The energy transition debate has been largely dominated by this line of argument: Green energy is needed to address climate change, and households and business will benefit from it via lower prices. On Saturday, Isabel Schnabel, an influential member of the executive board of the European Central Bank, articulated another line of thought: the transition is needed, but’s likely to prove inflationary.
Schnabel, a German economist, argued that greenflation is very real and, not only is it not transitory, it’s likely to get worse. Central banks will need to react to it. Speaking at an ECB virtual panel over the weekend, she said: “While in the past energy prices often fell as quickly as they rose, the need to step up the fight against climate change may imply that fossil fuel prices will now not only have to stay elevated, but even have to keep rising if we are to meet the goals of the Paris climate agreement.”