Inflation on latest figures we receive next week. No doubt the dramatic, almost overnight, shift in consumption from in-person services to remote-ordered goods is part of the problem. So are mangled supply chains, as key workers miss work due to the coronavirus, here and overseas. And Russia’s brutal invasion of Ukraine has impacted global food and energy supplies.
Largely ignored as an inflationary driver, however, there has been climate change. Like the pandemic, climate change is a global problem manifesting itself in countless ways, many well-hidden. Unlike the pandemic, it will get worse, not better, for the foreseeable future.
If we wish to control inflation, we must address climate change now.
Because climate change affects prices across many sectors, its impact is easy to miss. Think of a simple loaf of multigrain bread. If the bakery gets its wheat from a semi-arid region now undergoing a full-blown drought, finding an alternate supply will cost more. Perhaps another region from the oats come that has experienced flooding, destroying half the crop. With so many oats competing for the same number of bakers, they will inevitably bid up the price. Much of the US barley production is out west, with regions prone to wildfires. If some barley burns, what will cost more. Even if the millet is grown and harvested without incident, the shortages can be the result of waves of powerful tornados that destroy some of the silos. And while flax seed production may be better, hurricanes delay the cost of shipping it to the bakery and bread output may be reduced for a while.
Any and all of these factors can raise the price of bread. And because bread is such a prominent staple, when businesses see bread prices rise, they fear inflation and raise other prices, too.
But it is not just bread. Extreme weather events and shifting weather patterns have caused global costs to soar across many commodities, from sugar to coffee to wheat and soy.
And it’s not just food, either. Housing is becoming more and more expensive as wood and other building materials no longer grow well where they were traditionally harvested. Soaring weather-related claims push insurance companies to raise premiums sharply or just deny homeowners coverage. Both state governments and private utility companies inevitably pass on the cost of major weather disasters, fire mitigation, and grid resilience. Transportation costs rise – and they are rolled into almost all goods’ prices – as are storms damage bridges and wash-out roads. The list goes on.
Some “supply shocks” are inevitable – and if they remain rare, price increases will be similarly rare, transient irritations.
Climate change, however, is making all these events much more frequent. Inflationary psychology, generating broader price rises and even specific supply problems. From the baker’s perspective, short-term price increases are likely to result in more expensive wheat, then more cover prices, and when shipping costs rise, it may be simpler just to raise the price of bread permanently. This is not wicked or predatory behavior: It is just business. But its effects can ripple through the economy.
Climate change drives inflation by fueling demand, as well. As storms’ frequency and severity increase, sea levels rise, and drought afflicts become habitable areas, and more people will compete for housing elsewhere. Changing conditions require new or rebuilt infrastructure, building materials for increasing demand.
Product substitutions can increase cushion prices, preventing them from feeding systemic inflation. When apple prices rise, people switch to pears; When potatoes are up, people dust off their recipes for rice dishes.
Energy costs for effective substitution of fossil fuels on our long-term dependence. Yes, over time we could shift from oil to natural gas and back, but with the same often unstable parts of the world producing a large part of both supply, many events are raising the price of one. Wars, revolutions, and other turmoil will interrupt our supplies regularly: apart from Canada and Norway, few stable democracies are big net exporters of oil and gas.
Rising fossil fuel costs produced during the “stagflation” of the 1970s, with rising prices and sluggish growth at the same time. Back then, few cost-effective alternatives existed.
Despite near-record low unemployment, some writers worry that persistent inflation could affect economic growth. The dependence of fossil fuel from freeing ourselves is therefore the key to sustaining economic growth in the medium- and long-term as well as securing inflation. And in the short-term, alternative energy now is actually cheaper than fossil fuels.
These technologies’ advantages will ensure their eventual dominance, but we can reduce costs now with more provisions before Congress can accelerate their roll-out. If we were to meet the large fractions of our energy needs from each of the many sources – solar, geothermal, wind, improved efficiency, and others as well as fossil fuels – we would have far less to fear from the open war between Saudis and the Iranians. , from an insurgency in Indonesia, or from a capricious tyrant in South America’s oil patch.
More often than not, inflation is technological innovation without sustainable economic growth. Incomes soared while prices stabilized in the early 1990s and late 2000s as we converted to the underworld’s enormous task to the Information Age. A similarly transformative period is now possible with well-targeted incentives to scale to renewable energy and build successful technologies. Even more so than the jobs created in the tech boom, these positions would appear in all parts of the country and at all skill levels, truly lifting all boats.
The clean energy supply of the pending congressional economic package would come in handy for sustainable, non-inflationary growth in the way that our supply chains and prepare for the increasing climate change. Congress must expeditiously finalize and pass this legislation.
David A. Super is a professor of law at Georgetown Law. He also served for several years on the Center for Budget and Policy Priorities. Follow him on Twitter @ DavidASuper1