The move to electric vehicles will blunt the current recession fueled by oil markets
Can you imagine a future where your daily commute is filled with electric vehicles? For now, we’re sitting at stop lights, rolling down the windows because it’s better to breathe the AC than the toxic fumes from the vehicles around us. But what if I told you that a future with electric vehicles could do the unthinkable: slow decline?
We have already seen this many times in our lifetime – oil and gas prices make even essentials like toilet paper and food seem unaffordable.
It happened later in 2000, then again in 2008, and we caught a glimpse of it earlier this year as gas prices set a new national record for $5 a gallon on June 14, 2022, consistent with AAA.
Meanwhile, consumers and businesses are feeling the pinch. For the first time in years, many tech giants (Apple, Google, Facebook, etc.) have paused hiring or started layoffs due to slowing demand and rising costs.
Companies that ship goods will feel the most impact as air, ocean and freight costs rise. This is why you’ve seen the price of food, technology and basically every other good skyrocket as gas prices rise.
For example, in Amazon’s Q1 2022 earnings call (in April), CFO Brian Olawsky said:
- Fuel costs are roughly 1.5 times higher than a year ago. Along with year-over-year increases in wage inflation, these inflationary pressures have added up to nearly $2 billion in increased costs compared to last year.
Those costs are then passed on to consumers, leaving them with two options: either pay more and spend less elsewhere, or cut it from the budget.
If you pick out now no longer to shop for it, you make a contribution much less to the economic system. Now imagine this on a larger scale. Many consumers feel the same way, and when overall economic growth slows for more than two quarters, it’s generally believed to be in a recession (though not officially until the NBER declares it).
A financial crisis in the making
We are seeing an instance of ways growing fueloline and oil fees are destroying the European economic system. The EU is heavily dependent on Russia for its energy imports, and the sanctions are driving up energy prices as the group of nations looks elsewhere to fill supply gaps.
According to the latest update, the EU imports almost half (43%) of its natural gas imports from Russia. Natural gas prices nearly doubled in July in the UK and are sitting at record highs across Europe.
Germany, the largest importer of Russian energy and Europe’s largest economy, is feeling the pinch in particular. In July, the country announced that it was entering the second phase of its three-phase emergency plan, signalling that an economic crisis was on the horizon.
Meanwhile, Russia is threatening to cut fuel supplies further as the war in Ukraine continues. Germany’s Economy and Energy Minister Robert Hasbeck claimed:
- Even if we can not sense it yet – we’re in a fueloline crisis.
Other European countries are sounding similar warnings as they cut fuel consumption. The whole situation shows how power can be used as a weapon and if not prepared, a soldier can destroy the economy without even stepping foot in the country.
How electric vehicles can slow the decline in its tracks
What if we didn’t have to worry about rising gas prices? Instead, what if the US set its own rates?
Oil is a market-driven commodity, meaning its price is set based on supply and demand. Furthermore, oil is refined into gasoline, so gasoline prices are determined by supply and demand. So, when oil prices rise, many times, the US ties its hands behind its back.
For one thing, ramping up supply could take years (especially with less funding in the U.S. transition to EVs), and the other biggest oil-producing nations include Russia and Saudi Arabia, so it’s not as easy as a phone call.
Take a look at the chart below; The blue line shows crude oil prices, and the shaded areas indicate the GDP-based regression.
Regressions based on crude oil prices, GDP Source: Federal Reserve Economic Information
Do you notice anything? A recession always follows or during rising oil prices. This makes perfect sense: if more money is spent on a fixed cost (gas), less is available for spending in other areas of the economy, leading to a contraction.
On top of this, gas prices generally fall more slowly than they rise, which continues to put pressure on the economy.
On the other hand, energy rates can be controlled. For a utility company to increase its rates, it must submit an official request. It can’t just decide one day that it wants to charge more (like the oil companies).
I realize what you are thinking: But what approximately the those who are being requested to preserve electricity proper now? And this is a problem. Strengthening the energy grid will take some investment and supporting infrastructure to make this a reality, exactly what the Inflation Reduction Act (IRA) aims to do.
How the Inflation Reduction Act can help
Building a clean energy economy is a major goal of the new climate bill. The bill aims to reduce greenhouse gases by 40% by 2030 from 2005 standards.
Solar Energy Powering Grid Source: Shutterstock
What does a easy electricity economic system appearance like?
For one thing, it means powering homes, businesses and vehicles with sustainable energy. An IRA provides funds for:
- 950 million solar panels
- 120,000 windmills
- 2,300 grid-scale battery plants
On pinnacle of this, the invoice presents tax rebates and incentives to make easy electricity alternatives greater less expensive for normal consumers. For example, customers who install electrical appliances can receive up to $14,000 in home energy rebates while saving money on energy bills.
More importantly, buyers looking to buy electric vehicles are eligible for tax incentives of $7,500 for new EVs and $4,000 for used ones if they meet the criteria. (You can discover a listing of qualifying EVs here).
The more electric vehicles and clean energy projects are deployed, the less vulnerable the US will be to a recession. But, for this theory to come true, critical infrastructure is needed to handle mass adoption.
For this reason, americaA is investing $369 billion to begin the motion with the IRA invoice. As a result, americaA is constructing a easy, self-maintaining electricity ecosystem.
By supporting an adequate energy grid, adoption of electric vehicles and infrastructure, rather than succumbing to gas prices, the US will be able to control energy rates and slow the recession before it spirals out of control.
Right now, the Federal Reserve is raising interest rates at a record pace to slow runaway inflation and prevent triggering a recession. But, the biggest factor driving inflation is energy (gas and oil) prices. Consumers are paying nearly a third (32.9%) greater for electricity than they have been a yr ago. As a result, the economy has now contracted for two consecutive quarters in what many see as a recession.
Instead of relying on market-driven commodities (gas and oil) to power the economy, clean energy provides a sustainable solution. That is why the US is investing billions in these projects. Once completed, clean energy such as electric vehicles, wind and solar power will help the US become self-sufficient and limit the effects of recession.
For example, electric vehicles and charging companies are using vehicle-to-grid (V2G) technology to transfer power from the vehicle’s battery to the home and vice versa. By doing so, you can direct the flow of energy and save it for when you need it most. For example, Ford has partnered with Duke Energy to enable F-150 Lightning owners to use the technology and, in turn, save money on utility costs.
On top of this, in some states solar energy users can sell energy back to the grid, known as net metering. Together, these could help the US create a clean, self-sustaining energy grid.