Greenflation, the paradox of eco-friendliness

Yugyeong Jeong

As the global climate abnormality has become a serious problem, governments around the world are establishing eco-friendly policies. The EU has agreed to reduce greenhouse gas emissions by 55% compared to 1990 levels by 2030 and impose a border tax on carbon emissions. Korea has set a goal of reducing greenhouse gas emissions by 40% compared to 2018 by 2030 and reducing carbon emissions to zero by 2050. Industries have also promoted development suitable for green policies. However, these policies have created greenflation and are putting a burden on the recovery of the global economy. Greenflation is a compound word of ‘green’, which means eco-friendliness, and ‘inflation’, where prices rise due to a decrease in the value of money. This is because, while the supply of industrial metals and fossil fuels decreased due to eco-friendly policies such as carbon regulations, demand increased and prices rose.

For example, electric vehicles require more aluminum than internal combustion engine vehicles, and the price of aluminum has skyrocketed as a result of global restrictions on aluminum production to reduce carbon emissions. It was an effort to respond to climate change, but the cost has risen, paradoxically. As there are clear limits to companies’ self-response, the demand for government-level support is increasing. However, the support of the Korean government is still insufficient compared to other countries. The European Union has decided to invest a total of 1320 trillion won in technology, focusing on key countries such as Germany and France. The Korean government has set a carbon-neutral R&D budget of 1.5 trillion won for next year and has decided to invest 6.7 trillion won in innovation projects in industries with high carbon emissions by 2030, but it is still insufficient compared to major countries. Yoo Seung-hoon, a professor at Seoul National University of Science and Technology, said, “As greenflation is an unavoidable process in the carbon-neutral era, companies should regard this as an unavoidable risk and prepare appropriate countermeasures, and the government should also minimize the impact with bold support.”