The energy industry is arguably one of, if not the, most powerful and influential industries in the world. It encompasses all the industries that have to do with production and sales of energy (oil, gas, and coal being the major sources), and is often critical in the growth of countries and the force behind “modern living”. These fuels are inelastic goods in today’s market, this not only allows corporations like OPEC to virtually charge whatever they please, but it also has considerable effects on many other industries when it struggles.
As time has passed the tolls of burning these fuels have begun to show in our environment, and our society is becoming increasingly dependant on finite resources. In the future, if nothing changes, Global Warming could wreak havoc on our ecosystems and climates, and our dependence on fossil fuels may just have devastating consequences when the proverbial “well” runs dry. This has resulted in many pushes in recent years to research and develop more environmentally friendly sources of energy that will be less damaging.
There are many factors that are in play regarding the decisions surrounding the future of environmental energy, and the effects it may have on the macroeconomic picture
One aspect of macroeconomics that applies to the environmental energy push would be unemployment and the four different types of unemployment. The effect on employment has been one of the biggest areas of concern when it comes to changing our sources of energy. To divide up our energy sources among more than just the main sources we have now would result in more competition which divides up the potential profit of a company.
It’s reasonable to think that these companies would have to cut some of its workforce for budgetary reasons once it loses some of its revenue flow, so it is a genuine concern that if a efficient renewable source were to enter a market we could see some layoffs. Other measures to reduce fossil fuel emissions, like a tax on emissions, would likely see similar results. Generally this would fall under the category of cyclical unemployment, meaning that the job has been lost due to a downturn in the business cycle. Hopefully this kind of unemployment is not severe ( an example of cyclical unemployment at its worst would be the Great Depression), as the job still has the potential to be created again if business picks up again. This falls under cyclical unemployment because theoretically these new renewable sources would take business away from these companies, resulting in less profit, and less room in the budget to pay more employees. None of this sounds very good for environmental energy, however an article on RFF.org called “How Do Environmental Policies Affect Employment?” by Marc Hafstead and Roberton C. Williams III suggests that the blowback may not be as bad as this initially suggests. They admitted that efforts to make environment-friendly choices regarding energy “is unlikely to reduce the number of jobs in the US economy…. Instead, jobs will shift away from polluting industries toward cleaner ones” (Hafstead & Williams 2017). They also mention how while many models do admit small decreases in overall employment, many of them assume the economy would be at full employment, that everyone who wants a job has one. In their own model, which accounts for more factors than the traditional models, they claim that net job loss is actually quite low, as the lost jobs are balanced out by the new jobs created by clean energy.
Another macroeconomic concept that concerns environmental energy would be inflation. As previously mentioned, America is one of many countries that greatly relies on the steady flow of energy to sustain the “modern” lives people have become accustomed to. This energy can be used to make the economy richer and these successes as well as the reliance we have causes demand for fuel to remain constant or rise. As demand rises, the companies charge more, knowing that these countries need their product, which drives up the value. Inflation is defined as occurring when prices rise higher than salaries, and as the value of these fuels is driven up it outpaces the salaries of the people. This isn’t a new concept, this is reality as shown by the article “ Energy Is An Environmental And Macroeconomic Problem” by Adam Ozimek states that “Energy price shocks are historically a contributor to modern recessions” (Ozimek 2018) and how all but one of the eleven post WW2 recessions have involved problems with oil prices. Another article from Economist.com called “Inflation and Renewable Energy” reinforces this idea, claiming “If you build an economy that’s entirely dependant on a non-renewable resource, you are guaranteeing yourself a nasty encounter with stagflation” (The Economist 2011). These articles show us that this problem is not going away, it’s been a problem in the past and is likely to get worse in the future if not properly addressed. If energy prices were to be decreased with the addition of environmental fuel alternatives to the market than energy would take up less room in the GDP calculation. The less room it takes up in GDP the smaller effect it would have if something were to go wrong.
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