It's a much-discussed topic right now: How strong are the effects of climate protection policy that are driving up inflation rates at the moment?

The KfW development bank once examined this in a study based on the new CO2 price for fuel and heating oil.

The price was introduced at the beginning of 2021 and increased at the turn of the year.

The study now not only considers the direct effect on the prices for petrol and heating oil - but also indirect effects are examined, which result, for example, from the fact that demand changes;

what is ultimately intended in climate policy interventions.

Christian Siedenbiedel

Editor in Business.

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The study first shows how the rising CO2 price makes fuel and oil more expensive year after year.

For petrol, the surcharge was 6.1 cents per liter in 2021 and 15.9 cents in 2026.

In the case of heating oil, it was around 6.6 cents per liter in 2021, and it should be 17.2 cents in 2026.

And for natural gas, the surcharge was around 0.5 cents per kilowatt hour in 2021, and in 2026 it should be 1.3 cents per kilowatt hour.

The short-term direct effect on the inflation rate is given as 0.63 percentage points in the study for 2021.

That would not be an inconsiderable factor;

overall, the annual average inflation rate was 3.1 percent.

This does not take into account the price-driving effects of other climate policy measures, such as European certificate trading or climate policy requirements relating to construction.

The study emphasizes that the price-driving effect was particularly strong with the introduction of the CO2 price, with the increases the effects are likely to be less pronounced.

Nevertheless, the economists come up with 1.49 percentage points that the CO2 price cumulatively drives up inflation over six years.

However, there are opposing effects.

The CO2 price makes energy more expensive, which has an impact on consumer and investment demand, gross domestic product and employment.

This also has an indirect effect on inflation.

"The CO2 price will result in macroeconomic feedback effects on consumer demand of minus 0.9 percent in 2021, on investment demand of minus 3 percent, on gross domestic product of minus 0.8 percent and on employment of minus 1 percent," it says in the study.

Taking these effects into account, inflation in the chosen model (“medium-sized, New Keynesian structural equilibrium model”) would only increase by a good 0.35 percentage points in 2021 as a result of the introduction of the CO2 price – and only by 0.15 percentage points over a period of six years percentage points.

"Our model shows that although there are direct inflationary effects of a CO2 price, there are indirect effects through consumer and investment demand, gross domestic product and employment," says Fritzi Köhler-Geib, Chief Economist at KfW Bankengruppe, summarizing her results.

"Looked at over six years, there is an inflation-driving effect, but this is less than the isolated consideration of the direct effect of the CO2 price would suggest." The price-driving effects of a CO2 price are the stronger, the less Renewable energies are currently still available as alternatives to fossil energies, says the economist: "From our point of view, it is also important to take the distribution effects into account.