And the U.S. Inflation Reduction Act is surprisingly well-designed to deal with the fallout.
It’s an open secret in U.S. climate policy circles that the Inflation Reduction Act got its name for purely political reasons. It’s a climate bill, after all. Calling it “Inflation Reduction Act” was just the marketing term to help sell it to a skeptical public more worried about rising prices than temperatures in August 2022.
Temperatures have only risen since, while inflation is down, and the Inflation Reduction Act had nothing to do with either. But to see why the name was more than appropriate only takes going back a further six months.
On February 24, 2022, Russian president Vladimir Putin launched a full-scale invasion of Ukraine. In many ways, the step shouldn’t have come as a surprise. The invasion followed months of saber-rattling. It wasn’t even Putin’s first invasion of Ukraine — that happened ten years earlier, with Russia’s forceful annexation of Crimea. But Russia’s bombs raining down on Ukraine still came as a shock. February 24 was a Thursday. By Sunday morning, Germany had changed 75 years of pacifist defense strategy. Another result of the invasion: fossil energy price spikes.
Now, two years later, it has become clear that the shock of the war has changed the trajectory of global energy and climate in ways that we are only beginning to appreciate. It is also precisely where the U.S. Inflation Reduction Act enters the picture, and why history will judge the law — and its name — kindly. Let me explain.
Gas prices in Europe had already been high all winter before Russia’s invasion, in part in response to Putin’s posturing. After the invasion, they spiked. The peak happened in August 2022, in anticipation of the Russian war lasting through the coming winter and worries about the war dragging on. Drag on, of course, it did. Two years in, there’s no end to the fighting in sight. Gas prices, meanwhile, are down again to levels not seen since well before the invasion.
One key reason: demand is down. Europe’s gas demand was down almost 18% in the first year after the invasion, compared to the year before. Not all of that is good news, for the climate or otherwise. One reason for decreased gas demand had been temporarily increased coal use. Another is a sputtering European economy.
The U.S. had been relatively insulated from these extreme fluctuations. But it, too, saw gas prices spike in August 2022. The spike, to be clear, was much lower than in Europe. Gas, unlike oil, is a regional market. But the economic upshot was similar everywhere: massive inflation driven by volatility in fossil fuel prices, or “fossilflation” for short.
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