Understanding Greenflation and Its Impact on Material Prices

Inflation is a big-time buzzword in 2022, but there’s another relevant term not getting enough attention: greenflation. As demand for renewable energy products rises, the costs of materials used to produce them are skyrocketing. Copper, aluminum, lithium, and nickel are increasingly overpriced, and even the labor needed to assemble green products is growing prohibitively expensive.

Greenflation is real, and it’s one of the biggest obstacles to a more sustainable future.

What is greenflation?

Like its root word, inflation, greenflation characterizes a rise in commodity prices, specifically, those used in the production of renewable energy products. This affects everything from common aluminum to more specific materials, such as the crystalline silicon or silicon nitride used in solar panel production.

Greenflation has rippling effects beyond driving up specific material costs. It also raises the break-even point of renewable jobs and exacerbates lead times. As a result, developers may be forced to cancel renewable contracts because of increased costs or feasibility problems.

Greenflation comes with all the struggles of inflation, but it comes in a microcosm that specifically affects renewable infrastructure.

A barrier to a more sustainable future

Cries for action on climate change are louder every day, and many states and countries are pledging a swifter transition to renewable power, but material producers and manufacturers are bearing the burden. With the price of common materials, such as copper and aluminum, already at historic highs, and bottlenecks plaguing everything from semiconductors to chemical products, manufacturers simply cannot keep pace with expectations for the renewable energy market.

Greenflation is an undeniable imbalance of supply and demand. While there’s mounting demand, supply cannot keep pace, which hampers aggressive plans for a more sustainable future. From California’s record-breaking demand for renewable power, to the Infrastructure Investment and Jobs Act set to modernize the U.S.’s energy infrastructure, greenflation is a mighty challenge for manufacturing to solve.

Facing greenflation head-on

Greenflation is a double-edged sword. Not only are high material prices making it more difficult to transition to renewables, but climate change itself stands in the way of renewable efforts. Climate change is partially to blame for product scarcity, supply chain bottlenecks, and higher prices. It’s leaving manufacturers in a perilous position — but there are options.

Lowering the cost of a sustainable energy future requires a focus on resource allocation. Like all change, the shift to renewables should be transitionary to ease away from fossil fuels and give renewable producers a chance to keep pace. Governments must also make a fiscal commitment to ease the burden of material costs during transition — action some state governments are already taking. Finally, producers must keep innovating: finding ways to stretch materials further, use them more efficiently, and produce better results.

The quest to combat climate change and adopt renewable energy is a monumental one — and it starts with addressing greenflation.