Despite continually rising energy prices, the affordability of energy costs for consumers is being widely overlooked. The current state of energy, with severe oil and gas shortages and continually rising prices, is likely to have a knock-on effect on the industry for years to come. But, right now, consumers are most concerned about how the global situation will affect their monthly energy costs, as many struggle to make ends meet. In the U.K., energy costs have gone up by over 50 percent and are set to continue rising as oil and gas shortages are still being felt worldwide, causing energy prices to soar. Many countries around the globe have quickly realised their dependence on Russia for energy and are racing to find local and regional solutions to produce the energy needed to meet demand. But during the time it takes to get new projects up and running, and to increase production, consumers will have to bear the brunt of this price rise.
But despite the obvious situation, politicians appear to be widely overlooking the issue of affordability as they focus, instead, on geopolitics. Yet, if they do nothing, states could soon see large populations falling into poverty, eventually leading to an economic downturn.
Many are already facing difficulties, with an estimated 5 million Brits experiencing fuel poverty from the 1st of April, according to new research. This comes in response to their energy bills increasing substantially, for some by as much as $900 a year. The poorest 20 percent of households may now have to dedicate as much as 10 percent of their income to energy bills. And with the prices of food also rising, this is just the tip of the iceberg.
With U.K. inflation at its highest for two decades, strongly linked to rising energy prices, the country is experiencing its worst cost of living crisis in decades. The government is now offering a $260 loan to alleviate the immediate stress of the rising energy costs, as well as a tax rebate, but this is merely a short-term solution.
And it’s not just in the U.K., as the energy crisis is being felt by countries around the world. Governments across Europe are now trying to shield consumers from these price increases in a bid to support consumers in the short term until they find a longer-term solution. Bulgaria, Denmark, France, Germany, Greece, Italy, the Netherlands, Norway, Poland, Spain, and Sweden have all either frozen energy prices or offered subsidies, tax cuts, loans, or other support frameworks to help their populations deal with the extreme rise in energy costs.
In the U.S., some politicians are suggesting the introduction of tax holidays and rebates to help consumers. A federal tax of 18.4 cents per gallon, as well as state taxes of around 39 cents per gallon, could be temporarily suspended to help consumers continue to afford their fuel. States are currently coming up with their own solutions to rising fuel prices.
In addition, the European Commission is taking a regional approach to energy insecurity. In October, it published a “toolbox”, outlining actions EU member states can take without breaching competition rules. These include subsidies for the poorest households, renovations funding to reduce energy waste, and tax cuts. EU leaders are expected to gather at a summit to discuss the extension of some of these measures, and the potential for price caps, to manage the economic repercussions of rising consumer costs.
Governments and regional powers will have to act fast if they are to avoid the economic and security issues that are likely to occur if consumers have to keep footing the bill. Many countries around the world have experienced civil unrest in the face of rising fuel prices, with deadly protests in states such as Kazakhstan, Iran, and Zimbabwe. Oil and gas shortages and rising prices could lead to moves such as energy rationing and even to an eventual recession if not tackled now.
And while developed nations may be able to subsidize consumer costs, at least in the short term, poorer countries could feel the effects of this energy insecurity even more. While some oil-rich African countries may stand to benefit from increased export demands, some states are worried about how to battle rising energy costs.
As agriculture continues to drive many African economies, and provide food security, many are worried not only about heating and electricity but getting the chemicals required for nitrogen-based fertilizers that support food production. This could mean poorer harvests over the next year or more, resulting in even higher food prices.
With consumers continuing to suffer from rising energy costs, risking their economic security to pay their bills, governments will have to come up with longer-term solutions fast to avoid the risk of an economic downturn. Further, the knock-on effect of these energy shortages and rising costs could be felt for years to come if countries are not able to find alternative energy supplies fast.
By Felicity Bradstock for Oilprice.com
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