Greenflation

· 3 min read
Greenflation

Greenflation.com is for sale!

The price of new renewable energy projects is going up, policy advisors say.

While it makes setting up projects all the more expensive, they say it should also free up access to money in other areas at the same time. This is because of something called an 'economy of scale'.

When more of something, like the solar panels for a renewable energy project, can be produced on a larger scale with fewer input costs, 'economies of scale' are created.

Overhead costs that are reduced by economies of scale include things like permit fees, labour costs for installation and the money spent to find new customers.

So rising costs, as well as supply chain problems for some of the commodities and goods needed for green projects, won't be a long-term threat to the economic viability of clean energy, advisers tell Reuters.

Overall costs for the industry should trend downwards as there are few barriers to scaling up, said Harry Boyd Carpenter, managing director for green economy and climate change at the European Bank for Reconstruction and Development (EBRD).

Cheap money for renewables

Vaibhav Chaturvedi, a fellow at the Council on Energy, Environment and Water (CEEW), sees "greenflation", or the costs associated with going green, as a concern, especially in the short-term.

"Underlying commodity prices are rising everywhere in the world," he said.

Prices of metals such as tin, aluminium, copper, nickel-cobalt have risen by up to 91 per cent this year. These metals are used in technologies that are a part of the energy transition.

But Chaturvedi sees the lowering cost of funding for renewable projects as a "big leverage" to counter the increase in underlying costs.

The global renewable energy market - valued at over $881 billion (€781 billion) in 2020 - is predicted to more than double to nearly $2 trillion (€1.8 trillion) by 2030, according to Allied Market Research projects.

Gauri Singh, deputy director-general at the International Renewable Energy Agency (IRENA), argues that despite inflation and supply chain disruptions, decreasing financing costs helped generate a record 260 gigawatts of energy from renewable sources last year.

"You will not actually get cheap money for anything that's a climate risk. Whereas for renewables, the market is softening," Singh said.

By Divya Chowdhury with Reuters - UK Online Report Business News  

The Rise of Greenflation

Extreme weather and energy uncertainty are already sending prices soaring.

By Robinson Meyer

The McMansions of the mid-2000s might be the most American form of housing, but they were not, in general, grown in America. Although the United States is home to more than 200 billion trees, the type of lumber harvested from North Carolina to Mississippi warps and twists when used as a vertical stud. Eventually it will pop your drywall. So for our home-framing needs, Americans rely on northern spruce and fir felled up north, milled into lumber, purchased by men like Stinson Dean, a Colorado-based lumber trader, and placed onto railcars bound for Dallas, Atlanta, and Washington, D.C.

In that last boom, Dean remembers, the U.S. built 2 million homes a year, and lumber prices never got much above $450 per 1,000 board feet, within the tidy range they’d stuck to since he entered the business nearly a decade ago. Now, the U.S. can’t find enough lumber to complete more than 1.3 million homes a year. Meanwhile, lumber is back up to $1,200. “The price of lumber has tripled, but we’re producing 40 percent less homes,” Dean told me. There has not been a bigger gap, in fact, between the number of homes that builders are startingand the number that they’re finishing in decades.

Since the mid-aughts boom, the North American economy actually lost productive capacity. Dean has little doubt about what is to blame. “The lumber-price story is a climate story,” he said. If a series of climate-change-aggravated disasters—including a multiyear outbreak of bark-eating beetles, back-to-back record-breaking fire seasons, and a massive November flood that washed out rail lines—had not struck British Columbia, “sawmills would be able to treat this market just like they did in 2006,” he said. “The price would never get over $500.”

“There are people who say, ‘Climate change isn’t affecting me,’” Janice Cooke, a forest-industry veteran at the University of Alberta, told me last year. “But they’re going to go to the hardware store and say, ‘Holy cow, the price of lumber has gone up.’” Taken by itself, climate change’s role in driving lumber inflation would be a fluke. But worrying signs have started to appear that these dynamics are not limited to lumber. Both climate change itself and the inevitable policy response to it—the global energy transition to low-carbon fuels—are starting to drive up prices around the world. And the world may not have the right tools to deal with it.