demonstrates that the reason that policy-makers in Russia do not see the urgency in moving away from hydrocarbons is because they perceive the changing global energy landscape in a very different way to many analysts from elsewhere in the world.

Russia’s finance minister, Anton Siluanov, is confident that Russia, with its National Welfare Fund with an estimated value of $150 billion, at the beginning of the “oil war,” would allow Russia to weather the loss of revenue for a maximum of 4 years. In addition, Russia has some $551 billion in currency reserves. However, with the advent of COVID-19, and the subsequent meltdown of equity markets worldwide, the amount of wealth in Russia’s sovereign wealth fund is unknown. However, with Russia’s estimated GDP of $4.2 trillion in 2017, even by using its sovereign wealth fund reserves and foreign currency reserves in the oil war, which has been complicated by the worldwide slackening demand for oil due to COVID-19, it is doubtful that Russia will be able to forgo the revenue it depends on for the funding of its government expenditures.

With oil revenues making up 52% of the Russian budget (with the current cost of Urals oil $18.30 a barrel, down from a high of $52 a barrel), this would mean a much larger drain of wealth from Russia’s sovereign wealth fund. Accounts Chamber of Russia head Alexei Kudrin has said that Russia may need to ramp up spending with an additional 5% of its GDP, roughly $70 billion a year to combat the effects of COVID-19 in Russia. Presumably, this would come from Russia’s foreign currency reserves. In addition, especially with the meltdown of equity wealth worldwide, the amount of money available from the Russian sovereign wealth fund will be much less than planned for.

Georgi Kantchev: The Western sanctions on Russia's oil exports are hitting hard. In January, for example, revenues in the state budget from oil and gas fell by 46%. That is huge because oil and gas provide half of the revenues of the budget.

Ryan Knutson: Russia's budget deficit in January was $25 billion.

If Saudi Arabia has bold plans to modernise its industrial base and to diversify its economy, Russia appears to have no such ambition. Although policy-makers in Russia have promoted a number of initiatives to expand non-hydrocarbon industrial capabilities in recent years, these efforts have not received sufficient financial or industrial support to make a real difference [[53], [54], [55]]. Meanwhile, as the leaders of other hydrocarbon-producing countries acknowledge the importance of preparing for a post-hydrocarbon future, official Russian energy strategies continue to emphasise the importance of increasing production and export of oil and gas [56]. As a result, Russia's well-established vulnerability to fluctuations in oil prices is likely to persist.

5.1. Russia's resource addiction

Stranded asset risk is relevant for the energy sector and beyond. Most fossil energy assets are long-lived; they usually require a large initial investment, but have relatively low operating costs. Davis and Socolow (2014) show that expected future cumulative emissions from the existing infrastructure of the global power sector have increased dramatically in the last decades. Such long-term investments have the potential to “lock in” carbon-intensive technologies for a long period of time (Erickson et al., 2015).42 Calculations by IEA (2013) and Pfeiffer et al. (2016) conclude that the “2° capital stock” will already be reached in 2017. Investments in fossil capacities after 2017 are inefficient: they lead to “both larger carbon lock-ins and higher short-term emissions that need to be compensated by deeper emissions cuts in the long run” (), increasing the cost of climate change mitigation. Moreover, in order to achieve emission cuts in such a scenario, fossil assets need to be stranded. provides a conservative estimate that the energy industry faces sunk costs of $ 120 billion due to fossil fuel plants being retired early, even if action to achieve the 2°C goal had started in 2012. For a scenario of delaying climate action until 2030 (and using a different methodology), estimates stranded assets of $ 1.9 trillion in electricity generation, and an additional $ 7 trillion in upstream energy infrastructure (mostly oil production). This is approximately equivalent to 3.5% of global income, and implies a risk not just for the obviously affected energy industry facing sunk costs: international organizations, financial institutions and regulators are increasingly concerned about the “transition risk” of climate policy, especially about a sudden re-pricing of assets.43 A sudden devaluation of energy companies will occur only if expectations were not adjusted in accordance with the risk of asset stranding. Sudden changes in the stringency of carbon policies, or expectations in the presence of tipping points can lead to abrupt repricing of fossil fuel assets. Given energy companies' size and interrelation with the rest of the economy, policymakers may regard energy companies as “too big to fail.” For this and other political economy reasons,44 policymakers may opt for compensation policies, and investors may expect them to do so. Compensations, then, are almost a self-fulfilling prophecy: if they are expected, they will be necessary in order to avoid larger shocks.45 Therefore, understanding the interaction between policy making and investors’ expectations is essential for the design of climate policies. Our results suggest that early and credible commitment to climate policies and whether they involve compensation payments or not is crucial. Such clear signals to financial markets can avoid a disruptive and unorderly energy transition and macro shocks, while directing capital towards climate-friendly technologies. We believe that further research in similar contexts can help to generalize these results, or to identify the important factors in the formation of expectations regarding climate related risks.

Much of the decline in numbers of refineries can be explained by reduced incentives to operate small, inefficient facilities and subsequent work-off of obsolete and high-cost capacity induced by the phase-out of crude oil price controls in the early 1980s. Environmental restrictions, boutique fuel requirements, and the MTBE ban have more recently contributed to tight refinery capacity. And while refiners have increased distillation capacity by 15 percent,62 refinery utilization rates have increased markedly since the early 1980s, peaking at around 95 percent in the late 1990s.63 Moreover, about 55 percent of U.S. operating distillation capacity in 2006 was in refining facilities with capacities greater than 200,000 barrels per day—a 36 percent increase over the last two decades.64 Currently, a relatively few, large facilities thus account for more than one-half of total U.S. refinery capacity.

The foregoing analysis raises concerns that refining in the United States is effectively a bottleneck in the production chain. In general, bottlenecks can have dramatic effects on prices, particularly when they are operated at the high utilization rates that have characterized the industry for several years. If consumption increases when capacity is tight, price increases reflect scarcity and appropriately ration demand. But if refiners deliberately shut down refining capacity (i.e., withhold), the supracompetitive price increase will directly harm consumers. Refining thus shares much in common in this regard with electricity: because capacity exists in discrete “chunks” that are utilized in increasing order of their marginal costs, one firm often owns more than one type of capacity, and demand fluctuates over time. Moreover a refiner or group of refiners need not hold a large share of capacity to profit from a withholding strategy. Even a small amount of capacity, if strategically withdrawn from the market, can produce a large price increase from which all firms with inframarginal capacity will benefit. The growth in size of refining facilities exacerbates such price effects because an outage at one large facility affects large volumes of refined products.

This empirical analysis provides significant insights into the short-term and long-term relationship between WTI oil prices and various factors, including U.S. crude oil production, global oil prices, natural gas prices, renewable energy production, and clean energy company returns. Our findings suggest that renewable energy production currently complements crude oil production, rather than substituting it, with an increase in renewable energy production associated with increased oil prices when crude oil production remains constant. Our model is represented by stochastic variables in nature, but there is a long-term equilibrium towards which the considered set of variables converges over time. The deviation from the equilibrium trajectory is corrected very quickly because the speed of adjustment is very high.

Currently, various policies and investment efforts are being applied to stimulate the production of energy from renewable energy sources, and as a result, an increase in energy consumption from renewable energy sources is expected. Since renewable energy technologies are expensive and these products are expensive, they keep oil prices high.

Renewable energy already beats fossil fuels on cost globally — and according to analysts, the gap is only going to grow.

By 2030, technology improvements could slash today’s prices by a quarter for wind and by half for solar, according to the authors of a recent report from clean energy think tank RMI. (Canary Media is an independent affiliate of RMI.)

To assess the effects of the green transition on energy prices in the future, international bodies such as the NGFS and the International Energy Agency (IEA) have turned to scenario analysis. I will refer to two contrasting scenarios.

The first is an orderly scenario which assumes ambitious climate policies are introduced immediately. This scenario limits global warming to 1.5 °C through stringent climate policies and innovation, reaching global net-zero emissions by 2050 in line with the Paris Agreement. It nevertheless requires ambitious policy action and technological change across all sectors of the economy. The NGFS does not provide detailed and granular information on the overall cost of energy production (including from renewable energy sources), which would give a more complete picture. But it does provide estimates for the price of oil, gas and coal, which would only increase moderately over the next decade under the net-zero scenario (Chart 3). In particular, oil prices are predicted to increase by around 6 per cent cumulatively from 2020 to 2030, reflecting increasing costs of extraction.

The world is currently filled with government-, corporate-, and billionaire-funded organizations advocating for a transformation of the energy system to “clean” and “abundant” renewables. In my post a week ago, I described the International Energy Agency — a consortium of governments (now 40+ of them, including all the major ones) originally formed in the 70s to combat the OPEC oil embargo of the time, but since transformed into a “a center of advocacy for elimination of fossil fuels from the world’s energy supply.” For today, here’s another one you may or may not have heard of — the Energy Institute. EI is a London-based advocacy organization set up under the UK charity laws. It appears to receive its funding largely from corporations and wealthy individuals. On its home page, it describes its mission as “creating a better energy future for our members and society by accelerating a just global energy transition to net zero.”

Let’s review the latest from these two groups.