Policies curbing climate shocks will be stagflationary

Subject

Stagflationary green policies.

Significance

Global warming could cause a “stagflationary shock” to the euro-area, Banque de France Governor Francois Villeroy de Galhau suggested late last month. The IMF estimates that unless temperatures remain close to current levels, world GDP per capita will be 0.8% lower by 2030, and 2.5% lower by 2050. At the same time, stronger weather patterns will create inflationary pressures by disrupting sectors including agriculture and transportation.

Impacts

• Technologies will create new sectors, which may be less carbon intensive, but predicting the timing and tasks of these sectors is tricky.
• Rationing of air travel would trigger protests by higher-income groups that would increase the challenge for embattled governments.
• Policies to curb car usage could exacerbate urban/rural divisions in many states, as public transport is generally better in cities.