Greenflation is manageable now---but the transition causes a rapid uptake of metals and spikes inflation.

The effects of the third category of shocks, “greenflation”, are more subtle.

Many companies are adapting their production processes in an effort to reduce carbon emissions. But most green technologies require significant amounts of metals and minerals, such as copper, lithium and cobalt, especially during the transition period.

Electric vehicles, for example, use over six times more minerals than their conventional counterparts.[] An offshore wind plant requires over seven times the amount of copper compared with a gas-fired plant.

No matter which path to decarbonisation we will ultimately follow, green technologies are set to account for the lion’s share of the growth in demand for most metals and minerals in the foreseeable future.[]

Yet, as demand rises, supply is constrained in the short and medium term. It typically takes five to ten years to develop new mines.

This imbalance between rising demand and constrained supply is why the prices of many critical commodities have increased measurably in recent months. The price of lithium, for example, has increased by more than 1000% since January 2020 (Slide 4, right-hand side). Export restrictions on Russian commodities may add to pressure on prices over the near term.

These developments illustrate an important paradox in the fight against climate change: the faster and more urgent the shift to a greener economy becomes, the more expensive it may get in the short run.

So far, greenflation has had much less of an impact on final consumer prices than fossilflation. It is therefore misleading to claim that the greening of our economies is to blame for the painful rise in energy prices.

But as more and more industries switch to low-emission technologies, greenflation can be expected to exert upward pressure on prices of a broad range of products during the transition period.