Energy Stakes

In 2022, European natural gas prices spiked 10x after Russia cut pipeline flows. Factories shut down. Governments scrambled to hand out emergency checks. A commodity most Europeans had never thought about twice became the central fact of economic life, overnight.

Energy is not one policy issue among many. It shows up in three places that matter for human welfare in ways few other commodities match. Development: the correlation between energy consumption and GDP per capita is one of the strongest in economics. Roughly 2.3 billion people still cook on biomass (wood, dung, crop waste) because they lack access to anything better. Indoor air pollution from those cookstoves kills roughly 3 million people a year. Regressivity: low-income U.S. households spend 8–10% of income on energy; high-income households spend 2–3%. A flat energy price increase functions as a regressive tax, regardless of intent. Security: supply disruptions don't stay contained. The 1973 oil embargo triggered a global recession. Europe's 2022 gas crisis forced factory closures within weeks.

The hard part: these three dimensions pull against each other.

Example: Carbon pricing in a cold climate

A state passes a $50/ton carbon tax. Heating oil, electricity, and gasoline all rise in price. The tax is uniform; everyone pays the same rate per ton of CO₂.

Which households absorb the largest hit as a share of income: high-income or low-income?

Low-income, by a wide margin. A family spending $3,000/year on heating fuel sees a roughly $300 increase, which is 1% of a $30,000 income. A family spending $5,000 sees $500, but that's 0.3% of $150,000 income. The policy reduces emissions (security/environment) but worsens regressivity. That tradeoff isn't a reason to reject carbon pricing, but ignoring it guarantees bad policy design.

The next lessons examine each dimension in detail, starting with energy poverty: what it means globally, how it's measured, and why it persists.

---