Climate policies probably more inflationary than expected, says Bank of England deputy
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Policies designed to fight climate change 'probably' had a bigger impact on the inflationary upheaval of recent years than expected, the Bank of England's deputy governor has said. Sarah Breeden, who is in charge of the bank's financial stability efforts and sits on its Monetary Policy Committee, said in a speech on Friday that a sudden sharp rise in the cost of carbon resulting from UK policies could make inflation higher for longer.
![[The Bank of England compared the impact of the gas supply shock and the carbon permit supply shock]](https://i.dailymail.co.uk/1s/2025/01/10/11/93953497-14270395-image-a-2_1736507271999.jpg)
Russia's invasion of Ukraine in 2022 was the crucial catalyst in an inflationary spiral led by energy prices, driving Britain's consumer price index as high as 11.1 per cent by October of that year. Breeden told an audience at the University of Edinburgh Business School that the rise in wholesale gas prices coincided with a 'material' increase in the cost of carbon.
This, she said, was driven by a reduction in the supply of carbon permits, a falling share of permits given out for free and 'an expansion of sectoral coverage' under the UK's emissions trading scheme. Carbon permits, also known as carbon credits, can be bought by firms and individuals to offset carbon emitting activity.
Cost of carbon: Deputy governor of the Bank of England, Sarah Breeden. The ETS sets a cap on the total amount of certain greenhouse gases that can be emitted by covered sectors. It meant carbon prices roughly doubled in price to around £100 per tonne of carbon dioxide equivalent by the summer of 2022.
