A faster energy transition prevents global economic damage from oil and gas price shocks
Cambridge Econometrics Report
December 2023
New analysis by Cambridge Econometrics explores the link between energy prices and inflation, highlighting how a faster energy transition can contribute to maintaining price stability.
In light of the 2022/23 energy crisis, which significantly impacted global price levels, Cambridge Econometrics revisited the inflationary effects of an energy price shock, comparable to the one that occurred in the 1970s.
This report analyses the potential impact of the energy transition, examining its role in mitigating the effects on economy-wide inflation in the event of another oil and gas price shock in the coming decades.
Using global macroeconomic model E3ME, we simulate a potential future oil and gas prices shock, similar to those witnessed in the 1970s. This simulation compares macroeconomic outcomes between a business-as-usual scenario and a 1.5°C scenario for the years 2024 to 2040.
Our analysis shows that faster decarbonisation and increased energy efficiency within the energy system could make an important contribution to maintaining price stability, should another oil and gas price shock occur.
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