Energy Price and Greenflation in the European Union. Facts and Challenges

Abstract

As the environmental and climate crises intensify, accelerating the green transition has become increasingly urgent. Only recently have scientists and economists begun to examine the relationship between green monetary policy and inflation. Therefore, it is important to investigate whether monetary policy can influence the green transition while supporting price stability. Although the concept of climatflation is gaining attention in empirical research, the effects of fossilflation and greenflation remain less understood and require further study. In particular, the sensitivity of green investments to changes in interest rates is a key issue that demands additional theoretical and empirical analysis. Systematic research in these areas is essential for shaping effective monetary policy and enabling policymakers and regulators to respond more efficiently to contemporary climate and environmental challenges. The aim of research on green monetary policy is to examine how central banks in the European Union (EU) can incorporate environmental sustainability, especially climate change into their decision-making frameworks. The research focuses on identifying how monetary policy instruments can be adjusted to support the transition to a low-carbon economy while preserving traditional objectives such as price stability and financial stability. A key objective is to better understand how climate-related risks affect inflation, financial stability, and economic growth, allowing central banks to adapt interest-rate policy to these emerging conditions. The study applied research methods based on literature analysis in banking and finance as well as econometric techniques, specifically the Vector Error Correction Model (VECM). Combining these approaches enabled a comprehensive analysis of green monetary policy and its potential impact on inflation and the development of a green economy.