Central banks raising interest rates makes it harder to fight the climate crisis

theguardian.com:

I n late 2021, consumer price inflation surged in many countries. Prices shot up again following Russia’s invasion of Ukraine in February 2022. In response, central banks drastically tightened monetary policy – raising interest rates from near zero to around 5% or more. Since the interest rate hikes have failed to bring down core inflation to the target rate of 2% favored by the Federal Reserve and the European Central Bank (ECB), the pressure for further rate hikes has been insistent.

We have long doubted that central bank rate rises could control the new inflation at a socially acceptable price. In most countries, wages lag well behind inflation. Too much of the rise in prices clearly reflects the impact of higher profit margins and obvious supply bottlenecks.

In such conditions, leaving control of inflation to central banks is like asking an old-time central bank to fix a harvest failure. Only targeted policies to increase output and control profit margins in strategic sectors, not general increases in the price of borrowed money, have much chance of working.

But relying on central bank rate rises in the current situation is folly for another reason: the reality of the climate crisis, which now greatly complicates the task of central banks and policymakers. One reason is obvious: higher interest rates considerably slow down the renewable energy transition. This happens in two ways.

First, newly applied renewable energy technologies, which have relatively large front-loaded costs, are more competitive (relative to the already installed fossil fuel technologies) only when interest rates are low.

Engineering studies show that the levelized cost of electricity (LCOE) of solar photovoltaics (PV) and wind onshore will increase