Describing Greenflation

 

What is Greenflation?

The world faces a growing paradox in the campaign to contain climate change. The harder it pushes the transition to a greener economy, the more expensive the campaign becomes, and less likely it is to achieve the off limiting the worst effects of global warning. Government spending is pushing up demand for commodities to construct a greener economy all over the world. Tighter regulation is reducing supply by discouraging investments in mines, smelters, and other carbon-emitting sources. As a result, metals and minerals such as copper, aluminium, and lithium, which are required for solar and wind power, electric cars, and other renewable technologies, are becoming more expensive. This is referred to as Greenflation.

 

Relation between Energy and Greenflation.

The news last year was rife with reports of global energy shortages. Power interruptions in China have resulted in significant reductions in industrial output in 2020. Last month, European gas prices reached new highs. While rising gas costs have had a negative impact on UK businesses and households, many domestic providers have gone into administration or ceased trading. Natural gas is now used more frequently to heat homes and generate energy in several countries. This is because of a global campaign to phase out coal and transition to lower-carbon energy sources. However, the current natural gas supply cannot fulfil the current need for post-pandemic recovery. Many countries have made a push to stop exploiting fossil fuels on their own soil, but they still import fuel from other countries to meet their energy needs. Countries are competing for supplies as exporters such as Russia want to keep more gas for domestic use.

How soaring gas prices is pushing for renewables?

Natural gas prices in the United States have remained stable because the country not only has more natural gas than it needs to meet local demand, but also lacks the infrastructure to export it to meet worldwide demand. This crisis has strengthened governments’ desperation to move to a greener economy. Lithium, a critical component in battery manufacturing, has seen its price soar as the demand for electric vehicles and renewable infrastructure grows. Benchmark lithium carbonate prices peaked in 2021, as mining companies scrambled to enhance production from current facilities and discover alternative supply sources. Other battery-related metals, such as cobalt, have doubled in price since January to $70,000 per tonne, while nickel has risen 15% to $20,000. Some analysts believe there will be a short-term supply shortfall. The main reason for this is that many mines were closed in 2020 because of low prices. As the pandemic persists, rehiring employees and restoring output to pre-pandemic levels has proven tough.

 

Copper and aluminium are two of the most significant metals for green electrification. However, environmental, social, and governance concerns have stifled investment in these metals. Countries are limiting the production of metals like aluminium to reduce the environmental impact of mining. This appears to be an environmentally friendly option. Aluminium is the dirtiest metal that causes the most damage during the extraction process. It is, however, one of the most important metals for solar and other green energy projects.

 

Renewable energy systems require more wiring than fossil fuel technology. Solar and wind power plants consume up to six times as much copper as traditional power plants. And, as governments announce new green expenditure plans and pledges. The demand for key metals is expected to continue to rise. It is critical to establish a more balanced approach to transitioning to sustainable energy sources. Stopping investments in oil production and new mines will exacerbate the situation. Oil businesses choke on low investments and are being denied the opportunity to transition. As oil supply drops, governments scramble to upgrade their renewable infrastructure in a hurry, driving up resource prices even further.

 

 Final thoughts

Transitioning to green energy sources may sound appealing in theory, but it is a tough concept to grasp. In the fight against climate change, the investment world is becoming increasingly narrow minded and ignoring the transition argument for many companies. The harder the campaign pushes for a greener economy, the more expensive it becomes and the less choice for investors, the less likely it is to achieve its goal of minimizing the worst effects of climate change.