Rising temperatures and rising prices: the inflationary impacts of climate change and the need for degrowth-based solutions to the ecological crisis

ABSTRACT

This paper highlights the role of climate change as a persistent, systemic, long-term inflationary driver. The inflationary impacts of climate change have been commonly overlooked in the economic literature. As global temperatures rise and extreme weather events become more frequent and severe, the inflationary effects of climate change will only intensify. These effects could be further exacerbated by the considerable pricing power of the corporate sector. As a persistent inflationary driver, climate change poses a serious threat to central banks’ ability to maintain price stability mandates. The traditional tools of monetary policy will be ineffective in curbing climate change-induced price pressures. Further, growth-based Green New Deal and related fiscal policies will be ineffective at mitigating climate change and reducing its inflationary impacts. Unless degrowth solutions are sought, climate change and its price effects will only intensify over time.

KEYWORDS:

• Prices
• inflation
• climate change
• monetary policy
• Green New Deal
• degrowth

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 The terminology of ‘long-term’ is employed to emphasize the enduring, lasting price effects of climate change, as opposed to short-term and transient price fluctuations. By employing the terminology of ‘long-term’ in the context of price effects, I do not intend to imply the long-run viability of the economic system that is affected by multiple crises, including the climate crisis.

2 While global warming has been prolonging the growing seasons in northern regions, longer growing seasons do not necessity result in higher yields. The benefits of longer growing seasons can be offset by the negative effects of changing precipitation patterns, increased severity and frequency of extreme precipitation and weather events; soil erosion, increased heat stress, water stress (flooding or drought), wildfire activity, wind damage; increased pest, weed and pathogen pressures, and disruptions in the plant-pollinator network, etc. (Government of Canada, 2020). The studies depicting the northern regions as the ‘climate change winners’ are ‘usually highly simplified and estimate farming benefits based only on projected temperature increases’ ignoring ‘other factors crucial to the viability and success of agriculture: more frequent extreme weather events, the expansion of pests and diseases, water availability, and soil quality’ (Coffman & Ness, 2021). Some studies also ignore the long-term effects of climate change, thus ‘leaving out the biggest and most costly impacts’ (Ibid.). Assessing the impact of global warming on U.S. agriculture, the U.S. Environmental Protection Agency concluded that while some U.S. regions may benefit from warmer temperatures, ‘[o]verall, warming is expected to have negative effects on yields of major crops’ (U.S. Environmental Protection Agency, 2022).

3 Neo-Classical economics treats climate change and global warming as ‘a relatively trivial issue’ (Keen, 2020, p. 1152), which has no significant negative effects on present and future economic activity (Ibid.). By confining the impact of climate change to ‘only a few points decrease in otherwise expanding world GDP per capita by the end of the century’ (Asefi-Najafabady et al., 2021, p. 1180), Neo-Classical economics conveys a false ‘impression that planetary wide economic growth and thus continued expansion of material and energy use is feasible’ (Ibid., p. 1178). The mechanistic nature of the Neo-Classical economics models, with their a-historical conception of time, makes all events, including ecological damage, reversible (Spash, 2021a). Following an exogenous ‘shock’, the economy always returns to an equilibrium. Climate change, therefore, cannot cause ‘significant damage’ to the economy (Keen, 2020, p. 1157).

4 Ukraine, U.S., Brazil and Argentina account for 87% of global maize exports. Under a 2 °C global warming scenario, total production in these counties could decline by 53 million tons, an equivalent of 43% of global maize exports in 2017. Synchronous production shocks in these countries would lead to frequent international price increases (Tigchelaar et al., 2018; see also De Winne & Peersman, 2021). Maize yield losses of up to 100% become a possibility for Ukraine under a 4° C global warming scenario (Tigchelaar et al., 2018).

5 See Morgan (2020) for a critical assessment of BEVs. In addition to highlighting the mineral resource challenges, Morgan counters the ‘zero emissions’ myth associated with BEVs. Based on the analysis of BEV's full life cycle, Morgan concludes that BEVs are far from zero emissions, with their contribution to emissions reductions highly exaggerated. BEVs manufacture (starting with the mining and extraction of minerals) is an energy (and minerals) intensive process, which generates considerable GHG emissions. The production of energy that is required to charge the batteries generates emissions as well. While BEVs are superior to ICEVs, replacing the current fleet of ICEVs with BEVs would exacerbate the emissions problem (Ibid., 2020).

6 Another issue with renewable energy transition is the long response time of the climate system. This climate inertia, coupled with political, economic and technological inertia, could mean that the system may be locked in with relatively high GHG concentrations for some time (Van Vuuren & Stehfest, 2013).

7 With relative de-industrialization, manufacturing has become a smaller part of a larger service sector-based GDP, giving a false impression that developed economies are becoming less guilty of material resource extraction and emissions production. However, more resource extraction and emissions are simply off-shored (Morgan, 2020; Wiedmann et al., 2015).

8 Solar Radiation Management (SRM) is another non-energy based climate mitigation strategy. SRM is the introduction of sulphur aerosols into the stratosphere with the aim of reducing radiative forcing by scattering incoming radiation (Van Vuuren & Stehfest, 2013). While the advantages of SRM include rapid implementation and relatively low monetary costs, the drawbacks are the side effects, many of which are still under-researched. The known side effects of SRM include disturbances to climate systems, reduced precipitation and evaporation levels, stratospheric ozone depletion and increased ocean acidification. These and other side effects of SRM ‘could be worse than the avoided impacts of climate change’ (Ibid., p. 479). While ocean acidification could, in principle, be overcome by large-scale ocean liming, this ‘would create a new set of environmental problems, requiring a further set of technical fixes, with yet further environmental problems, some anticipated, others presently unknown’ (Moriarty & Honnery, 2014, p. 520). Another danger of SRM is that its rapid discontinuation would result in ‘extremely fast climate change’ (Van Vuuren & Stehfest, 2013, p. 482) as ‘radiative forcing will quickly return to the value corresponding to the (higher) level of atmospheric CO₂ and other GHGs’ (Moriarty & Honnery, 2014, p. 520).

9 Currently, most of the sequestered CO₂ is not permanently stored, but used for oil extraction. In a process known as ‘enhanced oil recovery’, captured CO₂ is injected into partially depleted oil reservoirs in order to extract residual oil (Sekera & Lichtenberger, 2020)

10 The land that is suitable for CO₂ capture may not always be suitable for safe and permanent CO₂ storage (Sekera & Lichtenberger, 2020).

11 See Dunlap (2021a) for the discussion of the effects of climate change mitigation infrastructural development projects on local (including) indigenous communities.

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Notes on contributors

Alla Semenova

Alla Semenova is an Assistant Professor of Economics at the University of North Texas – Dallas. The author is grateful to two anonymous referees for their useful comments and suggestions which helped improve the paper. All the remaining mistakes are the author’s. Please direct correspondence to [email protected].