RUTH SUDERLAND: Politians and central banksers need to be honest about the dangers and costs of greenflation

  • “Greenflation”, a Wall Street phrase for the increasing costs of climate action, is a Wall Street currency
  • Economists and financial experts worry that greening will increase inflation. 
  • An analysis suggests that the transition to net Zero will take around $150tn and be costly over 30 years. 

Portmanteau terms are one of many irritations in modern life. But ‘greenflation’ – a Wall Street coinage for the rising costs of climate change action – is about to enter the vocabulary.

UK has the lowest inflation rate in 10 years at 4.2%. This is causing inflation to make a comeback. Consumer prices are up 6.2% compared to a year ago in the US, which is experiencing its largest increase in inflation for more than 30+ years. 

The central bankers are reluctant to increase interest rates and argue that this is a temporary, Covid-related phenomena. 

A helping hand: Analysis suggests the transition to net zero will cost around $150trillion (£110trillion) worldwide over the next 30 years, a colossal sum

A helping hand: Analysis suggests the transition to net zero will cost around $150trillion (£110trillion) worldwide over the next 30 years, a colossal sum

However, some financiers and economists worry that the green revolution will cause inflation to rise and could continue long after the pandemic has passed. 

Ethan Harris (chief economist at Bank of America) is one of those who warns that renewable energy will drive up inflation by more than 3 percentage points in the US. The same arguments can be found on the other side of the Atlantic. The rationale is that there is a shortage of the skilled employees needed for a green transformation, which will push wages upwards. 

A spike in the demand for commodities like copper has occurred alongside the spiraling wages. This year, it reached record levels and is considered the most important commodity in green technologies. 

The BoA analysis suggests the transition to net zero will cost around $150trillion (£110trillion) worldwide over the next 30 years, a colossal sum. No less a figure than Larry Fink, chief executive of the world’s biggest investment manager, Blackrock, is also fretting about greenflation. 

Fink says that fighting climate change will lead to “much higher inflation” and investors will be in for a significant shock”. Interesting that greenflation worries are not being addressed by such prominent figures. 

The reason for this is the reluctance of climate change deniers to challenge traditional green thinking. Traditional energy investments will be unable to meet the demand, as fervor and enthusiasm will overtake traditional energy. This will lead to higher bills, even though the increases this year are only a hint. 

Already, we are seeing people fleeing from unsustainable projects like West Cumbria Mining’s plans to open a coal mine that will supply the steel industry with coking coal. 

It was granted approval by the local authority last year, but has been frozen until Cop26. According to the mining group, this will be the largest net zero-coal mine in the world. However, if approved it could be used for importation. 

The Shell plans to build the Jackdaw North Sea gas field, despite the fact that it would reduce Britain’s dependence on imports, were also rejected by UK regulators. 

All of these are not reasons to reduce our efforts in protecting our planet. Of course, climate change poses huge threats to our economy. 

But politicians and central bankers should be truthful about the costs – and about the risks of greenflation.