Does the transition to renewable energy increase inflation in European countries?

Abstract

In European countries, because of the expensiveness of the technology required for the use of renewable energy sources, it can cause inflation by constantly increasing prices due to cost increases in the short term. However, in the long term, costs can be reduced by providing the necessary technological infrastructure, saving energy thanks to this technological development, eliminating harmful effects on the environment. In this way, renewable energy sources have a long-term effect on inflation. This study aims to examine the long-term relationship between renewable energy and inflation in European Union countries. It is thought that this study will contribute to the literature, since there are no studies that examine the relationship between renewable energy and inflation, among the national and international studies, which deal with the European Union countries and examine the PMG and CCE co-integration analyses. According to the results of the PMG cointegration analysis, while there is no significant relationship between inflation and renewable energy in the short term, renewable energy affects inflation negatively in the long term. According to the results of the CCE cointegration analysis, in the long run, renewable energy affects inflation negatively in Sweden, the United States, and Luxembourg.

Renewables, Energy Mix and Inflation in the European Union Countries

“…This also has a negative impact on macroeconomic variables within the economy. The system of supplying energy or fossil fuels to Europe may also be destabilized by all kinds of conflicts or may be used as a tool of political influence [18,19]. This is effected, for example, by Russia, which seeks leverage, exposing consumers to higher energy bills and supply shortages [1].…”

“…Generally, it should be noted that the impact of renewables on inflation is not clear, and research results often lead to different conclusions (compare, e.g., [19,[30][31][32]). First, it should be pointed out that implementing investments in renewables is expensive and the initial costs of their use are high.…”

“…First, it should be pointed out that implementing investments in renewables is expensive and the initial costs of their use are high. This leads to cost inflation, especially since the technologies used to produce renewable energy sources have not yet reached the "maturity level" that would allow for cost reduction [19,33,34]. So, in countries that are abundant in fossil fuels, using renewable energy sources can be expensive.…”

Does Renewable Energy Matter for Economic Growth and Happiness?

“…This system has been destabilized by Russia's actions after Western sanctions were imposed on it. Russia, seeking leverage, wanted to expose consumers to a significant increase in energy bills and supply shortages [2][3][4]. The continued use of fossil fuels is also becoming economically unjustifiable.…”

“…On the other hand, investments in renewable energy sources are expensive and the initial costs of their use are high. This may generate cost-related inflation, especially when the technologies used to produce renewable energy have not yet reached the "maturity level" that allows for cost reduction [3,18,19]. Therefore, the costs of energy transformation are also borne by consumers and end users of electricity.…”