Greener economies can reduce energy price 'spikes', says Lagarde

By AFP

Speeding up the transition to renewable energy can limit the chances of painfully sharp price increases, European Central Bank President Christine Lagarde said Monday, as eurozone households come under pressure from soaring bills.

Switching to greener energy sources would "reduce the risk of spikes in energy prices", Lagarde said in a blog post following the opening of the UN's COP27 climate summit in Egypt.

Consumer prices rose at a rate of 10.7 percent in October -- an all-time high and well above the ECB's two-percent target -- as the cost of fossil fuels has leapt in the wake of Russia's invasion of Ukraine.

The effect has been felt particularly acutely in Europe, which had for years imported huge volumes of the fuels via pipelines from Russia.

"Surging energy prices have highlighted just how reliant we are on fossil fuels and how vulnerable this makes us," Lagarde said.

Switching to renewable energy sources, such as wind or solar, would lead to "lower and more stable inflation rates" and "make our economies work better", she said.

The ECB has carried out a series of aggressive interest rate hikes to try and tame run-away inflation.

The impact of the Ukraine war and energy price rises also mean the eurozone is threatened with "mild" recession around the turn of the year, Lagarde said recently.

Earlier this month, the ECB warned that banks could face enforcement action from the end of 2024 if they did not do more to identify and manage climate change risks among their clients.