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The Effects of Fossilflation & Climateflation on the Belgian Economy

Governance
Climate Change
Energy
Mathieu Blondeel
Vrije Universiteit Amsterdam
Mathieu Blondeel
Vrije Universiteit Amsterdam

Abstract

Already back in 2015 then-Governor of the Bank of England, Mark Carney, warned of a variety of (macro-)financial risks associated with climate change and the energy transition. As these concerns started to receive increased attention globally among policymakers, academics, activists and the financial sector, other, adjacent terms, started to emerge. In March 2022, at the height of the European Energy Crisis following Russia’s large-scale invasion of Ukraine and its weaponisation of (fossil) energy supplies to the EU, the concepts of ’climateflation’, ’fossilflation’ and ’greenflation’ were popularised in a speech by European Central Bank (ECB) Executive Board Member, Isabel Schnabel. In this study, we examine the effects of fossilflation (defined as ’the inflationary or deflationary impacts of the volatility of energy prices, caused by a large independence from fossil fuels’) and climateflation ( ’the inflationary or deflationary impacts of climate change’) on the Belgian economy in the period 2015 - 2035. We conduct a mixed-methods study that employs econometric analysis, triangulated with qualititative interviews, to study past effect of fossilflation, as well as future effects of fossil as well as climateflation. We run exploratory data analysis (also checking for structural breaks) to identify trends in inflation and the impact of seasonality, meteorological and climate data. Subsequently, we complete econometric time series analysis to investigate correlation between those variables, controlling for other explanatory variables. This study contributes to the growing body of scholarship on the financial, macro-economic and monetary risks and challenges associated with climate change and the energy transition. The study aims to formulate concrete policy recommendations to Belgian and European stakeholders so as to mitigate and adapt to these emerging risks.