Greenflation: When sustainability is expensive

• Author:
• Author name

  Quantumrun Foresight
• June 19, 2023

Insight highlights

Greenflation, a combination of "green" and "inflation," has emerged as higher wholesale and consumer prices have impacted various sectors since Spring 2021. The manufacturing costs of electric vehicles (EVs) have risen due to increased demand for batteries, creating a commodity boom for minerals like copper, nickel, and cobalt. However, limited supplies and prolonged supply responses from mining companies have caused shortages. The 2022 conflict in Ukraine further disrupted supply chains, particularly for nickel and metals used in wind turbines. Paradoxically, the pressure to achieve carbon neutrality has slowed down the supply chain for green technologies and infrastructure, leading to longer project timelines and increased costs to meet environmental standards. 

Greenflation context

Greenflation, a combination of “green” and “inflation,” is mainly driven by higher wholesale and consumer prices since Spring 2021, according to the Financial Times. Global inflation has affected everything, from commodities to rent to energy bills. As a result, going green has become an expensive undertaking. An example is the rising manufacturing costs of building electric vehicles (EVs). The US International Energy Agency stated that the global number of EVs will increase to 145 million by 2030, a mere fraction of the 1.2 billion combustion engine vehicles as of 2021. Consequently, this gap creates a significant demand for batteries that will remain necessary for the long term.

This demand resulted in a commodity boom, but supplies couldn’t keep up with the need for minerals such as copper, nickel, and cobalt. There are two main reasons for this issue: first, some rare earth metals are only found in a few countries. Second, supply response from mining companies is prolonged due to higher costs of investment capital and pressure from investors to lower emissions.

Additionally, the 2022 war in Ukraine compounds the situation because supply chains were disrupted, particularly those for nickel and metal for wind turbines. As Europe reduces its dependence on Russian oil and gas, multiple renewable energy projects like offshore wind farms were launched, leading to more supply shortages.

Disruptive impact

Ironically, the pressure to become carbon-neutral slows the supply chain for green technologies and infrastructures. With more countries implementing laws to increase carbon regulation, the costs of meeting decarbonization targets are mounting. In Chile and Peru, home to 40 percent of the world’s copper reserves, what used to be a five-year mining project process now takes ten years due to additional environmental and social impact evaluations as of 2022.

Because of these inefficiencies, commodity manufacturers are reinvesting less than they would have and are instead returning money to shareholders. The lack of supply from fewer investments is causing prices to rise. This development demonstrates how well-intentioned standards, such as environmental, social, and governance (ESG) requirements, can lead to unexpected results.

However, some experts are optimistic that economies of scale will make up for greenflation. Reducing overhead costs through economies of scale includes costly items like permit fees, labor for installation, and customer acquisition. Even if some commodities and goods become more expensive or difficult to obtain, such drawbacks won’t ruin clean energy’s chances for long-term success.

Additionally, inflation and supply chain disruptions have made it more difficult to finance renewable energy projects; decreasing financing costs helped generate a record 260 gigawatts of energy from renewable sources in 2020, according to the International Renewable Energy Agency. The organization is confident that increased investments in renewables are softening the market.

Implications of greenflation

Wider implications of greenflation may include: 

• Some governments reconsidering the necessity of the regulations in place to assess environmental and ESG concerns, potentially leading to less red tape that companies must overcome when investing in new sustainability-related projects.


• Some governments further subsidizing green projects and initiatives to incentivize businesses to become more sustainable. The dramatic rise in subsidy costs may spur public backlash.


• Increased investments in the renewable energy sector as countries attempt to hit their decarbonization targets.


• More countries investing in rebuilding or growing their domestic manufacturing hubs to expand the production of renewable energy infrastructures and EVs.


• Fewer consumer investments in renewable energy infrastructures, such as solar panels, in the short term.

Questions to consider

• What other sectors may be affected by greenflation?


• How else do you think greenflation is going to affect climate change initiatives?