Idea to know: Greenflation | WARC | The Feed

Idea to know: Greenflation

The years 2020-22 have been something of a crash course in economics (and epidemiology, and international relations), now in the midst of a crisis that has shone a light on the world’s need to end its fossil fuel dependency, the greening of operations presents a new challenge.

Why it matters

It is increasingly uncontroversial for both individuals and businesses to recognise that a significant adaptation away from fossil fuels and toward green energies must now be made, but that rush to green operations – by energy majors, consumer firms, and governments alike – has put pressure on the price of  raw materials necessary to the transition. 

There are useful positives. First, Russia’s invasion of Ukraine has shown Western nations how beholden they are to the whims of a gas-rich totalitarian and that this should change. That sense of extreme urgency is befitting of the crisis.

However, along with murmurs of dissent (typically on the extreme fringes) against a net zero consensus, the task of promoting a green transition is going to get harder as prices continue to increase and much of that task will fall to marketers.

Ultimately, this inflation problem is layered and complex, and there are risks that sustainability could be co-opted as the source of people’s current hardship. It’s time to start marshalling facts.

What’s happening

Both business and government are doubling down on the transition with the promise of far lower energy costs going forward (as well as a strong PR boost).

In a recent speech, European Central Bank board member, Isabel Schnabel, broke down the issue of energy inflation into three parts:

• “Climateflation… As the number of natural disasters and severe weather events is rising, so is their impact on economic activity and prices.”
• “Fossilflation reflects the legacy cost of the dependency on fossil energy sources, which has not been reduced forcefully enough over the past decades.”
• “Greenflation, however, is more subtle: green tech requires significant amounts of metals and minerals and a rush toward them drives up prices.

Summing up, Schnabel explained that while fossilflation should bear more of the burden for current price increases, “greenflation can be expected to exert upward pressure on prices of a broad range of products during the transition period”.

Right now, these costs are emerging in the form of key materials costs increasing alongside the cost of transportation. According to the Wall Street Journal, these effects have been particularly difficult in the US, where tariffs aimed at China have put further pressure on prices, given that China is the dominant producer of solar cells (among other critical equipment).

This is a mid-term problem

While these effects have come at a time of wider pricing pressure, which will be difficult for many people around the world, in the longer-term businesses are switching from a system in which resources are diminishing (and therefore prices are increasing) to one in which the resource is renewable (and therefore prices are likely to keep diminishing).

For brands, this is an issue not only of operational but reputational importance, despite macroeconomic effects like greenflation. Check out WARC’s Sustainability Hub for solutions, examples, and evidence of how the marketing industry is adapting to sustainability.

Sourced from the WSJ, Independent, ECB, WARC. [Image: Renault]