Vicious circle of the green transition: how green societies can perpetuate greenflation and how to mitigate it

In this study, we investigate the impact of key factors on the shift toward green economies, such as low-carbon dependence, carbon intensity, and energy efficiency, exploring their influence on the cost dynamics of materials crucial for green transitions, a phenomenon known as greenflation. Analyzing data from 25 countries over 23 years, from 2000 to 2023, we utilize advanced machine learning and Granger causality techniques to reveal how green economy transitions shape the pricing of these materials, potentially affecting their successful integration. Our findings suggest that as CO2 levels rise, there is a surge in demand for these materials, while a greater reliance on renewable energy sources amplifies their value, leading to the concept of the greenflation hypothesis. Moreover, improvements in energy efficiency can help stabilize material prices, offering insights for policymakers to prioritize efficiency measures and mitigate pricing pressures in transitioning economies.