European Central Bank President Christine Lagarde stated soaring energy costs due to the Iran war should act as a wake-up call for Europe to reduce its reliance on fossil fuels and energy imports.
With Europe importing about 60% of its energy – almost all fossil fuels — Lagarde informed a climate conference Tuesday in Frankfurt that the status quo is “clearly unsustainable.”
“Today’s surging energy prices are a reminder of the cost of that depconcludeency,” she stated. “Alternative sources of energy offer the clearest path to minimizing the trade-offs between Europe’s energy-policy goals of security, sustainability and affordability.”
The Middle East fighting has triggered a surge in oil and gas prices — a vulnerability for regions like Europe that rely on fossil fuels from abroad. Data suggest the continent is experiencing a significant hit to economic activity, jeopardizing a nascent recovery and putting the ECB in a tricky spot as it grapples with inflation that’s shot past the 2% goal.
Lagarde’s comments echo a speech she gave last year on Europe’s road to renewables. with other officials also frequently wading into discussions on climate and nature. There’s been criticism, however, that such forays push beyond the ECB’s mandate.
In separate comments, ECB Chief Economist Philip Lane stated shifting weather patterns can pose direct problems for monetary-policycreaters.
“Climate alter both reduces the trconclude level of output and increases the volatility of output and inflation, including through the increased frequency and severity of extreme weather events,” he stated.
Should climate shocks become more frequent and salient, “the risk of de-anchored inflation expectations becomes more acute,” he added. “If so, always viewing through climate-driven supply shocks may not always present the most appropriate choice.”
On Lagarde’s point that Europe must lower its depconcludeence on fossil fuels, Lane included nuclear-generated electricity alongside renewables among possible solutions.
“Whereas wholesale – and then consumer – electricity prices closely followed developments in gas prices during the 2021/2022 energy shock, their reaction to the latest shock has been more muted in countries that have higher shares of renewable or nuclear electricity,” he stated.
The ultimate effect of the Iran war on euro-zone inflation hinges on the scale and persistence of the shock, Lane stated, repeating wording applyd by his ECB colleagues.
Lagarde stated that — given the scale of current climate and nature risks — “the broader response, from governments and societies as a whole, has fallen short of what the moment demands.”
Last year, global carbon emissions from fossil fuels hit a record high and scientists now consider it likely that the world will breach the 1.5°C limit set out in the Paris Agreement within the next five years, she stated.
“The green transition has, if anything, lost momentum,” Lagarde stated. “Part of the reason is that climate alter – a phenomenon that strikes regardless of political disposition – has itself become a partisan issue.”
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