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Understanding “Greenflation”

“Greenflation,” or the costs associated with going green, may be a concern in the short-term in many industries, Vaibhav Chaturvedi, fellow at the Council on Energy, Environment and Water (CEEW), predicts. Prices of metals such as tin, aluminium, copper, nickel, and cobalt, which are essential to energy transition technologies, have risen between 20% and 91% this year. But Chaturvedi saw the decreasing cost of finance for “green projects” as balancing out the increase in commodity costs. reports: “Underlying commodity prices are rising everywhere in the world,” he said. Although prices are rising for the raw materials needed for renewable energy and this will increase the costs of setting up new green power projects; it will be offset by better access to funds and economies of scale. Costs will fall with economies of scale, including for items such as permit fees, labour costs for installations, and customer acquisition costs.

Gauri Singh, Deputy Director-General at the International Renewable Energy Agency (IRENA), argues that despite inflation and supply chain disruptions, decreasing financing costs helped set the record generation of 260 gigawatt-hours 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.

Overall costs for the industry will 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).

Allied Market Research projects the global renewable energy market, valued at over $881 billion in 2020, to more than double to nearly $2 trillion by 2030.

Thus, the rising costs won’t be a long-term threat to the economic viability of clean energy, they told the Reuters Global Markets Forum last week. Neither will supplies as mines ramp up to supply the ever increasing market. 


Featured Image by Sean Robertson on Unsplash

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Written By

David Waterworth is a retired teacher who divides his time between looking after his grandchildren and trying to make sure they have a planet to live on. He is long on Tesla [NASDAQ:TSLA].


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