Some while ago, I wrote about how a top official at the European Central Bank had made the utterly unsurprising admission that the energy “transition” (away from greenhouse-gas-emitting sources of power) could be an inflation risk for some time, an argument she elaborated upon in comments (together with some rather elaborate qualifications) a few months later.
Now, we have the CEO of Norway’s sovereign wealth fund (the world’s largest) saying something similar. Inevitably, he points to the effect that a changing climate is having on food prices (without seeming to ponder the implications of the fact that the current increase mysteriously coincided with the inflationary surge we have seen since 2020, after some years in which prices had actually fallen from previous peaks). But he goes on to add various other factors, including “greedflation,” the reversal of globalization, and, yes, the high costs of the energy transition.
Writing for Real Clear Energy, Rupert Darwall notes that Huw Pill, the Bank of England’s chief economist, has “made the uncontroversial point that higher energy prices were making Britons worse off, but that attempts by workers and firms to recoup the real spending power they’d lost risked embedding inflation.”
Well, quite.
As Darwall points out, Pill was, in part, going over ground that he had earlier covered in a speech in Geneva. In that speech:
Pill says that central bankers need to assess structural factors likely to prevent inflation falling back to target. “If a rise in energy prices is seen as permanent, it is more likely to trigger greater intrinsic inflation,” he argues. If it does, it would “justify a stronger tightening of monetary policy.” Not mentioned by Pill, however, are the effects of climate policy and net zero on energy costs and prices — and therefore the persistence of inflation on an economy being subjected to a multi-decadal program of decarbonization.
Climate policies drive up energy costs through two channels. The first are policies forcing energy companies to replace hydrocarbons with inefficient, inferior lower-carbon alternatives, notably wind and solar. Were such technologies superior and capable of delivering greater efficiencies, there would be no need for government intervention promoting their adoption. The second channel is by progressively constricting the sources of energy supply, for example by Environmental, Social and Governance (ESG) investors preventing investment in new oil and gas fields. . . .