Note — Feb 13, 2022

The World Isn’t Ready for Climate-Change-Driven Inflation

The indispensable Robinson Meyer for The Atlantic, on a topic we are bound to hear much more about in coming decades: the effects of climate change on the economy. Meyer goes over some of the impacts an increasingly extreme series of weather events has had on the availability of various food products, supply chains, and the making of indispensable components. All of this being exacerbated by the fact that “as the world has begun to transition—slowly, incompletely—away from fossil fuels, it has created imbalances in the energy system.”

These interconnected problems of climate damage and uneven transitions are causing inflation, to which the answer is usually: managing the flow of money to adjust demand. But in this new ‘climate worsened normal,’ is that enough? “Does the Federal Reserve have the right tools to manage?”

Note: the title above is the one Instapaper saved but if you go to the original article, the title displayed is “The Rise of Greenflation” which is annoyingly misleading. Yes, it reflects a part of the article, but it’s the type of exaggerated headline that doesn’t help discourse.

“The lumber-price story is a climate story,” he said. If a series of climate-change-aggravated disasters—including a multiyear outbreak of bark-eating beetles, back-to-back record-breaking fire seasons, and a massive November flood that washed out rail lines—had not struck British Columbia. […]

Over the past year, U.S. consumer prices have risen 7 percent, their fastest rate in nearly four decades, frustrating households and tanking President Joe Biden’s approval rating. And no wonder. High inflation corrodes the basic machinery of the economy, unsettling consumers, troubling companies, and preventing everyone from making sturdy plans for the future. […]

In 2021, the world put only $755 billion into the energy transition. By any historical measure, that was a bonanza amount—but it must more than quadruple, to $4 trillion, in the next decade for the world to avoid more than 1.5 degrees Celsius of warming while meeting its energy needs, the IEA says.