Politicians need to be more active when it comes to greenflation

Receive free climate change updates

Three months ago, BlackRock director Larry Fink said warning About the risk of price increases related to climate change. “If our solution is to have a completely green world, it will be much higher inflation because we don’t have the technology to do all of this yet,” he says. I did. “If inflation accelerates our green footprint, are we willing to accept more inflation?”

In recent years, this question has been largely ignored as deflation has dominated the conversation. But now it is becoming very important. This month, the UK was partially triggered by unpredictable weather changes (decreased wind levels and reduced supply), as well as policy shifts to combat climate change (decreased fossil fuel energy supply). We are recovering from the political collapse of soaring natural gas prices. Of energy from the turbine).

Texas and California have experienced similar pressures due to the awkward combination of weather shocks and reforms to mitigate climate change. Meanwhile, the surge in new demand for sustainable products has clashed with the turmoil in the Covid-19 supply chain. Pea protein Used for foods other than meat merchandise Required for electric vehicle batteries. Welcome to the world of “Green Flation”.

How should policy makers respond? Three important steps are required. First, we should all be aware that the role of the state in the fight against climate change is subtly changing. Ten years ago, green activists wanted a resistant government to take leadership in the fight to stop global warming. This is still necessary as it is impossible to stop climate change without a shift in public policy. The government must introduce policies such as carbon prices.

But what is still noteworthy today is the extent to which business and finance are driving climate change reform, sometimes much ahead of government. Western coal-fired power plants, like government regulations, are stagnant due to investor pressure.

What politicians should do now is not to “lead” enough to “follow” in this fight, but to recognize that the green transition is likely to be very messy and uneven. They need to intervene to provide a proactive solution in the event of market failure. In the United Kingdom, for example, the government had to be prepared for the fact that renewable energy could not (yet) fill the gap created by the decline in fossil fuel production. Similarly, soaring prices for some commodities needed for green products suggest that the Western government needs to relax regulatory rules that impede its production.

Second, the government needs to develop better forecasts and trade odds for green inflation. This is starting to happen. The European Central Bank recently report It argued that policy omissions would hurt growth more than green reforms. At this week’s financial conference, Greek central bank governor Yannis Stournaras said the central bank is stepping up its modeling efforts.

In the medium term, he suggested that green inflation does not have to be that dangerous. “We know that clean forms of energy are cheaper than fossil fuels.” But he added, “In the short term, climate change has a positive impact on prices through carbon pricing.”

As Irish counterpart Gabriel Makruh pointed out, the average global carbon price today is “about $ 3 per ton.” However, the network for greening the financial system, which is a group of central banks, Recently proposed “To drive the transition to net zero by 2050, we will need about $ 160 / ton of carbon price by the end of the decade,” the IMF said. Suggests that it should be $ 75 Tons. “We don’t have a model to understand [the implications] About this, “says Makhlouf.

Finally, governments need to create safety nets to protect vulnerable parts of the population from rising prices. Green warriors may argue that inflation is a small price to pay to prevent a planetary catastrophe. Some economists may also tweet that a few of them make it easier for governments to inflate their debt.

But 2018 Gillets Jaunes protest in France Soaring fuel prices show that if green inflation hits the poor, it can trigger a populist rebellion and prevent the terribly needed green reforms.This can be easily repeated Europe And elsewhere. Governments cannot magically remove the impact of costs from the reforms needed to combat climate change, but intelligent policies can and must alleviate the pain. In that sense, the UK gas crisis is a timely and terribly needed awakening call.

Politicians need to be more active when it comes to greenflation Source link Politicians need to be more active when it comes to greenflation

Related Articles

Back to top button