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May 19, 2022

Wildfires, hot summer, boiling energy prices

Macro commentary by eToro analyst for Romania, Bogdan Maioreanu


Plans to cut carbon emissions are front and centre again for governments around the world as wildfires rage on the Balkan peninsula and California’s Dixie fire has been marked as the biggest in the state’s history. The smoke from West Coast fires has been spreading all the way to the Midwestern United States, with the haze triggering health warnings.

But while there is widespread support for the idea of cutting emissions, things can become complicated when it comes to paying for the cuts. Boris Johnson’s “net zero” agenda has been plunged into chaos, as the UK Treasury has apparently concluded that working class families would have to pay for most of the costs. The UK was the first major industrialised country in the world to sign the “net-zero” 2050 target into law in 2019 and has enshrined a 78% emissions cut by 2035 into law, the most ambitious plan in the world.

Meanwhile, in southeastern Europe, we see pictures of terrified people boarding a ferry in the eerie red light of an inferno in the forest surrounding the beach of the Greek island of Evia. Just days ago this was the site of happy vacation photos. Houses are on fire in the woods on the outskirts of the Greek capital, Athens. The historical site of Olympia, where the olympic torch of the recently closed olympic games in Japan was lit in 2020, is now surrounded by burning forests. Images straight out of a Hollywood movie are this summer’s harsh reality in Greece. Forest fires are also burning in Turkey, Albania and North Macedonia. It is a hot summer with temperatures in many places exceeding  42 degrees and hot winds fueling the forest fires, causing loss of life and property, and millions of euros in damages. Thousands of firefighters from multiple countries, including Romania, are fighting the blaze. These images are becoming the new normal.

The Greek Prime Minister Kyriakos Mitsotakis has blamed climate change for the devastating wildfires. The IPCC Climate Report (ipcc.ch) published today concludes that, “unless there are immediate, rapid, and large-scale reductions in greenhouse gas emissions, limiting warming to 1.5 degrees Celsius will be beyond reach. The climate we experience in the future depends on our decisions now.”

This summer the EU already adopted a package of initiatives with the ambitious goal of bringing net emissions down by 55% by 2030, to below 1990 levels. But this comes with some costs. One already visible adverse effect looks to be the increase in electricity prices due to a steep increase in the price of CO2 emissions certificates from 30 EUR/ton in January this year to over 50 EUR/ton now. The increase in oil prices and the scarcity of gas needed to fill the reserves depleted by the harsh winter (currently below normal levels0, is adding to the inflationary pressure. And the hot summer is heating up demand for and the prices of energy on the European market, creating worries for the regular consumer seeing his fuel, electrical and gas bills increasing.


Energy prices add to pandemic inflation worries


One of the issues with carbon taxes and other ideas under consideration as solutions to cut emissions is that prices have been going up in recent months as economies have reopened, due to pressures on supply chains and labour shortages.

In Romania, petrol and diesel prices at the pump have already reached 2018 levels.The spot market for electrical energy is quoting 1 Megawatt hour at historic maximums of over 200 EUR. On Friday the National Bank of Romania (NBR) acknowledged that the July increase in energy prices – of fuel, gas and electricity – is responsible for about 1% of the increase in the Consumer Price Index, pushing inflation above anticipated values.

It is clear that the Romanian economy is recovering but the NBR considers that this was due solely to domestic demand, with dynamic evolution in the retail, automotive and services to population sectors. Retail sales increased by 13.6% YoY in June, almost double the 7.5% expectations, but slowing down. Though optimistic that inflation will decrease in 2022 maintaining its transitory character, the NBR is warning that this decrease will be lower than initially anticipated but at the upper limit of the predicted interval.

eToro’s “Retail Investor Beat” survey, conducted by interviewing 6,000 individual investors in 12 countries, showed that the rising costs of goods and services appear to be influencing investor portfolios. Investors in Poland (55%), the US (51%), Romania (48%) and Germany (48%) saw inflation as a serious threat. In Romania, the state of the world economy (44%) ranked second and only a third of those surveyed mentioned the state of the Romanian economy as a threat to their investment portfolios.


Bogdan Maioreanu, eToro analyst and markets commentator, has over 20 years of experience in financial services and investments and a strong background in journalism. He held different Corporate Banking management positions in both Raiffeisen Bank and OTP Bank, before moving to business consultancy roles working for IBM Romania among others. Bogdan is an Executive MBA from Asebuss and Washington University.

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