Climate change: decarbonisation to stoke inflation, but delaying efforts could hit economic growth, returns
- Policymakers face a trade-off between the high upfront cost of moving quickly towards net zero carbon targets, and the long-term damage to economic growth caused by climate change if they delay action, say analysts
- The inflationary impact on China could rise from one percentage point this year to 4 percentage points in 2026, before easing to almost zero in 2031, says Fidelity’s Ahmed
Policymakers face a trade-off between the high upfront cost of moving quickly towards net zero carbon targets, and the long-term damage to economic growth caused by rising temperatures if they delay action, they said.
“As global policy kicks into gear and brings the transition risks associated with reducing emissions to life, the accompanying rise in carbon prices from a very low base poses meaningful upside risk to inflation over the next few years,” said Salman Ahmed, global head of macro and strategic asset allocation at Fidelity International in a report on August 16.
The inflationary impact on China could rise from one percentage point this year to 4 percentage points in 2026, before easing to almost zero in 2031 and turning negative after 2043, he projected. While the impact on the US and Europe – whose combined emissions are less than China’s – would be around half or less than in China.
02:27
Global warming dangerously close to being out of control: US climate report
Such potential inflation from the extra costs of doing business because of efforts to decarbonise are underestimated and not yet accounted for by the investment markets, Ahmed reckoned.