In a letter to Member of the European Parliament Jonás Fernández, European Central Bank President Christine Lagarde set out how the ECB assesses the impact of renewable energy on inflation, highlighting ongoing monitoring of electricity markets and research into the relationship between renewable-energy investment and price dynamics. Any substantial impact on inflation is reflected in the ECB’s analysis and inflation projections. The ECB noted that renewables typically involve high fixed costs in the short term but lower marginal production costs than fossil fuels, which could put downward pressure on energy prices over the medium term and increase resilience to fossil-fuel price spikes and supply disruptions. It pointed to ECB analysis finding that the countries with the highest wholesale electricity prices in 2021 were those in which electricity demand was more frequently covered by gas-fired generation. Electricity is included in both short-term inflation projections and medium-term Eurosystem staff projections, which also consider medium-term drivers such as the reform and extension of the Emissions Trading System examined in the December 2024 projection round. Lagarde also reiterated the ECB’s incorporation of climate change considerations into corporate bond purchases announced in July 2022 and its intention, following the March 2024 operational framework review, to incorporate climate-related considerations into the design of structural monetary policy operations where configurations are equally conducive to implementing the monetary policy stance.
European Central Bank 2025-02-14
European Central Bank explains how renewable energy developments are incorporated into inflation projections and monetary operations
ECB President Christine Lagarde highlighted the ECB's assessment of renewable energy's impact on inflation, emphasizing monitoring electricity markets and researching renewable investment and price dynamics. The ECB noted that renewables, with high fixed but lower marginal costs, could reduce energy prices and enhance resilience to fossil-fuel disruptions. Climate change considerations are integrated into ECB's corporate bond purchases and future structural monetary policy operations.