As the climate breaks down, costs go up: Welcome to ‘climateflation’

By Ryan M. Katz-Rosene & James Jackson*

If you ask an economist why everything is so expensive these days, you will likely get an answer explaining how oil — the lifeblood of the global economy — is currently facing supply bottlenecks in the Strait of Hormuz, thereby bringing up global energy prices.

That explanation is part of the answer, but it doesn’t paint the whole picture. Our new research proposes a new way of thinking about rising costs in our contemporary era, through the lens of what we call “climateflation.”

As a concept, climateflation proposes that the causes, effects and even attempts to mitigate and adapt to climate change are conspiring to make everyday life more expensive.

As ecological political economists, we are concerned not just with how rising costs impact people’s wallets, but also with how it might have spin-off effects in areas such as social inequality, political radicalisation, geopolitical instability and environmental degradation.

‘Fossilflation’ and political failure

By burning fossil fuels since the rise of the industrial era, humans have added 495 billion tonnes of carbon to the atmosphere. Those emissions have contributed to global warming, which in turn has increased the likelihood of extreme rainfall events, extreme heat and agricultural drought.

However, since at least the early 1990s, the international community has sought to limit dangerous global warming. In 2015, members of the United Nations agreed to limit global warming to 1.5 C above the pre-industrial era (or well below 2 C).

Yet only in the last few years has the UN Framework Convention on Climate Change specifically named the elephant in the room — fossil fuels — as a core cause of the problem. As such, decades of corporate greenwashing and political stonewalling have enabled fossil fuel use to continue growing, leaving the global economy heavily dependent on this form of energy.

If the global energy system were not so dependent on fossil fuels, it is unlikely that present-day oil and gas supply bottlenecks in the Strait of Hormuz would be contributing so much to headline inflation.

Put differently, if climate mitigation efforts had been taken more seriously 35 years ago, today’s conflict in Iran would have far less bearing on everyday prices. In this way, we can link rising prices today to the political failure to act on climate change.

From ‘carbonflation’ to ‘greenflation’

There is also a more direct impact from climate change on everyday costs.

Weather extremes are incurring tremendous costs, from rising public health costs and productivity losses associated with severe wildfires and heatwaves to rising grocery prices for climate-vulnerable crops because of agricultural failures. Extreme weather events such as heatwaves and flooding are also imposing major costs on infrastructure and buildings.

These direct costs tend to be more sporadic, occurring more acutely in areas dealing with extreme weather. However, as the world warms, the underlying weather events causing these price increases are expected to become more frequent and severe.

Yet the direct effects of climate change and our failure to get off fossil fuels are not the only forces influencing costs. Much of our present-day infrastructure was constructed with a more stable climate in mind. Homes, businesses and capital have built up in vulnerable areas without adequate resilience measures in place.

In other words, not only have our political leaders largely failed to heed the warning to wean our energy systems off fossil fuels, they have also failed to invest in more climate-resilient infrastructure.

This makes dealing with climate change today more expensive. It also means yet more costs as people and institutions are forced to retrofit or refurbish buildings and infrastructure, invest in and build new clean energy production systems, acquire new climate-friendly equipment, secure new forms of insurance protection or even relocate to new areas.

In some instances, governments have sought to tackle climate change by applying a surcharge on fossil fuel consumption (a carbon tax) or by incentivising low-carbon purchases (through things such as electric vehicle rebates). Yet these policy tools can result in higher costs for society.

Not just about rising costs

Overall, the three main areas we outline above — fossilflation, carbonflation and greenflation — are the main constituent parts of climateflation.

In our work, we are careful to note that climate change does not always lead to cost increases. In fact, in some instances it is associated with reductions in prices — for instance, when higher levels of CO2 help to fertilise crops, or when clean-energy retrofits actually reduce energy use and bring down household costs.

Nevertheless, the net effects of climateflation are likely to be increasing costs for the foreseeable future. That is likely to remain the case until we can power most of the global economy without fossil fuels, bring emissions down to net zero and halt further warming, and build infrastructure that is truly resilient to new climate conditions.

Of equal concern to us, however, are the potential spin-off effects that rising costs can create in other areas.

Climateflation could create winners and losers, dividing those who can afford higher costs from those who cannot. It could also make reactionary — and xenophobic — political movements more compelling to an increasingly frustrated and angry population. The resulting discontent, or competition for new resources in an effort to bring down costs, could sow the seeds of conflict between communities or nations.

If history is any measure, periods of relatively high costs can be destabilising to the traditional power structures that uphold society. How will climateflation play out in this regard? Only time will tell.

*Ryan M. Katz-Rosene, Associate Professor, School of Political Studies, with Cross-Appointment to Geography, Environment and Geomatics, L’Université d’Ottawa/University of Ottawa and James Jackson, Lecturer and Research Fellow, School of Social Sciences, University of Manchester. This article is republished from The Conversation under a Creative Commons license. Read the original article.