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Energy and Resources | Green inflation awaits us



Wanting to go too fast on the road to energy transition, we risk driving up the prices of the raw materials needed to reach the goal and even stray from the goal.

Green inflation awaits us, economist Marc-Antoine Dumont warned Wednesday during a presentation to the Outaouais section of the Association of Quebec Economists. “Some prices are bound to rise when pollution costs are factored into production costs,” he explained.

The important thing is to keep this new source of inflation under control by avoiding overly aggressive measures. “The faster we go, the more we risk getting bogged down in the process,” he summed up in an interview with The Press.

Even if, for many, things do not change fast enough, moderation has much better taste, according to him, That does not mean that we should not accelerate the pace. “There is a nuance between going too fast and picking up the pace,” he underlines.

He gives the example of the transition from gasoline vehicles to electric vehicles, which will require a huge amount of investment and mining resources. “We will have to develop new production, refining and recycling capacities to meet this demand, which takes time. »

It takes about 16 years between the discovery of a copper deposit and its production, illustrates the Desjardins economist.

If the demand for electric vehicles increases faster than the supply to meet this demand, prices will explode and will put a brake on the energy transition.

Marc-Antoine Dumont, economist at Desjardins

Similarly, there is a strong movement in favor of divestment in the oil sector, but again, it is important to go gradually, warns the economist.

Even if the idea does not appeal to everyone, it will be necessary to continue to invest in polluting industries to modernize them and meet the needs as long as there are, believes the economist. The technology to run heavy trucks does not yet exist, he pointed out.

Oil supply should therefore not be restricted until substitutes are available. “Severe and unpredictable environmental regulations could restrict supply and cause price increases that are harmful to the economy and the social acceptability of the energy transition. »

Sustained inflation

This new source of inflation linked to the energy transition and the fight against climate change is here for several years. The economist believes that this is not a problem, if it remains under control.

The monetary policy of central banks will have to adapt to this reality, which complicates their job, namely controlling inflation. The Bank of Canada and the other central banks themselves admit that they are ill-equipped to deal with the impacts of the energy transition, and there is already talk in their discussions of raising the inflation target or taking into account the price of pollution to the extent of inflation.

Governments have more leeway to help businesses and consumers adapt and to manage green inflation, according to the Desjardins economist. In particular, they can establish credible objectives, give themselves clear means to achieve them and plan corrective measures to adjust them if necessary.

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