Inflation is the enemy of the energy transition

It is well known that the energy transition will require massive investments (renewable energy production, decarbonisation of industry, thermal renovation of housing and buildings), with a very long time horizon and often with low financial returns. But at the same time, the energy transition will contribute to persistently higher inflation (due to strong demand for commodities and the high cost of green electricity), which will lead to persistently higher nominal and real interest rates. A major difficulty then emerges: in a more inflationary environment with higher interest rates, which the energy transition helps bring about, it is much more difficult to finance the long-term investments with a long time horizon and low financial return required for the same energy transition. More government assistance may not be an option if higher real interest rates lead to more restrictive fiscal policies.