An important part of the strategy to limit global warming is to make it more expensive to use fossil fuels. This is one of the reasons why the climate transition may in various ways affect inflation and thereby the conditions for monetary policy. During the transition we can expect that energy prices will increase and that there will be negative effects on the aggregate supply in the economy when CO2-intensive technologies are phased out. Investment in new technologies contributes to higher demand in the economy, and when the new technologies are put into use, there will be positive effects on the aggregate supply. Most of these effects point to higher inflationary pressures during the transition, but how inflation will develop ultimately depends on monetary policy.

Author: Mikael Apel^[1] Thanks to Johan Almenberg, Anna Breman, Emma Bylund, Charlotta Edler, Mattias Erlandsson, Martin Flodén, Jesper Hansson, Jesper Johansson, Peter Kaplan, Björn Lagerwall, Stefan Laséen, Åsa Olli Segendorf, Peter Sheikh Kvarfordt, Maria Sjödin, Marianne Sterner, Ulf Söderström and Anders Vredin for their valuable comments. The opinions expressed in Economic Commentaries are the authors’ personal opinions and cannot be regarded as an expression of the Riksbank’s view of the questions concerned. , senior advisor at the Department of Monetary Policy.