Green Inflation Will Not Happen If The Energy Transition Is Carried Out Carefully

Workers clean up a panel of Solar Power Plants (PLTS) in Sengkol Village, Pujut District, Praya, Central Lombok, NTB. (Antara/Ahmad Subaidi/wsj)

JAKARTA - How to overcome green inflation? The question came out of Gibran Rakabuming Raka's mouth in the middle of a debate over the vice presidential candidate last weekend, addressed to Mahfud MD.

Responding to this question, Mahfud said green inflation was related to a green economy or a circular economy. On the occasion to answer that, the Vice Presidential Candidate number three also referred to the Madurese as the first pioneer of a green economy or a circular economy. This is because the Madurese have processed the results of collecting waste and plastic.

According to Gibran, Mahfud's answer did not match the question he asked. The Mayor of Surakarta instead gave a gesture which was then considered by some to be minimal in ethics.

Gibran then explained his question about green inflation. He mentioned the yellow vest demonstration in France, which he said was dangerous and hoped would not happen in Indonesia.

The transition to green energy must be super careful, not to charge expensive RnD (Research and Development), this expensive transition process, to small communities. That's what I mean by green inflation Prof Mahfud," said Gibran explaining.

The term green inflation or green inflation is suddenly popular after the debate held by the General Elections Commission (KPU) at the Jakarta Convention Center (JCC), Sunday (21/4/2024). The term arose because the theme of the debate that was carried out that night was about sustainable development, natural resources, the environment, agrarians, communities and villages.

For the general public, green inflation may not be a commonly heard term. Whereas in the midst of human efforts to turn to environmentally friendly items, one of the concerns is the emergence of green inflation.

Citing BNP Paribas, green inflation refers to inflation related to public and private policies implemented as part of the green transition.

Meanwhile, Euronews called green inflation an increase in the price of goods as a result of environmental policies made to carry the transition to green energy.

The climate crisis has made many countries compete to implement a more environmentally friendly sustainable lifestyle. However, efforts to slow down the climate crisis appear to have its own challenges in the economic sector, namely the potential for rising material prices such as metals, minerals such as lithium, and other resources such as labor, energy and fuel used in the creation of technology and renewable energy projects.

Simply put, green inflation is a term that describes the rising price of environmentally friendly goods due to high demand for raw materials, but the supply is insufficient. Thus, the energy transition could have an impact on inflation and this is why green inflation is an undesirable consequence of wanting to switch to new and renewable energy (EBT).

Economic researcher from the Center for Strategic and International Studies (CSIS) Dandy Rafitrandi said that providing incentives to goods or technology for energy transitions can prevent green inflation.

"For Indonesia, one way that can reduce green inflation is that the government can facilitate how lower import rates for goods or technology for new and renewable energy are made cheaper, this is because we have a fairly high import rate for environmentally friendly goods," said Dandy, quoted by Antara.

Dandy explained that the trendgreen inflation does not only occur in Indonesia, but also at the global level and this is something that governments around the world are afraid of if the energy transition is not carried out carefully, it can cause excessive costs (cost), especially for consumers.

Meanwhile, Center of Food, Energy, and Sustainable Development INDEF researcher Dhenny Yuartha sees that the government has not been too ambitious in pursuing the target of accelerating the development of EBT. Thus, green inflation is still not a big issue in Indonesia.

Dhenny said the green inflation would be felt if the government began to eliminate fuel oil subsidies (BBM) in order to get to the green transition.

The former Minister of Trade (Mendag), Mari Elka Pangestu, also spoke about the green inflation which has become a public discussion. According to Elka, the green transition or shift from the use of fossil fuels or fossil fuel fuels of renewable energy requires more expensive costs. This green inflation then emerged in line with the increase in prices in sectors related to the green transition.

However, let Elka explain that green inflation can be suppressed in several ways, one of which is the carbon tax or carbon tax.

If we want people not to consume fuel fossils, the price should go up. Price should have gone up, but there is compensation for those who can't afford it or impose carbon tax. Well, that money is what is used to reduce costs or subsidiestainability," said the woman who once served as the Managing Director of World Bank Development Policy and Partnership.