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The New Energy Risk

Today's energy shortages were not created overnight. After years of underinvestment in production capacity, even a small reduction in global supply can send prices skyward, and now policymakers and investors face a full array of difficult choices.

NEW YORK – We have entered a new period of energy insecurity, in which acute shortages will remain a persistent risk. The economic, political, and social consequences of this shift are already apparent. Energy shortages mean rationing, and if rationing is left to market forces, the outcome will be deeply regressive, with poorer people spending disproportionately larger shares of their incomes on basic needs such as heating and transportation.

Energy inflation, in turn, will increase the risks of social upheaval, as incumbent leaders in rich and poor countries alike are quickly learning. Though energy shortages naturally will lead to greater investments in additional capacity, new projects will take time to come online. And unless most are carbon neutral, investments to address a near-term need will exacerbate a much larger long-term problem.

Today’s energy insecurity has been long in the making. Most energy investments take years to complete, and their associated infrastructure tends to be used for decades. The world’s current energy footprint was thus “baked into the cake” years ago, which is why fossil fuels still account for over 80% of global energy consumption.