The Bank of Spain believes that the ecological transition is inflationary and points out the five types of households that suffer the most

The Bank of Spain admits, "as has been confirmed in recent quarters", that the ecological transition "can have a very significant impact on the level of inflation”. But, in the medium and long term, it is also undeniable that climate change poses a serious threat to society and to growth, especially if action is not taken now to mitigate the impact and favor the transformation of economic activity.

More than 60% of gas stations have raised prices that dilute the government bonus

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As the institution explains in its 2021 Annual Report, “indeed, part of the strong rise in prices that has taken place on a global scale since the beginning of 2021 has been associated with the policies that the different world governments have recently been adopting to promote the reduction of greenhouse gas emissions in their economies”.

The fight against global warming and "the physical risks" that it entails (floods, fires, desertification, tornadoes, droughts...) accelerate inflation for different reasons. For example, the direct impact of environmental taxes or European CO2 emission rights (designed to reduce greenhouse gases) on energy prices.

But also the indirect impact of this taxation, of investments to favor the ecological transition (in the same green energies, in electric mobility or in general sustainable consumption) or the increase in public spending to alleviate the multiple disturbances and the gradual extinction of the most polluting activities.

According to current consumption patterns, it is the families with the lowest incomes, the largest or those with the lowest educational level, together with those whose heads are between 35 and 45 years old and those who live in rural areas, who suffer the most from green inflation .

Some conclusions under which Ángel Gavilán, Director General of Economy and Statistics of the Bank of Spain, calls for action to fight climate change and, at the same time, public measures, “temporary and specific”to protect the most affected groups and help them in their transformation.

Aid both in the development of new infrastructures, the acquisition of adequate equipment or access to information, as well as in the adaptation to new activities. Or, from another point of view, in the permissiveness with developing regions and the greater demand for sustainability from the richest. And far from the general discount on hydrocarbons or the tax cuts on energy included in the Response Plan to the war in Ukraine.

Losses of up to 8 points of world GDP around the year 2100

The central bank itself includes in the report the estimate of NGFS (Network for the greening of the financial system, from its acronym in English) of a blow of up to 8 percentage points towards the year 2,100 in the Gross Domestic Product (GDP) if they are maintained current policies. “Some losses” that would be 2.5 integers if, on the contrary, net zero emissions were reached in 2050, according to the same forecast.

For our country, Ángel Gavilán, General Director of Economy and Statistics of the Bank of Spain, emphasizes that the calculation of the impact is very uncertain. As well as assessing whether Spain will be more or less affected by the ecological transition compared to other comparable economies in the European Union (EU) is imprudent, despite the well-known advantage in generating electricity with energies such as solar or wind power. "The percentage of renewables should increase from 43% in 2020 to 74% in 2030," he says.

Although the economist recognizes its effect on prices. "The mitigation of the climate change process and the adaptation of the economies to it would not only affect the level of inflation, but also its volatility," he emphasizes.

“On the one hand, a wide range of studies indicate that, to the extent that the global warming process is associated with the occurrence of increasingly intense and frequent adverse weather events, the prices of certain products —such as food— possibly will present greater volatility in the future. On the other hand, the different economic policies deployed to favor the ecological transition could also increase the volatility of inflation”, details the document published by the institution.

Examples of price increases

Looking for a concrete example of the impact of the fight against climate change, and of the policies for the ecological transition, it is observed that after the announcement by the European Commission of the legislative package Objective 55, on July 20, 2021, the price of emission rights in the EU increased by 56% —142% throughout the entire year 2021—.

"A vertical escalation that put additional upward pressure on the price of electricity, both in the wholesale and retail markets," continues the Bank of Spain.

Another concrete and multiplying effect are the bottlenecks that are being suffered in world trade as many large economic actors coincide in time in the ecological transition process. Multinationals and countries that suddenly demand large amounts of lithium or copper, and other materials related to the electrification of mobility or connectivity.

Those who suffer most from climate change and 'green' inflation

“The impact of the physical and transition risks associated with climate change could be very different between individuals, depending not only on their place of residence, but also, among other aspects, on their health status, age, educational level and income. ”, stops the Bank of Spain.

Thus, for example, a large number of studies indicate that both global warming and high levels of air pollution could have a considerable negative impact on people's health, an incidence that would be particularly adverse in children, the elderly and people with illnesses. Chronicles.

"In the same vein, it seems likely that those households with a higher level of income or education could enjoy a broader margin of maneuver to adopt various measures that allow them to better adapt to the different risks linked to climate change," he observes. the institution in its report.

"The consumption pattern of Spanish households with lower income levels showed a higher carbon content," continues the central bank, adding: "The intensity of CO2 emissions per euro spent also varies markedly with age [ver gráfico]”.

The amount of emissions per euro spent is also higher among Spanish households with a lower educational level, those that do not own their home, the most numerous, and those that reside in smaller municipalities.

"In light of this evidence, it would be convenient for public policies to articulate mechanisms to compensate, on a temporary basis, the most vulnerable households within each of these groups for the higher costs that the ecological transition could entail," warns the Bank of Spain.

As he argues, the need to deploy this type of compensatory measures would also be justified in order to achieve sufficient and essential "social consensus" to carry out the profound process of structural transformation that the economy and society need to address in the coming years. to meet the major climate challenges ahead.

The weakness of this consensus is reflected in the fact that Spain is among the group of EU economies in which environmental taxation shows persistently lower relative revenue over the last two decades.

The difference in collection between our country and the European average “is largely explained by lower taxation on energy, and in particular for taxes on hydrocarbons. A third of the tax differential in Spain is due to a lower tax on transport”, the report concludes.

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