IEEJ：October©IEEJ 2021
Special Bulletin
A Japanese Perspective on the International Energy Landscape (556)

October 27, 2021

Simultaneous Energy Price Hikes and Their Implications for Energy Policies
Ken Koyama, PhD
Chief Economist, Managing Director
The Institute of Energy Economics, Japan
In “A Japanese Perspective on the International Energy Landscape (554),” I analyzed thefeatures and causes of recent energy price hikes and considered the background of the simultaneousenergy price hikes based on hypotheses. In a follow-up to this, I would like to discuss theimplications of energy price hikes for energy policies.
Energy price hikes have yet to calm down. Ahead of winter, concerns are lingering aboutfurther tightening of the supply-demand balance and more price hikes through cold waves or
unexpected disruptions to energy supply. In fact, the benchmark West Texas Intermediate crude oil
futures price topped $85 per barrel on October 25. The Brent futures price has also risen beyond$85/bbl. Compared with unusual hikes in Asian spot liquefied natural gas prices exceeding $50 per
million British thermal units and in European gas hub prices, crude oil price rises above $80/bbl still
far from record highs seem less serious. Given that oil is the largest internationally traded energy
commodity, however, oil price hikes have great impacts on the global economy. Crude oil price rises
have attracted global attention as a downside factor for the global economy and a factor behind
inflation fears.
In addition, coal and electricity prices have risen in a manner to exert pressure on national
economies and civic lives, as noted in my 554th report. The current price hikes are excessive in asense and could be reversed and corrected on some development. If the simultaneous energy pricehikes are accelerated and combined with rising energy demand under cold waves and unexpectedsupply disruptions, supply shortages and price hikes may trigger an energy crisis. Some market
players are speculating about such an event. Future energy prices are extremely uncertain.
Energy is indispensable for civic lives and economic activities. When energy markets arestable, with prices being at affordable levels, people perceive energy as provided like water or airand are indifferent to stable energy supply. Once price spikes become real and more serious in amanner to attract public attention, however, the situation may turn around. Given that energy isindispensable, short-term demand’s elasticity to prices is limited. If demand is strong, market
participants may race to acquire energy sources, triggering price hikes. In a rare case where it isphysically difficult to acquire some energy sources, physical shortages may arise, exerting grave
impacts on civic lives and economic activities. In such an event, governments or authorities may
have no choice but to give top priority to energy supply stabilization measures.
In Europe that is one of the centers of the current simultaneous energy price hikes, theEuropean Commission and national governments have taken initiatives to secure stable energy
supply and mitigate damage from the price hikes. On October 13, the European Commission
released a policy document titled “Tackling Rising Energy Prices: A Toolbox for Action andSupport,” proposing short to medium-term measures to tackle energy price hikes. Short-term1IEEJ：October©IEEJ 2021
measures include direct subsidies covering part of payments for energy, a moratorium on suchpayments, the avoidance of supply halts and temporary tax cuts for low-income people to protect
European consumers who have already been affected economically by the COVID-19 pandemic.
National government subsidies based on European Union rules have also been proposed forcompanies and industries that have plunged into severe business conditions due to energy pricehikes.
Medium-term measures include regulatory reform for effective functions of gas
inventories or reserves and the joint procurement of gas for additional reserves. These measures
address the gas supply security challenge facing Europe, indicating that the tightening gas
supply-demand balance has become a significant policy challenge for Europe. The policy document
also emphasizes the European Green Deal including the promotion of investments in renewableenergy as significant for energy security. Nevertheless, short-term measures indicate that the current
energy price hikes are a serious issue for the EU and that the European Commission is concerned
about further tightening of the energy supply-demand balance and more energy price hikes. Thecurrent energy price hikes and concerns about their escalation are exerting some impact on EU
energy policies.
Another interesting point is that the EU, though retaining the policy of giving priority torenewable energy and pursuing energy transition through the promotion of renewables, has shedlight on other energy sources like nuclear and natural gas in consideration of the current energy pricehikes. On October 22, European Commission President Ursula von der Leyen said that the EU
would need nuclear as a stable energy source and natural gas as a transitional source while givingtop priority to the promotion of renewables. She was discussing the energy price hikes and the future
EU energy mix at a press conference. The EU is considering how to position nuclear and natural gas
in talks on the EU taxonomy to classify green investments that conform to environmental
sustainability. The remark by the European Commission president came amid such talks, attracting
my interest. The current energy price hikes may provide new viewpoints for energy policy talks inthe EU or each EU member country, exerting some impacts on such talks.
The above focused on Europe but is basically common to the world. In a situation in which
substantial energy price hikes become a serious issue for civic lives and economic activities, energy
security may emerge as a significant challenge in any country in the world. If physical energy
shortages rather than price hikes become a matter of great concern, energy security may be viewed
as an even more serious challenge requiring policy response. In such a situation, people may
question how the current energy price hikes would affect climate change initiatives that have been
given top priority regarding energy issues. An answer would be that international arguments would
call for taking more care of energy security and avoiding the impacts of energy price hikes as muchas possible while retaining the attitude of giving top priority to climate change. As energy isreaffirmed as indispensable, growing international arguments may call for paying greater attention to
the adverse impacts of energy price hikes on low-income citizens and countries. We should pay
attention to future energy price trends and the potential energy crisis from the viewpoint of
implications for energy policies.
Contact: report@tky.ieej.or.jp
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