Published on Monday, March 7, 2022

Global | Green inflation? Nope, brown price hikes

Green inflation is the acceleration of consumer prices triggered by the increase in the price of products linked to the transition to a carbon-free economy, both those to be discontinued and those to be enhanced.

Key points

  • Key points:
  • Carbon taxes, whether imposed expressly or impliedly through regulations, make fossil fuels and carbon-intensive products more expensive, thus discouraging production and consumption.
  • Redistribution of carbon tax revenues is key to mitigate regressive income effects on the most vulnerable households and businesses and favor green investment.
  • With regard to green product prices, such as commodities used intensively by renewable energies (copper, lithium), price increases are also to be expected given the slow response of production to the increase in demand.
  • The energy transition will not change the economic policy of nominal stability of the economy: fiscal policy without recourse to monetary financing, independent central banks to pursue price stability, and expressly stated inflation targets.
  • Safeguarding the anti-inflationary credibility of economic policy is key, especially when many of the climate policies that will govern the transition to a low-emission economy are yet to be implemented.

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