(Bloomberg) -- Global incentives to galvanize demand for green assets are contributing to inflation in the short term, as supply for renewable energy and other clean technologies expand more slowly, according to Singapore’s climate action ambassador, Ravi Menon.
“You will get momentary increase in inflation and price pressures as you put in demand,” Menon, a former managing director of Singapore’s central bank, said in an interview with Bloomberg Television’s Alix Steel and Damian Sassower.
“But when the supply capacity increases, that should stabilize,” Menon said Tuesday on the sidelines of the Earthshot Prize Innovation Summit in New York. Bloomberg LP and Bloomberg Philanthropies are members of the alliance backing the Earthshot Prize.
Western governments have ramped up green stimulus to fight climate change and reduce their reliance on China, which dominates the clean tech supply chain. The US Inflation Reduction Act, signed into law in 2022, offers support measures such as tax credits for electric vehicles, and could spur as much as $3.3 trillion in spending, according to Goldman Sachs Group Inc. Meanwhile the European Union has plans to raise €1 trillion ($1.12 trillion) from public and private sources for the green transition.
The short-term price impact of the green energy push comes as inflation cools in many places following aggressive tightening moves by central banks.
“I thought this was going to come at the cost of severe slowdown in economic growth and rise in unemployment,” Menon said of the tightening cycle. However, larger economies have avoided major recessions, he added.
That policymakers are now “having this conversation about easing, about stimulus, when not too long ago, we were fighting inflation” suggests that central banks did well under those circumstances, according to the former head of the Monetary Authority of Singapore. “This has been quite remarkable.”
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