Following a general easing of the Covid pandemic, the world markets entered a new pandemic of drastically high inflation.
In the US, the average rate of inflation stayed well above 7% for the majority of 2022, at levels last experienced during the 1970s energy crisis. Global costs of oil, gasoline, electricity and natural gas all surged by double-digit rates, largely thanks to Russia’s invasion of Ukraine and supply chain disruptions amid China’s zero-Covid policies. To add to this economic kerfuffle, the US Federal Reserve has taken its most hawkish stance in nearly two decades, gradually raising interest rates to bring some control to inflationary pressures.
While inflation is obviously not something to celebrate, some emerging sustainability trends are worth a closer look.
Climate technology and renewable energy
Carbon-based energy sources are a huge source of inflationary woes. In fact, 41% of overall inflation on a global scale is attributable to fossil fuel prices. Even more inflation is attributed to the addition of high-energy costs on consumer goods.
While economists do not expect inflation to jump to 1970s’ levels, the geopolitical parallels between now and then are uncanny. The Organization of Petroleum-Exporting Countries (OPEC) took efforts in 2021 to reduce oil supply, despite the surge in demand, to minimize uncontrollable inflationary pressures. However, it was not anticipated going into 2022 that Russia – the third-largest producer and second-largest exporter of crude oil – would face global economic sanctions that would result in double-digit inflation rates across much of the developed world.
But unlike the 1970s, the world is now not completely dependent on high-fuel-consumption vehicles or petroleum-based energy sources. Ultimately, the 1970s energy crisis led to a surge in demand for lighter, more fuel-efficient vehicles produced by Japanese and West German auto manufacturers. Such inflationary pressures today have led to a similar shift in interest for more sustainable alternatives and business practices.
Investors are more inclined to steer away from riskier assets and seek a greater focus on energy independence. And despite the macroeconomic headwinds of the past year, they are maintaining strong support for climate technology, alternative energy and expanding the infrastructure of electric vehicles. The cost of new energy technologies has decreased by approximately 60-90% in the last decade, and it is far easier to fight inflation on energy when you have a resilient system that does not rely on commodity price swings.
Without strong climate mitigation efforts, we could see even more inflation in the future. That would come amid increased supply-side demand constraints for dwindling oil reserves, an overall increased demand with an ever-growing human population and a destabilizing of employment markets due to mass migration from the flooding of coastal cities.
Like the impact on climate-related matters, high inflation also helps to pinpoint cracks in the system when it comes to income equality and social matters. You can combat inflation on energy by building a resilient system, and the same thing goes for developing a more resilient human population in times of difficulty.
Higher inflation equates to things like higher food, heating and gasoline prices, which greatly impact those at or below the poverty line. It’s creating a divisive and dangerous environment where many can’t even fathom additional consumer spending; they can barely afford to survive. On top of this, inflationary pressures were already prominent prior to the pandemic in real estate, housing, healthcare, energy and higher education.
Some states have begun to address adjustments to their minimum wages in 2023. However, the federal minimum wage will be raised to $9.50 per hour on July 1. With the average monthly rent of $1,300 and the average family of four spending between $700 and $1,200 per month on groceries in 2022, it is clear that the affordability factor for basic living should be a focus for political policy.
Green jobs market
Equality among green energy jobs is noticeably strong. Even with an overall unemployment rate of 3.5% in the US in 2022, unemployment in the extractive sector was 4.8%, but in green industries it was 1.8%. Green jobs also pay an average of $46 per hour versus $28 in the oil and gas sector. When considering resiliency, extractive industries lost three times as many jobs than green industries during the pandemic, and green industries were able to recover back to pre-pandemic levels in May 2022, while the oil and gas sector still has not fully recovered.