It is notable that the protesters who have successfully pressed some universities to divest from fossil fuels do not seem to be lobbying nearly as hard to turn down heating and air conditioning. The energy transition needs to take place, but it will not be painless. The best way to encourage long-term producer and consumer investments in green energy is to have a reliably high carbon price; gimmicks such as divestment initiatives are both far less efficient and far less effective. (I also advocate establishing a World Carbon Bank to provide developing economies with funding and technical assistance so that they, too, can cope with the transition.)
For the moment, oil and gas prices seem likely to remain elevated, despite fears of a recession in the US and Europe. As the Northern Hemisphere’s summer driving season gets underway, and with the Chinese economy potentially rebounding from zero-COVID lockdowns, it is not difficult to imagine energy prices continuing to rise, even if the Federal Reserve’s interest-rate hikes sharply curtail US growth.
In the longer term, energy prices look set to rise unless investment picks up sharply, which seems unlikely given current policy guidance. Supply and demand shocks will most likely continue to roil the energy market and the global economy. Policymakers will need strong nerves to manage them.
Kenneth Rogoff, professor of economics and public policy at Harvard University and recipient of the 2011 Deutsche Bank Prize in Financial Economics, was the chief economist of the International Monetary Fund from 2001 to 2003. The co-author of "This Time is Different: Eight Centuries of Financial Folly," his new book, "The Curse of Cash," was released in August 2016.