Mark Carney, a former Governor of the Bank of England, says environmental policy will ultimately help keep inflation low and stable. Photo: WPA Pool. /Getty Images Europe
This was presented as a new utopia. Pure abundant energy available to all. Millions of new jobs, a thriving economy and a cleaner and greener world. And all this while reducing bills and freeing up money spent on light and heating for other purposes.
However, as the transition to net zero accelerates and wind and solar power replace oil and gas, it is becoming increasingly clear that prices are not coming down quickly. On the contrary, experts fear that the transition to environmental standards will exacerbate the inflationary crisis, which will deal a new blow to the credibility of a number of central bankers who predicted the opposite.
“Green transition will be costly, and if tax collection does not keep up with increased spending, there will be an expansionary budget effect that could increase economic demand relative to supply and thus inflation,” says George Buckley, Chief Economist at Nomura UK.
While investment helps spur innovation and boost productivity, which helps reduce cost pressures, it also puts «a growing strain on limited mineral reserves,» he adds.
The cost of doing so should not be underestimated. Wind turbines, solar panels, electric vehicles and batteries are all made from rare earths and essential metals.
All of this is likely to confuse the central bakery elite, who have called for an early end to fossil fuels.
0907 The cost of zero net profits
“Going to zero net profits leads to disinflation,” insisted Mark Carney in his speech. last year. The former Governor of the Bank of England doubled down on that claim last month, acknowledging that while prices are likely to rise for about a decade in the pursuit of net zero, being greener will ultimately help keep inflation low and stable.
“Clean energy is cheaper. It's cheaper today and even cheaper tomorrow, and it will be less volatile than the system we have in place,” he told The Telegraph.
Christine Lagarde, president of the European Central Bank, agrees. “Extreme weather events can damage infrastructure, destroy crops and disrupt supply chains,” she said in her speech last year.
“This could lead to higher prices for key products and thus cause inflation, which will make it harder for us to keep prices stable. On the contrary, increased efforts to switch our energy supply to more cost-effective renewables should eventually help slow inflation.»
However, Nomura suggested that moving forward would make the Bank of England's 2% inflation target «increasingly difficult for achievement». achievements” — partly because of pure zero.
Inflation in the UK is already at 8.7% and is not expected to return to the Bank's target of 2% until 2025. analysts say.
Nomura says higher taxes on consumer bills, encouragement of greener forms of energy and more investment will push prices up for decades to come.
0907 record inflation
Azad Zangana, senior European economist at Schroders, said the problem will get worse as more countries go green. If we act too quickly, it risks yet another supply shock to the global economy, which could lead to substantial price increases.
“As more countries in the world begin on the path to energy transition, demand will increase for some very hard-to-find commodities such as rare earths and various other forms of metals that are now in short supply. So as more countries decide to go down this path, the cost of transition will start to rise exponentially,” he says.
«It's not for nothing that they are called rare earth elements.»
< p>You will also need basic metals. For example, the International Energy Agency (IEA) estimates that building an offshore wind farm requires seven times more copper than a gas-fired power plant.
Zangana emphasizes that many countries are realizing that the demand for their natural resources resources will only grow.
Chile, which has one of the largest lithium reserves on the planet, announced in April that it was nationalizing the industry, giving the government control over supplies and prices. They are not the only ones. Mexico nationalized its lithium mines last year, and Indonesia banned the export of nickel ore, a key battery material, earlier in the decade.
“With supplies of these [minerals and metals] relatively inelastic, rising demand could significantly increase global costs,” says Buckley.
There is also the question of how the transition will affect different groups in society. “Whenever higher inflation occurs, it always hits people with lower incomes and people with less wealth, no matter the reason,” says Zangana.
While some people can afford electric cars and levy extra fees on their bills, those who can't will either be forced to count carbon tax costs on their fuel or apply for extra handouts from the government to cope.
«Unfortunately, this could increase inequality in the future,» says Zangana.
Paul Fisher, senior fellow at King's College Business School, says many people are at risk of being left behind.< /p> 2105 Electricity generation for a net zero path
“You may have to transfer people from one sector to another, and it may be different people,” he says.
“For example, a few decades ago many miners lost their jobs and some never got a job elsewhere. Therefore, the government has an obligation to intervene and do something to support these communities. If they are 50 or 60 years old, they may not even find another job. And so you can get the dislocations that happened in the 1980s: higher unemployment, people losing manufacturing jobs, and they're not well suited to work in other sectors.»
Despite this, Fischer, the former head of the central bank, is optimistic. Like Zangana, he believes there is no alternative to net zero.
“If you don’t have a transition, the consequences for unemployment and the economy will be much, much worse,” says the ex-minister. Veteran Bank of England.
“Volatility will be much more inflationary, perhaps because you won’t be able to grow and eventually the economy will collapse.
“At present, we are still dependent on fossil fuel imports from non-democratic countries. And if you look back at history, you will see that this led to price spikes for 50 years. And that will continue if we can't move away from fossil fuels.»
Fischer says governments around the world will face tough choices to protect the planet while keeping their votes, a dilemma that goes far beyond central banks. , inflation and interest rates.
“Climate change is a long-term problem, but we live in democracies with a short-term perspective,” he says.
“I remember during the financial crisis , someone said, “Well, we know what to do to save the financial system, we just don't know how to get elected. The same is true with climate change. Politicians just don't know how to elect them if they push this through.”
In the long run, a net zero can actually drive prices down. But before that, politicians and central bankers have the task of explaining to the public that their utopian rhetoric about green energy is not true.
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