Carbon tax fails – ineffective, slow for solving climate change AND fuels decades of inflation

Proposals to prop up green energy will have more severe inflationary effects than their advocates let on, not only because of the magnitude of the efforts needed but also because of the thus-far ignored inflationary impacts of simply trying to fabricate the quantities of hardware needed.

For perspective on the scale of the challenge: getting to today’s state of green-energy affairs took about 20 years and well over $5 trillion of global spending on hydrocarbon alternatives. Yet hydrocarbons’ share of world energy has declined only by 2 percentage points over that time. The favored alternatives of wind and solar energy still supply only about 3 percent of global energy. As for electric cars, spending on them famously doubled last year—yet batteries still power just 0.8 percent of all transportation, while oil still fuels nearly 97 percent.

Our current episode of energy inflation emerged from a perfect storm at the intersection of three forces. First were government policies in Europe and the United States that have been, for years, hostile to expanding conventional energy production. Second were pandemic lockdowns, which wreaked havoc on energy supply chains. Third was Russia’s invasion of Ukraine. Now the head of the International Energy Agency (IEA), the president of the European Union, and the president of the United States insist that a key solution to combat energy inflation and to delink from Russian oil and gas exports is to redouble a commitment to green energy to replace hydrocarbons. But an accelerated energy transition wouldn’t do much delinking—though it would fuel inflation.

And now comes the ignored inflationary potential arising from what it will actually take to build the quantities of alternative energy machines needed to significantly impact hydrocarbon’s dominance. As the IEA and others have quietly noted, producing exactly the same energy as that supplied by hydrocarbons by building wind turbines, solar modules, and batteries instead requires, on average, an increase of 1,000 percent or more in the use of common minerals such as copper, aluminum, and nickel, as well as comparable or greater increases for elements such as lithium, manganese, cobalt, and rare earths. Yet as the IEA observes, the world’s miners are not producing, nor planning to produce, enough minerals for that kind of growth.

The astonishing growth in the supply of commodity minerals needed for green aspirations almost certainly can’t happen in the timeframes proposed by policymakers. And the mere attempt to pursue that materials-intensive path inflates mineral prices. For example, aluminum is now trading at a 30-year high, and copper and nickel are up 250 percent in a few years. Just as with energy, mineral inflation ripples through everything in the economy because the very same materials are used to build trucks, appliances, computers, and homes.

A recent analysis from the International Monetary Fund (IMF) found that the pursuits of minerals to fuel the IEA’s desired green-energy strategy would lead to historic levels of minerals inflation that would last for a decade. Such a path would reverse a century-long record of a slow but continual decline in the average cost of mineral commodities. As it has with cheap energy, the modern world has become even more complacent about cheap minerals.