Spiking gas and power prices are putting energy volatility in the political spotlight at a sensitive time in the energy transition.The crisis is heightening attention on the role of government policy in easing the burden on consumers.High prices are so far not generating a wider political backlash against the low-carbon drive. Save for later Print Download Share LinkedIn Twitter The energy transition was never going to be smooth. There was volatility in oil and gas markets long before climate change topped the agenda, and that will continue — which the prices crisis highlights. Current renewable and low-carbon capacity still only provides roughly 20% of global energy, and getting that 80% fossil fuel level down to 15% or so will be very volatile.“It will not be a smooth, easy way,” International Energy Agency head Fatih Birol warned the Energy Intelligence Forum 2021. “There are some harbingers of the potential messiness, or disruptiveness, of what it looks like to transition the lifeblood of the global economy,” Columbia Climate School co-founder Jason Bordoff said.In terms of managing the financial pain of the transition, however, one new dynamic in the Covid-19 era is that high levels of government social spending are no longer taboo. The pandemic has shown that governments of all political stripes can intervene on a massive scale to soften the blow for citizens.And if it’s volatility that consumers ultimately want to avoid, renewables are where it’s at. Andurand Capital Management’s Mark Lewis described renewable energy as a deflationary technology. “You’re building infrastructure where the energy itself arrives for free,” he said — even if there’s a volatile transition toward that "regulated rate of return system."Spending FocusGovernment policy will play a key role when it comes to managing the pace of the energy transition, even as investors are also driving change. In the current crisis, governments’ most immediate responsibility is to act in ways to ease the cost burden on consumers, including with a view to keeping the wider politics behind the transition on track. That same cost-sensitivity lens will invariably inform policymaking on legislation designed to deflate fossil fuel demand, through energy efficiency and other measures.So far in Europe, the low-carbon transition is mostly not being blamed for higher gas and electricity prices. For one, many factors are at play — like lower gas flows from Russia, last year’s cold winter depleting storage, extended industry maintenance, a fall in wind output and a post-pandemic surge in Asian economic growth — and are being widely reported.But governments are aware sentiment could turn, and a number are taking concerted steps to help consumers, whether by channelling payments to the less well off and freezing prices (France) or taxing utilities’ excess profits (Spain). Recent Covid-19 expenditures also make such government outlays less of a political hot potato for European and other governments — a lesson that could apply throughout the energy transition. The EU’s Fit for 55 climate policy package places a strong emphasis on its social fund. Far more difficult is locking in help for poorer countries for adaptation and to fight climate change, which volatility in developed economies' energy markets could complicate further. Political HeadwindsIn Europe, fear of a political pushback on climate policy often harkens back to France’s "yellow vest" protests in 2018-19. But that movement, while sparked by a poorly timed fuel tax increase of a few cents, was largely driven by wider issues of income disparity. So far, criticism has mainly come from what appears to be increasingly shrinking climate-skeptic camps in Europe, including from major coal consumer Poland. High prices could also fuel opposition to extending the EU's emissions trading scheme to heating and road transport fuel, already one of the less popular parts of the proposals.But the risk of a bigger backlash remains, and on a global level. “If we don’t manage that process of transition and make sure it does not affect affordability and reliability and security of supply, I worry there will be a backlash against the ambition we need for climate policy. I think there are signals now in public polling and among many comments that you see across Europe that support that worry,” Bordoff said.Policy ideas are bubbling up in Brussels to prevent a repeat of at least the current crisis. Some of this is about government action to prevent market failures. French and Spanish finance ministers meeting this week at the Eurogroup summit are calling for more regulated EU energy markets and setting up an EU strategic gas reserve. EU Energy Commissioner Kadri Simson told the European Parliament on Wednesday that the European Commission will present a toolbox of short- and medium-term solutions next week to help vulnerable EU citizens, and also propose a gas market reform by end-year.Political polarization in the US, a producer state, over fossil fuels means the price crisis is playing out in predictable ways. But price spikes probably won’t have a huge impact politically, says Samantha Gross, director of Brookings' Energy Security and Climate Initiative: Republicans will say, this is why we need fossil fuels, while Democrats will point to fossil fuel markets’ volatility, and argue that a more reliable and affordable grid looks like expanding renewables.More specifically, US Deputy Energy Secretary David Turk emphasized the need for electricity grid upgrades and integrating disparate sources of supply as a way of minimizing future similar disruptions at this week's Forum, but he acknowledged the federal government needs authority from Congress to do more.Most critical of all would be a backlash in Asia. China and India — both heavily reliant on gas and LNG imports and also major coal users — are being hit hard by the price spike. But Beijing is expected to course correct after addressing the immediate power crunch crisis. And India's energy transition pathway is already full of uncertainties and risk, given that its fossil fuel demand growth is the fastest globally.The now-dominant narrative that time is running out to limit global warming could also limit any backsliding by governments and industry on the transition. “My hope would be that this would actually put more fire under decision-makers,” Greenpeace International Executive Director Jennifer Morgan said.Most of those responding to a snap poll taken of listeners in the Forum’s “Green Swans” panel agreed: More than 60% of respondents said the prices crisis would actually speed up the energy transition. But with volatility still very much a part of the equation, the onus will be on governments to set policies to ease the pain along the way.